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 March 31, 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
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(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0236700
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
75 Kings Highway Cutoff, Fairfield, Connecticut 06430
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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 May 12, 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............................................. 11
Item 2. Changes in Securities......................................... 11
Item 3. Defaults Upon Senior Securities............................... 11
Item 4. Submission of Matters to a Vote of Security Holders........... 11
Item 5. Other Information............................................. 11
Item 6. Exhibits and Reports on Form 8-K.............................. 11
Signatures............................................................ 12
<PAGE 3>
PART I. FINANCIAL INFORMATION
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(all amounts in thousands, except per share data)
March 31 December 31
2000 1999
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ASSETS
Current Assets:
Cash and cash equivalents $ - $ 88
Accounts receivable, less allowance 7,020 6,702
Inventories:
Finished goods 5,815 5,355
Work in process 871 649
Raw materials and supplies 2,155 2,294
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8,841 8,298
Prepaid expenses and other current assets 795 508
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Total current assets 16,657 15,596
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Property, plant and equipment:
Land 182 191
Buildings 1,938 2,048
Machinery and equipment 8,438 8,616
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10,558 10,855
Less accumulated depreciation 6,781 6,869
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3,777 3,986
Other assets 990 993
Goodwill, less accumulated amortization 188 193
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Total assets $ 21,611 $ 20,767
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See notes to condensed consolidated financial statements
<PAGE 4>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(UNAUDITED)
(all amounts in thousands, except per share data)
March 31 December 31
2000 1999
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LIABILITIES
Current Liabilities:
Notes payable $ 734 $ 691
Accounts payable 2,664 2,763
Other accrued liabilities 3,193 3,154
Current portion of long term debt 2,512 2,032
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Total current liabilities 9,103 8,640
Long term debt, less current portion 5,178 5,012
Other 192 197
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Total liabilities 14,473 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 (2,005) (2,212)
Accumulated other comprehensive loss-translation adjustment (1,278) (1,290)
Treasury stock, at cost-105,007 shares (648) (648)
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Total stockholders' equity 7,138 6,918
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Total liabilities and stockholders' equity $ 21,611 $ 20,767
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See notes to condensed consolidated financial statements
<PAGE 5>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands, except per share data)
Three Months Ended
March 31
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2000 1999
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Revenues:
Net sales $ 8,041 $ 7,911
Other income 18 177
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Total revenues 8,059 8,088
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Costs and expenses:
Cost of goods sold 5,222 6,052
Selling, general and administrative expenses 2,424 2,234
Interest expense 206 358
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Total expenses 7,852 8,644
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Income (loss) from continuing operations before income taxes 207 (556)
Income taxes - (14)
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Income (loss) from continuing operations 207 (542)
Discontinued operations:
Gain on sale of discontinued operations - 2,101
Income from discontinued operations - 198
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- 2,299
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Net income 207 1,757
Other comprehensive income (expense) -
foreign currency translation 12 (71)
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Comprehensive income $ 219 $ 1,686
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Earnings (loss) per share:
Continuing operations $ 0.06 $ (0.16)
Discontinued operations - 0.68
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Net income $ 0.06 $ 0.52
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Diluted earnings (loss) per share:
Continuing operations $ 0.06 $ (0.16)
Discontinued operations - 0.68
Net income $ 0.06 $ 0.52
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Weighted average number of common shares outstanding-
denominator used for per share computations 3,507 3,377
Weighted average number of dilutive stock options
outstanding 183
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Denominator for diluted per share computation 3,690 3,377
======== ========
See notes to condensed consolidated financial statements
<PAGE 6>
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Three Months Ended
March 31
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2000 1999
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Operating Activities:
Net income $ 207 $ 1,757
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Gain on sale of discontinued operations - (2,101)
Depreciation 208 236
Amortization 5 3
Gain on disposal of property, plant, and equipment (12) -
Changes in operating assets and liabilities:
Accounts receivable (318) (624)
Inventories (543) 1,743
Prepaid expenses and other current assets (287) 140
Other assets 3 (14)
Accounts payable (99) (800)
Other accrued liabilities 39 (1,209)
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Net cash used by operating activities (796) (869)
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Investing Activities:
Capital expenditures (70) (242)
Proceeds from sale of property, plant, and equipment 60 -
Proceeds from sale of medical division - 7,156
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Net cash (used) provided by investing activities (10) 6,914
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Financing Activities:
Net proceeds (payments) on short term borrowing arrangements 1,262 (7,321)
Borrowings of long term debt 325 1,786
Payments of long term debt (870) -
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Net cash provided (used) by financing activities 717 (5,535)
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Effect of exchange rate changes on cash 1 (1)
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Net change in cash and cash equivalents (88) 509
Cash and cash equivalents at beginning of period 88 40
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Cash and cash equivalents at end of period $ (0) $ 549
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See notes to condensed consolidated financial statements
<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 months ended March 31,2000 are not necessarily indicative of the results
to be expected for the full year.
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
three months ended March 31, 1999 relating to the medical business follows:
Net sales $ 2,101,000
Costs and expenses 1,903,000
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Income from operations $ 198,000
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Earnings per share $ 0.06
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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 remainder of 2000. The
aggregate amount available under these lines is $1,029,000 of which $734,000 is
outstanding at March 31, 2000.
Long term debt consisted of the following:
(all amounts in thousands)
March 31 December 31
2000 1999
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Notes payable:
U.S. and Canada arrangements........... $ 6,795 $ 5,225
Other.................................. 895 1,819
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7,691 7,044
Less current portion 2,512 2,032
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$ 5,178 $ 5,012
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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 2000, the Company expects to have a minimum of $4.4
million outstanding under this arrangement. Under the Agreement, the Company
borrowed an additional $325,000 which is payable in monthly installments of
$5,417, plus interest, from February 1, 2000 through November 1, 2002 and a
final installment of $140,822, plus interest, due December 1, 2002. Amounts
outstanding under the Agreement bear interest at varying rates as provided for
in the Agreement.
Under a separate loan agreement with another bank which was amended January
19, 2000, the Company will repay $500,000, principal amount, of outstanding debt
at that date in monthly installments of $13,889, plus interest at the prime
rate, as defined, plus 2.5%, commencing February 1, 2000 through January 1,
2003.
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, as defined, commencing January 19, 2000, and a
specified debt service coverage ratio, as defined, and a fixed charge coverage
ratio, as defined, commencing March 31, 2000. The Company was in compliance with
all covenants as of March 31, 2000 and believes these financial covenants will
be met for the remainder of the term of the loan.
Cash 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 in 2000.
<PAGE 9>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 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 March 31, 2000 were $8,041,000
compared with $7,911,000 for 1999, or 2% higher. 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 March 31, 1999 of $341,000 has been
reclassified to conform with the current period presentation.
Domestic sales increased 6% to $5,319,000. Sales to all major customers
were ahead of last year's levels and enhanced inventory management reduced the
backlog from $569,000 in 1999 to $85,000 in 2000 which added to the sales
growth.
International sales were 7% below 1999 levels. Strong sales growth in
England was more than offset by weakness in Canada and Germany. A product
rationalization of low margin products were the main reason for the decline in
Canada. Also adding to the reduction in sales was a 9% negative foreign exchange
decline in the German Mark.
Gross Profit
The gross profit for the first quarter of 2000 was $2,819,000 (35% of net
sales) compared to $1,859,000 (23% of net sales) for the first quarter 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 first quarter
of 2000 were $2,424,000 (30.1% of net sales) compared with $2,234,000 (28.2% of
net sales) for the same period of 1999, an increase of $189,000.
Net Income (Loss)
Net income from continuing operations for the first quarter of 2000 is
$207,000, or 6 cents per share (basic and diluted) compared to a net loss of
$542,000, or 16 cents per share (basic and diluted). Net income for the first
quarter of 1999 was $1,757,000 or 52 cents per share (basic and diluted). The
first quarter of 1999 included a $2,101,000 gain on the sale of the medical
business.
<PAGE 10>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Three Months Ended March 31, 2000
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long term debt to equity
ratio follow:
March 31, 2000 December 31, 1999
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Working capital..................... $7,554,000 $6,956,481
Current ratio....................... 1.83 to 1 1.81 to 1
Long-term debt to equity ratio...... .73 .72
During the first three months of 2000, total debt increased by $653,000
compared to total debt at December 31, 1999.
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 2000, the Company expects to have a minimum of $4.4
million outstanding under this arrangement. Under the Agreement, the Company
borrowed an additional $325,000 which is payable in monthly installments of
$5,417, plus interest, from February 1, 2000 through November 1, 2002 and a
final installment of $140,822, plus interest, due December 1, 2002. Amounts
outstanding under the Agreement bear interest at varying rates as provided for
in the Agreement.
Under a separate loan agreement with another bank which was amended January
19, 2000, the Company will repay $500,000, principal amount, of outstanding debt
at that date in monthly installments of $13,889, plus interest at the prime
rate, as defined, plus 2.5%, commencing February 1, 2000 through January 1,
2003.
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, as defined, commencing January 19, 2000, and a
specified debt service coverage ratio, as defined, and a fixed charge coverage
ratio, as defined, commencing March 31, 2000. The Company believes these
financial covenants will be met.
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.
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 11>
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
A. The Annual Meeting was held on April 24, 2000.
B. The following individuals were elected Directors at the Meeting and
comprise the entire Board.
Votes for Votes against Votes withheld
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George R. Dunbar 2,763,328 151,821 591,906
Richard Y. Holden, Jr. 2,763,468 151,681 591,906
Walter C. Johnsen 2,813,402 101,747 591,906
Wayne R. Moore 2,763,394 151,755 591,906
Brian Olschan 2,763,468 151,681 591,906
Gary D. Penisten 2,813,394 101,755 591,906
C. An amendment to the Employee Stock Option Plan was approved.
Votes for Votes against Votes withheld
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2,520,007 111,786 875,262
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
None.
<PAGE 12>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME UNITED CORPORATION
By /s/ WALTER C. JOHNSEN
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Walter C. Johnsen
President and
Chief Executive Officer
Dated: May 12, 2000
By /s/ RONALD P. DAVANZO
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Ronald P. Davanzo
Vice President and
Chief Financial Officer
Dated: May 12, 2000