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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission file number 0-22717
ACORN PRODUCTS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 22-3265462
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
390 W. NATIONWIDE BLVD., COLUMBUS, OHIO 43215
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (614) 222-4400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
------------------- -----------------------------------------
Common stock, par value $.001 per share Nasdaq SmallCap Market
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
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 5, 2002, the aggregate market value of our shares of common
stock (based on the last sale price of the common stock on the Nasdaq SmallCap
Market on that date) held by non-affiliates of the registrant was approximately
$990,669.60.
As of April 5, 2002, 6,078,265 shares of our common stock, par value
$.001 per share, were outstanding.
TABLE OF CONTENTS
DESCRIPTION PAGE
----------- ----
Part I
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 9
Item 3. Legal Proceedings.................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders.................................. 9
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ............... 10
Item 6. Selected Financial Data ............................................................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......................... 26
Item 8. Financial Statements and Supplementary Data ......................................... 27
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure................................................................. 27
Part III
Item 10. Directors and Executive Officers of the Registrant................................... 28
Item 11. Executive Compensation............................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 34
Item 13. Certain Relationships and Related Transactions....................................... 36
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................... 38
Signatures ..................................................................................... 41
Financial Statements................................................................................. F-1
Schedules to Financial Statements.................................................................... S-1
2
PART I
ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K and except as the context
otherwise may require, "Company", "we", "us", and "our" refers to Acorn
Products, Inc. and its subsidiaries UnionTools, Inc. ("UnionTools"), Hawthorne
Tools, Inc. (formerly H.B. Sherman Manufacturing Company, Inc.), and Pinetree
Tools, Inc. (formerly UnionTools Watering Products, Inc.). References to fiscal
years 1997, 1998, and 1999 reflect the fiscal year ended on the Friday closest
to July 31 of the applicable year (e.g., "fiscal 1999" reflects the fiscal year
ended July 30, 1999). References to transition year 1999 reflect the five-month
period ended December 31, 1999 ("transition 1999"). References to calendar year
1999 reflect the calendar year period ended December 31, 1999 ("calendar 1999").
References to fiscal years 2000 and 2001 reflect the fiscal year period ended on
December 31 of the applicable year. As used in this Annual Report on Form 10-K,
"Ace Hardware" refers to Ace Hardware Corporation, "Home Depot" refers to The
Home Depot, Inc., "Lowe's" refers to Lowe's Companies, Inc., "Mid-States" refers
to Mid-States Distributing Company, Inc., "Oklahoma Rig" refers to Oklahoma Rig
& Supply Company, Inc., "Orgill" refers to Orgill, Inc., "Sears" refers to
Sears, Roebuck & Company, "Tractor Supply" refers to Tractor Supply Company,
Inc., "Wal-Mart" refers to Wal-Mart Stores, Inc., and "White Cap" refers to
White Cap Pro-Contractor Supplier. Our primary registered trademarks include:
Landscape Gardener(R), Perfect Cut(R), Razor-Back(R), SNOFORCE(R), Union(R),
Union Pro(R), UnionTools(R), and Yard `n Garden(R). Craftsman(R)and Sears(R)are
registered trademarks of Sears. Scotts(R)is a registered trademark of The Scotts
Company.
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can identify such forward-looking statements by the
words "expects", "intends", "plans", "projects", "believes", "estimates", and
similar expressions. In the normal course of business, we, in an effort to help
keep our stockholders and the public informed about our operations, may from
time to time issue such forward-looking statements, either orally or in writing.
Generally, these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of such plans or strategies, or
projections involving anticipated revenues, earnings or other aspects of
operating results. We base the forward-looking statement on our current
expectations, estimates, and projections. We caution you that these statements
are not guarantees of future performance and involve risks, uncertainties, and
assumptions that we cannot predict. In addition, we have based many of these
forward-looking statements on assumptions about future events that may prove to
be inaccurate. Therefore, the actual results of the future events described in
the forward-looking statements in this Annual Report on Form 10-K or elsewhere,
could differ materially from those stated in the forward-looking statements.
Additional information concerning factors that could cause actual results to
differ materially from those in our forward-looking statements is contained
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations", as well as in our Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 18, 1997, as amended on
October 28, 1998, and on November 12, 1999, and as the same may be amended from
time to time.
GENERAL
Our primary business is associated with our UnionTools, Inc.
subsidiary. UnionTools was founded in 1890, and is a leading designer,
manufacturer, and marketer of branded non-powered lawn and garden products. Our
primary business is the manufacturing, marketing, and distribution of garden
tools through mass market and other distribution channels in the United States.
We also sell our products to professional and commercial end-users through
distributors and industrial supply outlets. Our principal products include long
handled tools (such as shovels, forks, rakes, and hoes), snow tools, posthole
diggers, wheeled goods (such as wheelbarrows and hand carts), striking tools,
cutting tools, hand tools, and repair handles. In order to focus on our core
tool business, in fiscal 2000, we sold assets related to the manufacturing and
sale of watering products. Our products bear well known brand names, including
Landscape Gardener(R), Perfect Cut(R), Razor-Back(R), SNOFORCE(R), Union(R),
Union Pro(R), UnionTools(R), Yard `n Garden(R), and, pursuant to a license
agreement, Scotts(R). In addition, we manufacture and supply private label
products for a variety of customers, including products sold to Sears under the
Craftsman(R) brand name and Ace Hardware under the Ace(R) brand name.
3
PRODUCTS
We sell non-powered lawn and garden tools, with our primary products
being long handle tools. We design, manufacture, source, and market tools in the
following product categories:
- Shovels, including round point and square point shovels;
garden/nursery shovels; roof rippers; irrigation and trenching
shovels; metal and plastic head snow shovels and pushers;
garden, nursery, and transplanting spades; drain and post
spades;
- Posthole Diggers and Augers;
- Scoops, including aluminum, plastic, and steel scoops; general
and special purpose scoop shovels;
- Rakes, including steel and plastic/steel lawn, leaf and shrub
rakes; plastic lawn, leaf and shrub rakes; bow head and level
head rakes; specialty rakes and brooms;
- Garden Tools, including garden and special purpose hoes;
weeders and scrapers; rotary and half-moon edgers; fruit
harvesters; bulb planters; small hand tools like trowels,
weeders, and cultivators;
- Cultivators and Forks, including forged cultivators and hooks
in different sizes and spread; spading forks, manure forks,
and special purpose forks;
- Striking Tools, including sledges and heavy hammers; axes,
mauls, and wedges; picks and mattocks; tampers; heavy bars;
bars, pullers, and rippers;
- Cutting Tools, including bypass and anvil hand pruners; hedge
and grass shears; bypass and anvil loppers and mini loppers;
tree pruners and saws;
- Wheeled Goods, including wheelbarrows and hand trucks; and
- Miscellaneous Products, including garden tool organizers,
repair handles, and edging tools.
We continue to develop new products and enhance existing products in
order to maintain and improve our position in the market. Our marketing and
engineering departments develop new products with assistance from independent
consultants.
Shovels and other steel head implements are primarily manufactured at
our Frankfort, New York facility. Forks, cutting tools, and other implements are
sourced worldwide. We process North American ash wood logs at our seven wood
mills and purchase fiberglass handles. Our Hebron, Ohio injection molding
facility manufactures some of the plastic components used in our products, such
as plastic snow shovel heads. In addition, this facility manufactures
proprietary custom molded products and component parts for other manufacturers
and distributors.
SALES AND MARKETING
The non-powered lawn and garden industry is mature and, due in part to
the low-cost nature of non-powered equipment, generally is non-cyclical. Demand
for non-powered lawn and garden tools generally is driven by the desire of
do-it-yourself, or "DIY", consumers to maintain and landscape residential
properties and by the need of industrial and farm professionals to acquire and
utilize high-quality tools that will aid them in efficiently completing their
jobs. We promote our products primarily through cooperative advertising and
where applicable, provide customers with merchandising plan-o-grams and custom
designed product displays complete with informative signs to assist at the
retail level.
We market our products primarily within the United States. Sales within
the United States comprised 98% of total sales in fiscal 2000 and fiscal 2001.
Our products are sold primarily through mass merchants, home centers, buying
groups, and distributors. We market our products through our own sales staff
with significant support from manufacturers' representative organizations.
4
Our sales force is comprised of regional managers and direct sales
professionals who regularly call on customers and manage manufacturers'
representatives who provide store level support to customers. These
manufacturers' representatives also sell lawn and garden products for other
manufacturers, but not products that compete with ours.
We also have an Internet web site at www.uniontools.com which provides
consumers with product information, dealer locations, and customer service
contacts. In addition, customers can download Company information, catalogs, and
line art and photographs for use in advertisements. The reference to our web
site address does not constitute incorporation by reference of the information
contained on our web site, so you should not consider any information on our web
site to be a part of this Annual Report on Form 10-K.
LICENSE AGREEMENTS, TRADEMARKS, AND PATENTS
Under a licensing agreement, we pay royalties to The Scotts Company and
therefore have the right to produce and market a line of garden tools bearing
the Scotts(R) trademark. We also have other licensing agreements that are not
material to our business.
We apply for patents and trademarks as applicable. Patents presently
owned by us are considered, in the aggregate, to be important to the conduct of
our business. Patent protection does not, however, deter competitors from
attempting to develop similar products. We are licensed under a number of
patents, none of which individually is considered material to our business. We
own a number of patents and trademarks registered in the United States Patent
and Trademark Office, as well as the patent and trademark offices of certain
other countries. These include the trademarks:
- Landscape Gardener(R);
- Perfect Cut(R);
- Razor-Back(R);
- SNOFORCE(R);
- Union(R);
- Union Pro(R);
- UnionTools(R); and
- Yard `n Garden(R).
Such registrations will continue as new patents and trademarks are developed or
acquired. We aggressively monitor and protect our brands against infringement
and other violations.
ACQUISITIONS AND DIVESTITURES
Effective December 31, 1999, our wheelbarrow joint venture was
dissolved. We feel that the wheelbarrow business is significant and have pursued
this venture on our own by focusing on worldwide sourcing and manufacturing to
improve our position in the wheelbarrow category.
During fiscal 2000, we discontinued the manufacture and sale of
watering products, and subsequently sold the related assets. These actions
represent the desire to dedicate our attention to core products: long handle
tools, cutting tools, striking tools, and wheeled goods.
COMPETITION
The markets for non-powered lawn and garden tools are highly
competitive, especially with respect to product pricing, product quality,
innovation in the design of new products, availability, customer service and
support, although the degree and nature of such competition vary by location and
product line. We are generally perceived by our customers to be the highest
quality provider and to have the best service levels in our industry. We also
enjoy strong brand name recognition. We believe that our commitment to customer
service, product innovation, and distribution systems position us well to
compete in the markets for non-powered lawn and garden tools.
5
We compete with various manufacturers and distributors. These
competitors also possess widely recognized brand names. With the merger of
Ames(R) and True Temper(R) in February 1999, the long handle tool market is now
primarily supplied by two domestic competitors - Ames(R) True Temper(R) and us.
Primary competitors in the cutting tools market are Fiskars(R) and Corona(R).
Our other product lines primarily compete with those of numerous small
manufacturers and distributors. In addition, we compete with various other
international manufacturers that export parts and finished goods to the United
States.
Our strategy requires that we continue to focus on customer service and
end-user needs, partly through the development and marketing of innovative new
products at competitive prices. We are also facing pricing pressures which, if
not mitigated by cost and expense reductions, may result in lower profitability
and could jeopardize our ability to grow or maintain market share. We believe
that our future success will depend upon our ability to produce and procure low
cost quality products and satisfy consumer tastes with respect to function and
design, and our ability to market such products in each applicable category at
competitive prices. No assurance can be given that we will be able to
successfully compete on the basis of these factors in the future.
CUSTOMERS
We sell our products through a variety of distribution channels
including:
- mass merchants such as Sears and Wal-Mart;
- home centers such as Home Depot and Lowe's;
- buying co-ops such as Ace Hardware;
- distributors and retailers such as Mid-States, Orgill, and
Tractor Supply; and
- industrial distributors such as Oklahoma Rig and White Cap.
Our largest customer is Sears, which includes Sears' Orchard Supply
division. We have been a continuous supplier to Sears for more than eighty years
and the primary supplier of long handle tools to Sears for more than fifty
years. Home Depot is another major customer and we have been a supplier to them
since 1997. Both Sears and Home Depot each account for over 10% of gross sales.
Our ten largest customers accounted for approximately 53% of gross sales during
calendar 1999, 53% of gross sales during fiscal 2000, and 57% of gross sales
during fiscal 2001. Most of our major customers are on electronic data
interchange (EDI) systems.
There can be no assurance that our sales to Sears, Home Depot, or other
major customers will continue at existing levels. A substantial reduction or
cessation of sales to Sears, Home Depot, or other major customers could have a
material adverse effect on our business, financial conditions, and results of
operations. In addition, we continue to face increasing pressures from retailers
with respect to pricing, cooperative advertising, and other rebates as the
market power of large retailers continues to grow. There can be no assurance
that such pressures will not have an adverse impact on our business, financial
condition, and results of operations.
DISTRIBUTION AND LOGISTICS
Customer orders are placed and processed centrally at our headquarters
in Columbus, Ohio and then allocated from our current stock of finished goods in
our distribution center in Columbus, Ohio. We use common carriers to ship
finished products from our facilities to customer delivery points. We continue
to reassess the structure and processes of our logistics program for
opportunities to reduce costs and improve customer service.
In fiscal 2000, we exited our western distribution facility in
conjunction with the sale of assets related to the manufacture and sale of
watering products. We have consolidated our distribution operations at the
Columbus Distribution Center.
In fiscal 2001, in order to increase efficiency and verify accuracy of
shipments, we added a product scanning software enhancement that utilizes RF
technology at our Columbus Distribution Center.
We utilize an information system that allows us to determine the status
of customer orders, process orders quickly, respond to customer inquiries, and
adjust shipping schedules to meet customer requirements. We believe
6
that these systems enable efficient order processing, expedite shipments, and
improve customer service. Prioritizing our efforts in distribution and logistics
has resulted in an improvement in service levels, and we consistently strive to
achieve On Time, In Full, Error Free ("OTIFEF") shipments.
MANUFACTURING AND SOURCING
We continue to strengthen our expertise and infrastructure. Our ongoing
efforts continued to improve both manufacturing and sourcing capabilities in
order to pursue the "world's low cost production" on all products and
components.
The production of non-powered lawn and garden tools is an extensive
manufacturing and assembly process that involves several different technologies,
including sawmill operations, wood finishing, heavy gauge forging, stamping,
grinding, metal painting, machining, and injection molding. Over the last 100
years, we have developed unique processes that enable us to perform these
complex tasks in an efficient manner.
In addition, we use our own injection molding facility to manufacture
proprietary custom molded products and component parts for other manufacturers
and distributors, as well as to manufacture certain plastic components used in
our own products.
Since many products and components are more competitively manufactured
outside our facilities, we began strategic sourcing of some product components
in China in 1999. During fiscal 2001, we continued to expand our sourcing
capabilities to include manufacturers in Europe, Asia, Mexico, and South
America, and dedicated resources to manage these relationships.
INFORMATION TECHNOLOGY
In fiscal 2000, we outsourced our information technology function to
Acxiom Corporation. Acxiom is a global leader in real-time customer data
integration offering innovative database marketing services, infrastructure
management, premier data content, and integration technologies. Founded in 1969,
Acxiom is currently headquartered in Little Rock, Arkansas, with operations in
the United States, the United Kingdom, France, Spain, and Australia.
This relationship has allowed us to tap into the substantial resources
and expertise of Acxiom that were unavailable to us on a standalone basis.
Acxiom has provided all information technology services support for us,
including server management, data network services, local area and wide area
networks, desktop support, help desk services, and all of our application
software support needs. We expect technology to provide significant efficiencies
and capabilities to us in servicing our customers in the future.
RAW MATERIALS
The primary raw materials used to produce our products are steel,
fiberglass, and ash wood.
- Steel. We purchase our steel requirements from several
domestic suppliers. The primary considerations in specialty
steel sourcing are metallurgy, price, and width. We have
strong and long-established relationships with our steel
suppliers and have never experienced sourcing problems. We do
not enter into long-term contracts for steel purchases. We
purchased the majority of our steel requirements from Liberty
Steel Products, Inc. and Shiloh Industries, Inc. in fiscal
2001.
- Fiberglass. The primary considerations for sourcing fiberglass
are production capacities, quality, and cost. Fiberglass is
used primarily in the production of high-end tools. We
purchased the majority of our fiberglass requirements from
Strongwell in fiscal 2001.
- Ash Wood. Ash is the ideal hardwood for handles because it is
lightweight, flexible, and splinters less than most hardwoods.
We employ wood specialists who maintain relationships with
numerous log suppliers and are responsible for sourcing our
ash needs. We believe that sufficient quantities of ash will
continue to be available. Each of our sawmills typically
maintains a five to eight week inventory
7
of ash to cover occasional short-term fluctuations in supply.
We import wood handles for some of our promotionally priced
products, such as rakes and hoes. Imported wood is less
expensive than ash and is of sufficient quality for tools
(other than shovels) designed for opening-price-point levels.
Our sawmills were "Green" certified in fiscal 2001. "Green
Certification" is to ensure that forests are managed in an
ecologically sound, socially responsible, and economically
viable manner.
We have several suppliers for most of our raw materials. There can be
no assurance, however, that we will not experience shortages of raw materials or
of components essential to our production processes or be forced to seek
alternative sources of supply. In addition, there can be no assurance that
prices for such materials will remain stable. Any shortages of raw materials may
result in production delays and increased costs, which could have a material
adverse effect on our business, financial condition, and results of operations.
ASSOCIATES
As of December 31, 2001, we employed approximately 500 people
(including seasonal associates), approximately 400 of whom were paid on an
hourly basis. Our staffing requirements fluctuate during the year due to the
seasonal nature of sales in the lawn and garden industry, and approximately 75
to 100 additional seasonal associates are utilized during our busy season. The
average tenure of our hourly associates is about 10 years. Hourly associates at
the Columbus, Ohio distribution center and Delaware, Ohio sawmill are
represented by the International Association of Machinists ("IAM"). Our contract
with the IAM expires in April 2003. The International Brotherhood of
Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers ("IBB")
represents the hourly associates in Frankfort, New York. During fiscal 2001, we
successfully reached an agreement and extended our contract with the IBB, which
now expires in June 2004. The International Brotherhood of Teamsters ("IBT")
represents hourly associates at the Portville, New York sawmill. Our contract
with the IBT expires in August 2002. The Glass, Molders, Pottery, Plastics &
Allied Workers International Union AFL-CIO ("AGM") represents hourly associates
at our Hebron, Ohio injection molding facility. Our contract with the AGM
expires in March 2003. No other associates are represented by unions.
We have not been subject to a strike or work stoppage in over 20 years,
and management believes that our relationships with associates, the IAM, the
IBB, the IBT, and the AGM are good. There can be no assurance, however, that
future labor contract negotiations will be successful or occur without work
stoppages or strikes. A prolonged work stoppage or strike at any of our
facilities could have a material adverse effect on our business, financial
condition, and results of operations.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, and local environmental laws,
ordinances, and regulations governing, among other things, emissions to air,
discharge to waters, and the generation, handling, storage, transportation,
treatment, and disposal of hazardous substances and wastes. We have made, and
will continue to make, expenditures to comply with these environmental
requirements and regularly review our procedures and policies for compliance
with environmental laws. We also have been involved in remediation actions with
respect to certain facilities. The amounts thus far expended for such compliance
and remediation activities have been minimal. Current conditions and future
events such as changes in existing laws and regulations may, however, give rise
to additional compliance or remediation costs that could have a material adverse
effect on our business, financial condition, or results of operations.
Furthermore, as is the case with manufacturers in general, if a release of
hazardous substances occurs on or from any of our properties or associated
offsite disposal location, or if contamination from prior activities is
discovered at any of our properties, we may be held liable and the amount of
such liability could be material.
At December 31, 2001, we believe that we have no significant
outstanding environmental issues.
8
ITEM 2. PROPERTIES
Our headquarters and executive offices, located in Columbus, Ohio,
occupy approximately 33,000 square feet in a facility that we lease. As of
December 31, 2001, we owned or leased the following other principal properties
for use in our business as set forth below:
Location Owned or Leased Square Feet
-------- --------------- -----------
DISTRIBUTION FACILITIES:
Columbus, Ohio Leased 179,200
Columbus, Ohio Leased 82,000
MANUFACTURING FACILITIES:
Frankfort, New York(1) Owned 263,710
Hebron, Ohio Owned 107,200
SAWMILLS:
Frankfort, New York(1) Owned 59,490
Delaware, Ohio Owned 51,100
Shippensburg, Pennsylvania Owned 15,000
Lebanon, Kentucky Owned 13,500
Cookeville, Tennessee Owned 12,100
Portville, New York Owned 9,000
Huntington, Indiana Owned 7,600
(1) Our 351,000 square foot Frankfort, New York facility
is comprised of a manufacturing facility, a sawmill,
and approximately 27,800 square feet of office space.
We believe that our existing manufacturing facilities, distribution
centers, and sawmills are adequate for the current level of operations. We
believe that our manufacturing facilities have sufficient excess capacity to
accommodate a 35% to 50% increase in the current level of output.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in routine litigation incidental to
the conduct of business. We believe that no currently pending litigation to
which we are a party will have a material adverse effect on our financial
position or results of operations.
In April 1999, our inactive subsidiary, V.H.G. Tools, Inc. ("VHG") and
predecessor companies, were joined by Midwest Products, Inc., the defendant, in
a product liability lawsuit filed in New Jersey Superior Court, Burlington
County, New Jersey. Plaintiff's and Midwest's allegations do not appear to be
supported by evidence, but if plaintiff's and Midwest's allegations against VHG
are proven, liability could be substantial. We believe that any compensatory
damages, if awarded, would be covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the Nasdaq National Market in June
1997 under the symbol "ACRN". On December 17, 1999, our common stock began
trading under the same symbol on the Nasdaq SmallCap Market. The following table
sets forth the high and low sales prices of the common stock on the Nasdaq
SmallCap Market during the periods indicated:
Market Price
------------------------
Fiscal (Calendar) Period High Low
------------------------ ---- ---
2000: First Quarter $2.75 $0.94
Second Quarter 1.69 1.00
Third Quarter 1.50 0.94
Fourth Quarter 1.13 0.25
2001: First Quarter $1.00 $0.38
Second Quarter 1.45 0.41
Third Quarter 0.82 0.36
Fourth Quarter 0.58 0.33
2002: First Quarter $0.80 $0.35
Second Quarter 0.61 0.60
(through April 9, 2002)
As of April 5, 2002, the approximate number of record holders of the
common stock was 23. The closing sales price of our common stock on April 5,
2002 was $0.60 per share.
We have never paid, and currently do not intend to pay, any cash
dividends on our common stock. We are a holding company with no business
operations of our own. Therefore, we are dependent upon payments, dividends, and
distributions from UnionTools for funds to pay dividends to our stockholders.
UnionTools currently intends to retain any earnings for support of its working
capital, repayment of indebtedness, capital expenditures, and other general
corporate purposes. UnionTools has no current intention of paying dividends or
making other distributions to us in excess of amounts necessary to pay our
operating expenses and taxes. Our revolving credit facility contains
restrictions on UnionTools' ability to pay dividends or make payments or other
distributions to us. The credit facility provides that, unless UnionTools meets
certain financial tests, it may not declare any dividends or make any other
payments or distributions to us except for amounts necessary to pay our
operating expenses up to $250,000 per month and to pay our federal and state
income taxes.
10
ITEM 6. SELECTED FINANCIAL DATA
We have derived the selected consolidated financial data for fiscal
1997, fiscal 1998, fiscal 1999, fiscal 2000, and fiscal 2001 from our audited
consolidated financial statements. We have derived the selected consolidated
financial data for calendar 1999 from our unaudited consolidated financial
statements. Certain amounts from prior years have been reclassified to conform
to the fiscal 2001 presentation. The selected consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the consolidated financial statements and
notes thereto, and the other financial information included elsewhere in this
Annual Report on Form 10-K.
Fiscal Year Ended (except calendar year ended 12/31/1999)
(In thousands, except per share data)
---------------------------------------------------------------------------------
08/01/1997 07/31/1998 07/30/1999 12/31/1999 12/31/2000 12/31/2001
------------ ------------ ------------- -------------------------- -------------
(Unaudited)
STATEMENT OF OPERATIONS DATA:
Net sales $105,303 $112,667 $117,431 $118,413 $116,591 $93,482
Cost of goods sold 78,274 87,389 97,166 102,376 94,464 70,404
------------ ------------ ------------- ------------- ------------ -------------
Gross profit 27,029 25,278 20,265 16,037 22,127 23,078
Selling, general and 18,293 20,033 22,651 23,448 22,052 17,329
administrative expenses
Interest expense 7,176 2,560 3,401 4,097 6,947 5,895
Amortization of intangibles 837 917 1,087 1,091 974 876
Asset impairment(6) 0 0 0 2,800 4,402 14,130
Other expenses, net(1) 1,548 259 3,321 5,080 1,640 443
------------ ------------ ------------- ------------- ------------ -------------
Income (loss) from continuing (825) 1,509 (10,195) (20,479) (13,888) (15,595)
operations before income taxes
Income taxes 134 230 145 755 80 84
------------ ------------ ------------- ------------- ------------ -------------
Income (loss) from continuing (959) 1,279 (10,340) (21,234) (13,968) (15,679)
operations
Loss from discontinued
operations(2) (9,920) 0 (936) (921) 0 0
------------ ------------ ------------- ------------- ------------ -------------
Net income (loss) ($10,879) $1,279 ($11,276) ($22,155) ($13,968) ($15,679)
============ ============ ============= ============= ============ =============
Income (loss) from continuing ($0.48) $0.20 ($1.64) ($3.45) ($2.31) ($2.59)
operations per share
(basic and diluted)
Weighted average number of 1,985,758 6,464,105 6,313,527 6,146,617 6,057,360 6,062,224
shares outstanding
OTHER DATA:
Gross margin 25.7% 22.4% 17.3% 13.5% 19.0% 24.7%
EBITDA(3)(4) $9,840 $7,939 ($1,189) ($7,464) $2,720 $9,045
BALANCE SHEET DATA:
Working capital from $26,909 $30,645 $15,118 $10,702 $5,690 $5,156
continuing operations(5)
Total assets 98,890 112,633 108,867 105,073 81,881 61,152
Total debt 18,935 32,317 38,363 49,387 41,942 40,565
Stockholders' equity 63,224 64,351 50,190 36,964 22,310 6,062
11
(1) In fiscal 1997, we recognized other expense of $950,000 from the
write-off of certain capitalized bank fees incurred in connection with
our previous bank credit facility.
In fiscal 1999, we recognized expenses related to strategic
transactions of $994,000, consolidation of manufacturing facilities of
$993,000, and consolidation of watering products operations of
$355,000.
In calendar 1999, we recognized expenses related to management
restructuring charges, including severance and relocation expenses, of
$668,000.
In fiscal 2000, we recognized a $1.2 million loss in connection with
the sale of certain assets related to the manufacturing and sale of the
watering products and other expenses of $407,821 in connection with
management restructuring charges, including severance and relocation
expenses.
In fiscal 2001, expenses of $545,000 were recognized related to
evaluating strategic alternatives and transactions.
(2) Represents the loss from the discontinued VSI and McGuire-Nicholas
operations, including a loss of $8.4 million in fiscal 1997 incurred in
connection with the sale of substantially all of the assets of
McGuire-Nicholas.
In fiscal and calendar 1999, we incurred a loss from discontinued
operations primarily due to a workers' compensation adjustment of
$758,000 related to divested operations and sales tax obligation of
$128,000 related to the sale of McGuire-Nicholas.
(3) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation, asset impairment, and
amortization. EBITDA is presented because it is a widely accepted
financial indicator used by certain investors and analysts to analyze
and compare companies on the basis of operating performance. EBITDA is
not intended to represent cash flows for the period, nor has it been
presented as an alternative to income from continuing operations as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with accounting principles generally accepted in the United
States.
(4) In fiscal 1999, EBITDA would have been approximately $6.5 million
excluding the effect of the following unusual charges: manufacturing
consolidation ($1.3 million), strategic transaction costs ($1.0
million), management restructuring charges ($0.7 million), bad debts
($0.7 million), inventory obsolescence ($2.2 million), workers'
compensation ($0.4 million), and expenses related to the temporary loss
of logistical control ($1.2 million).
In fiscal 2000, EBITDA would have been approximately $7.3 million
excluding the effect of the following unusual charges: operating
inefficiencies resulting from delays in the manufacturing consolidation
($3.0 million), loss on the sale of assets related to the manufacturing
and sale of watering products ($1.2 million), and management
restructuring charges ($0.4 million).
In fiscal 2001, EBITDA would have been approximately $8.6 million
excluding the effect of the following unusual charges: $2.0 million
favorable effect of the termination of the post-retirement medical plan
offset by the liquidation of a key customer ($0.6 million), strategic
transaction costs ($0.5 million), and workers' compensation ($0.5
million).
(5) Represents current assets less current liabilities (excluding the
Acquisition Facility and the Junior Participation Term Loan Note).
(6) An asset impairment charge of $14.1 million was recognized in fiscal
2001 based on management review of the recoverability of goodwill given
the completion of our evaluation of strategic alternatives and our
agreement to enter into a transaction which valued the common stock of
the Company at $1 per share. There were asset impairment charges of
$4.4 million in fiscal 2000 and $2.8 million in transition 1999 based
on our review of the net realizable value on certain long-lived assets
(primarily goodwill) related to the manufacture and sale of watering
products.
12
We have derived the selected consolidated financial data for transition
year 1999 and for the comparable period of 1998 from our audited consolidated
financial statements. We included these references because we changed from a
fiscal year end (the Friday closest to July 31 of the applicable year) to a
calendar year end after we filed our Annual Report on Form 10-K for fiscal 1999.
The 1999 transition year is the five-month period from July 31, 1999 to December
31, 1999. The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations", the consolidated financial statements and notes thereto, and the
other financial information included elsewhere in this Annual Report on Form
10-K.
Five-Month Period Ended
(In thousands,
except per share data)
-------------------------------------
1/3/1999 12/31/1999
----------------- ------------------
(Unaudited)
STATEMENT OF OPERATIONS DATA:
Net sales $ 36,729 $ 37,711
Cost of goods sold 28,517 33,727
----------- -----------
Gross profit 8,212 3,984
Selling, general and 8,173 8,970
administrative expenses
Interest expense 1,209 1,905
Amortization of intangibles 444 448
Asset impairment 0 2,800
Other expenses, net 1,010 2,769
----------- -----------
Loss from continuing operations (2,624) (12,908)
before income taxes
Income taxes (benefit) (527) 83
----------- -----------
Loss from continuing operations (2,097) (12,991)
Loss from discontinued operations (165) (150)
----------- -----------
Net loss ($ 2,262) ($ 13,141)
=========== ===========
Loss from continuing operations ($ 0.32) ($ 2.16)
per share (basic and diluted)
Weighted average number of 6,464,105 6,023,174
shares outstanding
OTHER DATA:
Gross margin 22.4% 10.6%
EBITDA $ 311 ($ 5,969)
BALANCE SHEET DATA:
Working capital from $ 28,067 $ 10,702
continuing operations
Total assets 114,893 105,073
Total debt 37,046 49,387
Stockholders' equity 62,090 36,964
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
selected consolidated financial data, our consolidated financial statements and
the notes thereto, and the other financial information included elsewhere in
this Annual Report on Form 10-K, as well as the factors set forth under the
caption "Forward-Looking Statements" below.
OVERVIEW
We are a leading manufacturer and distributor of non-powered lawn and
garden tools. We are a holding company with no business operations of our own.
Our only material asset is all of the outstanding capital stock of UnionTools,
Inc.
Founded in 1890, we completed an initial public offering in 1997. We
used a portion of the proceeds of such offering to repay debt associated with a
1988 leveraged buyout. Since 1991, we have implemented a business strategy
designed to transform us from a manufacturing-oriented industrial company into a
marketing-oriented consumer products and service company. The central elements
of our approach include a market segmentation strategy based primarily on brand
management and a merchandising strategy based on attractive and informative
product displays and labeling. We have structured the organization toward and
have maintained sufficient inventory levels such that we deliver on time and in
full to our customers on over 95% of our shipments.
In fiscal 2000, we focused on strategically rationalizing our business
model to restore profitability. This included discontinuing the manufacture and
sale of watering products and an emphasis on profitable products and
relationships with customers. Since fiscal 2000, improvements in our forecasting
and planning processes, we believe, have allowed us to consistently provide the
highest service levels in the industry.
We experienced manufacturing inefficiencies during the first half of
fiscal 2000, primarily due to the effects of consolidating manufacturing
facilities in the second half of calendar 1999. Those issues have now been
addressed and resolved, with the focus in fiscal 2001 on cost savings
opportunities. We have also decreased the cost of our logistical processes,
reducing the number of distribution locations from three to one in Columbus,
Ohio. These reductions were accomplished during fiscal 2000 with minimal effect
on service level performance. The net result is that we believe that we have
been able to correct the problems that arose in calendar 1999 and contributed to
the operating losses during that time period.
The discontinuation of watering products and cost management on sales
support and other overhead expenses allowed us to lower our selling, general and
administrative costs in fiscal 2000. This was partially offset late in the year
by our decision to outsource all information system functions and support to
Acxiom Corporation. The transition was completed in fiscal 2001, with no
disruption to our business and resulting in a strengthened technology platform
and resources available to us.
In fiscal 2001, we were able to see the results of our cost savings
efforts across all areas of the business. Margins were up and overhead costs
were down versus the prior year. We were able to make favorable changes in the
employee benefit programs, including the termination of certain retiree medical
and life benefits. During fiscal 2001, we were able to leverage our strong
relationship with employees to negotiate one-year extensions of our current
agreements at our injection molding and distribution center operations, in
addition to a three-year contract with the union representing the workers at our
primary manufacturing facility in Frankfort, New York.
While we made significant progress in fiscal 2001 in terms of improved
operating profitability primarily through cost reductions, this was dampened due
to the effect of the ongoing retail consolidation within our industry. We had
several top customers file for bankruptcy or liquidation during fiscal 2001,
with the resulting loss of business and bad debt negatively affecting our
financial performance.
During fiscal 2001, we were able to extend our credit facility through
April 2002. The extension was expensive in terms of both fees and the
requirement that we explore strategic alternatives for the sale or disposition
of the Company or its assets. During the second half of fiscal 2001, we
evaluated many strategic alternatives, including the possibility of an outright
sale of the Company. However, at the end of the process, we chose to pursue the
alternative that clearly provided the highest return to stockholders. In
February 2002, we announced our
14
intention to pursue a recapitalization transaction with our majority
stockholders. In essence, the recapitalization provides that the majority
stockholders would invest up to $10 million in cash and convert $8 million of
debt into an equity interest in the Company. Additionally, upon completion of
the recapitalization, the holders of our common stock, other than the principal
holders and their affiliates, would receive rights (at the rate of 350 rights
per 100 shares of our common stock held as of a record date to be established)
to purchase one share of our common stock at $1.00 per share for each right
received. In addition to the reduction of our debt obligations to our majority
stockholders, we believe this transaction will also provide us with the ability
to execute a new credit facility on terms more favorable to us in the timeframe
required under our existing credit agreement.
As of April 15, 2002, we have been unable to obtain a financing
commitment to support the recapitalization transaction or to execute a
definitive purchase agreement. As a result, we are currently in default of our
existing credit facility. While we are working diligently to complete the
recapitalization and the subsequent new credit facility, though possibly in a
form different than that outlined in our February 2002 announcement, and thereby
cure the default, we believe our existing bank group will continue to fund our
operations. However, there can be no assurance as to when and if an agreement
will be reached.
If we are unable to reach an agreement, it will impact our principal
sources of liquidity and our ability to meet future cash requirements. This
shortfall could force us to consider alternatives that may include negotiating
further amendments to our existing credit facility, attempting to obtain loans
from third party sources, asset sales, a sale of the Company, or other remedies
appropriate to the circumstances.
15
RESULTS OF OPERATIONS
The following table sets forth certain components of our consolidated
statement of operations data expressed as a percentage of net sales:
Fiscal (Calendar) Year Ended (12 months)
-----------------------------------------------------------
07/30/1999 12/31/1999 12/31/2000 12/31/2001
------------- ------------- ------------- -------------
(Unaudited)
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 82.7% 86.5% 81.0% 75.3%
------------- ------------- ------------- -------------
Gross profit 17.3% 13.5% 19.0% 24.7%
Selling, general and 19.3% 19.8% 18.9% 18.6%
administrative expenses
Interest expense 2.9% 3.4% 6.0% 6.3%
Amortization of intangibles 0.9% 0.9% 0.8% 0.9%
Asset impairment 0.0% 2.4% 3.8% 15.1%
Other expenses, net 2.8% 4.3% 1.4% 0.5%
------------- ------------- ------------- -------------
Loss from continuing operations -8.7% -17.3% -11.9% -16.7%
before income taxes
Income taxes 0.1% 0.6% 0.1% 0.1%
------------- ------------- ------------- -------------
Loss from continuing operations -8.8% -17.9% -12.0% -16.8%
Loss from discontinued -0.8% -0.8% 0.0% 0.0%
------------- ------------- ------------- -------------
operations
Net loss -9.6% -18.7% -12.0% -16.8%
============= ============= ============= =============
Five-Month Period Ended
-------------------------------------
1/3/1999 12/31/1999
---------------- ----------------
(Unaudited)
Net sales 100.0% 100.0%
Cost of goods sold 77.6% 89.4%
---------------- ----------------
Gross profit 22.4% 10.6%
Selling, general and 22.3% 23.8%
administrative expenses
Interest expense 3.3% 5.1%
Amortization of intangibles 1.2% 1.2%
Asset impairment 0.0% 7.4%
Other expenses, net 2.7% 7.3%
---------------- ----------------
Loss from continuing operations -7.1% -34.2%
before income taxes
Income taxes (benefit) -1.4% 0.2%
---------------- ----------------
Loss from continuing operations -5.7% -34.4%
Loss from discontinued operations -0.5% -0.4%
---------------- ----------------
Net loss -6.2% -34.8%
================ ================
16
FISCAL 2001 COMPARED TO FISCAL 2000
Net Sales. Net sales decreased 19.8%, or $23.1 million, to $93.5
million for fiscal 2001 compared to $116.6 million in fiscal 2000. The decline
in net sales was driven by a drop in the sale of long handled tools, caused by
soft demand during the spring season and the credit condition of a few key
customers, limiting our ability to ship their full demand in 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 effected 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
fiscal 2001.
Gross Profit. Gross profit increased 4.3%, or $1.0 million, to $23.1
million for fiscal 2001 compared to $22.1 million in fiscal 2000. Gross margin
increased to 24.7% for fiscal 2001 from 19.0% for fiscal 2000. The increase in
gross profit was due to cost improvements partially offset by lower sales volume
and the related loss of overhead absorption from lower production levels.
Included in the cost improvements are the net favorable effect of changes in
certain employee benefit plans, including the termination of certain retiree
medical and life benefits, which resulted in a one-time gain of $2.0 million
less related expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $4.7 million, or 21.4%, to $17.3 million for
fiscal 2001 versus $22.1 million in fiscal 2000. As a percentage of net sales,
selling, general and administrative expenses decreased to 18.6% in fiscal 2001
as compared to 18.9% in fiscal 2000. The decrease in selling, general and
administrative expenses is due to cost reductions in sales support costs and
administrative overhead in response to lower sales volume, including the effect
of the discontinuation of watering products.
Operating Profit. Operating profit (gross profit less selling, general
and administrative expenses) increased $5.6 million, to a profit of $5.7 million
for fiscal 2001 compared to a profit of $0.1 million in fiscal 2000. The
increase in operating profit was primarily due to the items discussed above.
Interest Expense. Interest expense decreased $1.0 million, to $5.9
million for fiscal 2001 compared to $6.9 million in the comparable period of
fiscal 2000. The decrease was primarily due to lower interest rates and debt
levels partially offset by costs incurred to extend our credit facility.
Amortization of Goodwill. Amortization of goodwill decreased $0.1
million, or 10.1%, to $0.9 million for fiscal 2001 compared to $1.0 million in
fiscal 2000. The decrease in amortization is due to the lower amount of goodwill
to be amortized, as a result of asset impairment charges recognized in fiscal
2000.
Asset Impairment Charge. An asset impairment charge of $14.1 million
was recognized in fiscal 2001 based on management review of the recoverability
of goodwill given the completion of our evaluation of strategic alternatives and
our agreement to enter into a transaction which valued the common stock of the
Company at $1 per share. There was an asset impairment charge of $4.4 million in
fiscal 2000 based on our review of the net realizable value on certain
long-lived assets (primarily goodwill) related to the manufacture and sale of
watering products.
Other Expenses, Net. Other expenses decreased $1.2 million, or 73.0%,
to $0.4 million for fiscal 2001 compared to $1.6 million in fiscal 2000. The
improvement is primarily due to the absence of costs associated with the sale of
certain assets related to the manufacturing and sale of watering products. In
fiscal 2001, we spent $0.5 million, primarily in financial consulting and legal
fees, to pursue and evaluate strategic alternatives leading up to the
recapitalization transaction.
Loss Before Income Taxes. Loss before income taxes deteriorated to a
loss of $15.6 million for fiscal 2001 compared to a loss of $13.9 million in
fiscal 2000. The deterioration was due primarily to the goodwill writedown
discussed above.
Net Loss. Net loss was $15.7 million for fiscal 2001 compared to a net
loss of $14.0 million in fiscal 2000. Net loss per share was $2.59 (basic and
diluted) for fiscal 2001 based on a weighted average number of
17
shares outstanding of approximately 6.1 million, compared to net loss per share
of $2.31 (basic and diluted) for fiscal 2000, based on a weighted average number
of shares outstanding of approximately 6.1 million.
FISCAL 2000 COMPARED TO CALENDAR 1999
Net Sales. Net sales decreased 1.5%, or $1.8 million, to $116.6 million
for fiscal 2000 compared to $118.4 million in calendar 1999. The decline in net
sales was caused primarily by lower watering product sales. In the third quarter
of fiscal 2000, we sold assets related to the manufacturing and sale of watering
products. The sales of long handled tools were slightly lower than a year ago
due to the rationalization of unprofitable customers and products.
Gross Profit. Gross profit increased 38.0%, or $6.1 million, to $22.1
million for fiscal 2000 compared to $16.0 million in calendar 1999. Gross margin
increased to 19.0% for fiscal 2000 compared to 13.5% for calendar 1999. The
increase in gross profit and margin were driven by several factors: improved
customer service levels; shipment fulfillment processes; and consolidation of
distribution centers. In addition, we continued to focus on cost reductions and
improvements in logistical and manufacturing process controls to drive year to
year gains in fiscal 2000. An emphasis on profitable products and relationships
with customers has also favorably influenced margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.3 million, or 6.0%, to $22.1 million for
fiscal 2000 versus $23.4 million in calendar 1999. As a percentage of net sales,
selling, general and administrative expenses decreased to 18.9% for fiscal 2000
as compared to 19.8% in calendar 1999. The improvement reflects the elimination
of sales and administrative support for the sale of watering products, as well
as, productivity gains and cost reductions, including lower sales expenses and a
reduction in personnel.
Operating Income (Loss). Operating income (gross profit less selling,
general and administrative expenses) improved $7.5 million, to a profit of $0.1
million for fiscal 2000 compared to a loss of $7.4 million in calendar 1999. The
improvement in operating income was primarily due to the items discussed above.
Interest Expense. Interest expense increased $2.8 million, or 69.6%, to
$6.9 million for fiscal 2000 compared to $4.1 million in calendar 1999. The
increase in interest expense was primarily due to higher market rates (LIBOR)
and borrowing costs, as a result of the most current amendment to our loan
agreement, and higher borrowing levels during the year.
Amortization of Goodwill. Amortization of goodwill decreased 10.7% to
$1.0 million for fiscal 2000 compared to $1.1 million in calendar 1999. The
reduction in amortization is due to the lower amount of goodwill to be
amortized, resulting from the asset impairment charges recognized during these
time periods.
Asset Impairment. An asset impairment charge of $4.4 million was
recognized in fiscal 2000 and a similar charge of $2.8 million was recorded in
calendar 1999. We recognized these charges based on our review of the net
realizable value on certain long-lived assets related to the manufacture and
sale of watering products.
Other Expenses, Net. Other expenses decreased $3.5 million, or 67.7%,
to $1.6 million for fiscal 2000 compared to $5.1 million in calendar 1999. The
improvement is primarily due to the absence of costs associated with the
manufacturing consolidation program that we executed in calendar 1999 and lower
management restructuring costs. In fiscal 2000, the improvements were partially
offset by a loss incurred on the sale of certain assets related to the
manufacturing and sale of watering products. For purposes of comparison, all
costs associated with management restructuring have been classified in other
expenses.
Loss from Continuing Operations Before Income Taxes. Loss from
continuing operations before income taxes decreased $6.6 million to a loss of
$13.9 million in fiscal 2000 compared to a loss of $20.5 million in calendar
1999. The decreased loss was primarily due to the items discussed above.
Net Loss. Net loss decreased $8.2 million, or 37.0%, to $14.0 million
for fiscal 2000 compared to $22.2 million in calendar 1999. Net loss per share
(basic and diluted) was $2.31 for fiscal 2000, based on a weighted average
number of shares outstanding of approximately 6.1 million, compared to net loss
per share of
18
$3.60 (basic and diluted) for calendar 1999, based on a weighted average number
of shares outstanding of approximately 6.1 million.
TRANSITION 1999 COMPARED TO THE COMPARABLE PERIOD IN 1998
Net Sales. Net sales increased $1.0 million, or 2.7%, to $37.7 million
in transition 1999 compared to $36.7 million in the comparable period of 1998.
The increase in net sales was caused by higher gross sales of long handled
tools, partially offset by lower gross sales of molded products and an increase
in allowances and deductions. Strong customer demand, including gains from
reduction of order backlog, drove the increase in sales of long handled tools.
The decrease in gross sales of molded products was primarily due to the loss of
one significant customer. The increase in allowances and deductions was
primarily a result of continued difficulties in manufacturing and logistical
control.
Gross Profit. Gross profit decreased 51.5%, or $4.2 million, to $4.0
million in transition 1999 compared to $8.2 million in the comparable period of
1998. Gross margin decreased to 10.6% in transition 1999 from 22.4% in the
comparable period of 1998. The declines in gross profit and margin were driven
primarily by several factors. Logistical and manufacturing control issues
identified in fiscal 1999 continued to negatively affect customer service levels
and related costs and higher distribution and freight expenses. Unfavorable
absorption variances were incurred due to lower production levels resulting from
difficulties related to the manufacturing consolidation and due to the timing of
expense recognition resulting from changing our fiscal year to a calendar year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.8 million to $9.0 million for transition
1999 compared to $8.2 million in the comparable period of 1998. As a percentage
of net sales, selling, general and administrative expenses increased to 23.8% in
transition 1999 from 22.3% in the comparable period of 1998. The increase was
due to investments in marketing related activities and information system
infrastructure and associate related expenses, including workers' compensation
and group benefit costs.
Operating Income (Loss). Operating income (gross profit less selling,
general and administrative expenses) decreased $5.0 million, to a loss of $5.0
million for transition 1999 from breakeven for the comparable period of 1998.
The decrease in operating income was primarily due to the items discussed above.
Interest Expense. Interest expense increased 57.6%, or $0.7 million, to
$1.9 million for transition 1999 compared to $1.2 million in the comparable
period of 1998. The increase in interest expense was due to higher debt levels
and interest rates, consistent with the change in terms resulting from the
amendment of our credit agreement, effective October 28, 1999.
Amortization of Goodwill. Amortization of goodwill remained flat at
$0.4 million in transition 1999 and in the comparable period of 1998.
Asset Impairment. An asset impairment charge of $2.8 million was
recognized in transition 1999 based on our review of the net realizable value on
certain long-lived assets. There was no asset impairment charge in the
comparable period of 1998.
Other Expenses, Net. Other net expenses including special charges
increased to $2.8 million in transition 1999 from $1.0 million in the comparable
period of 1998. The increase was due primarily to costs associated with our
manufacturing consolidation program and management restructuring costs offset by
the absence of acquisition related costs incurred in the comparable period of
1998. The cost of our manufacturing consolidation was higher than anticipated
due to inefficiencies in initial production, including training, scrap, and
machine repair costs.
Loss from Continuing Operations Before Income Taxes. Loss from
continuing operations before income taxes increased $10.3 million to a loss of
$12.9 million in transition 1999 compared to a loss of $2.6 million in the
comparable period of 1998. The increased loss was primarily due to the items
discussed above.
Net Loss. Net loss was $13.1 million in transition 1999 compared to a
loss of $2.3 million in the comparable period of 1998. Net loss per share (basic
and diluted) was $2.18 in transition 1999, based on a weighted average number of
shares outstanding of approximately 6.0 million, compared to net loss per share
of
19
$0.35 (basic and diluted) in the comparable period of 1998, based on a weighted
average number of shares outstanding of approximately 6.5 million.
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, our sales tend to be greater during those months. As a result, our
operating results depend significantly on the spring selling season. To support
this sales peak, we must anticipate demand and build inventories of finished
goods throughout the fall and winter. Accordingly, our levels of raw materials
and finished goods inventories tend to be at their highest, relative to sales,
during the fourth quarter of the fiscal year. These factors increase variations
in our quarterly results of operations and potentially expose us to greater
adverse effects of changes in economic and industry trends. Moreover, actual
demand for our products may vary substantially from the anticipated demand,
leaving us with excess inventory or insufficient inventory to satisfy customer
orders.
Weather is the single most important factor in determining market
demand for our products and also is the least predictable. For example,
springtime flooding unfavorably affects the sale of most types of lawn and
garden equipment, while moderate to heavy snowfall during winters usually
results in a surge in demand for snow shovels. Bad weather during the spring
gardening season can adversely affect overall annual sales, but if the weather
is favorable during construction projects, such as new housing starts and
government spending on highways, this usually represents an increase in demand
for long handled tools.
20
The following table sets forth certain unaudited data for each of the
quarters in fiscal 2000 and fiscal 2001. The financial data for each of these
quarters is unaudited but includes all adjustments which we believe to be
necessary for a fair presentation. All quarters include normal recurring
adjustments. These operating results, however, are not necessarily indicative of
results for any future period.
Fiscal 2000
Quarter Ended (unaudited - in thousands)
------------------------------------------------------------------
04/02/2000 07/02/2000 10/01/2000 12/31/2000
-------------- --------------- --------------- ---------------
Net sales $40,737 $35,170 $22,098 $18,586
Cost of goods sold 31,876 27,621 18,803 16,164
-------------- --------------- --------------- ---------------
Gross profit 8,861 7,549 3,295 2,422
Selling, general and administrative
expenses (SG&A) 5,986 5,784 5,688 4,594
-------------- --------------- --------------- ---------------
Gross profit less SG&A(1) $2,875 $1,765 ($2,393) ($2,172)
============== =============== =============== ===============
Net sales as a percentage of 34.9% 30.2% 19.0% 15.9%
full year net sales
Gross profit as a percentage of 40.0% 34.1% 14.9% 11.0%
full year gross profit
Fiscal 2001
Quarter Ended (unaudited - in thousands)
------------------------------------------------------------------
04/01/2001 07/01/2001 09/30/2001 12/31/2001
-------------- --------------- --------------- ---------------
Net sales $28,317 $29,428 $18,097 $17,640
Cost of goods sold 20,626 23,099 13,079 13,600
-------------- --------------- --------------- ---------------
Gross profit 7,691 6,329 5,018 4,040
Selling, general and administrative
expenses (SG&A) 4,211 4,665 4,476 3,977
-------------- --------------- --------------- ---------------
Gross profit less SG&A(1) $3,480 $1,664 $542 $63
============== =============== =============== ===============
Net sales as a percentage of 30.3% 31.5% 19.4% 18.9%
full year net sales
Gross profit as a percentage of 33.3% 27.4% 21.7% 17.5%
full year gross profit
(1) Does not include amortization of intangibles and other
expenses, each of which generally are non-seasonal in nature.
LIQUIDITY AND CAPITAL RESOURCES
We are substantially dependent upon borrowings under our credit
facility. Our primary cash needs are for working capital, capital expenditures
and debt service. We have financed our working capital, capital expenditures and
debt service through internally generated cash flow and funds borrowed under our
revolving credit facility. As of December 31, 2001, approximately $1.9 million
was available under the revolving portion of the credit facility. Indebtedness
outstanding bears interest at either the bank prime rate plus a margin of 3% or,
at our option, the LIBOR rate plus a margin of 4%.
Net cash provided by operations was $3.4 million in fiscal 2001
compared to net cash provided by operations of $4.1 million in fiscal 2000. The
net loss increased by $1.7 million in fiscal 2001, but the non-cash
21
addbacks, including the asset impairment charge and the loss on sale of assets,
improved $7.9 million versus the prior year. Inventory levels remained
relatively flat in fiscal 2001. In fiscal 2000, the liquidation of excess and
obsolete inventory plus the sale of watering product inventory created a $5.4
million source of cash. Continued improvement in inventory levels in fiscal 2001
were offset late in the year by an increase needed to support new business
commitments for the first quarter of fiscal 2002. Other liabilities was a
stronger use of cash in fiscal 2001, primarily due to the reduction in the post-
retirement medical accrual resulting from the termination of certain benefits.
We made capital expenditures of approximately $1.2 million in fiscal
2001, $1.5 million in fiscal 2000, $3.4 million in transition 1999 and $4.9
million during fiscal 1999. The capital expenditures relate primarily to ongoing
improvements of property, plant and equipment, manufacturing process
improvements, increased manufacturing capacity and system/technology
infrastructure upgrades or enhancements. Capital requirements were lower in
fiscal 2001 and fiscal 2000 due to the activity levels and expenditures made
during transition 1999 and fiscal 1999. The focus on the core business the last
two years combined with a stronger emphasis on sourcing products or components
has also lessened capital requirements.
On July 13, 2001, the Company entered into a sixteenth amendment to its
amended and restated credit facility (the "sixteenth amendment"), the terms of
which it believes will be sufficient to fund operations through April 30, 2002,
the revised term of the facility. The sixteenth amendment provides for a $35
million revolving credit facility (the "Revolving Facility") from January 1
through July 30 ($25 million from July 31 through October 31; $30 million from
November 1 through December 31). Available borrowings under the Revolving
Facility are based on specified percentages of accounts receivable and
inventory. In addition, the sixteenth amendment provides for scheduled loan
payments to be applied on a pro rata basis to the outstanding balances under our
acquisition loans and Revolving Facility. The scheduled loan payments are as
follows:
Date Payment
-------------------- ----------------------------------
July 23, 2001 $350,000
September 30, 2001 $350,000
December 31, 2001 $350,000
March 31, 2002 $350,000
April 30, 2002 Entire remaining principal balance
of the acquisition loans, together
with all accrued but unpaid interest
thereon, and all other obligations,
shall be due and payable in full.
The sixteenth amendment contains certain covenants, which, among other
things, require us to maintain specified financial ratios and satisfy certain
tests, including maintaining cumulative EBITDA above specified levels, and
places limits on future capital expenditures. The sixteenth amendment also
maintains the negative covenants that existed under the previous credit
facility. In addition, in compliance with the requirements of the sixteenth
amendment, we engaged investment bankers to identify strategic alternatives,
including the sale of the Company.
Borrowings under the sixteenth amendment bear interest at either the
bank prime rate plus a margin of 3% or, at our option, the LIBOR rate plus a
margin of 4%. Interest is due and payable monthly in arrears. In addition, we
are required to pay a fee of 0.5% per year on the unused portion of the
Revolving Facility. The sixteenth amendment also includes a "success fee" of
approximately $3,250,000. The success fee can be reduced to a minimum of
$1,700,000 based upon satisfaction of certain provisions within the sixteenth
amendment.
On October 4, 2001, we entered into a seventeenth amendment to the
amended and restated credit facility (the "seventeenth amendment"), the terms of
which extended certain of the covenants covered in the sixteenth amendment
through the term of the credit facility.
In December 2001, the credit facility was also amended to allow us to
keep the manufacturing facility and assets that produce and sell custom
injection molding products. We believe these assets are more valuable supporting
our core business than if sold separately.
22
We have evaluated the various strategic alternatives presented to us
and have concluded that the optimal choice was to agree to and exercise the
letter of intent put forth on February 1, 2002, to recapitalize the debt and
equity of the Company. Under this arrangement, the majority stockholders, TCW
Funds and OCM Principal Opportunities Funds, have agreed to invest up to $10
million in cash and convert approximately $8 million in subordinated debt into
equity at a value of $1.00 per share. Additionally, upon completion of the
recapitalization, the holders of our common stock, other than the principal
holders and their affiliates, would receive rights (at the rate of 350 rights
per 100 shares of our common stock held as of a record date to be established)
to purchase one share of our common stock at $1.00 per share for each right
received. This represents the highest value for the equity of any of the
strategic alternatives considered. The proposed recapitalization is contingent
upon, among other things, obtaining new financing for the Company's operations.
At December 31, 2001, we were in compliance with the covenants of our
credit facility. However, subsequent to that date we fell in default of the
credit facility because we have been unable to obtain a financing commitment to
support the letter of intent transaction or to execute a definitive purchase
agreement. While we are working diligently to complete the transaction, though
possibly in a form different than that outlined in the original letter of
intent, and thereby cure the default, we believe our existing bank group will
continue to fund our operations. Given the critical nature and timeframe of
these issues, we believe significant progress and clarification can be made
prior to the expiration of our credit facility on April 30, 2002. However, there
can be no assurance as to when and if an agreement will be reached. If we are
unable to reach an agreement, it will adversely impact our principal sources of
liquidity and our ability to meet future cash requirements. This shortfall could
force us to consider alternatives that may include negotiating further
amendments to our existing credit facility, attempting to obtain loans from
third party sources, asset sales, a sale of the entire Company, or other
remedies appropriate to the circumstances.
If we are successful in consummating the letter of intent and obtaining
new financing, then we believe we will have sufficient liquidity to operate over
the term of the new facility.
In addition, we believe that our improved profitability in tandem with
lower interest costs as a result of a less leveraged capital structure will also
provide us sufficient liquidity to move through our operating cycle. This would
include all lease and debt principal payments, as well as, any rollover or
incremental letter of credit requirements (as further described in the footnotes
to the financial statements). However, if future financial results do not meet
our expectations or the recapitalization transaction is not completed, we will
activate contingency plans, further reducing expenditures, and take other
actions to operate within the resources and alternatives available.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, we evaluate our estimates and
judgments, including those related to revenue recognition, customer programs,
allowance for doubtful accounts, inventories, pensions and post-employment
benefits. We base our estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies, among others,
affect the more significant judgments and estimates used in the preparation of
the consolidated financial statements.
Revenue Recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), as amended by SAB 101A and 101B. SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the fee
is fixed and determinable; and (4) collectibility is reasonably assured.
23
With regard to criterion (2), we recognize revenue when our customer
takes title to the goods. If the customer relationship is such that we arrange
and pay for the shipping and delivery (FOB-destination), the revenue is not
recognized until the customer takes title and physical possession of the goods
at their location. If the responsibility for shipping and delivery rests with
the customer, revenue is recognized when the goods and title are transferred to
their carrier.
Customer Programs. To promote our business within a competitive
industry, we selectively offer programs to customers such as cooperative
advertising or volume rebates. We accrue for these programs monthly, based on
the amount earned at that point in time, typically as it relates to year to date
sales volume. In addition, customers will take deductions unexpectedly for
operational errors such as shortages, pricing, and defectives. We recognize
these costs immediately in the month that the customer takes a deduction from
payment. In addition, we set up a reserve against accounts receivable for
deductions that we can reasonably estimate will occur when the outstanding
receivables are paid, i.e., an incurred but not reported reserve based on
current run rate of operational deductions. If market conditions were to
decline, we may take actions to increase customer incentives, possibly resulting
in an incremental reduction of revenue or increase in costs at the time the
incentive is offered. In addition, if actual customer deductions exceed the
amounts projected by us, additional reserves would be necessary.
Allowance for Doubtful Accounts. We evaluate the collectibility of our
accounts receivable based on a combination of factors. In circumstances where we
are aware of a specific customer's inability to meet its financial obligations
to us (e.g., bankruptcy filings, substantial downgrading of credit scores), we
record a specific reserve for bad debts against amounts due to reduce the net
recognized receivable to the amount we reasonably believe will be collected. For
all other customers, we recognize reserves for bad debts based on the length of
time the receivables are past due ranging from 10% for amounts one to thirty
days past due to 100% for amounts more than 180 days past due based on our
historical experience. If circumstances change (i.e. higher than expected
defaults or an unexpected material adverse change in a major customer's ability
to meet its financial obligations to us), our estimations of the recoverability
of amounts due us could be reduced by a material amount.
Inventory. We write down our inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions.
Every month we update our sales forecast and production plan on a
rolling twelve month basis. We evaluate our inventory against that forecast.
Items that are inactive or active with on-hand quantities exceeding twelve
months usage in the sales forecast or production plan are reviewed for value
deterioration and an appropriate obsolescence reserve is recognized. This review
is of particular importance due to the inventory builds required during an
operating cycle to deal with the seasonality of the business. If actual demand
or market conditions are less favorable than projected by us, additional
inventory write-downs may be required.
EFFECTS OF INFLATION
We are adversely affected by inflation primarily through the purchase
of raw materials, increased operating costs and expenses, and higher interest
rates. We believe that the effects of inflation on our operations have not been
material in recent years.
FORWARD-LOOKING STATEMENTS
Statements in the foregoing discussion that indicate our intentions,
hopes, beliefs, expectations, or predictions of the future are forward-looking
statements. It is important to note that our actual results could differ
materially from those projected in such forward-looking statements due to, among
other risks and uncertainties inherent in our business, the following important
factors:
- Weather is the most significant factor in determining market
demand for our products and is inherently unpredictable.
Inclement weather during the spring gardening season and lack
of snow during the winter may have a material adverse effect
on our business, financial condition, and results of
operations.
- The lawn and garden industry is seasonal in nature, with a
high proportion of sales and operating income generated in
January through May. Accordingly, our sales tend to be greater
during those months. As a result, our operating results depend
significantly on the spring selling season. To support this
sales peak, we must anticipate demand and build inventories of
finished goods
24
throughout the fall and winter. Accordingly, our levels of raw
materials and finished goods inventories tend to be at their
highest, relative to sales, during the fourth quarter of the
fiscal year. These factors increase variations in our
quarterly results of operations and potentially expose us to
greater adverse effects of changes in economic and industry
trends. Moreover, actual demand for our products may vary
substantially from the anticipated demand, leaving us with
either excess inventory or insufficient inventory to satisfy
customer orders.
- Our ten largest customers in the aggregate accounted for
approximately 57% of gross sales in fiscal 2001. A substantial
reduction or cessation of sales to these or other major
customers could have a material adverse effect on our
business, financial condition, and results of operations.
- Certain retail distribution channels in the lawn and garden
industry, such as mass merchants and home centers, are
experiencing consolidation. There can be no assurance that
such consolidation will not have an adverse impact on certain
customers or result in a substantial reduction or cessation of
purchases of our products by certain customers. In addition,
we are facing increasing pressure from retailers with respect
to pricing, cooperative advertising, and other rebates as the
market power of large retailers continues to grow. There can
be no assurance that such pressures will not have an adverse
impact on our business, financial condition, and results of
operations.
- A key element of our growth strategy is to increase sales in
certain distribution channels that we believe are growing more
rapidly than the overall industry, such as home centers and
mass merchants through retailers such as Sears and Home Depot.
There can be no assurance that retailers in such distribution
channels will continue to open a significant number of new
stores or, if opened, that we will be chosen to supply our
products to all or a significant portion of such stores. In
addition, there can be no assurance that such stores will
generate significant additional sales for us or that such
stores will not result in a reduction of sales to our other
customers, whether through consolidation or otherwise.
- Our future growth and development is largely dependent upon
the services of A. Corydon Meyer, our President and Chief
Executive Officer, as well as our other executive officers.
The loss of Mr. Meyer's services, or the services of one or
more of our other executive officers, could have a material
adverse effect on us.
- Our products require the supply of raw materials consisting
primarily of steel, plastics, and ash wood. Although we have
several suppliers for most of our raw materials, there can be
no assurance that we will not experience shortages of raw
materials or components essential to our production processes
or be forced to seek alternative sources of supply. In
addition, there can be no assurance that prices for such
materials will remain stable. Any shortages of raw materials
may result in production delays and increased costs which
could have a material adverse effect on our business,
financial condition, and results of operations.
- All aspects of the lawn and garden industry, including
attracting and retaining customers and pricing, are highly
competitive. We compete for customers with large consumer
product manufacturers and numerous other companies that
produce specialty home and garden products, as well as with
foreign manufacturers that export their products to the United
States. Many of these competitors are larger and have
significantly greater financial resources than us. There can
be no assurance that increased competition in the lawn and
garden industry, whether from existing competitors, new
domestic manufacturers, or additional foreign manufacturers
entering the United States market, will not have a material
adverse effect on our business, financial condition, and
results of operations.
- Most of our hourly associates are covered by collective
bargaining or similar labor agreements. We currently are a
party to four such agreements: one of which expires in 2002,
two expire in 2003, and one expires in 2004. There can be no
assurance that we will be successful in negotiating new labor
contracts on terms satisfactory to us or without work
stoppages or strikes.
25
A prolonged work stoppage or strike at any of our facilities
could have a material adverse effect on our business,
financial condition, and results of operations.
- We are subject to various federal, state, and local
environmental laws, ordinances, and regulations governing,
among other things, emissions to air, discharge to waters, and
the generation, handling, storage, transportation, treatment,
and disposal of hazardous substances and wastes. We have made,
and will continue to make, expenditures to comply with these
environmental requirements and regularly review our procedures
and policies for compliance with environmental laws. We also
have been involved in remediation actions with respect to
certain facilities. Amounts expended by us in such compliance
and remediation activities have not been material to us.
Current conditions and future events, such as changes in
existing laws and regulations, may, however, give rise to
additional compliance or remediation costs that could have a
material adverse effect on our business, financial condition,
or results of operations. Furthermore, as is the case with
manufacturers in general, if a release of hazardous substances
occurs on or from our properties or any associated offsite
disposal location, or if contamination from prior activities
is discovered at any of our properties, we may be held liable
and the amount of such liability could be material.
- New housing starts often represent an addition to the overall
number of consumers in the lawn and garden tool market and,
accordingly, an increase in demand. Similarly, government
spending on highways, bridges, and other construction projects
often represents an increase in demand for long handled tools.
A decline in housing starts or government spending on
construction projects could result in a decrease in demand for
our products and, accordingly, could have a material adverse
effect on our business, financial condition, and results of
operations.
- Adverse changes in general economic conditions in the United
States, including the level and availability of consumer debt,
the level of interest rates, and consumer sentiment regarding
the economy in general, could result in a decrease in demand
for our products and, accordingly, could have a material
adverse effect on our business, financial condition, and
results of operations.
- Our inability to successfully extend our credit facility
ongoing, or to extend the credit facility on terms and
conditions favorable to us, could have a material adverse
effect on our business, financial condition, and results of
operations.
- Our inability to complete the recapitalization could have a
material adverse effect on our business, financial condition,
and results of operations.
The factors set forth above are not exhaustive. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and we will not undertake, and specifically decline, any obligation to
publicly release the results of any revisions which may be made to any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of anticipated or
un-anticipated events. New factors emerge from time to time and it is not
possible for us to predict all such factors, nor can we assess the impact of
each such factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Therefore, forward-looking
statements should not be relied upon as a prediction of actual future results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INFLATION AND INTEREST RATES
We have not been significantly affected by inflation in recent years
and anticipate that we will not be significantly affected by inflation in the
near term. A material change in interest rates could have an impact on our
financial results as we are presently paying a variable interest rate on our
outstanding debt. In July 2001, we entered into the sixteenth amendment of our
existing credit facility (the "Amended Facility"). The Amended Facility provides
for a $35 million revolving credit facility from January 1 through July 30 of
each year; $25
26
million from July 31 through October 31; and $30 million from November 1 through
December 31. In connection with the Amended Facility, the interest rate charged
on outstanding borrowings was increased from LIBOR plus 3.5% to LIBOR plus 4.0%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements, together with the report thereon
of Ernst & Young LLP, are set forth on pages F-1 through F-21 hereof (see Item
14 of this Annual Report on Form 10-K for the index).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table sets forth for each of our directors, such person's
name, age, and his position with us:
NAME AGE POSITION
---- --- --------
William W. Abbott 70 Chairman of the Board
Matthew S. Barrett 42 Director
Vincent J. Cebula 38 Director
John J. Kahl, Jr. 61 Director
John L. Mariotti 60 Director
A. Corydon Meyer 47 President, Chief Executive Officer and Director
William W. Abbott became a director in January 1997 and Chairman in
October 1999. Mr. Abbott currently is self-employed as a business consultant.
From August 1989 to January 1995, Mr. Abbott served as Senior Advisor to the
United Nations Development Programme. In 1989, Mr. Abbott retired from 35 years
of service at Procter & Gamble as a Senior Vice President in charge of worldwide
sales, marketing and other operations. He currently serves as a member of the
Boards of Directors of Horace Mann Educators Corporation, Fifth Third Bank of
Naples, Florida and Millenium Bank of Edwards, Colorado, a member of the
Advisory Board of Manco, Inc., a member of the Board of Overseers of the Duke
Cancer Center, and an Executive Professor at Florida Gulf Coast University.
Matthew S. Barrett became a director in December 1993. Mr. Barrett is a
Managing Director of Oaktree Capital Management, LLC ("Oaktree"). Prior to
joining Oaktree, from 1991 to April 1995, Mr. Barrett was Senior Vice President
of TCW Asset Management Company.
Vincent J. Cebula became a director in June 2001. Mr. Cebula is a
Managing Director of Oaktree Capital Management, LLC, where he has worked since
June 1995. From April 1994 until May 1995, Mr. Cebula was a Senior Vice
President of TCW Asset Management Company.
John J. Kahl, Jr. became a director in December 1999. Mr. Kahl is
currently President and CEO of Jack Kahl & Associates, LLC. From 1963 to 2000,
Mr. Kahl served as Chief Executive Officer of Manco, Inc., a subsidiary of
Henkel Corporation, the North American operating company of the Henkel Group.
Mr. Kahl currently serves on the Boards of Directors of Royal Appliance Mfg. Co.
and American Greetings Corporation.
John L. Mariotti became a director in December 1999. Mr. Mariotti
currently serves as President of The Enterprise Group, a coalition of
time-shared business advisors. From 1992 to 1994, Mr. Mariotti served as
President of Rubbermaid's Office Products Group. From 1983 to 1992, Mr. Mariotti
served as President of Huffy Bicycles. Mr. Mariotti is currently a Director of
Home Care Industries, Amrep, Inc. of Marietta, Georgia and a member of the
Advisory Board of Manco, Inc.
A. Corydon Meyer became a director and the President and Chief
Executive Officer of the Company and UnionTools in September 1999. Mr. Meyer
joined the Company and UnionTools in June 1999 as Senior Vice President of Sales
and Marketing. Mr. Meyer served as Vice President and Chief Operating Officer of
Reiker Enterprises, Inc. from 1998 to 1999. Mr. Meyer served as Vice President
and Business Unit Manager of Lamson & Sessions Co. from 1990 to 1998. Mr. Meyer
served in various finance, manufacturing, sales, and marketing positions with
White Consolidated Industries from 1977 to 1990.
28
MEETINGS, COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company had a total of four meetings
during the fiscal year ended December 31, 2001 ("fiscal 2001"). During fiscal
2001, each of the directors attended 75% or more of the total number of meetings
of (i) the Board and (ii) the committees of the Board on which such director
served. Directors who are employed by the Company receive no compensation for
serving as directors. Non-employee directors receive the following annual
compensation: (i) $20,000 paid, at the director's election, either in shares of
our common stock pursuant to the Company's Deferred Equity Compensation Plan for
Directors (the "Director Stock Plan") or one-half in cash and one-half in shares
of our common stock pursuant to the Director Stock Plan; (ii) stock options with
an exercise price equal to the fair market value of our common stock on the date
of grant, a Black-Scholes valuation of $25,000 and a ten year term issued under
the Director Option Plan; and (iii) reimbursement of reasonable out-of-pocket
expenses.
In March 1997, the Company created a Management Development and
Compensation Committee (the "Compensation Committee") and an Audit Committee
(the "Audit Committee"). The Compensation Committee has the authority to (i)
administer the Company's 1997 Stock Incentive Plan, including the selection of
optionees and the timing of option grants, (ii) review and monitor key associate
compensation policies and administer the Company's management compensation plans
and (iii) monitor the performance of the Company's executive officers and
develop succession and career planning related thereto. Currently, Messrs.
Abbott (Chairman), Barrett, Cebula, Kahl, and Mariotti serve on the Compensation
Committee. During fiscal 2001, the Compensation Committee met one time.
The Audit Committee recommends the annual appointment of the Company's
independent public accountants with whom the Audit Committee reviews the scope
of audit and non-audit assignments and related fees, the accounting principles
used by the Company in financial reporting, internal financial auditing
procedures and the adequacy of the Company's internal control procedures.
Currently, Messrs. Mariotti (Chairman), Abbott, Barrett and Kahl serve on the
Audit Committee. During fiscal 2001, the Audit Committee met one time.
On November 16, 2001, the Board of Directors resolved to grant Messrs.
Kahl and Mariotti be paid a one-time extraordinary director fee of $50,000 in
recognition of the additional time commitment expected from such individuals,
payable when 2001 bonuses are paid in January 2002.
On March 1, 2002, the Board of the Directors resolved to grant Mr.
Abbott be paid a one-time extraordinary director fee of $150,000 in recognition
of the additional time commitment expected from such individual, payable in
March 2002.
EXECUTIVE OFFICERS
In addition to Mr. Meyer, the following persons are our executive
officers:
John G. Jacob, age 42, was named Vice President and Chief Financial
Officer of the Company in June 1999. From 1998 to June 1999, Mr. Jacob served as
Vice President of Finance for Sun Apparel Company/Polo Jeans Company. Prior to
that, Mr. Jacob served as Vice President of Finance and Treasurer of Maidenform
Worldwide, Inc. from 1996 to 1998. From 1991 to 1996, Mr. Jacob served in
various positions at Kayser-Roth Corporation, most recently as Vice President
and Treasurer.
Gary W. Zimmerman, age 44, was named Senior Vice President of
Operations in September 2000. Prior to that, Mr. Zimmerman served as General
Manager of U.S. Operations for Lexmark International, Inc. from July 1998 to
September 2000. From January 1979 to July 1998, Mr. Zimmerman served in various
positions at Huffy Corporation, most recently as Vice President, Plant
Operations and Logistics, for Huffy Bicycles.
Carol B. LaScala, age 42, was named Vice President of Human Resources
of the Company in December 2000. Ms. LaScala joined UnionTools in November 1999
as Director of Human Resources. From June 1999 to November 1999, Ms. LaScala
served as Director of Human Resources for the Longaberger Company. Prior to
that, Ms. LaScala served as Manager, Human Resources, for Rubbermaid
Incorporated from September 1995 to June 1999. From February 1984 to September
1995, Ms. LaScala served in various positions with The Stanley Works, most
recently as Division Human Resources Manager for the Hand Tools Division.
29
Officers are elected annually by the Board of Directors and serve at
its discretion. There are no family relationships among our directors and
executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and greater than 10% stockholders to file reports
of ownership and changes in ownership of the Company's securities with the
Securities and Exchange Commission ("SEC"). Copies of the reports are required
by SEC regulation to be furnished to the Company. Based on its review of such
reports, the Company believes that all reporting persons complied with all
filing requirements during the fiscal year ended December 31, 2001, except for a
late Form 3 for Mr. Zimmerman, Form 4 for Mr. Mariotti, Form 4 and Form 5 for
Mr. Abbott and Mr. Meyer.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information
concerning the annual and long-term compensation earned by our chief executive
officer and each of our other most highly compensated executive officers (the
"Named Executive Officers"). Messrs. Meyer's, and Jacob's cash compensation was
paid by Acorn. Non-cash compensation, other than options to purchase common
stock, was paid by UnionTools.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------- ALL OTHER
------------------------------------ SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) BONUS ($) OPTIONS (#) ($) (2)(3)(4)(5)
- --------------------------- ------- ---------- --------- ----------- ----------------
A. Corydon Meyer(6) 2001 $277,404 $138,700 -- $9,648
President and Chief 2000 257,192 40,000 119,047 22,481
Executive Officer of the 1999T 101,923 -- 300,000 65,807
Company and UnionTools 1999 19,231 -- -- --
John G. Jacob(7) 2001 $206,539 $84,000 -- $8,821
Chief Financial Officer and 2000 192,785 22,000 76,190 9,091
Vice President of the 1999T 76,154 -- 31,461 133,211
Company and UnionTools 1999 17,307 -- -- --
Gary W. Zimmerman(8) 2001 $203,077 $84,000 -- $17,732
Senior Vice President, 2000 57,335 40,000 100,000 66,483
Operations of the Company 1999T -- -- -- --
and UnionTools 1999 -- -- -- --
Carol LaScala(9) 2001 $110,000 $44,000 35,200 $5,774
Vice President, Human 2000 95,809 15,000 5,000 2,535
Resources of the Company 1999T 9,135 5,000 -- --
and UnionTools 1999 -- -- -- --
John Mackin(10) 2001 $124,039 -- -- $41,483
Former Vice President, Sales 2000 148,446 -- 70,952 26,774
and Marketing of UnionTools 1999T 36,441 $10,000 -- 61
1999 62,115 -- -- --
- -----------------------
(1) 1999T represents the 5-month transition period ended December 31, 1999.
(2) Amounts shown include matching benefits paid under our defined
contribution 401(k) plan and other miscellaneous cash benefits, but do
not include retirement benefits under our Salaried Employee Pension
Plan (see "Pension Plans").
30
(3) Amounts shown for transition 1999 include the following: $65,564 and
$133,101 paid by the Company with respect to relocation expenses for
Messrs. Meyer and Jacob, respectively; and $61 paid with respect to
supplementary life insurance for Mr. Mackin.
(4) Amounts shown for fiscal 2000 include the following: $596, $291, $358,
$114, and $208 paid by the Company with respect to supplementary life
insurance for Messrs. Meyer, Jacob, Zimmerman, Ms. LaScala, and Mr.
Mackin, respectively; $12,500 paid by the Company with respect to
restricted stock grant for Mr. Meyer; $9,385, $8,800, and $2,421 of
matching benefits paid under the Company's defined contribution 401(k)
plan for Messrs. Meyer, Jacob, and Ms. LaScala, respectively; $66,125
and $26,566 paid by the Company with respect to relocation expenses for
Messrs. Zimmerman and Mackin, respectively.
(5) Amounts shown for fiscal 2001 include the following: $859, $321, $303,
$46, and $233 paid by the Company with respect to supplementary life
insurance for Messrs. Meyer, Jacob, Zimmerman, Ms. LaScala, and Mr.
Mackin, respectively; $8,500, $8,500, $7,462, and $5,500 of matching
benefits paid under the Company's defined contribution 401(k) plan for
Messrs. Meyer, Jacob, Zimmerman, and Ms. LaScala, respectively; $9,678
paid by the Company with respect to relocation expenses for Mr.
Zimmerman; and $41,250 paid by the Company with respect to the
severance agreement with Mr. Mackin.
(6) Mr. Meyer's employment with the Company and UnionTools, Inc. began on
June 21, 1999.
(7) Mr. Jacob's employment with the Company and UnionTools, Inc. began on
June 21, 1999.
(8) Mr. Zimmerman's employment with the Company and UnionTools, Inc. began
on September 11, 2000.
(9) Ms. LaScala's employment with the Company and UnionTools, Inc. began on
November 22, 1999.
(10) Mr. Mackin's employment with the Company and UnionTools, Inc. began on
February 15, 1999. Mr. Mackin's employment with the Company and
UnionTools, Inc. ended upon his resignation on September 28, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of
stock options to our Named Executive Officers under our stock option plan during
the fiscal year ended December 31, 2001.
INDIVIDUAL GRANTS
Potential Realized Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option Terms(2)(3)
Options Granted Associates in Price Expiration ------------------------------------
Name (#) Fiscal Year(1) ($/Share) Date 5% ($) 10% ($)
- ----------------------- ------------------ -------------- --------- ---------- -------------- ---------------
A. Corydon Meyer 100,000 67.2% $0.58 2011 $36,476 $92,437
John G. Jacob 0 - - - - -
Gary W. Zimmerman 25,000 16.8% $0.58 2011 $9,119 $23,109
Carol LaScala 17,600 11.8% $1.25 2011 $13,836 $35,062
1,250 0.8% $3.00 2011 $2,358 $5,977
John Mackin(4) 0 - - - - -
- -----------------------
(1) Percentage is based upon 148,850 options granted to associates in
fiscal 2001.
31
(2) The dollar amounts in these columns are the product of (a) the
difference between (1) the product of the per share market price at the
date of grant and the sum of 1 plus the assumed rate of appreciation
(5% and 10%) compounded over the term of the option (ten years) and (2)
the per share exercise price and (b) the number of shares underlying
the grant.
(3) The appreciation rates stated are arbitrarily assumed, and may or may
not reflect actual appreciation in the stock price over the life of the
option. Regardless of any theoretical value that may be placed on a
stock option, no increase in its value will occur without an increase
in the value of the underlying shares. Whether an increase will be
realized will depend not only on the efforts of the recipient of the
option, but also upon conditions in our industry and market area,
competition, and economic conditions, over which the optionee may have
little or no control.
(4) Mr. Mackin's employment with the Company and UnionTools ended upon his
resignation on September 28, 2001.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END
OPTION VALUE TABLE
The following table provides certain information regarding the number
and value of stock options held by our Named Executive Officers at December 31,
2001.
SHARES ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
EXERCISE REALIZED OPTIONS AT YEAR-END (#) AT YEAR-END ($) (2)
------------------------------ ----------------------------
NAME (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --- ------- ----------- ------------- ----------- -------------
A. Corydon Meyer 0 0 319,047 100,000 0 0
John G. Jacob 0 0 107,651 0 0 0
Gary W. Zimmerman 0 0 50,000 50,000 0 0
Carol LaScala 0 0 21,350 18,850 0 0
John Mackin(3) 0 0 0 0 0 0
- -----------------------
(1) Value realized represents the difference between the exercise price of
the option shares and the market price of the option shares on the date
the option was exercised. The value realized was determined without
consideration for any taxes or brokerage expenses that may have been
owed.
(2) Represents the total gain which would be realized if all in-the-money
options held at year-end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the
per share option exercise price and the per share fair market value at
year-end ($0.33 based on the average of the high and low sale prices on
December 31, 2001). An option is in-the-money if the fair market value
of the underlying shares exceeds the exercise price of the option.
(3) Mr. Mackin's employment with the Company and UnionTools ended upon his
resignation on September 28, 2001.
32
PENSION PLANS
UnionTools, Inc. maintains six noncontributory defined benefit pension
plans covering most of our hourly associates. UnionTools, Inc. also maintains a
noncontributory defined benefit pension plan covering our salaried,
administrative and supervisory associates (the "Salaried Employee Pension
Plan"). In 2000, the plan was amended to exclude further plan participants. In
2001, the plan was frozen for all plan participants.
The following table sets forth the estimated annual benefits payable
upon retirement under the Salaried Employee Pension Plan based on retirement at
age 65 and fiscal 2001 covered compensation.
YEARS OF SERVICE
------------------------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35
--------------- --------- --------- --------- -------- ---------
$125,000 $42,187 $56,250 $70,313 $70,313 $70,313
$170,000 and above 54,000 72,000 90,000 90,000 90,000
- -----------------------------
(1) Based on final earnings.
Compensation under the Salaried Employee Pension Plan is limited to
$170,000 as required by the Employee Retirement Income Security Act of 1974 and
is based on years of credited service and final earnings (the highest average
monthly earnings over any 60 consecutive calendar month period in the 120
calendar months preceding retirement or termination of employment). Monthly
compensation is paid under the Salaried Employee Pension Plan in an amount equal
to 2.25% of the associates' final earnings multiplied by the lesser of 25 years
or the total number of years of credited service. Compensation under the
Salaried Employee Pension Plan is not subject to any offset.
AGREEMENTS WITH KEY EXECUTIVES
In June 1999, the Company entered into agreements with Messrs. Meyer
and Jacob which provide that following termination of such executives'
employment with the Company, the Company will pay to such executive an amount
equal to the highest aggregate annual compensation (including salary, bonuses
and incentive payments) includable in gross income paid to such executive during
any one of the three taxable years preceding the date of his termination. If
such termination occurs within two years following a change in control (as
defined in such agreement), the Company also is required to pay to such
executive an amount equal to two times the amount described in the preceding
sentence.
On November 22, 1999, the Company entered into a change of control
agreement with Ms. LaScala which provides that following termination for other
than "just cause" within eighteen months of a change of control event (as
defined in such agreement), the Company will pay Ms. LaScala an amount equal to
one year's annual salary.
On August 1, 2000, the Company entered into a change of control
agreement with Mr. Mackin which provides that following termination for other
than "just cause" within eighteen months of a change of control event
33
(as defined in such agreement), the Company will pay Mr. Mackin an amount equal
to one year's annual salary. On September 28, 2001, Mr. Mackin resigned from his
employment with the Company.
On September 11, 2000, the Company entered into a change in control
agreement with Mr. Zimmerman which provides that following termination for other
than "just cause" within eighteen months of a change of control event (as
defined in such agreement), the Company will pay Mr. Zimmerman an amount equal
to one year's annual salary.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of our common stock by each person known by us to beneficially own
more than 5% of the outstanding shares of our common stock, each of our
directors individually, each of our Named Executive Officers individually, and
all of our directors and executive officers as a group as of April 5, 2002:
SHARES BENEFICIALLY OWNED(1)(2)
-------------------------------
NUMBER PERCENT
------ -------
The TCW Group, Inc.(3) 4,327,863 59.7%
OCM Principal Opportunities Fund, L.P.(4) 1,740,891 26.1%
William W. Abbott(5) 227,920 3.7%
Matthew S. Barrett(6) 1,740,891 26.1%
Vincent J. Cebula(7) 1,740,891 26.1%
John J. Kahl(8) 33,334 *
John L. Mariotti(9) 40,034 *
A. Corydon Meyer(10) 340,547 5.3%
John G. Jacob(11) 107,651 1.7%
Gary W. Zimmerman(12) 52,300 *
Carol B. LaScala(13) 21,350 *
John Mackin(14) 0 *
--------- ----
All directors and executive officers as a group (10 persons)(15) 2,564,027 34.8%
- ------------------
* Represents beneficial ownership of less than 1% of our outstanding common
stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those shares.
(2) The address for the TCW Group, Inc. is 865 South Figueroa St., Los
Angeles, California 90017. The address for OCM Principal Opportunities
Fund, L.P. (the "Oaktree Fund") and Mr. Barrett is 333 South Grand
Ave., 28th Floor, Los Angeles, California 90071. The address for Mr.
Abbott is 6923 Greentree Dr., Naples, Florida 34108. The address for
Mr. Cebula is 1301 Avenue of the Americas, 34th Floor, New York, New
York 10019. The address for Mr. Kahl is c/o Jack Kahl & Associates,
LLC, Logos Communications Bldg., 26100 First St., Westlake, Ohio
44145-1438. The address for Mr. Mariotti is 717 Brixworth Blvd.,
Knoxville, Tennessee 37922-4775. The address for Messrs. Meyer, Jacob,
Zimmerman, and Ms. LaScala is c/o Acorn Products, Inc., 390 W.
Nationwide Blvd., Columbus, Ohio 43215.
(3) The TCW Group, Inc. is the parent corporation of TCW Asset Management
Company ("TAMCO"). TAMCO is the managing general partner of TCW Special
Credits, a general partnership among TAMCO and certain individual
general partners (the "Individual Partners"). TCW Special Credits is
(i) the general partner of four limited partnerships that hold shares
of common stock (the "TCW Limited Partnerships") and (ii) the
investment advisor for three third party accounts that hold shares of
common stock (the "TCW Accounts"). The TCW Limited Partnerships and the
TCW Accounts in the aggregate hold 2,148,583 shares of common stock and
have the right to receive 688,671 shares of common stock upon
conversion of their interests in a convertible term note (the "Note")
issued by UnionTools, Inc., our operating subsidiary. The TCW Group,
Inc. also is the parent corporation of Trust Company of the West, which
is the trustee of four trusts that hold shares of common stock (the
"TCW Trusts"). The TCW Trusts in the aggregate hold 1,013,466 shares of
common stock and have the right to receive 477,143 shares of common
stock upon conversion of their interests in the Note. The share numbers
regarding the conversion of the Note do not include the right to
receive additional shares of our common stock pursuant to the
conversion of accrued
34
but unpaid interest due under the Note. The following TCW Limited
Partnerships and TCW Trusts individually beneficially own more than 5%
of the outstanding shares of common stock: TCW Special Credits Fund III
(660,003 shares or 10.9%); TCW Special Credits Fund IIIb (626,039
shares plus the right to receive 297,143 pursuant to conversion of the
Note, or 14.5%); TCW Special Credits Plus Fund (227,807 shares plus the
right to receive 108,571 shares upon conversion of the Note, or 5.5%);
TCW Special Credits Trust (315,668 shares plus the right to receive
148,571 shares upon conversion of the Note, or 7.5%); Gryphon Domestic
VI, LLC (227,781 shares plus the right to receive 108,571 shares upon
conversion of the Note, or 5.5%); and TCW Special Credits Trust IIIb
(447,152 shares plus the right to receive 211,429 shares upon
conversion of the Note, or 10.5%). Certain of the Individual Partners
also are principals of Oaktree Capital Management, LLC. The Individual
Partners, in their capacity as general partners of TCW Special Credits,
have been designated to manage the TCW Limited Partnerships, the TCW
Accounts and the TCW Trusts. Although Oaktree provides consulting,
research and other investment management support to the Individual
Partners, Oaktree does not have voting or dispositive power with
respect to the TCW Limited Partnerships, the TCW Accounts or the TCW
Trusts.
(4) Includes the right to receive 548,571 shares of our common stock
pursuant to conversion of the Note. In addition, includes 42,820 shares
of common stock issuable pursuant to options exercisable within 60 days
of April 5, 2002, held by Stephen A. Kaplan, a former director, for the
benefit of the Oaktree Fund. Does not include (i) 41,230 shares of
common stock issuable pursuant to the Director Deferred Compensation
Plan held by Stephen A. Kaplan for the benefit of the Oaktree Fund, and
(ii) the right to receive additional shares of our common stock
pursuant to the conversion of accrued but unpaid interest due under the
Note. Oaktree Capital Management, LLC, as the general partner of the
Oaktree Fund, has voting and dispositive power over the shares held by
the Oaktree Fund and may be deemed a beneficial owner of such shares.
(5) Includes 142,820 shares of common stock issuable pursuant to stock
options exercisable within 60 days of April 5, 2002. Does not include
7,624 shares of common stock issuable pursuant to the Director Deferred
Compensation Plan.
(6) Reflects shares of common stock owned by the Oaktree Fund. To the
extent that Mr. Barrett, as a managing director of Oaktree,
participates in the process to vote or dispose of any such shares, he
may be deemed under such circumstances for the purpose of Section 13 of
the Exchange Act to be the beneficial owner of such shares of common
stock. Mr. Barrett disclaims beneficial ownership of such shares of
common stock. Does not include 42,820 shares of common stock issuable
pursuant to options exercisable within 60 days of April 5, 2002, and
72,664 shares of common stock issuable pursuant to the Director
Deferred Compensation Plan. All such compensation paid to Mr. Barrett
is donated to charity.
(7) Reflects shares of common stock owned by the Oaktree Fund. To the
extent that Mr. Cebula, as a managing director of Oaktree, participates
in the process to vote or dispose of any such shares, he may be deemed
under such circumstances for the purpose of Section 13 of the Exchange
Act to be the beneficial owner of such shares of common stock. Mr.
Cebula disclaims beneficial ownership of such shares of common stock.
Does not include 9,723 shares of common stock issuable pursuant to
stock options exercisable within 60 days of April 5, 2002, and 32,950
shares of common stock issuable pursuant to the Director Deferred
Compensation Plan.
(8) Includes 33,334 shares of common stock issuable pursuant to stock
options exercisable within 60 days of April 5, 2002. Does not include
32,520 shares of common stock issuable pursuant to the Director
Deferred Compensation Plan.
(9) Includes 33,334 shares of common stock issuable pursuant to stock
options exercisable within 60 days of April 5, 2002. Does not include
32,520 shares of common stock issuable pursuant to the Director
Deferred Compensation Plan.
(10) Includes 319,047 shares of common stock issuable pursuant to options
exercisable within 60 days of April 5, 2002.
(11) Includes 107,651 shares of common stock issuable pursuant to options
exercisable within 60 days of April 5, 2002.
35
(12) Includes 50,000 shares of common stock issuable pursuant to options
exercisable within 60 days of April 5, 2002.
(13) Includes 21,350 shares of common stock issuable pursuant to options
exercisable within 60 days of April 5, 2002.
(14) Mr. Mackin's employment with the Company and UnionTools ended upon his
resignation on September 28, 2001.
(15) See notes (5) through (14) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Abbott, Barrett, Cebula, Kahl, and Mariotti, who are not
employees, are members of the Management Development and Compensation Committee.
TRANSACTIONS BETWEEN DIRECTORS, EXECUTIVE OFFICERS AND THE COMPANY
In September 1999, the Company entered into a Separation Agreement with
Mr. Gabe Mihaly. Mr. Mihaly was the Company's former President and Chief
Executive Officer and his employment with the Company and UnionTools ended upon
his resignation on September 2, 1999. Mr. Mihaly's agreement included severance
payments made by the Company in 2001 of $81,465.
On October 3, 2000, the Company revised the strike price of Mr.
Abbott's options to acquire 100,000 shares of our common stock issued on October
28, 1999, to $1.25 per share from the original price per share of $3.00.
Additionally, during fiscal 2000, the Company paid Mr. Abbott $60,000 in the
aggregate in director fees and for his services as Chairman of the Board of
Directors.
In October 1999, UnionTools entered into a Sixth Amendment to the
existing Credit Agreement with Heller Financial, Inc. Pursuant to the amendment,
the Oaktree Fund and certain of the TCW Funds, which collectively own a majority
of our outstanding common stock, made a capital infusion of $6.0 million into
UnionTools. The loan bears interest at an annual rate of 12% and is payable
quarterly in additional promissory notes or, following repayment of all
borrowing under the Credit Agreement other than the $6.0 million note, in cash.
The principal balance of the $6.0 million loan, together with all accrued but
unpaid interest thereon, is due and payable in full on the date which is
ninety-one days after the Expiry Date, as defined in the Credit Agreement. The
principal balance, together with all accrued but unpaid interest thereon, can be
exchanged for our common stock prior to repayment at the election of the TCW
Funds and Oaktree Funds.
On August 9, 2001, the Company entered into a sixteenth amendment to
the amended and restated credit facility (the "sixteenth amendment"), the terms
of which it believes will be sufficient to fund operations through April 30,
2002, the revised term of the facility. The sixteenth amendment provides for a
$35 million revolving credit facility (the "Revolving Facility") from January 1
through June 30 ($25 million from July 1 through October 31; $30 million from
November 1 through December 31). Available borrowings under the Revolving
Facility are based on specified percentages of accounts receivable and
inventory. In addition, the sixteenth amendment provides
36
for scheduled loan payments to be applied on a pro rata basis to the outstanding
balances under our acquisition loans and Revolving Facility.
On October 4, 2001, we entered into a seventeenth amendment to the
amended and restated credit facility (the "seventeenth amendment"), the terms of
which extended to certain of the covenants covered in the sixteenth amendment.
On December 31, 2001, we entered into an eighteenth amendment to the
amended and restated credit facility (the "eighteenth amendment"), the terms of
which allowed us to keep the manufacturing facility and assets that produce and
sell custom injection molding products. We believe these assets are more
valuable supporting our core business than if sold off separately.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements are filed with
this Annual Report on Form 10-K pursuant to Item 8:
- Report of Independent Auditors
- Consolidated Balance Sheets as of December 31, 2000 and
December 31, 2001
- Consolidated Statements of Operations for fiscal 1999,
five-month period ended January 3, 1999 (unaudited),
transition 1999, calendar 1999 (unaudited), fiscal 2000, and
fiscal 2001
- Consolidated Statements of Stockholders' Equity for fiscal
1999, transition 1999, fiscal 2000, and fiscal 2001
- Consolidated Statements of Cash Flows for fiscal 1999,
five-month period ended January 3, 1999 (unaudited),
transition 1999, calendar 1999 (unaudited), fiscal 2000, and
fiscal 2001
- Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedules are filed with this
Annual Report on Form 10-K pursuant to Item 14(d) and appear immediately
preceding the exhibit index:
I. Condensed Financial Information of Registrant
II. Valuation and Qualifying Accounts
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included in
the financial statements or the notes thereto.
(a)(3) The following items are filed as exhibits to this Annual Report
on Form 10-K:
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Letter of Intent, dated as of February 1, 2002, by and between
Acorn Products, Inc. as issuer and TCW Special Credits and
Oaktree Capital Management, LLC as purchasers (reference is
made to Exhibit 10.1 to Form 8-K, dated February 1, 2002,
filed with the Securities and Exchange Commission on February
5, 2002)
3.1 Amended and Restated Certificate of Incorporation of Acorn
Products, Inc.***
3.2 Amended and Restated Bylaws of Acorn Products, Inc.***
4.1 Specimen Stock Certificate for common stock***
10.1.1* Employment Severance Agreement, dated as of August 31, 1999,
among the Company, UnionTools, Inc., and A. Corydon Meyer
(reference is made to Exhibit 10.1.2 to Form 10-K for the year
ended July 30, 1999, filed with the Securities and Exchange
Commission on November 12, 1999)
10.1.2* Employment Severance Agreement, dated as of August 31, 1999,
among the Company, UnionTools, Inc., and John G. Jacob
(reference is made to Exhibit 10.2.3 to Form 10-K for the year
ended July 30, 1999, filed with the Securities and Exchange
Commission on November 12, 1999)
38
10.2* Compensation Agreement, dated as of October 28, 1999, between
the Company and William W. Abbott (reference is made to
Exhibit 10.2 to Form 10-K for the year ended July 30, 1999,
filed with the Securities and Exchange Commission on November
12, 1999)
10.3* Acorn Products, Inc. Amended and Restated Deferred Equity
Compensation Plan for Directors (reference is made to Appendix
B to the Proxy dated April 30, 2001, filed with the Securities
and Exchange Commission on April 30, 2001)
10.4* Acorn Products, Inc. 1997 Stock Incentive Plan***
10.5* Standard Form of Acorn Products, Inc. Stock Option
Agreement***
10.6* UnionTools, Inc. Retirement Plan for Salaried Employees***
10.7* Amendment No. 1 to UnionTools, Inc. Retirement Plan for
Salaried Employees***
10.8* Acorn Products, Inc. Supplemental Pension Plan for Executive
Employees***
10.9 Amended and Restated Credit Agreement, dated as of May 20,
1997, between UnionTools, Inc. and Heller Financial, Inc.***
10.10 Amendment Number 1 to License Agreement, dated as of December
12, 2001, between UnionTools, Inc. and The Scotts Company**
10.11 Registration Rights Agreement, dated as of June 18, 1997,
between Acorn Products, Inc. and various funds and accounts
managed by TCW Special Credits***
10.12 Registration Rights Agreement, dated as of June 18, 1997,
between Acorn Products, Inc. and OCM Principal Opportunities
Fund, L.P.***
10.13 Master Lease Agreement, dated as of June 4, 1998, between
BancBoston Leasing, Inc. and UnionTools, Inc. (reference is
made to Exhibit 10.13 to Form 10-K for the year ended July 31,
1998, filed with the Securities and Exchange Commission on
October 29, 1998)
10.14 Rider No. 1 to Master Lease Agreement, dated as of June 4,
1998, between BancBoston Leasing, Inc. and UnionTools, Inc.
(reference is made to Exhibit 10.14 to Form 10-K for the year
ended July 31, 1998, filed with the Securities and Exchange
Commission on October 29, 1998)
10.15 Amendment No.1 to Credit Agreement, dated as of November 24,
1997, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 10 to Form 10-Q for the quarter
ended October 31, 1997, filed with the Securities and Exchange
Commission on December 15, 1997)
10.16 Amendment No. 2 to Credit Agreement, dated as of May 22, 1998,
between UnionTools, Inc. and Heller Financial, Inc. (reference
is made to Exhibit 10.16 to Form 10-K for the year ended July
31, 1998, filed with the Securities and Exchange Commission on
October 29, 1998)
10.17 Amendment No. 3 to Credit Agreement, dated as of October 29,
1998, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 10.1 to Form 10-Q for the
quarter ended October 30, 1998, filed with the Securities and
Exchange Commission on December 8, 1998)
10.18 Amendment No. 4 to Credit Agreement, dated as of February 26,
1999, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 10.1 to Form 10-Q for the
quarter ended January 29, 1999, filed with the Securities and
Exchange Commission on March 15, 1999)
39
10.19 Amendment No. 5 to Credit Agreement, dated as of June 10,
1999, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 10.1 to Form 10-Q for the
quarter ended April 30, 1999, filed with the Securities and
Exchange Commission on June 14, 1999)
10.20 Amendment No. 6 to Credit Agreement, dated as of October 28,
1999, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 99.2 to Form 8-K, dated October
27, 1999, filed with the Securities and Exchange Commission on
October 29, 1999)
10.21 Amendment No. 16 to Credit Agreement, dated as of July 13,
2001, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 10.1 to Form 10-Q for the
quarter ended September 30, 2001, filed with the Securities
and Exchange Commission on November 13, 2001)
10.22 Amendment No. 17 to Credit Agreement, dated as of October 4,
2001, between UnionTools, Inc. and Heller Financial, Inc.
(reference is made to Exhibit 10.2 to Form 10-Q for the
quarter ended September 30, 2001, filed with the Securities
and Exchange Commission on November 13, 2001)
10.23 Amendment No. 18 to Credit Agreement, dated as of December 31,
2001, between UnionTools, Inc. and Heller Financial, Inc.**
10.24* Acorn Products, Inc. 1997 Nonemployee Director Stock Incentive
Plan (reference is made to Exhibit 4(a) on a Registration
Statement on Form S-8 (Registration Number 333-58807) filed
with the Securities and Exchange Commission on July 9, 1998)
21.1 Subsidiaries of the Company**
23.1 Consent of Ernst & Young LLP**
24.1 Power of Attorney**
- -----------------------
* Management contracts and compensatory plans.
** Filed herewith.
*** Previously filed with the same exhibit number on a Registration
Statement on Form S-1 (Registration Number 333-25325) filed with the
Securities and Exchange Commission on April 17, 1997, as amended.
Copies of exhibits may be obtained by writing to Investor Relations,
Acorn Products, Inc., P.O. Box 1930, Columbus, Ohio 43216-1930.
(b) Reports on Form 8-K:
- We filed the following Current Reports on Form 8-K
since September 30, 2001:
Current Report on Form 8-K, dated February 1, 2002,
filed with the Securities Exchange Commission on
February 5, 2002 (Items 5 and 7)
(c) Exhibits:
- The exhibits to this report follow the signature page
(d) Financial Statement Schedules:
- The response to this portion of Item 14 is submitted
as a separate section of this report (see Item
14(a)(2) above)
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ John G. Jacob
--------------------------------------------
Name: John G. Jacob
Title: Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Principal Executive Officer:
By: * A. Corydon Meyer
------------------------------------------
Name: A. Corydon Meyer
Title: President, Chief Executive Officer,
and Director
Principal Financial and Accounting Officer:
By: /s/ John G. Jacob
------------------------------------------
Name: John G. Jacob
Title: Vice President and Chief Financial
Officer
Directors:
By: * William W. Abbott
------------------------------------------
William W. Abbott, Chairman
By: * Matthew S. Barrett
------------------------------------------
Matthew S. Barrett, Director
By: * Vincent J. Cebula
------------------------------------------
Vincent J. Cebula, Director
By: * John J. Kahl, Jr.
------------------------------------------
John J. Kahl, Jr., Director
By: * John L. Mariotti
------------------------------------------
John L. Mariotti, Director
* By: /s/ John G. Jacob
-------------------------------------
John G. Jacob, attorney-in-fact
Dated: April 16, 2002
41
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
ACORN PRODUCTS, INC.
We have audited the accompanying consolidated balance sheets of Acorn
Products, Inc. and Subsidiaries as of December 31, 2000 and 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the fiscal years ended July 30, 1999, December 31, 2000,
December 31, 2001, and for the five-month period ended December 31, 1999. Our
audits also included the financial statement schedules listed in the index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Acorn Products, Inc. and Subsidiaries at December 31, 2000 and 2001, and the
consolidated results of their operations and their cash flows for each of the
fiscal years ended July 30, 1999, December 31, 2000, December 31, 2001, and for
the five-month period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
The accompanying financial statements have been prepared assuming that
Acorn Products, Inc. and Subsidiaries will continue as a going concern. As more
fully described in Note 12, the Company has incurred recurring operating losses,
its revolving credit facility expires on April 30, 2002, and its acquisition
term loan and junior participation term loan note both mature on April 30, 2002.
In addition, subsequent to December 31, 2001, the Company is in default of the
loan agreements governing borrowings on its revolving credit facility and
acquisition term loan. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 12. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
February 22, 2002, except for
Note 12 as to which the date is April 2, 2002
F-1
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
2000 2001
-------- --------
ASSETS (In thousands)
Current assets:
Cash $ 596 $ 1,391
Accounts receivable, less reserves for doubtful accounts, sales 14,541 10,831
discounts, and other allowances ($2,125 and $1,290, respectively)
Inventories, less reserves for excess and obsolete inventory 24,488 24,642
($1,523 and $1,042, respectively)
Prepaids and other current assets 616 358
-------- --------
Total current assets 40,241 37,222
Property, plant and equipment, net of accumulated depreciation 14,096 11,568
Goodwill, net of accumulated amortization (see Note 2) 26,813 11,808
Other intangible assets 731 554
-------- --------
Total assets $ 81,881 $ 61,152
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (average interest rate of 10.31% and 8.56%, $ 19,787 $ 18,132
respectively) (see Note 4)
Acquisition facility (average interest rate of 10.31% and 8.30%, 15,342 14,630
respectively) (see Note 4)
Junior participation term loan note (average interest rate of 12%) 6,707 7,718
(see Note 4)
Accounts payable 7,196 5,890
Accrued expenses 7,307 7,923
Income taxes payable 50 45
Other current liabilities 211 76
-------- --------
Total current liabilities 56,600 54,414
Other long-term liabilities 2,971 676
-------- --------
Total liabilities 59,571 55,090
Contingency (see Note 8)
STOCKHOLDERS' EQUITY
Common stock, par value of $.001 per share, 20,000,000 shares 78,262 78,262
authorized; 6,464,105 shares issued; and 6,062,159 and 6,062,359 shares
outstanding at December 31, 2000 and December 31, 2001, respectively
Contributed capital stock options 460 460
Accumulated other comprehensive loss (1,551) (2,121)
Retained earnings (deficit) (52,600) (68,278)
-------- --------
24,571 8,323
Common stock in treasury, 401,946 and 401,746 shares at
December 31, 2000 and December 31, 2001, respectively (2,261) (2,261)
-------- --------
Total stockholders' equity 22,310 6,062
-------- --------
Total liabilities and stockholders' equity $ 81,881 $ 61,152
======== ========
See accompanying notes.
F-2
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended Five Months Ended Calendar (Fiscal) Year Ended
----------------- ---------------------------- -------------------------------------------
07/30/1999 01/03/1999 12/31/1999 12/31/1999 12/31/2000 12/31/2001
----------------- ----------- ----------- ------------ ---------- ----------
(Unaudited) (Unaudited)
(In thousands)
Net sales $ 117,431 $ 36,729 $ 37,711 $ 118,413 $ 116,591 $ 93,482
Cost of goods sold 97,166 28,517 33,727 102,376 94,464 70,404
----------- ----------- ----------- ----------- ----------- -----------
Gross profit 20,265 8,212 3,984 16,037 22,127 23,078
Selling, general and administrative 22,651 8,173 8,970 23,448 22,052 17,329
expenses
Interest expense 3,401 1,209 1,905 4,097 6,947 5,895
Amortization of intangibles 1,087 444 448 1,091 974 876
Asset impairment 0 0 2,800 2,800 4,402 14,130
Other expenses, net:
Watering products consolidation 355 0 0 355 0 0
Plant consolidation and 1,661 0 2,025 3,686 408 0
management restructuring
Strategic transactions 994 768 0 226 0 545
Loss on sale of assets 0 0 0 0 1,238 0
Miscellaneous 311 242 744 813 (6) (102)
----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations (10,195) (2,624) (12,908) (20,479) (13,888) (15,595)
before income taxes
Income taxes (benefit) 145 (527) 83 755 80 84
----------- ----------- ----------- ----------- ----------- -----------
Loss from continuing operations (10,340) (2,097) (12,991) (21,234) (13,968) (15,679)
Discontinued operations:
Loss from disposal (936) (165) (150) (921) 0 0
----------- ----------- ----------- ----------- ----------- -----------
Loss from discontinued operations (936) (165) (150) (921) 0 0
----------- ----------- ----------- ----------- ----------- -----------
Net loss ($ 11,276) ($ 2,262) ($ 13,141) ($ 22,155) ($ 13,968) ($ 15,679)
=========== =========== =========== =========== =========== ===========
Basic and Diluted Earnings
per Share Data:
Loss from continuing operations ($ 1.64) ($ 0.32) ($ 2.16) ($ 3.45) ($ 2.31) ($ 2.59)
Loss from discontinued operations (0.15) (0.03) (0.02) (0.15) 0.00 0.00
----------- ----------- ----------- ----------- ----------- -----------
Net loss per share ($ 1.79) ($ 0.35) ($ 2.18) ($ 3.60) ($ 2.31) ($ 2.59)
=========== =========== =========== =========== =========== ===========
Weighted average number of shares 6,313,527 6,464,105 6,023,174 6,146,617 6,057,360 6,062,224
outstanding (basic and diluted)
See accompanying notes.
F-3
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Contributed Accumulated
------------------------ Capital Other Retained
Number of Stock Comprehensive Earnings Treasury
Shares Amount Options Loss (Deficit) Stock Total
------------ ---------- ------------- ----------------- ------------- ---------- ----------
(In thousands)
Balances at July 31, 1998 6,464,105 $ 78,391 $ 460 ($ 285) ($ 14,215) $ 0 $ 64,351
Net loss for the period August 1, 0 0 0 0 (11,276) 0 (11,276)
1998 through July 30, 1999
Adjustment to minimum 0 0 0 (397) 0 0 (397)
pension liability
Comprehensive loss 0 0 0 0 0 0 (11,673)
Purchase of treasury stock (442,400) 0 0 0 0 (2,488) (2,488)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at July 30, 1999 6,021,705 78,391 460 (682) (25,491) (2,488) 50,190
Net loss for the period July 31, 0 0 0 0 (13,141) 0 (13,141)
1999 through December 31, 1999
Adjustment to minimum 0 0 0 (96) 0 0 (96)
pension liability
Comprehensive loss 0 0 0 0 0 0 (13,237)
Issuance of treasury stock 24,975 (129) 0 0 0 140 11
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1999 6,046,680 78,262 460 (778) (38,632) (2,348) 36,964
Net loss for the period January 1, 0 0 0 0 (13,968) 0 (13,968)
2000 through December 31, 2000
Adjustment to minimum 0 0 0 (773) 0 0 (773)
pension liability
Comprehensive loss 0 0 0 0 0 0 (14,741)
Issuance of treasury stock 15,479 0 0 0 0 87 87
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 2000 6,062,159 78,262 460 (1,551) (52,600) (2,261) 22,310
Net loss for the period January 1, 0 0 0 0 (15,679) 0 (15,679)
2001 through December 31, 2001
Adjustment to minimum 0 0 0 (569) 0 0 (569)
pension liability
Comprehensive loss 0 0 0 0 0 0 (16,248)
Issuance of treasury stock 200 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 2001 6,062,359 $ 78,262 $ 460 ($ 2,120) ($ 68,279) ($ 2,261) $ 6,062
========== ========== ========== ========== ========== ========== ==========
See accompanying notes.
F-4
ACORN PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Calendar (Fiscal)
Ended Five Months Ended Year Ended
------------ -------------------------- --------------------------------------
07/30/1999 01/03/1999 12/31/1999 12/31/1999 12/31/2000 12/31/2001
------------ ----------- ------------ ---------- ---------- -----------
(Unaudited) (Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($11,276) ($ 2,262) ($13,141) ($22,155) ($13,968) ($15,679)
Adjustments to reconcile net loss to net cash
provided by (used in) continuing operations:
Loss from discontinued operations 936 165 150 920 0 0
Loss on sale of assets 0 0 0 0 1,238 0
Depreciation and amortization 5,605 1,714 2,106 5,998 5,253 4,614
Asset impairment 0 0 2,800 2,800 4,402 14,130
Reserves for doubtful accounts, sales
discounts, and other allowances 1,350 (97) (104) 1,343 (15) (835)
Changes in operating assets and liabilities:
Accounts receivable 2,991 5,987 2,295 (701) 3,327 4,545
Inventories (768) (7,849) (2,277) 4,804 5,441 (154)
Other assets (495) 449 1,684 740 1,096 435
Accounts payable and accrued
expenses 4,449 224 (1,683) 2,708 (853) (690)
Income taxes payable 80 (43) 83 206 (156) (5)
Other liabilities (1,471) (388) 447 (636) (1,709) (2,999)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) continuing
operations 1,401 (2,100) (7,640) (3,973) 4,056 3,362
Net cash used in discontinued operations (42) (166) (728) (770) 0 0
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities 1,359 (2,266) (8,368) (4,743) 4,056 3,362
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment, net (4,935) (2,155) (3,391) (6,171) (1,504) (1,246)
Proceeds from sale of assets 0 0 828 828 4,032 35
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities (4,935) (2,155) (2,563) (5,343) 2,528 (1,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on acquisition line 0 0 6,150 6,150 (667) (712)
Borrowings on term loan 0 0 0 0 707 1,011
Net activity on revolving loan 6,046 4,729 4,874 6,191 (7,441) (1,655)
Proceeds from issuance of treasury stock 0 0 11 11 87 0
Purchase of treasury stock (2,488) 0 0 (2,488) 0 0
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities 3,558 4,729 11,035 9,864 (7,314) (1,356)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash (18) 308 104 (222) (730) 795
Cash at beginning of period 1,240 1,240 1,222 1,548 1,326 596
-------- -------- -------- -------- -------- --------
Cash at end of period $ 1,222 $ 1,548 $ 1,326 $ 1,326 $ 596 $ 1,391
======== ======== ======== ======== ======== ========
Interest paid $ 3,292 $ 1,207 $ 1,554 $ 3,180 $ 4,904 $ 3,917
======== ======== ======== ======== ======== ========
See accompanying notes.
F-5
ACORN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Founded in 1890, Acorn Products, Inc. ("Acorn"), through its
wholly-owned subsidiary UnionTools, Inc. ("UnionTools" and together with Acorn
collectively "we", "us", "our", "Company") is a leading designer, manufacturer,
and marketer of branded non-powered lawn and garden tools in the United States.
Our principal products include long handle tools (such as shovels, forks, rakes
and hoes), snow tools, posthole diggers, wheeled goods (such as wheelbarrows and
hand carts), striking tools, cutting tools, hand tools, and repair handles. We
sell our products under a variety of well-known brand names and through a
variety of distribution channels. In addition, we manufacture private label
products for a variety of retailers. Acorn is a holding company with no business
operations of its own.
The lawn and garden industry is seasonal in nature, with a high
proportion of sales and operating income generated in January through May. As a
result, our operating results depend significantly on the spring selling season.
To support this sales peak, we must build inventories of finished goods
throughout the fall and winter. Accordingly, our levels of raw materials and
finished goods inventories tend to be at their highest, relative to sales,
during the fall and winter.
Weather is the most significant factor in determining market demand for
our products and is inherently unpredictable. Fluctuations in weather can be
favorable or unfavorable for the sale of lawn and garden equipment.
Our top two customers are Sears and Home Depot. Each of these customers
accounted for over 10% of gross sales during fiscal 1999, transition 1999,
fiscal 2000, and fiscal 2001. Our ten largest customers accounted for
approximately 53% of gross sales during calendar 1999, 53% of gross sales during
fiscal 2000, and 57% of gross sales during fiscal 2001.
Our products require the supply of raw materials consisting primarily
of steel, plastics, and ash wood. We have several suppliers for most of our raw
materials.
2. SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
On October 29, 1999, the Board of Directors of Acorn approved a change
in the fiscal year end to December 31 and a change in the interim quarterly
reporting periods to the period ending on the Sunday closest to the last day of
each calendar quarter. Prior to the change, our fiscal year was comprised of the
52 or 53 weeks ending on the Friday closest to July 31 of each year and interim
quarterly reporting periods ended on the Friday closest to the last day of each
fiscal quarter. Unless otherwise stated, references to fiscal 1999 relate to the
fiscal year ended July 30, 1999, fiscal 2000 relates to the fiscal year ended
December 31, 2000, and fiscal 2001 relates to the fiscal year ended December 31,
2001. References to transition 1999 relate to the five-month period ended
December 31, 1999.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Acorn and its subsidiaries, McGuire-Nicholas Company, Inc.
("McGuire-Nicholas") and UnionTools, Inc. (and its subsidiaries Hawthorne Tools,
Inc. and Pinetree Tools, Inc.). All inter-company accounts and transactions have
been eliminated. See Note 3 - Discontinued Operations regarding the disposal of
McGuire-Nicholas and Note 11 - Other Expenses regarding the disposal of certain
assets related to Hawthorne Tools, Inc. and Pinetree Tools, Inc.
REVENUES
We recognize revenue from product sales when title passes to the
customer.
F-6
SHIPPING AND HANDLING COSTS
Amounts for shipping and handling billed to customers are reported as a
component of sales while the related costs are reported as cost of goods sold.
INVENTORIES
Inventories 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:
12/31/2000 12/31/2001
---------- ----------
(In thousands)
Finished goods $11,349 $14,401
Work in process 6,652 5,653
Raw materials and supplies 6,487 4,588
------------- ------------
Total inventories $24,488 $24,642
============= ============
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and is depreciated
using the straight-line method over the following estimated useful lives:
Machinery and equipment 3 to 12 years
Buildings and improvements 5 to 40 years
Furniture and fixtures 3 to 10 years
Property, plant and equipment consists of the following:
12/31/2000 12/31/2001
---------- ----------
(In thousands)
Land $ 1,280 $ 1,412
Buildings and improvements 6,498 6,563
Machinery and equipment 21,244 22,209
Furniture and fixtures 3,509 3,784
-------- --------
32,531 33,968
Accumulated depreciation and amortization (19,652) (23,213)
-------- --------
Property, plant and equipment, net 12,879 10,755
Construction in process 1,217 813
-------- --------
$ 14,096 $ 11,568
======== ========
Depreciation expense was approximately $3.7 million in fiscal 2001,
$4.3 million in fiscal 2000, $1.7 million in transition 1999, and $4.5 million
in fiscal 1999. In fiscal 1999, we recorded approximately $1.2 million in
additional depreciation related to the write-down of equipment and tooling
associated with a discontinued product.
GOODWILL
Goodwill, resulting from the cost of assets acquired exceeding the
underlying net asset value, is amortized on the straight-line method over a
forty-year period. Accumulated amortization was approximately $5.1 million at
December 31, 2001 and $14.0 million at December 31, 2000. Periodically, we
assess the recoverability of our goodwill and other long-lived assets based upon
an evaluation of a number of factors such as a significant adverse event or a
change in which this business operates. We use a market value approach for
assessing the recoverability of enterprise level goodwill. An impairment loss is
recorded in the period such determination is made. During 2001, we completed
F-7
an evaluation of strategic alternatives, which included solicitations of offers
to buy the Company. In early 2002, we agreed to enter into a transaction that
valued the Company at $1.00 per share. Based on this market valuation, we
recognized a $14.1 million write-down of enterprise level goodwill in fiscal
2001. We recorded approximately $4.4 million in fiscal 2000 and $2.8 million in
transition 1999 in additional expense related to an impairment write-down of
goodwill associated with our watering products.
INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding during each period. Diluted earnings per
share is computed using the weighted average number of shares of common stock
outstanding during each period plus dilutive common stock equivalents using the
treasury stock method. See Note 9 for the computation of basic and diluted
earnings per share.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
fiscal 2001 presentation.
DERIVATIVES
We have no derivative financial instruments as defined by Statement of
Financial Accounting Standards No. 133.
SEGMENT REPORTING
In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information", we
operate in one reportable segment.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business Combinations",
and No. 142, "Goodwill and Other Intangible Assets". Statement 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Statement 141 also includes guidance on the
initial recognition and measurement of goodwill and other intangible assets
arising from business combinations completed after June 30, 2001. Statement 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. Statement 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite lives will continue
to be amortized over their estimated useful lives.
We will apply Statement 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of Statement 142 is expected to
result in an increase in net income of $371,000 ($0.06 per share) in 2002. We
will test goodwill for impairment using the two-step process prescribed in
Statement 142. The first step is a screen for potential impairment, while the
second step measures the amount of the impairment, if any. We expect to perform
the first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 in the second quarter of 2002. Any
impairment charge resulting from these transitional impairment tests will be
reflected as
F-8
the cumulative effect of a change in accounting principle in the first quarter
of 2002. We have not yet determined what the effect of these tests will be on
our earnings and financial position.
3. DISCONTINUED OPERATIONS
We recognized additional charges related to the 1997 discontinuance and
sale of McGuire-Nicholas of approximately $0.2 million in transition 1999 and
$0.9 million in fiscal 1999, relating to tax and workers' compensation claims
for the discontinued operation.
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
UnionTools entered into a credit facility (the "Credit Facility") in
December 1996 which, as amended and restated in May 1997, November 1997, October
1998, February 1999, and June 1999 provided for a $40 million revolving credit
facility (the "Revolving Facility") from January 1 through June 30 ($30 million
from July 1 through December 31) and a $35 million acquisition facility (the
"Acquisition Facility"). Available borrowings under the Revolving Facility were
based on specified percentages of accounts receivable and inventory.
On October 28, 1999, UnionTools entered into a sixth amendment to the
amended and restated Credit Facility (the "Amended Facility") to support
operational, capital expenditure, and working capital needs through April 30,
2001, the revised term of the facility. The Amended Facility provided for a $40
million revolving credit facility from January 1 through July 30 of each year,
$30 million from July 31 through October 31, and $35 million from November 1
through December 31. In addition, the Amended Facility limited the Acquisition
Facility to the existing outstanding balance of approximately $16 million and
extended the repayment terms.
On October 28, 1999, in connection with the Amended Facility,
UnionTools also issued a $6.0 million junior participation term loan note (the
"Note") bearing interest at 12% per annum. Interest is payable quarterly in
arrears on each February 1, May 1, August 1, and November 1 through the issuance
of additional term notes or, following repayment of all borrowings under the
Amended Facility other than the Note through the payment of cash. Under the
provisions of the Note, the lender has the right, at any time during which any
unpaid principal amount remains, to exchange the Note for shares of common
stock. The number of shares received will be equal to the sum of the unpaid
principal and unpaid interest through the date of exchange divided by $3.50. If
not previously exchanged for common stock, the Note matures ninety-one days
after the Expiry Date, as defined in the Amended Facility. The proceeds of the
Note were funded through a subordinated participation agreement between the
lender and our majority stockholders. The Note is by its terms incorporated into
the Amended Facility and is secured by the collateral in accordance with the
terms of the Amended Facility.
On July 13, 2001, we entered into a sixteenth amendment to the amended
and restated Credit Facility (the "sixteenth amendment"), the terms of which we
believe will be sufficient to fund operations through April 30, 2002, the
revised term of the facility. The sixteenth amendment provides for a $35 million
revolving credit facility from January 1 through July 30 ($25 million from July
31 through October 31; $30 million from November 1 through December 31).
Available borrowings under the Revolving Facility are based on specified
percentages of accounts receivable and inventory. In addition, the sixteenth
amendment provides for scheduled loan payments to be applied on a pro rata basis
to the outstanding balances under our acquisition loans and Revolving Facility.
The scheduled loan payments are as follows:
DATE PAYMENT
-------------------- ----------------------------------
July 23, 2001 $350,000
September 30, 2001 $350,000
December 31, 2001 $350,000
March 31, 2002 $350,000
April 30, 2002 Entire remaining principal balance
of the acquisition loans, together
with all accrued but unpaid interest
thereon, and all other obligations,
shall be due and payable in full.
F-9
The sixteenth amendment contains certain covenants, which, among other
things, require us to maintain specified financial ratios and satisfy certain
tests, including maintaining cumulative EBITDA above specified levels, and
places limits on future capital expenditures. The sixteenth amendment also
maintains the negative covenants that existed under the previous Credit
Facility, which include limitations on indebtedness, liens, guarantees,
obligations, mergers, consolidations, liquidations and dissolutions, sales of
assets, leases, dividends and other payments in respect of capital stock,
capital expenditures, investments, loans and advances, optional payments and
modifications and other debt instruments, transactions with affiliates, changes
in fiscal year, negative pledge clauses, and changes in line of business. In
compliance with the requirements of the sixteenth amendment, we engaged
investment bankers to identify strategic alternatives for the Company, including
the potential sale of the company. See Note 12.
Borrowings under the sixteenth amendment bear interest at either the
bank prime rate plus a margin of 3% or, at our option, the LIBOR rate plus a
margin of 4%. Interest is due and payable monthly in arrears. In addition, we
are required to pay a fee of 0.5% per year on the unused portion of the
Revolving Facility. The sixteenth amendment also includes a "success fee" of
$3,250,000. The success fee can be reduced to a minimum of $1,700,000 based upon
satisfaction of certain provisions within the sixteenth amendment.
In October and December, 2001, we entered into the seventeenth and
eighteenth amendments to the amended and restated Credit Facility, the terms of
which extended to certain of the covenants covered in the sixteenth amendment,
and allowed us to retain the manufacturing facility and assets that produce and
sell custom injection molding products.
Borrowings under the Credit Facility are secured by substantially all
of the assets of UnionTools and are guaranteed by Acorn. The Acorn guarantee is
secured by a pledge of all the capital stock of UnionTools. In addition,
UnionTools is required to make certain mandatory prepayments based upon cash
flow and certain other events. UnionTools may elect to prepay all or a portion
of the Credit Facility at any time. At December 31, 2001, UnionTools had $1.9
million in available borrowings under the Credit Facility.
5. STOCKHOLDERS' EQUITY
TREASURY STOCK
During fiscal 1999, we repurchased 442,400 shares of common stock at a
cost of $2,488,000.
STOCK OPTIONS
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we
have elected to continue to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for our employee and nonemployee director stock options and,
accordingly, do not recognize compensation costs when the exercise price of such
stock options is equal to or greater than the fair market value of the stock at
the grant date.
Pursuant to employment agreements, certain executive officers were
granted options to purchase shares of common stock. Vesting of the options and
the related exercise price were contingent upon the attainment of certain
profitability targets, and portions of the options that failed to vest expired.
Vested options to purchase 21,690 shares of common stock (with an exercise price
of $0.01 per share relating to 15,906 shares and $12.10 per share relating to
5,784 shares) were outstanding at December 31, 2000 and 2001. These vested
options expire in December 2003.
In April 1997, we adopted the 1997 Stock Incentive Plan (the "Incentive
Plan") for executives and certain other associates of the Company. The purpose
of the Incentive Plan is to provide incentives to associates by granting awards
tied to the performance of the common stock. Awards to associates may take the
form of options, stock appreciation rights, or sales or grants of restricted
stock. We have reserved an aggregate of 1,000,000 shares of common stock for
issuance under the Incentive Plan. At December 31, 2001, we have granted options
to purchase an aggregate of 726,298 shares under the Incentive Plan, at a
weighted average exercise price of $2.02 per share.
F-10
In January 1998, we adopted the 1997 Nonemployee Director Stock
Incentive Plan (the "Nonemployee Director Incentive Plan") for nonemployee
directors of Acorn. The purpose of the Nonemployee Director Incentive Plan is to
enable us to attract and retain nonemployee directors by granting awards tied to
the performance of the common stock. Awards to directors may take the form of
options, stock appreciation rights, or sales or grants of restricted stock. We
have reserved an aggregate of 500,000 shares of common stock for issuance under
the Nonemployee Director Incentive Plan. At December 31, 2001, we have granted
options to purchase an aggregate of 240,490 shares of stock under the
Nonemployee Director Incentive Plan, at a weighted average exercise price of
$2.80 per share.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if we have accounted for our incentive stock options granted subsequent to
December 31, 1994 under the fair value method of SFAS No. 123. The weighted
average fair value of options granted during 2001 is $0.70 for options whose
stock price equals the exercise price of the option, $0.57 for options whose
stock price is greater than the exercise price and $0.47 for options whose stock
price is less than the exercise price.
The value of the options were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 2001: (i) a risk-free interest rate of 5.02%; (ii) no
dividend yield; (iii) a volatility factor of the expected market price of our
common stock of 0.977; and (iv) a weighted average expected life of each option
of 10 years.
If we had elected to recognize compensation expense based upon the fair
value of options at the grant date as prescribed by SFAS No. 123, reported net
loss applicable to common stock and per share amounts would have been as
follows:
Fiscal Year
----------------------------------------- Five Months Ended
1999 2000 2001 December 31, 1999
----------- ----------- ------------- ---------------------
Net loss applicable to ($11,974) ($14,442) ($15,867) ($12,109)
common stock (in thousands)
Net loss applicable to
common stock per share ($1.90) ($2.38) ($2.62) ($2.01)
The pro forma financial effects of applying SFAS No. 123 may not be
representative of the pro forma effects on reported results of operations for
future years.
F-11
The following table summarizes the stock option activity:
Number Weighted Average
of Shares Exercise Price
------------ ------------------
1997 STOCK INCENTIVE PLAN
Outstanding at July 31, 1998 329,100 $ 14.00
Granted 62,795 5.75
Exercised 0
Expired/terminated (20,300) 14.00
---------
Outstanding at July 30, 1999 371,595 12.61
Granted 264,612 3.61
Exercised 0
Expired/terminated (286,905) 12.64
---------
Outstanding at December 31, 1999 349,302 5.76
Granted 642,189 1.57
Exercised 0
Expired/terminated (262,041) 4.19
---------
Outstanding at December 31, 2000 729,450 2.63
Granted 240,200 0.89
Exercised 0
Expired/terminated (243,352) 2.75
---------
Outstanding at December 31, 2001 726,298 $ 2.02
=========
1997 NONEMPLOYEE DIRECTOR STOCK INCENTIVE PLAN
Outstanding at July 31, 1998 18,630 $ 10.25
Granted 28,800 6.70
Exercised 0
Expired/terminated 0
---------
Outstanding at July 30, 1999 47,430 8.09
Granted 0
Exercised 0
Expired/terminated 0
---------
Outstanding at December 31, 1999 47,430 8.09
Granted 100,002 1.50
Exercised 0
Expired/terminated 0
---------
Outstanding at December 31, 2000 147,432 3.62
Granted 93,058 1.50
Exercised 0
Expired/terminated 0
---------
Outstanding at December 31, 2001 240,490 $ 2.80
=========
F-12
Number Weighted Average
of Shares Exercise Price
------------ ------------------
OTHER STOCK OPTIONS
Outstanding at July 31, 1998 39,042 $ 1.79
Granted 0
Exercised 0
Expired/terminated 0
--------
Outstanding at July 30, 1999 39,042 1.79
Granted 0
Exercised (17,352) 0.01
Expired/terminated 0
--------
Outstanding at December 31, 1999 21,690 3.23
Granted 0
Exercised 0
Expired/terminated 0
--------
Outstanding at December 31, 2000 21,690 3.23
Granted 0
Exercised 0
Expired/terminated 0
--------
Outstanding at December 31, 2001 21,690 $ 3.23
The following table summarizes information regarding stock options
outstanding at December 31, 2001.
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/2001 Contractual Life Exercise Price at 12/31/2001 Exercise Price
- -------------------- -------------- ----------------- --------------- -------------- --------------
$0.01 to $3.00 887,553 8.70 $1.38 808,228 $1.38
$3.01 to $6.00 15,211 7.67 $4.81 15,211 $4.81
$6.01 to $9.00 28,800 7.08 $6.70 28,800 $6.70
$9.01 to $12.00 18,630 6.08 $10.25 18,630 $10.25
$12.01 to $14.00 38,284 4.97 $13.71 38,284 $13.71
In fiscal 2000, we changed the exercise price of certain options issued
under the 1997 Stock Incentive Plan as follows: 16,901 options repriced from
$4.81 to $2.25 per share; 83,099 options repriced from $3.88 to $2.25 per share;
and 100,000 options repriced from $3.00 to $1.25 per share. In fiscal 2001, we
changed the exercise price of certain options issued under the 1997 Stock
Incentive Plan as follows: 25,000 options repriced from $1.25 to $0.58 per
share.
DIRECTOR STOCK PLAN
In April 1997, we adopted the Deferred Equity Compensation Plan for
Directors (the "Director Stock Plan"). The purpose of the Director Stock Plan is
to increase the proprietary interest of nonemployee members of the Board of
Directors of Acorn, thereby increasing their incentive to contribute to our
success. Only nonemployee directors are eligible to participate in the Director
Stock Plan. The number of shares of common stock reserved for issuance pursuant
to the Director Stock Plan is 200,000. In lieu of cash, directors can elect to
receive all or one-half of their fees in the form of shares of common stock. The
number of shares of common stock issued is determined by dividing (i) an amount
equal to the dollar amount of the fees to be received in the form of shares of
common stock by (ii) the average
F-13
of the high and low sale prices of the common stock on the Nasdaq SmallCap
Market on the last business day preceding the date of payment. Any cash or stock
dividends payable on shares of common stock accrue for the benefit of the
directors in the form of additional shares of common stock. Shares of common
stock are distributed in the form of common stock following the director's
resignation from the Board of Directors. In addition, shares of common stock are
distributed to directors in the form of common stock following the death of the
director or a change in control of Acorn as defined in the Director Stock Plan.
As of December 31, 2000, 73,688 shares of common stock had been awarded and as
of December 31, 2001, 176,650 shares of common stock had been awarded under the
Director Stock Plan representing an equal number of shares of common stock to be
issued in the future.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting and the amounts used for income tax purposes. Significant components
of deferred tax assets and liabilities are as follows:
12/31/2000 12/31/2001
--------------- ---------------
Deferred tax assets: (in thousands)
Inventory $610 $540
Accrued expenses and other 3,324 2,108
Goodwill 0 1,087
Net operating loss carryforwards 29,344 32,055
Capital loss carryforward 2,584 2,584
-------------- --------------
Total deferred tax assets 35,862 38,374
Valuation allowance for deferred tax assets (31,342) (37,801)
-------------- --------------
Deferred tax assets 4,520 573
Deferred tax liabilities:
Goodwill 3,271 0
Depreciation and other 1,249 573
-------------- --------------
Total deferred tax liabilities 4,520 573
------------- --------------
Net deferred tax assets $0 $0
============= ==============
Based on our history of operating losses and in accordance with SFAS No. 109, we
record a 100% valuation allowance resulting in no deferred tax assets being
recognized.
At December 31, 2001, we had net operating loss carryforwards of
approximately $76.9 million for income tax purposes that expire in varying
amounts in the years 2009 through 2021. Of this amount, approximately $28.6
million of net operating losses that originated prior to our initial public
offering (IPO) on June 27, 1997 are subject to limitation under Internal Revenue
Code Section 382. There are no Section 382 limitations on the remaining $48.3
million of net operating loss carryforwards. In accordance with the provisions
of Section 382, utilization of the pre-IPO net operating losses is limited to
approximately $1.2 million annually unless the Section 382 limitation exceeds
the taxable income for a given year, in which case the excess amount carries
over to and increases the annual Code Section 382 limitation for the succeeding
year. Due to the carryover of excess Code Section 382 limited net operating
losses, at December 31, 2001, we have approximately $6.1 million of Code Section
382 limited net operating losses that are available to offset taxable income in
2002 (in addition to the $48.3 million of net operating loss carryforwards that
are not limited). We also have capital loss carryforwards of approximately $6.2
million for income tax purposes that expire in 2002 and 2003.
The provision for income taxes is comprised of the following:
Fiscal Year
-------------------------------------------------- Five Months Ended
1999 2000 2001 December 31, 1999
-------------- -------------- -------------- ---------------------
Current - Federal $0 $0 $0 $0
Current - State 145 80 84 83
------------- ------------- ------------- --------------------
$145 $80 $84 $83
============= ============= ============= ====================
F-14
7. PENSION AND POST-RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
UnionTools maintains multiple defined benefit pension plans that cover
substantially all associates. Benefits paid under the defined benefit plans are
generally based either on years of service and the associate's compensation in
recent years of employment or years of service multiplied by contractual
amounts. Our funding policy for all plans is to fund at least the minimum amount
required by ERISA. Activity related to the pension plans is as follows:
Five Months
Fiscal Year Ended
---------------------------------- December
1999 2000 2001 31, 1999
---------- -------- ----------- --------------
(In thousands)
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at beginning of year $15,798 $16,873 $18,384 $16,688
Service cost 689 311 143 265
Interest cost 1,200 1,323 1,315 523
Actuarial losses / (gains) 3 1,330 219 (67)
Plan amendments 63 (192) 101 29
Benefits paid (1,065) (1,261) (1,149) (565)
----------- ---------- ----------- --------------
Benefit obligations at end of period $16,688 $18,384 $19,013 $16,873
=========== ========== =========== ==============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period $14,624 $17,482 $19,940 $17,102
Actual return on plan assets 1,345 1,859 1,189 218
Company contributions 2,198 1,860 465 727
Benefits paid (1,065) (1,261) (1,149) (565)
----------- ---------- ----------- --------------
Fair value of plan assets at end of period $17,102 $19,940 $20,445 $17,482
=========== ========== =========== ==============
Funded status of the plans $414 $1,549 $1,432 $609
Unrecognized net actuarial losses / (gains) 1,817 2,867 3,556 2,136
Minimum pension liability (1,614) (2,386) (2,927) (1,665)
Unamortized prior service cost 618 523 571 568
----------- ---------- ----------- --------------
Prepaid benefit cost $1,235 $2,553 $2,632 $1,648
=========== ========== =========== ==============
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 8.00% 7.50% 7.25% 8.00%
Expected return on plan assets 8.75% 8.75% 8.75% 8.75%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $689 $311 $142 $265
Interest cost 1,200 1,323 1,316 523
Actual return on plan assets (1,345) (1,859) (1,189) (218)
Amortization of prior service cost 21 44 50 21
Recognized net actuarial losses / (gains) 71 367 (472) (387)
Effects of changes in assumption 0 0 0 58
----------- ---------- ----------- --------------
Net periodic benefit cost (income) $636 $186 ($153) $262
=========== ========== =========== ==============
F-15
The following is a summary of aggregate prepaid benefit costs and
aggregate accrued benefit costs:
12/31/2000 12/31/2001
-------------- ---------------
(In thousands)
Aggregate prepaid benefit cost $3,442 $3,888
Aggregate accrued benefit cost (889) (1,256)
-------------- ---------------
Net prepaid benefit cost $2,553 $2,632
============== ===============
We have individual defined benefit pension plans that have accumulated
benefit obligations that are in excess of plan assets. These same plans have
projected benefit obligations that are in excess of plan assets. The aggregate
accumulated benefit obligations, projected benefit obligations, and fair value
of plan assets of these plans are as follows:
12/31/2000 12/31/2001
-------------- ---------------
(In thousands)
Aggregate accumulated benefit obligations $8,214 $8,393
Aggregate projected benefit obligations 8,214 8,396
Aggregate fair value of plan assets 7,323 7,137
POST-RETIREMENT BENEFIT PLANS
We also sponsor an unfunded defined benefit health care plan that
provides post-retirement medical and life insurance benefits to associates who
had attained age 50 and 10 years of service by August 1, 1996 and to current
participants receiving benefits. Lifetime benefits under the plan are capped at
$25,000 per participant. Activity related to the plan is as follows:
F-16
Five Months
Fiscal Year Ended
------------------------------------- December
1999 2000 2001 31, 1999
----------- ---------- ----------- --------------
(In thousands)
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligations at beginning of year $2,902 $2,292 $2,712 $2,404
Service cost 19 2 8 8
Interest cost 185 188 109 85
Participant contributions 85 230 188 35
Curtailment 0 0 (2,082) 0
Actuarial losses 0 815 38 0
Benefits paid (787) (815) (345) (240)
----------- ---------- ----------- --------------
Benefit obligations at end of period $2,404 $2,712 $628 $2,292
=========== ========== =========== ==============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period $0 $0 $0 $0
Company contributions 702 585 157 205
Participant contributions 85 230 188 35
Benefits paid (787) (815) (345) (240)
----------- ---------- ----------- --------------
Fair value of plan assets at end of period $0 $0 $0 $0
=========== ========== =========== ==============
Funded status of the plans (under-funded) ($2,404) ($2,712) ($628) ($2,292)
Unrecognized net actuarial losses / (gains) (864) 4 38 (833)
----------- ---------- ----------- --------------
Prepaid benefit cost ($3,268) ($2,708) ($590) ($3,125)
=========== ========== =========== ==============
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 6.75% 7.50% 7.38% 6.75%
Expected return on plan assets N/A N/A N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $19 $2 $8 $19
Interest cost 185 188 109 185
Actual return on plan assets 0 0 0 0
Amortization of prior service cost 0 0 0 0
Recognized net actuarial gains (76) (22) 0 (76)
Recognized settlement gains 0 0 (2,077) 0
Effects of changes in assumption 0 0 0 0
----------- ---------- ----------- --------------
Net periodic benefit cost $128 $168 ($1,960) $128
=========== ========== =========== ==============
The weighted average health care cost trend rate for fiscal 2002 is
5.0% and is assumed to remain at that level thereafter. The weighted average
health care cost trend rate for fiscal 2001 was 6.0%. A one percentage point
change in the assumed health care cost trend rate would have the following
effects on post-retirement benefit obligations:
One Percentage One Percentage
Point Increase Point Decrease
----------------- ------------------
(In thousands)
Effect on total of service and interest cost components in fiscal 2001 $ 4 ($6)
Effect on total of post-retirement benefit obligation in fiscal 2001 $80 ($105)
F-17
In February 2001, UnionTools, acting in its capacity as the plan
sponsor and policy holder, notified certain of its associates, retirees, and
collective bargaining units of its intention to eliminate retiree medical and
life benefits. The elimination of these benefits resulted in a settlement gain
of $2,077,000 which is reflected as a component of net periodic pension benefit
cost.
DEFINED CONTRIBUTION 401(K) PLAN
We sponsor defined contribution 401(k) plans covering all associates.
Our matching contribution varies by plan and amounted to approximately $309,000
in fiscal 2001, $362,000 in fiscal 2000, $154,000 in transition 1999, and
$310,000 in fiscal 1999.
8. COMMITMENTS AND CONTINGENCIES
ROYALTY AGREEMENT AND OPERATING LEASES
UnionTools entered into a royalty agreement with The Scotts Company,
pursuant to which UnionTools obtained the exclusive right to manufacture,
distribute, and market in the United States and Canada an extensive line of lawn
and garden tools under the Scotts(R) brand name. Under the agreement, UnionTools
must pay certain minimum royalty amounts annually.
Rent expense under operating leases was $1.6 million in fiscal 2001,
$2.3 million in fiscal 2000, $1.2 million in transition 1999, and $2.0 million
in fiscal 1999.
The minimum annual payments under non-cancelable operating leases and
the Scotts license agreement at December 31, 2001 are as follows:
Year Amount
------------ -----------------
2002 $1,524,000
2003 936,000
2004 256,000
2005 96,000
2006 15,000
Thereafter 86,000
LITIGATION
From time to time, we are a party to personal injury litigation arising
out of incidents involving the use of our products purchased by consumers from
retailers to whom we distribute. We are generally covered by insurance for these
product liability claims.
In April 1999, an inactive subsidiary, V.H.G. Tools, Inc. ("VHG") and
predecessor companies, were joined by Midwest Products, Inc., the defendant, in
a product liability lawsuit filed in New Jersey Superior Court, Burlington
County, New Jersey. Plaintiff's and Midwest's allegations do not appear to be
supported by evidence, but if plaintiff's and Midwest's allegations against VHG
are proven, liability could be substantial. Plaintiffs' initial settlement
demand to Midwest is $26 million. We have obtained acknowledgment of coverage
from our insurance carriers under a primary policy which provides limits of $1
million per occurrence subject to an aggregate limit of $2 million. We have also
obtained acknowledgement of coverage with respect to an umbrella policy with a
limit of liability of $25 million excess of the primary policy. We have not yet
received acknowledgment of coverage with respect to a secondary policy with
limit of liability of $5 million excess of the umbrella policy. We believe that
any compensatory damages, if awarded, will be covered by insurance.
F-18
COLLECTIVE BARGAINING AGREEMENTS
The majority of our hourly associates are covered by collective
bargaining agreements, including those at the primary manufacturing facility in
Frankfort, New York, as well as those at the Columbus, Ohio distribution center.
The collective bargaining agreement covering the Frankfort hourly associates
expires in 2004, while the collective bargaining agreement covering the Columbus
hourly associates expires in 2003. We have not been subject to a strike or work
stoppage in over 20 years and believe that our relationships with our associates
and applicable unions are good. However, there can be no assurance that we will
be successful in negotiating new labor contracts on terms satisfactory to us or
without work stoppages or strikes. A prolonged work stoppage or strike at any of
our facilities could have a material adverse effect on our business, financial
condition, and results of operations.
AGREEMENTS WITH KEY EXECUTIVES
We have entered into agreements with certain of our executive officers
providing for, under certain circumstances, payments from us following the
termination of such executives' employment with us or following a change in
control of the Company (as defined therein).
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and dilutive
earnings per share:
Five Months
Fiscal Year Ended
---------------------------------------------------- December
1999 2000 2001 31, 1999
---------------- ---------------- ---------------- ---------------
NUMERATOR
Net loss ($11,276,000) ($13,968,000) ($15,679,000) ($13,141,000)
================ ================ ================ ===============
DENOMINATOR
Denominator for basic earnings per share 6,313,527 6,057,360 6,062,224 6,023,174
- weighted average shares
Effect of dilutive securities:
1997 Stock Incentive Plan 0 0 0 0
1997 Nonemployee Director Stock 0 0 0 0
Incentive Plan
Deferred Equity Compensation 0 0 0 0
Plan for Directors
Other stock options 0 0 0 0
---------------- ---------------- ---------------- ---------------
Dilutive potential common shares 0 0 0 0
---------------- ---------------- ---------------- ---------------
Denominator for diluted earnings per share 6,313,527 6,057,360 6,062,224 6,023,174
================ ================ ================ ===============
- weighted average shares and assumed
conversions
Basic loss per share ($1.79) ($2.31) ($2.59) ($2.18)
================ ================ ================ ===============
Diluted loss per share ($1.79) ($2.31) ($2.59) ($2.18)
================ ================ ================ ===============
For additional disclosure regarding outstanding stock options and the
Deferred Equity Compensation Plan for Directors, see Note 5 - Stockholders'
Equity.
F-19
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain financial data for each quarter
of fiscal 2000 and 2001. The financial data for each of these quarters is
unaudited but includes all adjustments which we believe to be necessary for a
fair presentation. All quarters include normal recurring adjustments. These
operating results, however, are not necessarily indicative of results for any
future period.
Net
Income
Net (Loss)
Net Gross Income Per Share
Sales Profit (Loss) (Diluted)
------------ ---------- ------------- ------------
(In thousands, except for per share data)
2000
First quarter $ 40,737 $ 8,861 $ 653 $0.11
Second quarter 35,170 7,549 (4,978) (0.82)
Third quarter 22,098 3,295 (5,692) (0.94)
Fourth quarter 18,586 2,422 (3,951) (0.66)
------------ ---------- ------------- ------------
$116,591 $22,127 ($13,968) ($2.31)
============ ========== ============= ============
2001
First quarter $ 28,317 $ 7,691 $ 1,358 $0.22
Second quarter 29,428 6,329 (479) (0.08)
Third quarter 18,097 5,018 (1,278) (0.21)
Fourth quarter 17,640 4,040 (15,280) (2.52)
------------ ---------- ------------- ------------
$ 93,482 $23,078 ($15,679) ($2.59)
============ ========== ============= ============
11. OTHER EXPENSES
In January 1999, we incurred expenses of $355,000 in consolidating our
watering products business into a single facility. We incurred expenses for
legal, accounting, consulting, and other expenses of $994,000 in fiscal 1999
related to certain strategic transactions.
In March 1999, we announced that we would consolidate our Columbus,
Ohio manufacturing facility into our primary manufacturing facility in
Frankfort, New York. The Columbus manufacturing facility continued to operate
through August 1999, at which time operations ceased. Costs incurred as it
related to this consolidation totaled $787,000 in transition 1999 and $993,000
in fiscal 1999. During fiscal 1999, we commenced a restructuring of our
executive management team, whereby certain key executives were replaced. Costs
incurred as it related to this initiative totaled $408,000 in fiscal 2000,
$1,238,000 in transition 1999, and $668,000 in fiscal 1999.
In fiscal 2000, we sold certain assets related to our watering
products. Total proceeds received in connection with the sale of these assets
were approximately $4 million and we recognized a loss on disposal of
approximately $1.2 million.
In fiscal 2001, we incurred $0.5 million primarily in financial
consulting and legal fees to pursue and evaluate strategic alternatives as
required by the sixteenth amendment to our amended and restated credit facility
(See Note 4).
12. COMPANY OPERATIONS AND SUBSEQUENT EVENTS
Our 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. We have incurred net losses for
the last three reporting periods, our revolving Credit Facility expires on April
30, 2002, our Acquisition
F-20
Facility matures on April 30, 2002, and our Junior Participation Term Loan Note
matures on April 30, 2002. We have been substantially dependent upon borrowings
under our credit arrangements.
We believe the operating losses have been largely due to operational
control issues related to the consolidation of our manufacturing facilities and
unfavorable customer and vendor terms. During fiscal 2000 and 2001, we focused
substantial effort on identifying opportunities to reduce operating costs,
including outsourcing certain manufacturing and administrative functions,
consolidating distribution facilities, and re-negotiating customer and vendor
terms.
Our primary cash needs are for working capital, capital expenditures,
and debt service. We continue to finance these needs through internally
generated cash flow and funds borrowed under the Credit Facility. We are
currently in negotiations to extend our existing Credit Facility.
We have evaluated the various strategic alternatives presented to us
and have concluded that the optimal choice was to agree to and exercise a letter
of intent put forth on February 1, 2002, to recapitalize the debt and equity of
the Company. Under the proposed transaction, the Company's majority
stockholders, TCW Funds and OCM Principal Funds, have agreed to invest up to $10
million cash and convert approximately $8 million in subordinated debt into
equity at a value of $1.00 per share. The proposed transaction is contingent
upon, among other things, obtaining new financing for the Company's operations.
At December 31, 2001, we were in compliance with the covenants of our
Credit Facility. However, subsequent to that date we fell in default of the
Credit Facility because we have been unable to obtain a financing commitment to
support the letter of intent transaction or to execute a definitive purchase
agreement. While we are working diligently to complete the transaction, though
possibly in a form different than that outlined in the original letter of
intent, and thereby cure the default, we believe our existing bank group will
continue to fund our operations. Given the critical nature and timeframe of
these issues, we believe significant progress and clarification can be made
prior to the expiration of our Credit Facility on April 30, 2002. However, there
can be no assurance as to when and if an agreement will be reached. If we are
unable to reach an agreement, it will adversely impact our principal sources of
liquidity and our ability to meet future cash requirements. This shortfall could
force us to consider alternatives that may include negotiating further
amendments to our existing Credit Facility, attempting to obtain loans from
third party sources, asset sales, a sale of the entire Company, or other
remedies appropriate to the circumstances.
If we are successful in consummating the letter of intent and obtaining
new financing, then we believe we would have sufficient liquidity to operate
over the term of the new facility.
In addition, we believe that our improved profitability in tandem with
lower interest costs as a result of a less leveraged capital structure, will
also provide us sufficient liquidity to move through our operating cycle. This
includes satisfaction of all lease and debt principal payments, as well as, any
rollover or incremental letter of credit requirements. However, if future
financial results do not meet our expectations or the recapitalization
transaction is not completed, we will activate contingency plans, further
reducing expenditures, and take other actions to operate within the resources
and alternatives available.
13. RELATED PARTY TRANSACTIONS
We received certain professional services from the firm in which
Acorn's former Chairman of the Board of Directors is a Partner. We paid
approximately $221,000 in transition 1999 and $762,000 in fiscal 1999 for these
services. At December 31, 1999, we had a payable of approximately $22,000
related to these services. We had no related party transactions in fiscal 2000
or 2001.
F-21
ACORN PRODUCTS, INC.
(PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
December 31,
------------------------
2000 2001
-------- --------
(In thousands)
ASSETS
Cash $ 102 $ 664
Accounts receivable 0 0
Prepaid and other assets 150 0
-------- --------
Total current assets 252 664
Property, plant and equipment, net 0 0
Goodwill 6,003 0
Other assets (principally investment in and
amounts due from wholly-owned subsidiaries) 17,273 6,455
-------- --------
Total assets $ 23,528 $ 7,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 1,168 $ 1,007
Income taxes payable 0 0
Other current liabilities 50 50
-------- --------
Total current liabilities 1,218 1,057
Long-term debt 0 0
-------- --------
Total liabilities 1,218 1,057
Stockholders' equity:
Common stock 78,262 78,262
Contributed capital - stock options 460 460
Minimum pension liability (1,551) (2,121)
Retained earnings (deficit) (52,600) (68,278)
-------- --------
24,571 8,323
Common stock in treasury (2,261) (2,261)
-------- --------
Total stockholders' equity 22,310 6,062
-------- --------
Total liabilities and stockholders' equity $ 23,528 $ 7,119
======== ========
See accompanying notes.
S-1
ACORN PRODUCTS, INC.
(PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
Fiscal Year
--------------------------------------------- Five Months Ended
1999 2000 2001 December 31, 1999
----------- ------------ ------------ ---------------------
(In thousands)
Selling and administrative expenses $3,973 $2,756 $1,532 $759
Interest expense 16 194 410 0
Amortization of goodwill 183 175 183 76
Asset impairment 0 0 5,820 0
Other expenses 1,075 80 629 1,844
----------- ------------ ------------ -----------
Loss before equity in losses (5,247) (3,205) (8,574) (2,679)
of subsidiaries
Equity in losses of subsidiaries (6,029) (10,763) (7,105) (10,462)
Income taxes 0 0 0 0
----------- ------------ ------------ -----------
Net loss ($11,276) ($13,968) ($15,679) ($13,141)
=========== ============ ============ ===========
See accompanying notes.
S-2
ACORN PRODUCTS, INC.
(PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
Fiscal Year
------------------------------------------ Five Months Ended
1999 2000 2001 December 31, 1999
------------ ------------ ------------ ---------------------
(In thousands)
Net cash from operating activities $2,488 $15 $562 ($87)
INVESTING ACTIVITIES:
Property and equipment 0 0 0 0
FINANCING ACTIVITIES:
Net activity on revolving loan 0 0 0 0
Redemption of subordinated debt 0 0 0 0
Issuance of common stock 0 0 0 0
Issuance (purchase) of treasury stock (2,488) 87 0 11
Retirement of preferred stock 0 0 0 0
------------ ------------ ------------ ------
(2,488) 87 0 11
------------ ------------ ------------ ------
Increase (decrease) in cash $0 $102 $562 ($76)
============ ============ ============ ======
See accompanying notes.
S-3
ACORN PRODUCTS, INC.
(PARENT COMPANY)
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company-only financial statements, Acorn's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries. Acorn's share of net income (loss) of its unconsolidated
subsidiaries is included in consolidated income using the equity method. Parent
company-only financial statements should be read in conjunction with the
Company's consolidated financial statements.
2. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Acorn is a guarantor of the Credit Facility of UnionTools, Inc., a
wholly-owned subsidiary. Cash utilized by Acorn is provided through
inter-company borrowings and is subject to certain restrictions. See Note 4 to
the Company's Consolidated Financial Statements.
S-4
UNIONTOOLS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2001
Additions
-------------------------
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions of Period
- -------------------------------- ---------- ---------- ---------- ---------- ----------
PERIOD ENDED DECEMBER 31, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts $ 820,460 $ 474,393 ($ 50,272) $ 581,397 $ 663,184
Reserve for sales, discounts and
other allowances 1,303,595 1,714,147 0 2,390,685 627,057
---------- ---------- ---------- ---------- ----------
Total $2,124,055 $2,188,540 ($ 50,272) $2,972,082 $1,290,241
PERIOD ENDED DECEMBER 31, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts $ 642,000 $1,192,332 $ 0 $1,013,872 $ 820,460
Reserve for sales, discounts and
other allowances 1,498,446 3,495,906 0 3,690,757 1,303,595
---------- ---------- ---------- ---------- ----------
Total $2,140,446 $4,688,238 $ 0 $4,704,629 $2,124,055
PERIOD ENDED DECEMBER 31, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 940,764 $ 272,029 $ 0 $ 570,793 $ 642,000
Reserve for sales, discounts and
other allowances 1,303,245 985,471 0 790,270 1,498,446
---------- ---------- ---------- ---------- ----------
Total $2,244,009 $1,257,500 $ 0 $1,361,063 $2,140,446
PERIOD ENDED JULY 30, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 259,378 $ 701,103 $ 0 $ 19,717 $ 940,764
Reserve for sales, discounts and
other allowances 634,401 668,844 0 0 1,303,245
---------- ---------- ---------- ---------- ----------
Total $ 893,779 $1,369,947 $ 0 $ 19,717 $2,244,009
S-5