SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number Q4823
ACME UNITED CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0236700
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1931 BLACK ROCK TURNPIKE, Fairfield, Connecticut 06432
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(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 3,507,055 shares outstanding as of November 13, 2000 of its $2.50
par value Common Stock.
<PAGE 2>
ACME UNITED CORPORATION
Page
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Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets....................... 3
Condensed Consolidated Statements of Operations
and Comprehensive 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............................................. 12
Item 2. Changes in Securities......................................... 12
Item 3. Defaults Upon Senior Securities............................... 12
Item 4. Submission of Matters to a Vote of Security Holders........... 12
Item 5. Other Information............................................. 12
Item 6. Exhibits and Reports on Form 8-K.............................. 12
Signatures............................................................ 13
<PAGE 3>
<TABLE>
PART I. FINANCIAL INFORMATION
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(all amounts in thousands, except per share data)
September 30 December 31
2000 1999
------------ -----------
<CAPTION>
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47 $ 88
Accounts receivable, less allowance 7,540 6,702
Inventories:
Finished goods 7,464 5,355
Work in process 851 649
Raw materials and supplies 1,788 2,294
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10,103 8,298
Prepaid expenses and other current assets 685 508
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Total current assets 18,375 15,596
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Property, plant and equipment:
Land 169 191
Buildings 1,993 2,048
Machinery and equipment 7,008 8,616
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9,170 10,855
Less accumulated depreciation 5,874 6,869
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3,296 3,986
Other assets 1,361 992
Goodwill, less accumulated amortization 174 193
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Total assets $ 23,206 $ 20,767
========== =========
See notes to condensed consolidated financial statements
</TABLE>
<PAGE 4>
<TABLE>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(UNAUDITED)
(all amounts in thousands, except per share data)
September 30 December 31
2000 1999
------------ -----------
<CAPTION>
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $ 681 $ 691
Accounts payable 2,549 2,763
Other accrued liabilities 4,127 3,154
Current portion of long term debt 2,854 2,032
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Total current liabilities 10,211 8,640
Long term debt, less current portion 5,064 5,012
Other 199 197
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Total liabilities 15,474 13,849
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STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
Authorized 8,000,000 shares;
issued 3,612,062 shares,
including treasury stock 9,030 9,030
Additional paid-in capital 2,038 2,038
Retained-earnings deficit (1,289) (2,212)
Accumulated other comprehensive loss-translation adjustment (1,399) (1,290)
Treasury stock, at cost-105,007 shares (648) (648)
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Total stockholders' equity 7,732 6,918
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Total liabilities and stockholders' equity $ 23,206 $ 20,767
========== =========
See notes to condensed consolidated financial statements
</TABLE>
<PAGE 5>
<TABLE>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<CAPTION>
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 8,760 $ 9,751 $27,003 $27,872
Other income (expense) (96) 31 (105) 295
-------- -------- -------- --------
Total revenues 8,664 9,782 26,898 28,167
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 5,612 6,917 17,619 20,363
Selling, general and administrative expenses 2,452 2,561 7,608 7,287
Interest expense 273 239 713 844
-------- -------- -------- --------
Total expenses 8,337 9,717 25,940 28,494
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes 327 65 958 (327)
Income taxes 25 (71) 35 (45)
-------- -------- -------- --------
Income (loss) from continuing operations 302 136 923 (281)
Discontinued operations:
Gain on sale of discontinued operations - - - 2,101
Income from discontinued operations - - - 198
-------- -------- -------- --------
- - - 2,299
-------- -------- -------- --------
Net income 302 136 923 2,018
Other comprehensive (expense) income -
foreign currency translation (44) 47 (109) (31)
-------- -------- -------- --------
Comprehensive income $ 258 $ 183 $ 814 $ 1,987
======== ======== ======== ========
Basic earnings (loss) per share:
Continuing operations $ 0.09 $ 0.04 $ 0.26 $ (0.08)
Discontinued operations - - - 0.68
-------- -------- -------- --------
Net income $ 0.09 $ 0.04 $ 0.26 $ 0.60
======== ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations $ 0.08 $ 0.04 $ 0.25 $ (0.08)
Discontinued operations - - - 0.68
-------- -------- -------- --------
Net income $ 0.08 $ 0.04 $ 0.25 $ 0.60
======== ======== ======== ========
Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,507 3,377 3,507 3,377
Weighted average number of dilutive stock options
outstanding 291 - 133 -
Denominator used for diluted per share computation 3,798 3,377 3,640 3,377
======== ======== ======== ========
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)
Nine Months Ended
September 30
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2000 1999
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<CAPTION>
<S> <C> <C>
Operating Activities:
Net income $ 923 $ 2,018
Adjustments to reconcile net income
to net cash used by operating activities:
Gain on sale of discontinued operations - (2,101)
Depreciation 473 504
Amortization 115 26
Loss on sale of property, plant, and equipment 148 (24)
Changes in operating assets and liabilities:
Accounts receivable (838) (1,603)
Inventories (1,805) 1,741
Prepaid expenses and other current assets (177) 270
Other assets (369) (101)
Accounts payable (214) (1,540)
Other accrued liabilities 973 (1,936)
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Net cash used by operating activities (771) (2,746)
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Investing Activities:
Capital expenditures (384) (412)
Proceeds from sale of property, plant, and equipment 286 141
Proceeds from sale of medical division - 8,156
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Net cash (used) provided by investing activities (98) 7,885
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Financing Activities:
Net proceeds (payments) on short term borrowing arrangements 1,311 (5,119)
Borrowings of long term debt 1,025 2,500
Payments of long term debt (1,449) (2,440)
Debt issuance costs (168) (89)
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Net cash provided (used) by financing activities 719 (5,148)
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Effect of exchange rate changes 109 (31)
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Net change in cash and cash equivalents (41) (40)
Cash and cash equivalents at beginning of period 88 40
---------- ---------
Cash and cash equivalents at end of period $ 47 $ -
========== =========
See notes to condensed consolidated financial statements
</TABLE>
<PAGE 7>
Notes to CONDENSED CONSOLIDATED Financial Statements
(Unaudited)
Note 1 -- Basis of Presentation
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, 1999 for such disclosures. The condensed
consolidated balance sheet as of December 31, 1999 was derived from the audited
consolidated balance sheet as of that date. The results of operations for the
three and nine months ended September 30, 2000 are not necessarily indicative of
the results to be expected for the full year.
The Company has reclassified certain amounts in prior periods to conform to
the current presentation.
Note 2 -- Discontinued Operations
On March 22, 1999 the Company sold its medical business including customer
lists, inventory, and certain equipment for approximately $8,156,000 realizing a
gain of $2,101,000. The condensed consolidated statement of operations for the
nine months ended September 30, 1999 relating to the medical business follows:
Net sales $ 5,630,000
Costs and expenses 5,432,000
-----------
Income from operations $ 198,000
===========
Earnings per share $ 0.06
===========
Income taxes related to the medical business were not material.
Note 3 -- Contingencies
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. The Company has been
released from the majority of the lawsuits. While five lawsuits remain, they are
still in preliminary stages and it has not been determined whether the Company's
products were involved. Based on information available, the Company believes
that there will not be a material adverse impact on financial position, results
of operations, or liquidity, from environmental and product liabilities, either
individually or in aggregate.
<PAGE 8>
Notes to CONDENSED CONSOLIDATED Financial Statements- continued
(Unaudited)
Note 4 -- Debt and Liquidity
The Company has short-term lines of credit for its foreign subsidiaries
which are renewable at various times throughout the year. The aggregate amount
available under these lines is $1,029,000 of which $681,000 is outstanding at
September 30, 2000.
Long term debt consisted of the following:
(all amounts in thousands)
September 30 December 31
2000 1999
------------ -----------
Notes payable to banks:
North American....................... $ 7,214 $ 5,225
Other................................ 704 1,819
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7,918 7,044
Less current portion 2,854 2,032
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$ 5,064 $ 5,012
========== ==========
On January 19, 2000, the Company entered into a loan agreement (the
Agreement) with a bank to refinance debt. Under the Agreement the Company may
borrow up to $11,500,000 through January 19, 2003 (the maturity date) based on a
formula which applies specific percentages to balances of accounts receivable
and inventories. Throughout the next twelve months, the Company expects to have
a minimum of $4.4 million outstanding under this arrangement as such, amounts
borrowed in excess of $4.4 million are classified as part of the current portion
of long term debt. Under the Agreement, the Company borrowed an additional
$325,000 which is payable in monthly installments of $5,417, plus interest,
through November 1, 2002 and a final installment of $65,822, plus interest, due
December 1, 2002. Amounts outstanding under the Agreement bear interest at
varying rates as provided for in the Agreement. As of September 30, 2000 the
North American operations had $1.6 million in excess availability under the
Agreement.
On August 7, 2000 the Company entered into an interest rate swap with the
bank effectively fixing the interest rate at 10.18% for $3.5 million of debt
through the Agreement's maturity date.
On August 22, 2000 the Company entered into a separate loan agreement with
another bank to refinance a mortgage on an owned property in North Carolina. The
Company will repay $700,000, principal amount, amortized over 20 years, in
monthly installments of $830, plus interest at the Federal Home Loan Bank of
Seattle fixed advanced rate, plus 3.0% through August 1, 2020 and a final
installment of $500,800, plus interest, due on August 1, 2020. A portion of the
proceeds from this loan was used to repay amounts borrowed under the Agreement.
The Company, among other things, is restricted with respect to dividends,
additional borrowings, investments, mergers, distributions, and property and
equipment acquisitions. Further, the Company is required to maintain specific
amounts of tangible net worth, and a specified debt service coverage ratio, and
a fixed charge coverage ratio, all as defined. The Company was in compliance
with all covenants as of or through September 30, 2000 and believes these
financial covenants will be met for the remainder of the term of the loan.
Cash expected to be generated from operating activities, together with funds
available under the Agreement, is expected, under current conditions, to be
sufficient to finance the Company's planned operations over the next year.
<PAGE 9>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Nine Months Ended September 30, 2000
Results of Operations
Net Sales
Traditionally, the Company's sales are stronger in the second and third
quarters, and weaker in the first and fourth quarters of the fiscal year due to
the seasonal nature of the business specific to the back-to-school season.
Consolidated net sales for the quarter ended September 30, 2000 were $8,760,000
compared with $9,751,000 for 1999. Beginning in the first quarter of 2000, the
Company is classifying outgoing freight expense as selling expense. Such
expenses were previously classified as a component of net sales. Outgoing
freight expense for the quarter ended September 30, 1999 of $231,000 has been
reclassified to conform with the current period presentation. Net sales for the
first nine months of 2000 were $27,003,000 compared with $27,872,000 for 1999, a
3% decrease.
Domestic sales were down 20% in the third quarter of 2000 compared with the
same period in 1999, and down 6% for the first nine months of 2000 compared to
1999. Lower sales to office superstores and wholesalers coupled with a decline
in the very price competitive bid business resulted in reduced sales in this
segment year over year.
International sales for the third quarter of 2000 were 16% above 1999
levels. Strong sales growth in England and Canada offset weakness in Germany.
For the first nine months of 2000, international sales increased 3% over 1999
levels.
Gross Profit
The gross profit for the third quarter of 2000 was $3,148,000 (35.9% of net
sales) compared to $2,620,000 (27.6% of net sales) for the third quarter of
1999. The gross margin was 34.7% for the first nine months of 2000 versus 26.4%
in the same period of 1999. Resourcing of scissor products to Asia coupled with
aggressive purchasing practices and improved manufacturing efficiencies in the
USA were the main reasons for the improved gross margins.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the third quarter
of 2000 were $2,452,000 (28.0% of net sales) compared with $2,561,000 (26.3% of
net sales) for the same period of 1999, an increase of $109,000. SG&A were 28.2%
of net sales for the first nine months of 2000 versus 26.1% in the same period
of 1999.
Income (Loss)
Net income for the third quarter of 2000 is $302,000, or 9 cents per share
(basic), 8 cents per share (diluted) compared to a net income of $136,000, or 4
cents per share (basic and diluted) for the same period of 1999. Net income from
continuing operations for the first nine months of 2000 was $923,000 versus a
net loss of $281,000 for the same period of 1999.
<PAGE 10>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Nine Months Ended September 30, 2000
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long term debt to equity
ratio follow:
September 30, 2000 December 31, 1999
------------------ ------------------
Working capital................... $8,164,000 $6,956,000
Current ratio..................... 1.80 to 1 1.81 to 1
Long term debt to equity ratio.... .65 .72
During the first nine months of 2000, total debt increased by $874,000
compared to total debt at December 31, 1999 as a result of additional borrowings
to fund higher inventory levels and higher accounts receivable due to seasonal
sales volume.
On January 19, 2000, the Company entered into a loan agreement (the
Agreement) with a bank to refinance debt. Under the Agreement the Company may
borrow up to $11,500,000 through January 19, 2003 (the maturity date) based on a
formula which applies specific percentages to balances of accounts receivable
and inventories. Throughout the next twelve months, the Company expects to have
a minimum of $4.4 million outstanding under this arrangement as such, amounts
borrowed in excess of $4.4 million are classified as part of the current portion
of long term debt. Under the Agreement, the Company borrowed an additional
$325,000 which is payable in monthly installments of $5,417, plus interest,
through November 1, 2002 and a final installment of $65,822, plus interest, due
December 1, 2002. Amounts outstanding under the Agreement bear interest at
varying rates as provided for in the Agreement. As of September 30, 2000 the
North American operations had $1.6 million in excess availability under the
Agreement.
On August 7, 2000 the Company entered into an interest rate swap with the
bank effectively fixing the interest rate at 10.18% for $3.5 million of debt
through the Agreement's maturity date.
On August 22, 2000 the Company entered into a separate loan agreement with
another bank to refinance a mortgage on an owned property in North Carolina. The
Company will repay $700,000, principal amount, amortized over 20 years, in
monthly installments of $830, plus interest at the Federal Home Loan Bank of
Seattle fixed advanced rate, plus 3.0% through August 1, 2020 and a final
installment of $500,800, plus interest, due on August 1, 2020. A portion of the
proceeds from this loan was used to repay amounts borrowed under the Agreement.
The Company, among other things, is restricted with respect to dividends,
additional borrowings, investments, mergers, distributions, and property and
equipment acquisitions. Further, the Company is required to maintain specific
amounts of tangible net worth, and a specified debt service coverage ratio, and
a fixed charge coverage ratio, all as defined. The Company was in compliance
with all covenants as of or through September 30, 2000 and believes these
financial covenants will be met for the remainder of the term of the loan.
Capital expenditures for the next 12 months are not expected to be material
and are expected to be financed by cash provided by investing activities and
future operating activities.
<PAGE 11>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Nine Months Ended September 30, 2000
Safe Harbor for Forward-looking Statements
Forward-looking statements in this report, including without limitation,
statements related to the Company's plans, strategies, objectives, expectations,
intentions and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth and inventory; (iii) other risks and uncertainties indicated from time to
time in the Company's filings with the Securities and Exchange Commission.
<PAGE 12>
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
None.
<PAGE 13>
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/ WALTER C. JOHNSEN
------------------------------
Walter C. Johnsen
President and
Chief Executive Officer
Dated: November 13, 2000
By /s/ RONALD P. DAVANZO
------------------------------
Ronald P. Davanzo
Vice President and
Chief Financial Officer
Dated: November 13, 2000
