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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(203) 332-7330
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 3,370,875 shares outstanding as of August 11, 1998
of its $2.50 par value Common Stock.
<PAGE 2>
ACME UNITED CORPORATION
Page
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations
and Comprehensive (Loss) Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE 3>
<TABLE>
PART I. FINANACIAL INFORMATION
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(all amounts in thousands)
June 30 December 31
1998 1997
-------- -----------
<CAPTION>
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 62 $ 25
Accounts receivable, net 10,360 7,446
Inventories:
Finished goods 5,542 7,658
Work in process 2,199 1,229
Raw materials and supplies 5,072 5,194
-------- --------
12,813 14,081
Prepaid expenses and other current assets 1,095 176
-------- --------
Total current assets 24,330 21,728
-------- --------
Property, plant and equipment:
Land 419 420
Buildings 3,703 3,746
Machinery and equipment 15,933 15,528
-------- --------
20,055 19,694
Less accumulated depreciation 12,894 12,929
-------- --------
7,161 6,765
Other assets 828 837
Goodwill 517 527
-------- --------
Total assets $ 32,836 $ 29,857
======== ========
See notes to condensed consolidated financial statements.
<PAGE 4>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(UNAUDITED)
(all amounts in thousands)
June 30 December 31
1998 1997
-------- -----------
LIABILITIES
Current Liabilities:
Cash overdraft arrangements $ 1,022 $ 2,538
Accounts payable 3,943 3,525
Current portion of long term debt 14,003 1,189
Restructuring liability 532 557
Other accrued liabilities 3,933 3,902
-------- --------
Total current liabilities 23,433 11,711
Long term debt, less current portion 3,079 11,852
-------- --------
Total liabilities 26,512 23,563
-------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $2.50 :
Authorized-4,000,000 shares;
Issued-3,482,495 shares in 1998
and 3,473,995 shares in 1997 8,706 8,685
Additional paid-in capital 2,251 2,238
Retained-earnings deficit (2,687) (2,714)
Accumulated other comprehensive loss -
translation adjustment (1,257) (1,226)
Treasury stock-111,620 shares (689) (689)
-------- --------
Total stockholders' equity 6,324 6,294
-------- --------
Total liabilities and stockholders'
equity $ 32,836 $ 29,857
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE 5>
<TABLE>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(all amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
----- ----- ----- -----
<CAPTION>
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 12,718 $ 12,854 $ 23,763 $ 23,734
Other income 72 57 132 942
--------- --------- --------- ---------
Total revenues 12,790 12,911 23,895 24,676
--------- --------- --------- ---------
Costs and expenses:
Cost of goods sold 9,525 9,483 17,747 17,183
Selling, general and
administrative expenses 2,761 2,845 5,396 5,817
Interest expense 363 324 701 606
Restructuring and other charges --- --- 7 530
--------- --------- --------- ---------
Total expenses 12,649 12,652 23,851 24,136
--------- --------- --------- ---------
Income before income taxes 141 259 44 540
Provision for income taxes 22 37 17 37
--------- --------- --------- ---------
Net income 119 222 27 503
Other comprehensive expenses -
foreign currency translation (19) (33) (31) (156)
--------- --------- --------- ---------
Comprehensive income (loss) $ 100 $ 189 $ (4) $ 347
========= ========= ========= =========
Basic earnings per share $ 0.04 $ 0.07 $ 0.01 $ 0.15
========= ========= ========= =========
Diluted earnings per share $ 0.03 $ 0.06 $ 0.01 $ 0.14
========= ========= ========= =========
Weighted average number of
common shares outstanding-
denominator for basic
per share computation 3,370 3,330 3,369 3,349
Weighted average number of
dilutive stock
options outstanding 353 330 339 314
--------- --------- --------- ---------
Denominator for diluted per
share computation 3,723 3,660 3,708 3,663
========= ========= ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE 6>
<TABLE>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Six Months Ended
June 30
----------------
1998 1997
------ ------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income $ 27 $ 503
Adjustments to reconcile net income to
net cash used by operating activities:
Gain on sale of marketing rights --- (846)
Depreciation 524 455
Amortization 11 76
Increase in deferred income taxes 56 ---
Gain on disposal of property, plant, and equipment 51 ---
Change in operating assets and liabilities:
Accounts receivable (3,366) (3,279)
Inventories 1,225 (2,859)
Prepaid expenses and other current assets (506) (983)
Other assets (18) (12)
Accounts payable 427 1,700
Other accrued liabilities 113 917
-------- --------
Net cash used by operating activities (1,456) (4,328)
-------- --------
Investing activities:
Capital expenditures (1,284) (922)
Proceeds from sale of property, plant, and equipment 300 165
Proceeds from sale of marketing rights --- 1,915
-------- --------
Net cash (used) provided by investing activities (984) 1,158
-------- --------
Financing activities:
Proceeds from long term debt and credit arrangements 3,741 3,509
Payments on long term debt and credit arrangements (1,295) (592)
Common stock issued for stock options exercised 33 96
-------- --------
Net cash provided by financing activities 2,479 3,013
-------- --------
Effect of exchange rate changes on cash (2) 2
-------- --------
Net change in cash and cash equivalents 37 (155)
Cash and cash equivalents at beginning of period 25 427
-------- --------
Cash and cash equivalents at end of period $ 62 $ 272
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE 7>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 -
In the opinion of Management, the accompanying condensed
consolidated financial statements contain all adjustments
necessary to present fairly the financial position, results of
operations and cash flows. However, the financial statements do
not include all of the disclosures normally required by generally
accepted accounting principles or those normally made in the
Company's annual report on Form 10-K. Please refer to the
Company's annual report on Form 10-K for the year ended December
31, 1997 for such disclosures. The condensed balance sheet as of
December 31, 1997 was derived from the audited financial
statements as of that date. The results of operations for the
six months ended June 30, 1998 are not necessarily indicative of
the results to be expected for the full year.
Note 2 -
The Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128") as of its December 31, 1997 year-end. As
such, per share amounts for 1997 as presented herein reflect the
adoption of SFAS 128.
Note 3 -
As of January 1, 1998, the Company adopted SFAS 130,
"Reporting Comprehensive Income". The adoption of this Statement
had no impact on the Company's net income or shareholders'
equity. Under SFAS 130 the Company's foreign currency
translation adjustments, which are reported separately in
shareholders' equity, are also required to be included in the
determination of other comprehensive income or loss. The prior
year financial statements have been reclassified to conform to
the requirements of SFAS 130.
Note 4 -
The Company has been involved in certain environmental
matters. Additionally, the Company has been involved in numerous
legal actions relating to the use of certain latex products,
which the Company distributes, but does not manufacture. The
Company is one of many defendants. During the quarter, the
Company was released from the majority of the lawsuits. While
the remaining lawsuits are still in preliminary stages, there is
no indication the Company's products were involved. Based on
information available, the Company does not expect a significant
impact on the financial position, future operations or cash flows
of the Company, relating to these matters.
The Company is in the process of making a complete assessment
of the impact of the Year 2000. In the U.S., the Company
implemented a new information system in 1997, which should
address any computer system issues related to the Year 2000. The
Company has established a Year 2000 Task Force to fully evaluate
the company-wide impact of the Year 2000. The Task Force is in
the process of identifying all issues, and determining an action
plan for testing and validating all systems. Management believes
that the Year 2000 issue will not materially affect future
financial results, or cause reported financial results not to be
necessarily indicative of future operating results or future
financial condition.
<PAGE 8>
Note 5 -
Long term debt consisted of the following:
(all amounts in thousands) (UNAUDITED)
June 30 December 31
1998 1997
--------- -----------
Revolving Line of Credit $ 11,379 $ 10,915
Revolving Loan 2,541 ---
Term Loan 1,336 600
Mortgage and Other Notes Payable 1,826 1,526
--------- ---------
$ 17,082 $ 13,041
--------- ---------
Less, Current Portion 14,003 1,189
--------- ---------
$ 3,079 $ 11,852
========= =========
The Company's Revolving Line of Credit and Term Loan are due
in May of 1999. As of June 30, 1998, the Company reclassified
$12,715,000 of the related debt from long term to current to
reflect its maturity date of May, 1999. The Company is currently
in negotiations with its lender to extend the maturity date and
fully expects to complete such arrangement prior to December,
1998.
On May 19, 1998, the Company negotiated a $3,500,000 Revolving
Loan with its current lender. Under this agreement, the amount
available is determined using an asset based formula. The loan
matures May 19, 2001 with interest at the prime rate.
<PAGE 9>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1998
Results of Operations
Net Sales
Consolidated net sales for the quarter ended June 30, 1998
were $12,718,000 compared with $12,854,000 for the same period
last year. In 1997, Acme sold the marketing rights of certain
wound care products to Seton Healthcare International Limited.
Excluding the impact of Seton, net sales increased by $536,000,
or 4%, compared with the second quarter of 1997.
Net sales were $23,763,000 for the first half of 1998,
compared with net sales of $23,734,000 for the first half of
1997. Net sales in 1997 included $1,612,000 for Seton
products. Excluding Seton, sales increased $1,641,000, or 7%,
for the first half of 1998 compared with the first half of
1997.
Consumer products net sales of $10,273,000 in the second
quarter of 1998 increased 10% compared with $9,342,000 in the
second quarter 1997. Revenues in the U.S. market grew 8% due
to an increase in sales in the first aid, ruler and
manufactured stainless steel scissors product lines. Sales of
Tagit!, the patented children's scissor line, began during the
quarter with shipments to Kmart, Staples, Office Depot and
others.
Medical products net sales of $2,445,000 in the second
quarter of 1998 decreased $1,067,000, or 30%, compared with
$3,512,000 in the second quarter 1997. The revenue decline was
primarily due to the sale of the Seton line. The core hospital
kit and tray business is gaining new conversions. In June, the
division won a supply contract with a national alternative care
distributor to consolidate minor procedure kits around its
product line. Revenues from this contract are expected to
exceed $4 million over the next three years with shipments
beginning in the third quarter 1998.
International sales grew by 15% for the second quarter
primarily due to the purchase of the Rotex Division of Esselte
Canada. Excluding currency fluctuations, sales for the second
quarter of 1998 were 18% higher than the second quarter of
1997.
Gross Profit Margin
For the second quarter the Company's gross profit margin was
25.1% compared with 26.2% for the second quarter of 1997. The
consumer gross margin improved from 22.2% in 1997 to 23.3% in
1998. The medical gross margin declined from 36.7% in 1997 to
32.5% in 1998. The gross profit margin for the first half was
26.2% compared to 27.6% for the first half of 1997. The
consumer gross margin improved from 22.8% in 1997 to 23.1% in
1998. The medical gross margin declined from 38.2% in 1997 to
33.4% in 1998. The consumer improvement is attributed to
product mix and higher margins on new products. The medical
decline resulted from a loss of the high margin Seton products,
lower sales of high margin products to the Asian market and
lower manufacturing production.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for
the second quarter of 1998 were $2,761,000 compared with
$2,845,000 for the same period of 1997, a decrease of $84,000,
or 3%. SG&A expenses of $5,396,000 for the first half of 1998
decreased $421,000, or 7%, compared with the first quarter of
1997. The first half of 1997 included $162,000 of non-
recurring charges. Excluding the non-recurring charges, SG&A
expense in the first half of 1998 declined by $259,000, or 5%,
due to headcount reductions in the United Kingdom, and the
elimination of certain expenses incurred in 1997 associated
with the product lines sold to Seton offset by higher
commissions in the consumer business associated with increased
sales.
<PAGE 10>
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 six months periods ended June 30, 1998 was $22,000
and $18,000, respectively, compared with $37,000 for the same
periods for 1997. The tax provision includes minimum state and
local tax obligations net of the benefit of net operating
losses utilized.
Net Income
The Company reported net income for the second quarter of
1998 of $119,000, or 3 cents per share (diluted), compared with
net income of $222,000, or 6 cents per share (diluted), for the
second quarter of 1997. For the first half of 1998, net income
was $27,000, or one cent per share (diluted), compared with net
income of $503,000, or 14 cents per share (diluted), for the
same period in 1997. The first half of 1997 included a gain of
the sale of marketing rights to Seton offset by one-time
charges; an increase in net income of $157,000 was recognized.
Financial Condition
Liquidity and Capital Resources
During the first half of 1998, the total debt increased by
$2,525,000 compared to total debt at December 31, 1997. Of the
increase, $1,482,000 was related to the Company's Acme United
Limited subsidiary where a new loan agreement was negotiated
utilizing an asset based lending formula that provides
increased working capital to support the Rotex acquisition and
sales growth. The remaining increase supported capital
expenditures and increased sales growth in U.S. operations.
For the remainder of 1998, cash generated from operating
activities is expected to be sufficient to reduce debt and fund
capital expenditures. The Company's current credit
arrangements coupled with cash expected from operating
activities are considered adequate to meet liquidity needs for
the remainder of 1998.
The Company's working capital, current ratio and long term
debt to equity ratio follow:
June 30, 1998 December 31, 1997
------------- -----------------
Working capital $897,000 $10,017,000
Current ratio 1.04 to 1 1.86 to 1
Long term debt to equity ratio .49 1.88
Debt of $12,715,000 as of June 30, 1998 was reclassified
during the second quarter of 1998 from long term to current to
reflect its maturity date of May, 1999. The Company is
currently in negotiations with its lender to extend the
maturity date and fully expects to complete such an arrangement
prior to December, 1998.
<PAGE 11>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
Form 8-K was filed by the Company on April 6, 1998, and
revised on April 17, 1998.
<PAGE 12>
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
By /s/ Cheryl L. Kendall
---------------------------
Cheryl L. Kendall
Vice President and
Chief Financial Officer
Dated: August 11, 1998
By /s/ Richard l. Windt
---------------------------
Richard L. Windt
Vice President and
Corporate Controller
Dated: August 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 10,595
<ALLOWANCES> 235
<INVENTORY> 12,813
<CURRENT-ASSETS> 24,330
<PP&E> 20,055
<DEPRECIATION> 12,894
<TOTAL-ASSETS> 32,836
<CURRENT-LIABILITIES> 23,433
<BONDS> 0
0
0
<COMMON> 8,706
<OTHER-SE> (2,382)
<TOTAL-LIABILITY-AND-EQUITY> 32,836
<SALES> 12,718
<TOTAL-REVENUES> 12,790
<CGS> 9,525
<TOTAL-COSTS> 12,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 363
<INCOME-PRETAX> 141
<INCOME-TAX> 22
<INCOME-CONTINUING> 119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
</TABLE>
