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, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number Q4823
ACME UNITED CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0236700
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1931 BLACK ROCK TURNPIKE, Fairfield, Connecticut 06432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 332-7330
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Registrant had 3,508,305 shares outstanding as of April 19, 2001 of its
$2.50 par value Common Stock.
(1)
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............................... 8
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings............................................ 10
Item 2. Changes in Securities........................................ 10
Item 3. Defaults Upon Senior Securities.............................. 10
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
Item 5. Other Information............................................ 10
Item 6. Exhibits and Reports on Form 8-K............................. 10
Signatures........................................................... 11
(2)
PART I. FINANCIAL INFORMATION
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(all amounts in thousands, except per share data)
March 31 December 31
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 49 $ 22
Accounts receivable, less allowance 6,923 5,973
Inventories:
Finished goods 7,303 7,980
Work in process 564 493
Raw materials and supplies 1,276 1,549
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9,143 10,022
Prepaid expenses and other current assets 1,128 433
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Total current assets 17,243 16,450
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Property, plant and equipment:
Land 168 180
Buildings 2,023 2,007
Machinery and equipment 6,380 6,545
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8,571 8,732
Less accumulated depreciation 5,601 5,610
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2,970 3,122
Other assets 1,382 1,374
Goodwill, less accumulated amortization 168 172
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Total assets $21,763 $21,118
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See notes to condensed consolidated financial statements.
(3)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(UNAUDITED)
(all amounts in thousands, except per share data)
March 31 December 31
2001 2000
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LIABILITIES
Current liabilities:
Notes payable $ 692 $ 504
Accounts payable 2,243 2,260
Other accrued liabilities 3,050 3,139
Current portion of long term debt 2,705 2,085
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Total current liabilities 8,690 7,988
Long term debt, less current portion 4,830 4,925
Other 378 313
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Total liabilities 13,898 13,226
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STOCKHOLDERS' EQUITY Common stock, par value $2.50:
authorized 8,000,000 shares;
issued 3,613,312 shares,
including treasury stock 9,033 9,033
Treasury stock, at cost-105,007 shares (648) (648)
Additional paid-in capital 2,038 2,038
Retained-earnings deficit (922) (1,152)
Accumulated other comprehensive loss:
Translation adjustment (1,475) (1,379)
Derivative Financial Instrument losses (162) --
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(1,637) (1,379)
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Total stockholders' equity 7,865 7,892
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Total liabilities and stockholders' equity $ 21,763 $ 21,118
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See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(all amounts in thousands, except per share data)
Three Months Ended
March 31
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2001 2000
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Net sales $ 7,950 $ 8,041
Costs and expenses:
Cost of goods sold 5,114 5,222
Selling, general and administrative expenses 2,412 2,424
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7,526 7,646
Income before non operating items 424 395
Non operating items:
Interest expense 203 206
Other income (21) (18)
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Income before income taxes 242 207
Income taxes 12 --
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Net income 230 207
Other comprehensive (expense) income -
Foreign currency translation (96) 12
Cumulative effect of change in accounting for
derivative financial instruments (104) --
Change in fair value of derivative financial instruments (58) --
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Other comprehensive (expense) income - (258) 12
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Comprehensive (loss) income $ (28) $ 219
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Basic earnings per share $ 0.07 $ 0.06
Diluted earnings per share $ 0.06 $ 0.06
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Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,508 3,507
Weighted average number of dilutive stock options
outstanding 65 12
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Denominator used for diluted per share computations 3,573 3,519
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See notes to condensed consolidated financial statements.
(5)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Three Months Ended
March 31
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2001 2000
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Operating Activities:
Net income $ 230 $ 207
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation 115 208
Amortization 33 50
Gain on sale of property, plant, and equipment -- (12)
Changes in operating assets and liabilities:
Accounts receivable (950) (318)
Inventories 879 (543)
Prepaid expenses and other current assets (695) (215)
Other assets (8) 3
Accounts payable (17) (99)
Other accrued liabilities (89) 39
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Total adjustments (732) (887)
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Net cash used by operating activities (502) (680)
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Investing Activities:
Capital expenditures (16) (70)
Proceeds from sale of property, plant, and equipment -- 60
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Net cash used by investing activities (16) (10)
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Financing Activities:
Net borrowings on short term borrowing arrangements 662 1,272
Borrowings of long term debt -- 325
Payments of long term debt (19) (870)
Debt issuance costs (2) (117)
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Net cash provided by financing activities 641 610
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Effect of exchange rate changes (96) (8)
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Net increase (decrease) in cash and cash equivalents 27 (88)
Cash and cash equivalents at beginning of period 22 88
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Cash and cash equivalents at end of period $ 49 $ --
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See notes to condensed consolidated financial statements.
(6)
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, 2000 for such disclosures. The condensed
consolidated balance sheet as of December 31, 2000 was derived from the audited
consolidated balance sheet as of that date. The results of operations for the
three months ended March 31, 2001 are not necessarily indicative of the results
to be expected for the full year.
The Company has reclassified certain amounts in prior periods to conform to the
current presentation.
Note 2 -- Contingencies
The Company has been involved in certain environmental and other 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
there will not be a material adverse impact on financial position, results of
operations, or liquidity, from these matters, either individually or in
aggregate.
Note 3 -- Derivative Financial Instruments
As of January 1, 2001, the Company adopted Financial Accounting Standards Board
Statement No.133, Accounting for Derivative Instruments and Hedging Activities
(Statement 133) which was issued in June, 1998 and its amendments Statements
137, Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133 and 138, Accounting for Derivative
Instruments and Certain Hedging Activities issued in June 1999 and June 2000,
respectively (collectively referred to as Statement 133).
As a result of adopting Statement 133, the Company recognizes all derivative
financial instruments, such as interest rate swap contracts and foreign exchange
contracts, in the consolidated financial statements at fair value regardless of
the purpose or intent for holding the instrument. Changes in the fair value of
derivative financial instruments are either recognized periodically in income or
in shareholders' equity as a component of comprehensive income depending on
whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the fair values of
the hedged items that relate to the hedged risk(s). Changes in fair values of
derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in other comprehensive income net of deferred taxes if
applicable. Changes in fair values of derivatives not qualifying as hedges are
reported in income.
The adoption of Statement 133, resulted in a cumulative effect of an accounting
change of $104,277 which decreased other comprehensive income.
Prior to January 1, 2001, the Company also used interest rate swap contracts and
foreign exchange contracts for hedging purposes. For interest rate swaps, the
net amounts paid or received and net amounts accrued through the end of the
accounting period were included in interest expense. Unrealized gains or losses
on interest rate swap contracts were not recognized in income. For foreign
currency forward contracts hedging firm commitments, the effects of movements in
currency exchange rates on those instruments were recognized when the related
operating revenue was recognized. Realized gains and losses were included in
other assets and liabilities and recognized in income when the future
transaction occurred or at the time the transaction was no longer expected to
occur.
(7)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2001
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, 2001 were $7,950,000
compared with $8,041,000 for 2000, a 1% decrease. Excluding the negative impact
of foreign currency fluctuations, sales would have increased 1% for the quarter.
Domestic sales were down 1% in the first quarter of 2001 compared with the same
period in 2000. International sales for the first quarter of 2001 were 1% below
2000 levels. Strong sales growth in Canada driven by market share increases into
the office super stores offset weakness in England and Germany.
Gross Profit
The gross profit for the first quarter of 2001 was $2,836,000 (35.7% of net
sales) compared to $2,819,000 (35.1% of net sales) for the first quarter of
2000. The introduction of new products coupled with improved operating
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
2001 were $2,412,000 (30.3% of net sales) compared with $2,423,000 (30.1% of net
sales) for the same period of 2000, a decrease of $11,000. Increases in
strategic advertising were more than offset by decreases in general and
administrative expenses.
Income
Net income for the first quarter of 2001 is $230,000, or 7 cents per share
(basic), 6 cents per share (diluted) compared to a net income of $207,000, or 6
cents per share (basic and diluted) for the same period of 2000.
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long term debt to equity ratio
follow:
March 31, 2001 December 31, 2000
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Working capital..................... $8,552,000 $8,462,000
Current ratio....................... 1.98 to 1 2.06 to 1
Long term debt to equity ratio...... .60 .62
During the first three months of 2001, total debt increased by $525,000 compared
to total debt at December 31, 2000 as a result of additional borrowings to fund
advances to suppliers and higher inventory levels and higher accounts receivable
due to seasonal sales volume. At March 31, 2001, advances to suppliers were
about $600,000 and are included with prepaid expenses and other current assets.
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Three Months Ended March 31, 2001
Cash expected to be generated from operating activities, together with funds
available under an existing loan agreement, is expected, under current
conditions, to be sufficient to finance the Company's planned operations for the
next 12 months. Over that same period, the Company does not expect to make
significant investments in plant, property, and equipment.
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; and (iii) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
(9)
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 23, 2001.
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 2,977,942 344,705 185,658
Richard Y. Holden, Jr. 3.027.942 294,705 185,658
Walter C. Johnsen 3,027,942 294,705 185,658
Wayne R. Moore 2,977,785 344,862 185,658
Brian Olschan 3,027,785 294,862 185,658
Gary D. Penisten 3,027,942 294,705 185,658
Stevenson E. Ward III 3,027,942 294,705 185,658
C. An amendment to the Non-Salaried Director Stock Option Plan was
approved.
Votes for Votes against Votes withheld
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627,961 334,752 2,545,592
D. An amendment to the Employee Stock Option Plan was approved.
Votes for Votes against Votes withheld
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703,579 258,464 2,546,262
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
None.
(10)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME UNITED CORPORATION
By /s/ WALTER C. JOHNSEN
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Walter C. Johnsen
President and
Chief Executive Officer
Dated: May 8, 2001
By /s/ RONALD P. DAVANZO
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Ronald P. Davanzo
Vice President and
Chief Financial Officer
Dated: May 8, 2001
(11)