SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 3,449,505 shares outstanding as of October 31, 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 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
(2)
PART I. FINANCIAL INFORMATION
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(all amounts in thousands, except per share data)
September 30 December 31
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 639 $ 22
Accounts receivable, less allowance 8,820 5,973
Inventories:
Finished goods 6,517 7,980
Work in process 507 493
Raw materials and supplies 1,673 1,549
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8,697 10,022
Prepaid expenses and other current assets 816 433
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Total current assets 18,972 16,450
Property, plant and equipment:
Land 167 180
Buildings 2,026 2,007
Machinery and equipment 5,481 6,545
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7,674 8,732
Less accumulated depreciation 5,418 5,610
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2,256 3,122
Other assets 1,424 1,374
Goodwill, less accumulated amortization 161 172
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Total assets $ 22,813 $ 21,118
========== ==========
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)
September 30 December 31
2001 2000
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LIABILITIES
Current liabilities:
Notes payable $ 56 $ 504
Accounts payable 2,404 2,260
Other accrued liabilities 3,121 3,139
Current portion of long term debt 3,346 2,085
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Total current liabilities 8,927 7,988
Long term debt, less current portion 4,911 4,925
Other 428 313
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Total liabilities 14,266 13,226
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-160,207 shares in 2001
and 105,007 in 2000 (809) (648)
Additional paid-in capital 2,038 2,038
Retained-earnings deficit (52) (1,152)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (1,456) (1,379)
Derivative financial instrument losses (207) -
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(1,663) (1,379)
Total stockholders' equity 8,547 7,892
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Total liabilities and stockholders' equity $ 22,813 $ 21,118
========== ==========
See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(all amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
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2001 2000 2001 2000
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Net sales $ 9,014 $ 8,760 $ 27,606 $ 27,003
Costs and expenses:
Cost of goods sold 5,543 5,612 17,233 17,619
Selling, general and administrative expenses 2,834 2,452 8,710 7,608
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8,377 8,064 25,943 25,227
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Income before non operating items 637 696 1,663 1,776
Non operating items:
Interest expense 211 273 621 713
Other income (expense) (8) (96) 95 (105)
-------- -------- -------- --------
Income before income taxes 418 327 1,137 958
Income taxes 13 25 37 35
-------- -------- -------- --------
Net income 405 302 1,100 923
Other comprehensive (expense) income -
Foreign currency translation (30) (44) (77) (109)
Cumulative effect of change in accounting for
derivative financial instruments - - (104) -
Change in fair value of derivative financial instruments (52) - (103) -
Unrealized gain on available-for-sale marketable equity
securities, less reclassification adjustment for gain
included in net income (274) - - -
-------- -------- -------- --------
Comprehensive income $ 49 $ 258 $ 816 $ 814
======== ======== ======== ========
Basic earnings per share $ 0.12 $ 0.09 $ 0.31 $ 0.26
Diluted earnings per share $ 0.11 $ 0.08 $ 0.30 $ 0.25
======== ======== ======== ========
Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,490 3,507 3,502 3,507
Weighted average number of dilutive stock options
outstanding 114 291 109 133
-------- -------- -------- --------
Denominator used for diluted per share computations 3,604 3,798 3,611 3,640
======== ======== ======== ========
See notes to condensed consolidated financial statements.
(5)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Nine Months Ended
September 30
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2001 2000
Operating Activities:
Net income $ 1,100 $ 923
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation 505 473
Amortization 101 115
Loss on disposals of property, plant, and equipment 334 148
Gain on sale of marketable equity securities (475) -
Changes in operating assets and liabilities:
Accounts receivable (2,846) (838)
Inventories 1,325 (1,805)
Prepaid expenses and other current assets (383) (177)
Other assets (50) (369)
Accounts payable 144 (214)
Other accrued liabilities (113) 973
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Total adjustments (1,458) (1,694)
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Net cash used by operating activities (358) (771)
Investing Activities:
Capital expenditures (202) (384)
Proceeds from sale of property, plant, and equipment 140 286
Proceeds from sale of marketable equity securities 475 -
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Net cash provided (used) by investing activities 413 (98)
Financing Activities:
Net short term borrowings 886 1,311
Borrowings of long term debt - 1,025
Payments of long term debt (59) (1,449)
Debt issuance costs (27) (168)
Repurchase of 55,200 Common shares for treasury (161) -
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Net cash provided by financing activities 639 719
Effect of exchange rate changes (77) 109
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Change in cash and cash equivalents 617 (41)
Cash and cash equivalents at beginning of period 22 88
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Cash and cash equivalents at end of period $ 639 $ 47
========== ==========
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 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, 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. Results of
operations for interim period are not necessarily indicative of the results to
be expected for the full year.
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 several 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 -- New Accounting Standards
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 adoption of 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
operations or in shareholders' equity as a component of accumulated
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 operations 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 income taxes. Changes in fair value of
derivatives used as hedges of the net investment in foreign operations are
reported in other comprehensive income as part of the cumulative translation
adjustment. Changes in fair values of derivatives not qualifying as hedges are
reported in operations.
The adoption of Statement 133 resulted in a cumulative effect of an accounting
change of $104,000 decrease to other comprehensive income.
(7)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued
(Unaudited)
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 operations. 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 operations when the future
transaction occurred or at the time the transaction was no longer expected to
occur.
In April 2001, the Emerging Issues Task Force issued consensus No. 00-25, Vendor
Income Statement Characterization of Consideration from a Vendor to Retailer
(EITF 00-25), which concludes that consideration paid by a company to a reseller
of its product is presumed to be a reduction of the selling price of the
company's product and, therefore, should be characterized as a reduction of
revenue when recognized in the company's income statement. The presumption is
overcome and the consideration should be characterized as a cost incurred if,
and to the extent that, an identifiable benefit is or will be received from the
reseller in return for the consideration and that the company can reasonably
estimate the fair value of that benefit. The adoption of EITF 00-25 will have no
effect on net income. Selling, general and administrative expenses in the
accompanying financial statements include $652,000 and $560,000 for the three
month periods ended September 30, 2001 and 2000, respectively, and $2,324,000
and $1,661,000 for the nine month periods ended September 30, 2001 and 2000,
respectively, of consideration paid to retailers. Such consideration will be
classified as a reduction of sales when provisions of EIFT 00-25 are applied as
required, effective January 1, 2002 for the applicable periods presented.
Note 4 -- Investment
The Company previously held a single investment in marketable equity securities
with a nominal cost. During the three months ended September 30, 2001, the
Company sold these securities and realized a gain of $475,000.
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Sales
Traditionally, the Company's sales are stronger in the second and third
quarters, and weaker in the first and fourth quarters of the fiscal year due to
the seasonal nature of the business specific to the back-to-school season.
Consolidated net sales for the quarter ended September 30, 2001 were $9,014,000
compared with $8,760,000 for 2000, a 3% increase. Excluding negative effects
from foreign currency fluctuations, net sales would have increased 4% for the
third quarter. Net sales for the first nine months of 2001 were $27,606,000
compared with $27,003,000 for 2000, a 2% increase. Excluding negative effects
from foreign currency fluctuations, year-to-date net sales would have increased
4%.
Domestic sales increased 13% in the third quarter of 2001 compared with the same
period in 2000. Strong market share gains in the super stores and the mass
market more than offset some weakness in the commercial segment, which has been
negatively impacted by the U.S. economy. Sales domestically for the first nine
months of 2001 increased 8% over the prior period. International sales for the
third quarter of 2001 were 18% below 2000 levels, 3% of the loss was due to the
negative impact of foreign currency fluctuations. International sales for the
first nine months were 11% below prior year levels. International sales would
have been flat with previous year levels excluding the significant drop in the
country currencies in which Acme operates.
Gross Profit
Gross profit for the third quarter of 2001 was $3,471,000 (38.5% of net sales)
compared to $3,148,000 (35.9% of net sales) for the third quarter of 2000. Gross
profit for the first nine months of 2001 was 37.6% of net sales compared to
34.7% in the same period 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 third quarter of
2001 were $2,834,000 (31.4% of net sales) compared with $2,452,000 (28.0% of net
sales) for the same period of 2000, an increase of $382,000. Strategic
advertising investment was the main reason for the increase. SG&A expenses were
31.5% of net sales for the first nine months of 2001 versus 28.2% in the
comparable period of 2000.
Other Income (Expense)
Other income (expense) included in the third quarter of 2001, a gain of $475,000
on the sale of marketable equity securities and a loss of $398,000 on disposals
of property, plant and equipment.
Income
Net income for the third quarter of 2001 is $405,000, (an increase of 34%) or 11
cents per share (diluted) compared to a net income of $302,000, or 8 cents per
share (diluted) for the same period of 2000. Net income for the first nine
months is $1,100,000, (an increase of 19%) or 30 cents per share (diluted)
compared to net income of $923,000, or 25 cents per share (diluted).
(9)
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long term debt to equity ratio
follow:
September 30, 2001 December 31, 2000
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Working capital................... $10,045,000 $8,462,000
Current ratio..................... 2.13 to 1 2.06 to 1
Long term debt to equity ratio.... . 57 . 62
During the first nine months of 2001, total debt increased by $800,000 compared
to total debt at December 31, 2000 as a result of additional borrowings to
finance higher inventory levels and accounts receivable due to seasonal sales
volume. At September 30, 2001, advances to suppliers were approximately $252,000
and are included with prepaid expenses and other current assets.
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.
Pending Adoption of Accounting Standard
In April 2001, the Emerging Issues Task Force issued consensus No. 00-25, Vendor
Income Statement Characterization of Consideration from a Vendor to Retailer
(EITF 00-25), which concludes that consideration paid by a company to a reseller
of its product is presumed to be a reduction of the selling price of the
company's product and, therefore, should be characterized as a reduction of
revenue when recognized in the company's income statement. The presumption is
overcome and the consideration should be characterized as a cost incurred if,
and to the extent that, an identifiable benefit is or will be received from the
reseller in return for the consideration and that the company can reasonably
estimate the fair value of that benefit. The adoption of EITF 00-25 will have no
effect on net income. Selling, general and administrative expenses in the
accompanying financial statements include $652,000 and $560,000 for the three
month periods ended September 30, 2001 and 2000, respectively, and $2,324,000
and $1,661,000 for the nine month periods ended September 30, 2001 and 2000,
respectively, of consideration paid to retailers. Such consideration will be
classified as a reduction of sales when provisions of EIFT 00-25 are applied as
required, effective January 1, 2002 for the applicable periods presented.
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.
(10)
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4-- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
None.
(11)
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: October 31, 2001
By /s/ RONALD P. DAVANZO
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Ronald P. Davanzo
Vice President and
Chief Financial Officer
Dated: October 31, 2001
(12)