UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 [d] OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number Q4823
ACME UNITED CORPORATION
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0236700
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Kings Highway Cutoff, Fairfield, Connecticut 06430
- -----------------------------------------------------------------
(203) 332-7330
--------------------------------------------------
Registrant's telephone number, including area code
- --------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X} No [ ]
Registrant had 3,362,375 shares outstanding as of October 31,
1997 of its $ 2.50 par value Common Stock.
<PAGE 2>
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
ACME UNITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31
1997 1996
(UNAUDITED)
<CAPTION> ------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 82 $ 427
Accounts receivable, net 10,149 7,007
Inventories:
Finished goods 5,211 4,858
Work in process 3,043 1,911
Raw materials and supplies 4,339 3,654
Prepaid expenses and other current assets 688 388
------------ ------------
Total current assets 23,512 18,245
Plant, Property and Equipment:
Land 423 452
Buildings 3,722 3,910
Machinery and equipment 15,242 14,772
------------ ------------
Total plant, property and equipment 19,387 19,134
Less, accumulated depreciation 12,700 12,460
------------ ------------
Net plant, property and equipment 6,687 6,674
Licensing agreements --- 790
Other assets 737 750
Goodwill 530 792
------------ ------------
Total Assets $ 31,466 $ 27,251
============= =============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE 3>
<TABLE>
ACME UNITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31
1997 1996
(UNAUDITED)
<CAPTION> ------------ -----------
<S> <C> <C>
LIABILITIES
Current Liabilities:
Accounts payable $ 3,325 $ 2,547
Notes payable due within one year 4,067 5,258
Accrued liabilities:
Restructuring reserve 789 755
Other accrued liabilities 4,177 3,732
------------ ------------
Total current liabilities 12,358 12,292
Long term debt 12,281 8,444
------------ ------------
Total Liabilities 24,639 20,736
STOCKHOLDERS' EQUITY
Common stock, par value $2.50,
authorized 4,000,000 shares,
issued 3,468,995 and 3,434,620
shares and outstanding 3,357,375
and 3,387,620 shares, respectively 8,672 8,587
Additional paid-in capital 2,232 2,179
Accumulated deficit (2,228) (2,917)
Translation adjustment (1,161) (976)
Treasury stock, 111,620 and 47,000
shares, respectively (688) (358)
------------ ------------
Total Stockholders' Equity 6,827 6,515
------------ ------------
Total Liabilities and Stockholders' Equity $ 31,466 $ 27,251
============= =============
</TABLE>
See notes to condensed consolidated financial statements
<PAGE 4>
<TABLE>
ACME UNITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
<CAPTION>
SEPT 30 SEPT 30 SEPT 30 SEPT 30
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 12,715 $ 13,281 $ 36,449 $ 38,103
Other income 104 49 1,046 221
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 9,316 9,807 26,499 29,120
Selling, general and administrative
expenses 2,925 3,700 8,742 10,442
Interst expense 354 361 960 1,199
Restructuring & other charges --- --- 530 ---
--------- --------- --------- ---------
12,595 13,868 36,731 40,761
--------- --------- --------- ---------
Income/(loss) before income tax 224 (538) 764 (2,437)
Provision for income tax 38 (53) 75 103
--------- --------- --------- ---------
Net income/(loss) $ 186 $ (485) $ 689 $ (2,540)
========= ========= ========= =========
Weighted average common and
dilutive common equivalent shares 3,353 3,338 3,351 3,338
========= ========= ========= =========
Net income/(loss) per common share $ .06 $ (.15) $ .21 $ (.76)
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE 5>
<TABLE>
ACME UNITED CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ ------------
<CAPTION>
<S> <S> <S>
Cash flows from operating activities:
Net income/(loss) $ 689 $ (2,540)
Adjustments for non-cash transactions:
Depreciation 772 859
Amortization 81 330
Loss on sale of property, plant, and equipment --- (25)
(Gain) on disposition of trademarks and
trade name --- (98)
Change in assets and liabilities:
Accounts receivable (3,541) (1,826)
Inventory (2,400) 6,702
Prepaid expenses and other current assets (158) 127
Other assets 978 (241)
Accounts payable 836 (1,479)
Income taxes payable 22 92
Other liabilities 663 (843)
---------- ----------
Total adjustments (2,747) 3,598
---------- ----------
Net cash (used) provided by operations (2,058) 1,058
Cash flows from investing activities:
Capital expenditures (1,439) (507)
Proceeds from sales of business and property,
plant and equipment 258 1,108
---------- ----------
Net cash (used) provided by investing activities (1,181) 601
Cash flows from financing activities:
Net borrowings 3,083 (1,745)
Treasury stock purchased (330) ---
Common stock issued for stock options exercised 138 ---
---------- ----------
Net cash provided (used) by financing activities 2,891 (1,745)
---------- ----------
Effect of exchange rate changes on cash 3 (17)
Net change in cash and cash equivalents (345) (103)
Cash and cash equivalents at beginning of period 427 532
---------- ----------
Cash and cash equivalents at end of period $ 82 $ 429
========== ==========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE 6>
ACME UNITED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying condensed consolidated
financial statements contain all adjustments necessary to present fairly
the financial position as of September 30, 1997 and December 31, 1996,
the results of its operations for the three and nine months periods ended
September 30, 1997 and 1996, and cash flows for the nine months ended
September 30, 1997 and 1996. The financial statements reflect all
recurring adjustments but do not include all of the disclosures normally
required by generally accepted accounting principles or those normally
made in the annual Form 10-K filing. Please refer to the Company's
annual report for year ended December 31, 1996 for such disclosures.
2. The results of operations for the three months and nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
3. On August 22, 1997, the Company entered into an agreement to extend
the maturity date on the revolving line of credit from May 1998 to May
1999, and the interest rate was reduced from prime plus 1/2% to prime plus
1/4%. The Company also entered into a $2,000,000 equipment loan agreement.
This loan has a maturity of May 1999 and bears an interest rate of prime
plus 1/2%. The loan will be utilized to finance up to 80% of the net
purchase price of manufacturing equipment for the Company's North
Carolina facility.
4. Net income/(loss) per share is based on the weighted average number
of common shares and dilutive common equivalent shares (common stock
options) outstanding using the treasury stock method. In February 1997,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" "SFAS 128"). The
Company will adopt SFAS 128 for the year ending December 31, 1997 in
accordance with the provisions of SFAS 128. Such adoption is not
expected to have a significant impact on the Company's earnings per
share.
5. In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," and Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Both Statements are effective for the Company's year
ending December 31, 1998. The Company is currently evaluating the impact
of these statements on its financial reporting practices.
<PAGE 7>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
RESULT OF OPERATIONS
Net Sales
Consolidated net sales for the quarter ended September 30, 1997 were
$12,715,000 compared to $13,281,000 for the same period last year. Sales
decreased by $566,000, or 4%, in the third quarter of 1997 compared with
the third quarter of 1996.
Net sales were $36,449,000 for the first nine months of 1997, compared
with net sales of $38,103,000 for the first nine months of 1996. Net
sales in 1996 included $1,568,000 for the former Altenbach subsidiary.
Excluding Altenbach, sales decreased $86,000, in the first nine months of
1997 compared with the first nine months of 1996. Excluding the impact
of currency translation, sales would have increased by $180,000. For the
nine months ended September 30, 1997 compared with the same period in
1996, Consumer Product sales, excluding Altenbach and currency
translation, increased by 2%, and Medical Product sales decreased by 4%.
Medical sales declined due to the sale of the Seton product line
announced in March of 1997.
Consumer Products net sales of $9,431,000 in the third quarter of 1997
decreased $143,000, or 1%, compared with $9,574,000 in the third quarter
of 1996 due to the impact of foreign currency translation. Revenues in
the U.S. market grew 3%. International operations net sales were
$3,347,000 in the third quarter of 1997, compared with $3,548,000 in the
same period of 1996. Of the decline of $201,000, $147,000 resulted from
the impact of currency translation. Year to date net sales in 1997,
adjusted for currency translation, improved in Canada and Germany as
compared with the same period in 1996. Sales declined in the United
Kingdom.
Medical Products net sales of $3,284,000 in the third quarter of 1997
decreased $423,000, or 11%, compared with $3,707,000 in the third quarter
of 1996. The revenue decline was due to the sale of the Seton product
line.
Gross Profit Margin
For the third quarter the Company reported an improved profit margin of
26.7% in 1997 compared to 26.2% in 1996. The gross profit margin for the
nine months ended September 30, 1997 was 27.3% compared with a gross
profit margin for the first nine months of 1996 of 23.6%. The
significant improvement was in the U.S. operations and resulted from
increased plant utilization, after the consolidation of all U.S.
manufacturing into the North Carolina facilities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $775,000 and
$1,700,000 for the three and nine month periods ended September 30, 1997
as compared with the same periods in 1996. Excluding Altenbach from the
1996 expenses, the decrease for the first nine months of 1997 compared
with 1996 was $1,336,000, or 13%. The first nine months of 1996 included
$869,000 of severance costs. Excluding Altenbach and severance costs
from the nine months ended September 30, 1996, selling, general and
administrative expenses declined by $467,000, or 5%, for the first nine
months of 1997 compared with 1996.
<PAGE 8>
Provision for Income Taxes
The Company has tax operating loss carryforwards in the United States,
England and Germany. The tax provision for the three and nine month
periods ended September 30, 1997 was $38,000 and $75,000, respectively,
compared with ($53,000) and $103,000 for the same periods for 1996. The
tax provision includes minimum state and local tax obligations net of the
benefit of net operating losses utilized.
Net Income
The Company reported a net income for the third quarter of 1997 of
$186,000, or $.06 per share, compared to a loss in the third quarter of
1996 of $485,000, or $.15 loss per share. For the nine months ended
September 30, 1997, the net income was $689,000, or $.21 cents per share.
This compares with a net loss of $2,540,000, or $.76 cents per share, for
the first nine months of 1996.
Acme sold its U.S. marketing rights of certain wound care products to
Seton Healthcare International Limited in the first quarter of 1997. The
sale resulted in a gain of $849,000 after payment of outstanding debt and
write-off of goodwill, licensing fees, and other costs. A charge of
$692,000 was incurred in the first quarter of 1997 to write-down certain
assets of the Bridgeport, Connecticut facility, and other charges.
Liquidity and Capital Resources
During the nine months ended September 30, 1997, the total debt
outstanding increased by $2,646,000 as compared to debt outstanding at
December 31, 1996. Debt of $1,737,000 was paid down in the first quarter
of 1997 as part of the Seton sale. Total debt, excluding Seton,
increased by $4,383,000 due to the seasonality of the school products
market and capital expenditures.
All future debt reduction, along with normal payments for taxes and
capital expenditures are expected to be funded by inventory reduction and
cash generated from operations.
In the U.S., the Company has a $13,000,000 revolving line of credit which
reduces to $9,000,000 during the last 60 days of each calendar year and
expires in May 1999. The revolving line is an asset-based agreement with
various percentages applied to inventory, accounts receivable, and fixed
assets. Currently the Company has an available line of $11,611,000 with
$163,000 unused. In the U.S., the Company also has an equipment term
loan with a maturity of May 1999, and is utilized to finance the net
purchase price of manufacturing equipment for the North Carolina
facility. The foreign subsidiaries have overdraft arrangements which
expire at various times during 1997.
The Company's working capital, current ratio and long term debt to equity
ratio are as follows:
September 30, December 31,
1997 1996
Working capital $ 11,154,000 $ 5,953,000
Current ratio 1.90 to 1 1.48 to 1
Long term debt to equity ratio 1.8 1.3
<PAGE 9>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
none
ITEM 2. CHANGES IN SECURITIES
none
ITEM 3. DEFAULT UPON SENIOR SECURITIES
none
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
none
ITEM 5. OTHER INFORMATION
none
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. No form 8-K was filed by the Company during the three months
ended September 30, 1997.
<PAGE 10>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME UNITED CORPORATION
-----------------------
(Registrant)
Date: October 31, 1997 /s/ Cheryl L. Kendall
--------------------------
Cheryl L. Kendall
Vice President and
Chief Financial Officer
Date: October 31, 1997 /s/ Richard L. Windt
-------------------------
Richard L. Windt
Vice President/Corporate
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of
Operations and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 10,390
<ALLOWANCES> 241
<INVENTORY> 12,593
<CURRENT-ASSETS> 23,512
<PP&E> 19,387
<DEPRECIATION> 12,700
<TOTAL-ASSETS> 31,466
<CURRENT-LIABILITIES> 12,358
<BONDS> 0
0
0
<COMMON> 8,672
<OTHER-SE> (1,845)
<TOTAL-LIABILITY-AND-EQUITY> 31,466
<SALES> 36,449
<TOTAL-REVENUES> 37,495
<CGS> 26,499
<TOTAL-COSTS> 35,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 960
<INCOME-PRETAX> 764
<INCOME-TAX> 75
<INCOME-CONTINUING> 689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
