UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2023March 31, 2024
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: 01-07698
ACME UNITED CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Connecticut |
| 06-0236700 |
State or Other Jurisdiction of |
| I.R.S. Employer Identification No. |
Incorporation or Organization |
|
|
|
|
|
1 Waterview Drive, Shelton, Connecticut |
| 06484 |
Address of Principal Executive Offices |
| Zip Code |
Registrant's telephone number, including area code: (203) 254-6060
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
$2.50 par value Common Stock | ACU | NYSE American |
Indicate by check mark whether the registrant (l) 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer | ☐ |
| Accelerated filer | ☒ |
|
|
|
|
|
Non-accelerated filer | ☐ |
| Smaller Reporting Company | ☒ |
|
|
|
|
|
Emerging growth company | ☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(s) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Registrant had 3,568,0063,661,880 shares of its $2.50 par value Common Stock outstanding as of AugustMay 3, 2023.2024.
ACME UNITED CORPORATION
INDEX
Page Number | ||
| ||
3 | ||
Item 1: | 3 | |
Condensed Consolidated Balance Sheets at | 3 | |
5 | ||
6 | ||
7 | ||
| ||
| ||
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3: |
| |
Item 4: |
| |
| ||
| ||
Item 1: |
| |
Item 1A: |
| |
Item 2: |
| |
Item 3: |
| |
Item 4: |
| |
Item 5: |
| |
Item 6: |
| |
| ||
2
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
|
| (unaudited) |
|
| (Note 1) |
|
| (unaudited) |
|
| (Note 1) |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 3,401 |
|
| $ | 6,100 |
|
| $ | 2,443 |
|
| $ | 4,796 |
|
Accounts receivable, less allowance of $842 in 2023 and $1,061 in 2022 |
|
| 39,796 |
|
|
| 32,604 |
| ||||||||
Accounts receivable, less allowance of $678 in 2024 and $567 in 2023 |
|
| 32,966 |
|
|
| 26,234 |
| ||||||||
Inventories |
|
| 55,944 |
|
|
| 63,325 |
|
|
| 56,887 |
|
|
| 55,470 |
|
Prepaid expenses and other current assets |
|
| 4,329 |
|
|
| 2,821 |
|
|
| 5,357 |
|
|
| 4,773 |
|
Restricted cash |
|
| - |
|
|
| 750 |
|
|
| 750 |
|
|
| 750 |
|
Total current assets |
|
| 103,470 |
|
|
| 105,600 |
|
|
| 98,403 |
|
|
| 92,023 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Land |
|
| 1,982 |
|
|
| 1,979 |
|
|
| 2,387 |
|
|
| 2,387 |
|
Buildings |
|
| 17,315 |
|
|
| 16,614 |
|
|
| 17,677 |
|
|
| 17,502 |
|
Machinery and equipment |
|
| 33,124 |
|
|
| 31,492 |
|
|
| 35,846 |
|
|
| 34,705 |
|
|
| 52,421 |
|
|
| 50,085 |
|
|
| 55,910 |
|
|
| 54,594 |
| |
Less: accumulated depreciation |
|
| 25,158 |
|
|
| 23,669 |
|
|
| 27,047 |
|
|
| 26,568 |
|
Net property, plant and equipment |
|
| 27,263 |
|
|
| 26,416 |
|
|
| 28,863 |
|
|
| 28,026 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating lease right-of-use asset, net |
|
| 2,374 |
|
|
| 2,632 |
|
|
| 5,530 |
|
|
| 2,002 |
|
Goodwill |
|
| 8,189 |
|
|
| 8,189 |
|
|
| 8,189 |
|
|
| 8,189 |
|
Intangible assets, less accumulated amortization |
|
| 19,780 |
|
|
| 20,790 |
|
|
| 18,396 |
|
|
| 19,001 |
|
Other assets - restricted cash |
|
| 750 |
|
|
| 750 |
| ||||||||
Total assets |
| $ | 161,826 |
|
| $ | 164,377 |
|
| $ | 159,381 |
|
| $ | 149,241 |
|
See Notes to Condensed Consolidated Financial Statements.
3
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except par value and share amounts)
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
|
| (unaudited) |
|
| (Note 1) |
|
| (unaudited) |
|
| (Note 1) |
| ||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | 10,724 |
|
| $ | 10,514 |
|
| $ | 7,907 |
|
| $ | 12,102 |
|
Operating lease liability - current portion |
|
| 1,122 |
|
|
| 1,130 |
|
|
| 1,577 |
|
|
| 1,099 |
|
Current portion of mortgage payable |
|
| 411 |
|
|
| 405 |
|
|
| 424 |
|
|
| 419 |
|
Other current liabilities |
|
| 13,013 |
|
|
| 10,078 |
|
|
| 11,930 |
|
|
| 12,393 |
|
Total current liabilities |
|
| 25,270 |
|
|
| 22,127 |
|
|
| 21,838 |
|
|
| 26,013 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt |
|
| 39,979 |
|
|
| 49,916 |
|
|
| 23,294 |
|
|
| 13,105 |
|
Mortgage payable, net of current portion |
|
| 10,485 |
|
|
| 10,694 |
|
|
| 10,179 |
|
|
| 10,284 |
|
Operating lease liability - non-current portion |
|
| 1,407 |
|
|
| 1,683 |
|
|
| 4,063 |
|
|
| 1,026 |
|
Deferred income taxes |
|
| 305 |
|
|
| 305 |
|
|
| 899 |
|
|
| 899 |
|
Other non-current liabilities |
|
| 729 |
|
|
| 622 |
|
|
| 16 |
|
|
| 16 |
|
Total liabilities |
|
| 78,175 |
|
|
| 85,347 |
|
|
| 60,289 |
|
|
| 51,343 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commitments and contingencies (see note 2) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock, par value $2.50: |
|
|
|
|
|
| ||||||||||
Common stock, par value $2.50: |
|
|
|
|
|
| ||||||||||
authorized 8,000,000 shares; |
|
|
|
|
|
|
|
|
|
|
|
| ||||
5,112,878 shares issued and 3,568,006 shares outstanding in 2023 and |
|
|
|
|
| |||||||||||
5,083,051 shares issued and 3,538,179 shares outstanding in 2022 |
|
| 12,773 |
|
|
| 12,699 |
| ||||||||
5,206,752 shares issued and 3,661,880 shares outstanding in 2024 and |
|
|
|
|
| |||||||||||
5,190,072 shares issued and 3,645,200 shares outstanding in 2023 |
|
| 13,008 |
|
|
| 12,966 |
| ||||||||
Additional paid-in capital |
|
| 14,333 |
|
|
| 13,448 |
|
|
| 16,317 |
|
|
| 15,918 |
|
Retained earnings |
|
| 74,406 |
|
|
| 70,967 |
|
|
| 87,791 |
|
|
| 86,716 |
|
Treasury stock, at cost - 1,544,872 shares in 2023 and 2022 |
|
| (15,996 | ) |
|
| (15,996 | ) | ||||||||
Treasury stock, at cost - 1,544,872 shares in 2024 and 2023 |
|
| (15,996 | ) |
|
| (15,996 | ) | ||||||||
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Translation adjustment |
|
| (1,865 | ) |
|
| (2,088 | ) |
|
| (2,028 | ) |
|
| (1,706 | ) |
Total stockholders’ equity |
|
| 83,651 |
|
|
| 79,030 |
|
|
| 99,092 |
|
|
| 97,898 |
|
Total liabilities and stockholders’ equity |
| $ | 161,826 |
|
| $ | 164,377 |
|
| $ | 159,381 |
|
| $ | 149,241 |
|
See Notes to Condensed Consolidated Financial Statements.
4
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
|
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
|
| ||||||
Net sales |
| $ | 53,336 |
|
| $ | 56,773 |
|
| $ | 99,175 |
|
| $ | 100,106 |
|
| $ | 44,956 |
|
| $ | 45,838 |
|
|
Cost of goods sold |
|
| 33,314 |
|
|
| 38,225 |
|
|
| 62,872 |
|
|
| 66,590 |
|
|
| 27,560 |
|
|
| 29,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Gross profit |
|
| 20,022 |
|
|
| 18,548 |
|
|
| 36,303 |
|
|
| 33,516 |
|
|
| 17,396 |
|
|
| 16,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Selling, general and administrative expenses |
|
| 14,772 |
|
|
| 14,572 |
|
|
| 28,865 |
|
|
| 28,169 |
|
|
| 14,838 |
|
|
| 14,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating income |
|
| 5,250 |
|
|
| 3,976 |
|
|
| 7,438 |
|
|
| 5,347 |
|
|
| 2,558 |
|
|
| 2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Non-operating items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest expense |
|
| 860 |
|
|
| 428 |
|
|
| 1,779 |
|
|
| 737 |
|
|
| 476 |
|
|
| 919 |
|
|
Interest income |
|
| (28 | ) |
|
| (5 | ) |
|
| (45 | ) |
|
| (8 | ) |
|
| (33 | ) |
|
| (17 | ) |
|
Interest expense, net |
|
| 832 |
|
|
| 423 |
|
|
| 1,734 |
|
|
| 729 |
|
|
| 443 |
|
|
| 902 |
|
|
Other (income) expense, net |
|
| (23 | ) |
|
| 148 |
|
|
| (46 | ) |
|
| 147 |
| |||||||||
Other income, net |
|
| (44 | ) |
|
| (23 | ) |
| ||||||||||||||||
Income before income tax expense |
|
| 4,441 |
|
|
| 3,405 |
|
|
| 5,750 |
|
|
| 4,471 |
|
|
| 2,159 |
|
|
| 1,309 |
|
|
Income tax expense |
|
| 998 |
|
|
| 667 |
|
|
| 1,318 |
|
|
| 903 |
|
|
| 523 |
|
|
| 319 |
|
|
Net income |
| $ | 3,443 |
|
| $ | 2,738 |
|
| $ | 4,432 |
|
| $ | 3,568 |
|
| $ | 1,636 |
|
| $ | 990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Basic earnings per share |
| $ | 0.97 |
|
| $ | 0.78 |
|
| $ | 1.25 |
|
| $ | 1.01 |
|
| $ | 0.45 |
|
| $ | 0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per share |
| $ | 0.96 |
|
| $ | 0.71 |
|
| $ | 1.25 |
|
| $ | 0.93 |
|
| $ | 0.39 |
|
| $ | 0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Weighted average number of common shares outstanding-denominator used for basic per share computations |
|
| 3,555 |
|
|
| 3,521 |
|
|
| 3,548 |
|
|
| 3,521 |
|
|
| 3,650 |
|
|
| 3,541 |
|
|
Weighted average number of dilutive stock options outstanding |
|
| 36 |
|
|
| 320 |
|
|
| - |
|
|
| 323 |
|
|
| 563 |
|
|
| - |
|
|
Denominator used for diluted per share computations |
|
| 3,591 |
|
|
| 3,841 |
|
|
| 3,548 |
|
|
| 3,844 |
|
|
| 4,213 |
|
|
| 3,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Dividends declared per share |
| $ | 0.14 |
|
| $ | 0.14 |
|
| $ | 0.28 |
|
| $ | 0.27 |
|
| $ | 0.15 |
|
| $ | 0.14 |
|
|
See Notes to Condensed Consolidated Financial Statements.
5
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands)
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||||
Net income |
| $ | 3,443 |
|
| $ | 2,738 |
|
| $ | 4,432 |
|
| $ | 3,568 |
|
| $ | 1,636 |
|
| $ | 990 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Other comprehensive (loss) income: |
|
|
|
|
|
| ||||||||||||||||||
Foreign currency translation adjustment |
|
| 114 |
|
|
| (574 | ) |
|
| 223 |
|
|
| (547 | ) |
|
| (322 | ) |
|
| 109 |
|
Comprehensive income |
| $ | 3,557 |
|
| $ | 2,164 |
|
| $ | 4,656 |
|
| $ | 3,021 |
|
| $ | 1,314 |
|
| $ | 1,099 |
|
See Notes to Condensed Consolidated Financial Statements.
6
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(all amounts in thousands, except share amounts)
For the three months ended June 30, 2022
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional Paid-In Capital |
|
| Accumulated |
|
| Retained Earnings |
|
| Total |
| |||||||
Balances, March 31, 2022 |
| 3,520,646 |
|
| $ | 12,655 |
|
| $ | (15,996 | ) |
| $ | 12,222 |
|
| $ | (1,353 | ) |
| $ | 70,245 |
|
| $ | 77,773 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,738 |
|
|
| 2,738 |
| |||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
| (574 | ) |
|
|
|
|
| (574 | ) | |||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
| 368 |
|
|
|
|
|
|
|
|
| 368 |
| |||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (492 | ) |
|
| (492 | ) | |||||
Issuance of common stock |
| 727 |
|
|
| 2 |
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
| 10 |
| |||
Balances June 30, 2022 |
| 3,521,373 |
|
| $ | 12,657 |
|
| $ | (15,996 | ) |
| $ | 12,598 |
|
| $ | (1,927 | ) |
| $ | 72,491 |
|
| $ | 79,823 |
|
For the three months ended June 30,March 31, 2023
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury |
|
| Additional Paid-In Capital |
|
| Accumulated |
|
| Retained Earnings |
|
| Total |
|
| Outstanding |
|
| Common |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Total |
| ||||||||||||||
Balances, March 31, 2023 |
| 3,545,725 |
|
| $ | 12,717 |
|
| $ | (15,996 | ) |
| $ | 13,914 |
|
| $ | (1,979 | ) |
| $ | 71,460 |
|
| $ | 80,116 |
| ||||||||||||||||||||||||||||
Balances, December 31, 2022 |
|
| 3,538,179 |
|
| $ | 12,699 |
|
| $ | (15,996 | ) |
| $ | 13,448 |
|
| $ | (2,088 | ) |
| $ | 70,967 |
|
| $ | 79,030 |
| |||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
| 3,443 |
|
|
| 3,443 |
|
|
|
|
|
|
|
|
|
|
|
|
| 990 |
|
|
| 990 |
| ||||||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
| 114 |
|
|
|
|
| 114 |
|
|
|
|
|
|
|
|
|
|
| 109 |
|
|
|
|
| 109 |
| ||||||||||||||||||||
Stock compensation expense |
|
|
|
|
|
|
| 389 |
|
|
|
|
|
|
| 389 |
|
|
|
|
|
|
|
|
| 424 |
|
|
|
|
|
|
| 424 |
| ||||||||||||||||||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
| (497 | ) |
|
| (497 | ) |
|
|
|
|
|
|
|
|
|
|
|
| (497 | ) |
|
| (497 | ) | ||||||||||||||||||||
Issuance of common stock |
| 15,702 |
|
|
| 40 |
|
|
|
|
| 189 |
|
|
|
|
|
|
| 229 |
|
|
| 5,000 |
|
|
| 12 |
|
|
|
|
| 49 |
|
|
|
|
|
|
| 61 |
| ||||||||||||
Net share settlement of stock options |
| 6,579 |
|
|
| 16 |
|
|
|
|
| (159 | ) |
|
|
|
|
|
| (143 | ) |
|
| 2,546 |
|
|
| 6 |
|
|
|
|
|
| (7 | ) |
|
|
|
|
|
|
|
| (1 | ) | |||||||||
Balances June 30, 2023 |
| 3,568,006 |
|
| $ | 12,773 |
|
| $ | (15,996 | ) |
| $ | 14,333 |
|
| $ | (1,865 | ) |
| $ | 74,406 |
|
| $ | 83,651 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balances March 31, 2023 |
|
| 3,545,725 |
|
| $ | 12,717 |
|
| $ | (15,996 | ) |
| $ | 13,914 |
|
| $ | (1,979 | ) |
| $ | 71,460 |
|
| $ | 80,116 |
| |||||||||||||||||||||||||||
For the sixthree months ended June 30, 2022
|
| Outstanding |
|
| Common |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Total |
| |||||||
Balances, December 31, 2021 |
|
| 3,520,646 |
|
| $ | 12,655 |
|
| $ | (15,996 | ) |
| $ | 11,930 |
|
| $ | (1,380 | ) |
| $ | 69,873 |
|
| $ | 77,082 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,568 |
|
|
| 3,568 |
| |||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (547 | ) |
|
|
|
|
| (547 | ) | |||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
| 768 |
|
|
|
|
|
|
|
|
| 768 |
| |||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (950 | ) |
|
| (950 | ) | |||||
Issuance of common stock |
|
| 727 |
|
|
| 2 |
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
| 10 |
| |||
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
| (108 | ) |
|
|
|
|
|
|
|
| (108 | ) | |||||
Balances June 30, 2022 |
|
| 3,521,373 |
|
| $ | 12,657 |
|
| $ | (15,996 | ) |
| $ | 12,598 |
|
| $ | (1,927 | ) |
| $ | 72,491 |
|
| $ | 79,823 |
|
For the six months ended June 30, 2023March 31, 2024
7
|
| Outstanding |
|
| Common |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Total |
| |||||||
Balances, December 31, 2022 |
|
| 3,538,179 |
|
| $ | 12,699 |
|
| $ | (15,996 | ) |
| $ | 13,448 |
|
| $ | (2,088 | ) |
| $ | 70,967 |
|
| $ | 79,030 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,432 |
|
|
| 4,432 |
| |||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 223 |
|
|
|
|
|
| 223 |
| |||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
| 813 |
|
|
|
|
|
|
|
|
| 813 |
| |||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (993 | ) |
|
| (993 | ) | |||||
Issuance of common stock |
|
| 20,702 |
|
|
| 52 |
|
|
|
|
|
| 237 |
|
|
|
|
|
|
|
|
| 289 |
| |||
Net share settlement of stock options |
|
| 9,125 |
|
|
| 22 |
|
|
|
|
|
| (165 | ) |
|
|
|
|
|
|
|
| (143 | ) | |||
Balances June 30, 2023 |
|
| 3,568,006 |
|
| $ | 12,773 |
|
| $ | (15,996 | ) |
| $ | 14,333 |
|
| $ | (1,865 | ) |
| $ | 74,406 |
|
| $ | 83,651 |
|
|
| Outstanding |
|
| Common |
|
| Treasury |
|
| Additional |
|
| Accumulated |
|
| Retained |
|
| Total |
| |||||||
Balances, December 31, 2023 |
|
| 3,645,200 |
|
| $ | 12,966 |
|
| $ | (15,996 | ) |
| $ | 15,918 |
|
| $ | (1,706 | ) |
| $ | 86,716 |
|
| $ | 97,898 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,636 |
|
|
| 1,636 |
| |||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (322 | ) |
|
|
|
|
| (322 | ) | |||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
| 449 |
|
|
|
|
|
|
|
|
| 449 |
| |||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (561 | ) |
|
| (561 | ) | |||||
Issuance of common stock |
|
| 14,438 |
|
|
| 36 |
|
|
|
|
|
| 287 |
|
|
|
|
|
|
|
|
| 323 |
| |||
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
| (296 | ) |
|
|
|
|
|
|
|
| (296 | ) | |||||
Net share settlement of stock options |
|
| 2,242 |
|
|
| 6 |
|
|
|
|
|
| (41 | ) |
|
|
|
|
|
|
|
| (35 | ) | |||
Balances March 31, 2024 |
|
| 3,661,880 |
|
| $ | 13,008 |
|
| $ | (15,996 | ) |
| $ | 16,317 |
|
| $ | (2,028 | ) |
| $ | 87,791 |
|
| $ | 99,092 |
|
See Notes to Condensed Consolidated Financial Statements.
87
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| June 30, |
|
| March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 4,432 |
|
| $ | 3,568 |
|
| $ | 1,636 |
|
| $ | 990 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
| ||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
|
|
|
|
|
| ||||||||||
Depreciation |
|
| 1,440 |
|
|
| 1,339 |
|
|
| 860 |
|
|
| 720 |
|
Amortization of intangible assets |
|
| 1,011 |
|
|
| 744 |
|
|
| 605 |
|
|
| 517 |
|
Non-cash lease adjustment |
|
| (12 | ) |
|
| - |
|
|
| (12 | ) |
|
| (12 | ) |
Stock compensation expense |
|
| 813 |
|
|
| 768 |
|
|
| 449 |
|
|
| 424 |
|
Provision for bad debt |
|
| 51 |
|
|
| 50 |
|
|
| 112 |
|
|
| 26 |
|
Amortization of deferred financing costs |
|
| 34 |
|
|
| 8 |
|
|
| 9 |
|
|
| 9 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
| (7,458 | ) |
|
| (12,468 | ) |
|
| (6,774 | ) |
|
| (666 | ) |
Inventories |
|
| 7,645 |
|
|
| (11,021 | ) |
|
| (1,659 | ) |
|
| 4,987 |
|
Prepaid expenses and other assets |
|
| (762 | ) |
|
| (991 | ) |
|
| (590 | ) |
|
| (1,405 | ) |
Accounts payable |
|
| 189 |
|
|
| 12,651 |
|
|
| (4,517 | ) |
|
| 73 |
|
Other accrued liabilities |
|
| 3,160 |
|
|
| 182 |
|
|
| (287 | ) |
|
| 2,013 |
|
Total adjustments |
|
| 6,111 |
|
|
| (8,739 | ) |
|
| (11,804 | ) |
|
| 6,686 |
|
Net cash provided by (used in) operating activities |
|
| 10,543 |
|
|
| (5,171 | ) | ||||||||
Net cash (used in) provided by operating activities |
|
| (10,168 | ) |
|
| 7,676 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Purchase of property, plant and equipment |
|
| (2,271 | ) |
|
| (2,761 | ) |
|
| (1,611 | ) |
|
| (701 | ) |
Contingent payment related to the acquisition of Safety Made |
|
| (750 | ) |
|
| (9,609 | ) | ||||||||
Net cash used in investing activities |
|
| (3,021 | ) |
|
| (12,370 | ) |
|
| (1,611 | ) |
|
| (701 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net borrowings of long-term debt |
|
| (9,963 | ) |
|
| 17,225 |
| ||||||||
Net borrowings (repayments) of long-term debt |
|
| 10,183 |
|
|
| (9,787 | ) | ||||||||
Tax withholding on net share settlement of stock options |
|
| (143 | ) |
|
| - |
|
|
| (35 | ) |
|
| - |
|
Cash settlement of stock options |
|
| - |
|
|
| (108 | ) |
|
| (296 | ) |
|
| - |
|
Repayments on mortgage |
|
| (209 | ) |
|
| (192 | ) |
|
| (104 | ) |
|
| (101 | ) |
Proceeds from issuance of common stock |
|
| 289 |
|
|
| 10 |
|
|
| 323 |
|
|
| 61 |
|
Distributions to shareholders |
|
| (993 | ) |
|
| (915 | ) |
|
| (561 | ) |
|
| (497 | ) |
Net cash (used in) provided by financing activities |
|
| (11,019 | ) |
|
| 16,020 |
| ||||||||
Net cash provided by (used in) financing activities |
|
| 9,510 |
|
|
| (10,324 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 48 |
|
|
| (62 | ) |
|
| (84 | ) |
|
| 13 |
|
Net change in cash, cash equivalents and restricted cash |
|
| (3,449 | ) |
|
| (1,583 | ) |
|
| (2,353 | ) |
|
| (3,336 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 7,600 |
|
|
| 4,843 |
|
|
| 5,546 |
|
|
| 7,600 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 4,151 |
|
| $ | 3,260 |
|
| $ | 3,193 |
|
| $ | 4,264 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
| ||||||
Cash paid for income taxes |
| $ | 257 |
|
| $ | 242 |
|
| $ | 9 |
|
| $ | 122 |
|
Cash paid for interest |
| $ | 1,786 |
|
| $ | 661 |
|
| $ | 385 |
|
| $ | 919 |
|
Non-cash financing activity |
|
|
|
|
| |||||||||||
Net share settlement of stock options |
| $ | 22 |
|
| $ | - |
| ||||||||
See Notes to Condensed Consolidated Financial Statements.
98
ACME UNITED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of Acme United Corporation (the “Company”). These adjustments are of a normal, recurring nature. However, the financial statements do not include all the disclosures normally required by accounting principles generally accepted in the United States 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, 20222023 for such disclosures. The condensed consolidated balance sheet as of December 31, 20222023 was derived from the audited consolidated balance sheet as of that date. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s 20222023 Annual Report on Form 10-K.
The Company has evaluated events and transactions subsequent to June 30, 2023March 31, 2024 and through the date these condensed consolidated financial statements were issued.
Recently AdoptedIssued Accounting Standards
In June 2016, November 2023, the FASB issued ASU No. 2023-07, 2016Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures-13, Financial Instruments-Credit Losses (“ASU 2016-13”), which provides new authoritative guidance with respect torequires the measurementdisclosure of credit losses on financial instruments. This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset.additional segment information. ASU 2016-13No. 2023-07 is effective for fiscal years beginning after December 15, 2022, including2023, and interim periods within those fiscal years beginning after December 15, 2024; this ASU allows for smaller reporting companies.early adoption. The Company adopted is currently evaluating the impact of adopting ASU 2016-132023-07.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on January 1, 2023.income taxes paid. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024. The adoption did not have anguidance is to be applied on a prospective basis with the option to apply the standard retrospectively; this ASU allows for early adoption. The Company is currently evaluating the impact on our condensed consolidated financial statements.of adopting ASU 2023-09.
2. CommitmentCommitments and Contingencies
There are no pending material legal proceedings to which the Company is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
3. Revenue from Contracts with Customers
Nature of Goods and Services
The Company recognizes revenue from the sales of a broad line of products that are grouped into two main categories: (a) first aid and medical; and (b) cutting sharpening and measuring. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools.sharpening. The first aid and medical category includes first aid kits and refills, over-the-counter medications and a variety of medical products. The cutting and sharpening category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. Revenue recognition is evaluated through the following five steps: (i) identification of the contract or contracts with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is generated by the sale of the Company’s products to its customers. Sales contracts (purchase orders) generally have a single performance obligation that is satisfied at a point in time, upon shipment or delivery, depending on the terms of the underlying contract. Revenue is measured based on the consideration specified in the contract. The amount of consideration we receive and revenue we recognize is impacted by incentives ("customer rebates"), including sales rebates, which are generally tied to sales volume levels, in-store promotional allowances, shared media and customer cataloguecatalog allowances and other cooperative advertising arrangements; freight allowance programs offered to our customers; and allowance for returns and discounts. We generally recognize customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.
9
Significant Payment Terms
Payment terms for each customer are dependent on the agreed upon contractual repayment terms. Payment terms typically are between 30 and 90 days and vary depending on the size of the customer and its risk profile to the Company. Some customers receive discounts for early payment.
10
Product Returns
The Company accepts product returns in the normal course of business. The Company estimates reserves for returns and the related refunds to customers based on historical experience. Reserves for returned merchandise are included as a component of “Accounts receivable” in the condensed consolidated balance sheets.
Practical Expedient Usage and Accounting Policy Elections
For the Company’s contracts that have an original duration of one year or less, the Company uses the practical expedient in ASC 606-10-32-18 applicable to such contracts and does not consider the time value of money in relation to significant financing components. The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.
Per ASC 606-10-25-18B, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control as a fulfilmentfulfillment activity instead of a performance obligation. Furthermore, shipping and handling activities performed before transfer of control of the product also do not constitute a separate and distinct performance obligation. The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.
The Company has elected to exclude from the transaction price those amounts which relate to sales and other taxes that are assessed by governmental authorities and that are imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.
Applying the practical expedient in ASC 340-40-25-4, Other Assets and Deferred Costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred. These costs are included in “Selling, general and administrative expenses.”
Disaggregation of Revenues
The following table represents external net sales disaggregated by product category, by segment (amounts in thousands):
For the three months ended June 30, 2023March 31, 2024
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
| ||||||||
Cutting, Sharpening and Measuring |
| $ | 16,533 |
|
| $ | 1,982 |
|
| $ | 3,484 |
|
| $ | 21,999 |
| ||||||||||||||||
First Aid and Medical |
|
| 28,667 |
|
|
| 2,394 |
|
|
| 276 |
|
|
| 31,337 |
|
| $ | 24,609 |
|
| $ | 2,191 |
|
| $ | 258 |
|
| $ | 27,058 |
|
Cutting and Sharpening |
|
| 13,382 |
|
|
| 848 |
|
|
| 3,668 |
|
|
| 17,898 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total Net Sales |
| $ | 45,200 |
|
| $ | 4,376 |
|
| $ | 3,760 |
|
| $ | 53,336 |
|
| $ | 37,991 |
|
| $ | 3,039 |
|
| $ | 3,926 |
|
| $ | 44,956 |
|
For the three months ended June 30, 2022March 31, 2023
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
| ||||||||
Cutting, Sharpening and Measuring |
| $ | 21,954 |
|
| $ | 2,192 |
|
| $ | 3,555 |
|
| $ | 27,701 |
| ||||||||||||||||
First Aid and Medical |
|
| 26,951 |
|
|
| 1,684 |
|
|
| 437 |
|
|
| 29,072 |
|
| $ | 24,770 |
|
| $ | 1,852 |
|
| $ | 367 |
|
| $ | 26,989 |
|
Cutting and Sharpening |
|
| 14,083 |
|
|
| 1,405 |
|
|
| 3,361 |
|
|
| 18,849 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total Net Sales |
| $ | 48,905 |
|
| $ | 3,876 |
|
| $ | 3,992 |
|
| $ | 56,773 |
|
| $ | 38,853 |
|
| $ | 3,257 |
|
| $ | 3,728 |
|
| $ | 45,838 |
|
For the six months ended June 30, 2023
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
| ||||
Cutting, Sharpening and Measuring |
| $ | 30,616 |
|
| $ | 3,387 |
|
| $ | 6,845 |
|
| $ | 40,848 |
|
First Aid and Medical |
|
| 53,438 |
|
|
| 4,246 |
|
|
| 643 |
|
|
| 58,327 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total Net Sales |
| $ | 84,054 |
|
| $ | 7,633 |
|
| $ | 7,488 |
|
| $ | 99,175 |
|
For the six months ended June 30, 2022
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
| ||||
Cutting, Sharpening and Measuring |
| $ | 37,287 |
|
| $ | 3,785 |
|
| $ | 7,113 |
|
| $ | 48,185 |
|
First Aid and Medical |
|
| 47,359 |
|
|
| 3,706 |
|
|
| 856 |
|
|
| 51,921 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total Net Sales |
| $ | 84,646 |
|
| $ | 7,491 |
|
| $ | 7,969 |
|
| $ | 100,106 |
|
11
4. Debt and Shareholders’ Equity
Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A.(“HSBC”) and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $65 million at an interest rate of Secured Overnight Financing Rate (“SOFR”) plus 1.75%a margin of +1.75%; interest is payable monthly. The credit facility has an expiration date of May 31, 2026.2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, acquisitions, dividends, share repurchases, and other operating activities. Under the revolving loan agreement, the Company is required to maintain a specific amountsratio of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The amendment was in effect for four quarters commencing in the third quarter of 2022 and ending with the three months ended June 30, 2023. The amendment included an increase in the funded debt to EBITDA ratio for those four quarters ranging from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also increased the interest rate from SOFR +1.75% up to a high of SOFR + 2.35% on a basis that varies on a quarterly basis with the funded debt to EBITDA ratio. As of June 30, 2023,March 31, 2024, the Company was in compliance with the covenants under the revolving loan agreement as amended.then in effect.
10
As of June 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had outstanding borrowings of $39,979,00023,347,000 and $49,916,00013,165,000, excluding deferred financing costs of $53,000 and $60,000, respectively, under the Company’s revolving loan agreement with HSBC.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Commencing on January 1, 2022, payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. As of June 30, 2023March 31, 2024 and December 31, 2022,2023, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):
| June 30, 2023 |
| December 31, 2022 |
| March 31, 2024 |
| December 31, 2023 |
| ||||
|
|
|
|
|
|
|
|
| ||||
Mortgage payable - HSBC Bank N.A. | $ | 11,024 |
| $ | 11,233 |
| $ | 10,719 |
| $ | 10,823 |
|
Less debt issuance costs |
| (128 | ) |
| (134 | ) |
| (116 | ) |
| (120 | ) |
| 10,896 |
| 11,099 |
|
| 10,603 |
| 10,703 |
| |||
Less current maturities |
| 411 |
|
| 405 |
|
| 424 |
|
| 419 |
|
Long-term mortgage payable less current maturities | $ | 10,485 |
| $ | 10,694 |
| $ | 10,179 |
| $ | 10,284 |
|
|
|
|
|
|
|
|
|
| ||||
During the three and six months ended June 30, 2023,March 31, 2024, the Company issued a total of 15,702 and 20,70214,438 shares of common stock and received aggregate proceeds of $229,000 and $289,000323,000 upon exercise of employee stock options. Also, during the three and six months ended June 30, 2023,March 31, 2024, the Company issued 6,579 and 9,1252,242 shares of common stock to optionees who had elected a net share settlement of certain of their respective options. During the three months ended March 31, 2024, the Company paid approximately $296,000 to optionees who had elected a net cash settlement of certain of their respective options.
5. Segment Information
The Company reports financial information based on the organizational structure used by the Company’s chief operating decision maker for making operating and investment decisions and for assessing performance. The Company’s reportable business segments consist of: (1) United States; (2) Canada; and (3) Europe. As described below, the activities of the Company’s Asian operations are closely linked to those of the U.S. operations; accordingly, the Company’s chief operating decision maker reviews the financial results of both, on a consolidated basis, and as such, the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S. segment”. Each reportable segment derives its revenue from the sales of first aid and medical products, cutting and sharpening devices and measuring instruments for school, office, home, hardware, sporting and industrial use.
Domestic sales orders are filled primarily from the Company’s distribution centers in North Carolina, Washington, Massachusetts, Tennessee, Florida, New Hampshire and California. The Company is responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products. Orders filled from the Company’s inventory are generally for less than container-sized lots.
Direct import sales are products sold by the Company’s Asian subsidiary, directly to major U.S. retailers, who take ownership of the products in Asia. These sales are completed by delivering products to the customers’ common carriers at the shipping points in Asia. Direct import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately 8% and 7% of the Company’s total net sales for the three and six months ended June 30, 2023March 31, 2024 compared to 126% and 9%, respectively for the same periodsperiod in 2022.2023.
The chief operating decision maker evaluates the performance of each operating segment based on segment revenues and operating income. Segment revenues are defined as total revenues, including both external customer revenue and inter-segment revenue. Segment operating earnings
12
are defined as segment revenues, less cost of goods sold and operating expenses. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Inter-segment amounts are eliminated to arrive at consolidated financial results.
11
The following table sets forth certain financial data by segment for the three and six months ended June 30, 2023March 31, 2024 and 2022:2023:
Financial data by segment:
(in thousands)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
|
| |||||||||||||||
Sales to external customers: |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
|
| ||||||
United States |
| $ | 45,200 |
|
| $ | 48,905 |
|
| $ | 84,054 |
|
| $ | 84,646 |
|
| $ | 37,991 |
|
| $ | 38,853 |
|
|
Canada |
|
| 4,376 |
|
|
| 3,876 |
|
|
| 7,633 |
|
|
| 7,491 |
|
|
| 3,039 |
|
|
| 3,257 |
|
|
Europe |
|
| 3,760 |
|
|
| 3,992 |
|
|
| 7,488 |
|
|
| 7,969 |
|
|
| 3,926 |
|
|
| 3,728 |
|
|
Consolidated |
| $ | 53,336 |
|
| $ | 56,773 |
|
| $ | 99,175 |
|
| $ | 100,106 |
|
| $ | 44,956 |
|
| $ | 45,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
United States |
| $ | 4,251 |
|
| $ | 3,454 |
|
| $ | 6,031 |
|
| $ | 4,287 |
|
| $ | 2,339 |
|
| $ | 1,781 |
|
|
Canada |
|
| 742 |
|
|
| 474 |
|
|
| 960 |
|
|
| 830 |
|
|
| 39 |
|
|
| 217 |
|
|
Europe |
|
| 257 |
|
|
| 48 |
|
|
| 447 |
|
|
| 230 |
|
|
| 180 |
|
|
| 190 |
|
|
Consolidated |
| $ | 5,250 |
|
| $ | 3,976 |
|
| $ | 7,438 |
|
| $ | 5,347 |
|
| $ | 2,558 |
|
| $ | 2,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest expense, net |
|
| 832 |
|
|
| 423 |
|
|
| 1,734 |
|
|
| 729 |
|
|
| 443 |
|
|
| 902 |
|
|
Other (income) expense, net |
|
| (23 | ) |
|
| 148 |
|
|
| (46 | ) |
|
| 147 |
| |||||||||
Other income, net |
|
| (44 | ) |
|
| (23 | ) |
| ||||||||||||||||
Consolidated income before income taxes |
| $ | 4,441 |
|
| $ | 3,405 |
|
| $ | 5,750 |
|
| $ | 4,471 |
|
| $ | 2,159 |
|
| $ | 1,309 |
|
|
Assets by segment:
(in thousands)
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
United States |
| $ | 141,486 |
|
| $ | 144,466 |
|
| $ | 139,228 |
|
| $ | 131,382 |
|
Canada |
|
| 9,547 |
|
|
| 9,078 |
|
|
| 11,094 |
|
|
| 8,557 |
|
Europe |
|
| 10,793 |
|
|
| 10,833 |
|
|
| 9,059 |
|
|
| 9,302 |
|
Consolidated |
| $ | 161,826 |
|
| $ | 164,377 |
|
| $ | 159,381 |
|
| $ | 149,241 |
|
6. Stock Based Compensation
The Company recognizes share-based compensation atbased on the fair value of the equity instrument on the grant date. Compensation expense is recognized over the required service period, which is generally the vesting period of the equity instrument. Share-based compensation expense was approximately $389,000 and $813,000449,000 for the three and six months ended June 30, 2023March 31, 2024 compared to approximately $368,000 and $768,000424,000 for the three and six months ended June 30, 2022.March 31, 2023.
As of June 30, 2023,March 31, 2024, there was a total of $2,826,7453,102,278 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based payments granted to the Company’s employees. As of that date, the remaining unamortized expense was expected to be recognized over a weighted average period of approximately three years.
7. Fair Value Measurements
The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity. The Company’s contingent liability related to the acquisition of Safety Made is recorded at its fair value of $705,000750,000 which is recorded in other non-currentcurrent liabilities on the condensed consolidated balance sheet as of June 30, 2023. Changes in the fair value of the liability are recorded in earnings. There was an increase in the liability of $75,000 and $125,000, respectively, during the three and six months ended June 30, 2023. During the three months ended June 30, 2023, the Company paid $750,000 of the $1.5 million held in escrow related to the contingent liability.March 31, 2024.
8. Leases
The Company has operating leases for office and warehouse space and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2026.2029.
Certain of the Company’s lease arrangements contain renewal provisions, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
13
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with right-of-use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.
12
Operating lease cost was $0.3 million for the three months ended June 30, 2023,March 31, 2024, of which $0.1 million was included in cost of goods sold and $0.2 million was included in selling, general and administrative expenses. Operating lease cost was $0.7 million for the six months ended June 30, 2023, of which $0.2 million was included in cost of goods sold and $0.5 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Information related to leases (in thousands):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||
Operating cash flow information: |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||||||||
Operating lease cost |
| $ | 344 |
|
| $ | 308 |
| ||||||||
Operating lease - cash flow |
| $ | 346 |
|
| $ | 322 |
| ||||||||
|
|
|
|
|
| |||||||||||
Non-cash activity: |
|
|
|
|
| |||||||||||
ROU assets obtained in exchange for lease liabilities |
| $ | - |
|
| $ | - |
| ||||||||
|
|
|
|
|
| |||||||||||
|
| Six Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||
Operating cash flow information: |
| June 30, 2023 |
|
| June 30, 2022 |
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||||
Operating lease cost |
| $ | 678 |
|
| $ | 618 |
|
| $ | 341 |
|
| $ | 334 |
|
Operating lease - cash flow |
| $ | 693 |
|
| $ | 645 |
|
| $ | 354 |
|
| $ | 346 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-cash activity: |
|
|
|
|
|
|
|
|
|
| ||||||
ROU assets obtained in exchange for lease liabilities |
| $ | 341 |
|
| $ | 211 |
|
| $ | 3,818 |
|
| $ | 341 |
|
|
| June 30, 2023 |
|
| June 30, 2022 |
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||||
Weighted-average remaining lease term |
| 3.0 years |
| 3.0 years |
|
| 4.0 years |
| 3.0 years |
| ||||||
Weighted-average discount rate |
|
| 5 | % |
|
| 5 | % |
|
| 7 | % |
|
| 5 | % |
Future minimum lease payments under non-cancellablenon-cancelable leases as of June 30, 2023:March 31, 2024:
2023 (remaining) |
| $ | 650 |
| ||||
2024 |
|
| 1,044 |
| ||||
2024 (remaining) |
| $ | 1,400 |
| ||||
2025 |
|
| 816 |
|
|
| 1,755 |
|
2026 |
|
| 165 |
|
|
| 1,068 |
|
|
|
| ||||||
2027 |
|
| 926 |
| ||||
2028 |
|
| 960 |
| ||||
Thereafter |
|
| 357 |
| ||||
Total future minimum lease payments |
| $ | 2,675 |
|
| $ | 6,466 |
|
Less: imputed interest |
|
| (146 | ) |
|
| (826 | ) |
Present value of lease liabilities - current |
|
| 1,122 |
|
|
| 1,577 |
|
Present value of lease liabilities - non-current |
| $ | 1,407 |
|
| $ | 4,063 |
|
9. Other Accrued Liabilities
Other current and non-current accrued liabilities consisted of (in thousands):
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Customer rebates |
| $ | 6,753 |
|
| $ | 5,534 |
|
| $ | 6,120 |
|
| $ | 5,721 |
|
Contingent liability - Safety Made |
|
| 705 |
|
|
| 1,330 |
|
|
| 750 |
|
|
| 750 |
|
Accrued compensation |
|
| 1,223 |
|
|
| 791 |
|
|
| 2,050 |
|
|
| 2,585 |
|
Dividend payable |
|
| 496 |
|
|
| 495 |
|
|
| 547 |
|
|
| 547 |
|
Income tax payable |
|
| 1,549 |
|
|
| 534 |
|
|
| 748 |
|
|
| 363 |
|
Other |
|
| 3,016 |
|
|
| 2,016 |
|
|
| 1,731 |
|
|
| 2,442 |
|
Total: |
| $ | 13,742 |
|
| $ | 10,700 |
|
| $ | 11,946 |
|
| $ | 12,408 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
10. Cash, Cash Equivalents and Restricted Cash
14
(in thousands):
|
| June 30, 2023 |
| December 31, 2022 |
|
| March 31, 2024 |
| December 31, 2023 |
| ||||
Cash and cash equivalents |
| $ | 3,401 |
| $ | 6,100 |
|
| $ | 2,443 |
| $ | 4,796 |
|
Restricted Cash - current |
|
| - |
| 750 |
|
|
| 750 |
| 750 |
| ||
Restricted Cash - non-current |
|
| 750 |
|
| 750 |
| |||||||
Total cash, cash equivalents and restricted cash |
| $ | 4,151 |
| $ | 7,600 |
|
| $ | 3,193 |
| $ | 5,546 |
|
Restricted cash, which is reported within other long termcurrent assets in the condensed consolidated balance sheets consists of the contingent payment held in escrow related to the acquisition of Safety Made. During the three months ended June 30, 2023, the Company paid $750,000 related to the contingent liability associated with Safety Made acquisition.
13
11. Intangible Assets and Goodwill
The Company’s intangible assets and goodwill consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| ||||
Tradename |
| $ | 10,008 |
|
| $ | 10,008 |
|
| $ | 10,008 |
|
| $ | 10,008 |
|
Customer list |
|
| 18,502 |
|
|
| 18,502 |
|
|
| 18,823 |
|
|
| 18,823 |
|
Non-compete |
|
| 1,248 |
|
|
| 1,248 |
|
|
| 1,248 |
|
|
| 1,248 |
|
Slice license agreement |
|
| 380 |
|
|
| 380 |
|
|
| 380 |
|
|
| 380 |
|
Patents |
|
| 2,272 |
|
|
| 2,272 |
|
|
| 2,272 |
|
|
| 2,272 |
|
Subtotal |
|
| 32,409 |
|
|
| 32,409 |
|
|
| 32,731 |
|
|
| 32,731 |
|
Less: Accumulated amortization |
|
| 12,630 |
|
|
| 11,619 |
|
|
| 14,335 |
|
|
| 13,730 |
|
Intangible assets |
| $ | 19,780 |
|
| $ | 20,790 |
|
| $ | 18,396 |
|
| $ | 19,001 |
|
Goodwill |
| $ | 8,189 |
|
| $ | 8,189 |
|
| $ | 8,189 |
|
| $ | 8,189 |
|
Total: |
| $ | 27,969 |
|
| $ | 28,979 |
|
| $ | 26,585 |
|
| $ | 27,190 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
The useful lives of the identifiable intangible assets range from 5 years to 15 years.
12. Inventories
Inventories consisted of (in thousands):
|
|
|
|
|
|
|
|
|
| |||||||
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
| 2023 |
|
| 2022 |
|
| 2024 |
|
| 2023 |
| |||||
Finished goods |
| $ | 39,817 |
|
| $ | 45,371 |
|
| $ | 40,851 |
|
| $ | 39,316 |
|
Work in process |
|
| 307 |
|
|
| 408 |
|
|
| 264 |
|
|
| 208 |
|
Materials and supplies |
|
| 15,820 |
|
|
| 17,546 |
|
|
| 15,772 |
|
|
| 15,946 |
|
|
| $ | 55,944 |
|
| $ | 63,325 |
|
| $ | 56,887 |
|
| $ | 55,470 |
|
Inventories are stated at the lower of cost or net realizable value, determined by the first-in, first-out method.
1513. Divestiture
On November 1, 2023, the Company sold the assets of its Camillus Cutlery and Cuda business lines (the “Business”) to GSM Holdings, Inc., a Delaware corporation (“GSM Holdings”), pursuant to an Asset Purchase Agreement entered into on the same date.
The purchase price for the Business was $19,773,000. At closing, GSM Holdings paid $18,273,000 to the Company; the balance of the purchase price, $1,500,000, is subject to a 12-month holdback as a non-exclusive source of recovery primarily to satisfy indemnification claims under the Asset Purchase Agreement.
The Asset Purchase Agreement contains customary representations, warranties and covenants by the Company and GSM Holdings, including confidentiality, non-solicitation obligations and indemnification obligations. Under the terms of a related License Agreement dated November 1, 2023, the Company has provided a royalty-free, perpetual, non-exclusive license to certain patents held by the Company that are used in the Business.
14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “except,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.
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 that may impact the Company’s business, operations and financial results.
These risks and uncertainties include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) the continuing adverse impact of inflation, including product costs, and interest rates; (iv) potential adverse effects on the Company, its customers, and suppliers resulting from the wars in Ukraine and the Middle East; (v) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (iv) the continuing adverse impact of inflation, including product costs, and interest rates; (v) potential adverse effects on the Company, its customers, and suppliers resulting from the war in Ukraine; or otherwise;(vi) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (vii) currency fluctuations including, for example, the fluctuation of the dollar against the euro; (viii) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (ix) changes in client needs and consumer spending habits; (x) the impact of competition; (xi) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (xiii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.
For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year December 31, 20222023 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
We discuss our critical accounting policies and estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Critical Accounting Estimates
There have been no material changes to the Company’s critical accounting estimates as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.2023.
Results of Operations
Traditionally, the Company’s sales of its cutting, sharpening, and measuring productsprofits 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 Westcott back-to-school market.
Net sales
Consolidated net sales for the three and six months ended June 30, 2023March 31, 2024 were $53,336,000 and $99,175,000$44,956,000 compared with $56,773,000 and $100,106,000 into $45,838,000 the same periodsperiod in 2022,2023, a 6%decrease of 1%. Excluding the impact of the Camillus and Cuda hunting and fishing product lines sold on November 1, 2023, sales for the three months ended March 31, 2024 increased 1% decrease, respectively..
Net Salessales in the U.S. for the three and six months ended June 30, 2023March 31, 2024 decreased 8% and 1%, compared to the same periods in 2022. The decrease in net sales for the three and six months,2% compared to the same period in 2022, is primarily due to lower2023. Excluding the impact of the sale of the Camillus and Cuda product lines, sales of school and office products which were negatively impacted by customer reductions of their inventory. Customers acquired additional safety stock in the second quarter of 2022U.S. segment increased 1% for the three months ended March 31, 2024 compared to mitigate supply chain disruption concerns. These lower sales were partially offset by higher sales of first aid and medical products.the same period in 2023.
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Net sales in Canada for the three and six months ended June 30, 2023 increased 13% (21%March 31, 2024 decreased 7% in U.S. dollars (6% in local currency). Excluding the impact of the sale of the Camillus and 2% (8%Cuda product lines, sales in the Canadian segment increased 1% in local currency),currency for the three months ended March 31, 2024 compared to the same periods last year. The increasesperiod in net sales for the three and six months ended June 30, 2023 were mainly due to higher sales of first aid products.2023.
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European net sales for the three months ended June 30, 2023 decreased 6% (7%March 31, 2024 increased 5% in U.S. dollars (4% in local currency) compared to the same period in 2022. Net2023. Excluding the impact of the sale of the Camillus and Cuda product lines, sales in the European segment increased 7% in local currency for the sixthree months ended June 30, 2023 decreased 6% (5 in local currency)March 31, 2024 compared to the same period in 2022. The decline in net sales for the three and six month periods were mainly due to the economic recession in Europe.2023.
Gross profit
Gross profit for the three months ended June 30, 2023March 31, 2024 was $20,022,000 (37.5%$17,396,000 (38.7% of net sales) compared to $18,548,000 (32.7%$16,281,000 (35.5% of net sales) in the same period in 2022. Gross profit for the six months ended June 30, 2023 was $36,303,000 (36.6% of net sales) compared to $33,516,000 (32.7% of net sales) in the same period in 2022.2023. The increasesincrease in gross profit for the three and six months wereended March 31, 2024 was primarily due to cost saving initiatives andthe impact of productivity improvements at ourin the Company's manufacturing and distribution facilities as well asimplemented late in 2022 and lower ocean container costs and demurrage charges.inbound freight costs.
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2023March 31, 2024 were $14,772,000 (27.7%$14,838,000 (33.0% of net sales) compared with $14,572,000 (25.7%$14,093,000 (30.7% of net sales) in the same period in 2022,2023, an increase of $200,000. SG&A expenses for the six months ended June 30, 2023 were $28,865,000 (29.1% of net sales) compared with $28,169,000 (28.1% of net sales) in the same period in 2022, an increase of $696,000.$745,000. The increase in SG&A expenses for the sixthree months ended June 30, 2023 isMarch 31, 2024 was primarily related to higher personnel related expenses.
Operating income
Operating income for the three months ended June 30, 2023March 31, 2024 was $5,250,000$2,558,000 compared with $3,976,000$2,188,000 in the same period of 2022. Operating income for the six months ended June 30, 2023 was $7,438,000 compared with $5,347,000 in the same period of 2022.2023.
Operating income in the U.S. segment increased by $797,000$558,000 for the three months ended June 30, 2023,March 31, 2024, compared to the same period in 2022. Operating income in the U.S. segment increased by $1,744,000 for the six months ended June 30, 2023 compared to the same period in 2022.2023. The increase in operating income for the three and six months ended June 30, 2023March 31, 2024 was primarily due to productivity improvements at our manufacturing and distribution facilities, cost savings initiatives which included lowering SG&A expenses, as well as lower ocean container costs and demurrage charges.in-bound freight costs.
Operating income in the Canadian segment increaseddecreased by $268,000 and $130,000$178,000 for the three and six months ended June 30, 2023, respectively,March 31, 2024, compared to the same periodsperiod in 2022.2023. The increasesdecrease in operating income arewas primarily due to higher sales.lower sales of cutting, sharpening and measuring products.
Operating income in the European segment increaseddecreased by $209,000 and $217,000$10,000 for the three and six months ended June 30, 2023, respectively,March 31, 2024, compared to the same periodsperiod in 2022. The increases in operating income for the three and six months ended June 30, 2023 were primarily due to higher gross margins as a result of lower ocean container costs.2023.
Interest expense, net
Interest expense, net for the three months ended June 30, 2023March 31, 2024 was $832,000$443,000 compared with $423,000$902,000 in the same period of 2022,2023, a $409,000 increase. Interest expense, net for the six months ended June 30, 2023 was $1,734,000 compared with $729,000, in the same period of 2022, a $1,005,000 increase.$459,000 decrease. The increasesdecrease in interest expense for the three and six months ended June 30, 2023March 31, 2024 resulted from a higherlower average interest rate on the outstanding debt under the Company’s revolving loan agreement.
Other (income) expense,income, net
Other income, net was $23,000$44,000 in the three months ended June 30, 2023March 31, 2024 compared to other expense, net of $148,000$23,000 in the same period of 2022. Other income, net in the six months ended June 30, 2023 was $46,000 compared to other expense, net of $147,000 in the same period of 2022.2023.
Income taxes
The effective income tax rate was 24% for the three and six months ended June 30, 2023 was 23% compared to 20% in the same periods of 2022. The higher effective income tax rate for the threeMarch 31, 2024 and six month ended June 30, 2023 is primarily due to higher earnings in jurisdictions with higher tax rates.2023.
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Financial Condition
Liquidity and Capital Resources
During the first sixthree months of 2023,2024, working capital decreasedincreased approximately $5.3$10.6 million. Inventory decreasedincreased approximately $7.4$1.3 million during this six-monththree-month period. The decline in inventory is due to planned reductions as the risk of supply chain disruptions has diminished. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.02.1 at June 30, 2023March 31, 2024 and December 31, 2022.2023. Receivables increased approximately $7.2$6.7 million at June 30, 2023March 31, 2024 compared to December 31, 2022.2023. The average number of days sales outstanding in accounts receivable was 5955 days at June 30, 2023 compared to 62 days atMarch 31, 2024 and December 31, 2022.2023. Accounts payable and other current liabilities increaseddecreased by approximately $3.2$4.7 million at June 30, 2023March 31, 2024 compared to December 31, 2022.2023.
16
The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):
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Working capital |
| $ | 78,200 |
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| $ | 83,473 |
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| $ | 76,565 |
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| $ | 66,010 |
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| 4.09 |
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| 4.77 |
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| 33.8 | % |
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| 23.9 | % |
Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $65 million, at an interest rate of SOFR plus 1.75%; interest is payable monthly. The loan agreement has an expiration date of May 31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisitions, and other business activities. Under the revolving loan agreement, the Company is required to maintain a specific amountsratio of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year.
On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The amendment was in effect for four quarters commencing in the third quarter of 2022 and ending with the three months ended June 30, 2023. The amendment included an increase in the funded debt to EBITDA ratio for those four quarters ranging from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also increased the interest rate from SOFR +1.75% up to a high of SOFR + 2.35% on a basis that varies on a quarterly basis with the funded debt to EBITDA ratio. As of June 30, 2023,March 31, 2024, the Company was in compliance with the covenants under the revolving loan agreement as amended.then in effect.
During the first sixthree months of 2023,2024, total debt outstanding under the Company’s revolving credit facility decreasedincreased by approximately $10$10.1 million, compared to total debt thereunder at December 31, 2022.2023. As of June 30, 2023, $39,979,000March 31, 2024, $23,347,000 was outstanding and $25,021,000$41,653,000 was available for borrowing under the Company’s credit facility.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At June 30, 2023,March 31, 2024, there was approximately $10.9$10.6 million outstanding on the mortgage.
In response to the supply chain challenges encountered by the Company, the Company has implemented a series of cost reduction initiatives that are expected to generate over $5.0 million in savings in 2023. These initiatives have included a wide range of productivity improvements in our manufacturing and distribution facilities as well as a reduction of SG&A expenses.
The Company believes that cash generated from operating activities, together with funds available under its revolving loan agreement, will, under current conditions, be sufficient to finance the Company’s operations over the next twelve months from the filing of this report.
1817
Item 3: Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 4: Controls and Procedures
(a) Evaluation of Internal Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2023.March 31, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were not effective as of March 31, 2024 as a result of an identified material weakness. As described in the Company's Form 10-K for the year ended December 31, 2023, the Company’s information technology general controls (ITGCs) related to change management and logical controls were ineffective. The Company's remediation efforts related to this material weakness have commenced and are effective.ongoing, as described in Item 4(b) below. Except as described below, there were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
(b) Changes in Internal Control over Financial Reporting
During
In response to the quarter ended June 30, 2023, there were nomaterial weakness identified above, the Company has implemented and is implementing changes in ourto its internal control over financial reporting, including:
● The Company has acquired and implemented database change management and auditing software;
● The Company is designing and implementing associated management review procedures.
As we stated in the Company’s Form 10-K for the year ended December 31, 2023, we believe that materially affected, orthese actions will remediate the material weakness. However, due to the nature of the material weakness, it will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are reasonably likely to materially affect, our internal control over financial reporting.operating effectively. We expect that the remediation of this material weakness will be completed as of December 31, 2024.
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PART II. OTHER INFORMATION
Item 1 — Legal Proceedings
There are no pending material legal proceedings to which the registrant is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
Item 1A — Risk Factors
See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.2023.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 — Defaults upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
Not applicable.
Item 5 — Other Information
None.
Item 6 — Exhibits
Documents filed as part of this report:
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Exhibit 32.1 |
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Exhibit 32.2 |
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101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
104 |
| The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
2019
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 |
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By | /s/ Walter C. Johnsen |
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| Walter C. Johnsen |
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| Chairman of the Board and |
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| Chief Executive Officer |
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Dated: |
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By | /s/ Paul G. Driscoll |
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| Paul G. Driscoll |
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| Vice President and |
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| Chief Financial Officer |
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Dated: |
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