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, 2002
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 3,410,051 shares outstanding as of April 16, 2002 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 (Loss)......................... 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)
March 31 December 31
2002 2001
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ASSETS
Current assets:
Cash and cash equivalents $ 127 $ 172
Accounts receivable, less allowance 7,278 6,439
Inventories:
Finished goods 6,386 6,554
Work in process 678 404
Raw materials and supplies 1,284 1,845
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8,348 8,803
Prepaid expenses and other current assets 964 807
Deferred income taxes 241 241
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Total current assets 16,958 16,462
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Property, plant and equipment:
Land 167 170
Buildings 2,052 2,072
Machinery and equipment 5,610 5,610
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7,829 7,852
Less accumulated depreciation 5,562 5,594
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2,267 2,258
Other assets 1,263 1,296
Goodwill 156 157
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Total assets $20,644 $20,173
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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
2002 2001
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LIABILITIES
Current liabilities:
Notes payable $ 437 $ 464
Accounts payable 1,506 2,038
Other accrued liabilities 2,556 2,821
Current portion of long term debt 6,151 2,377
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Total current liabilities 10,650 7,700
Long term debt, less current portion 283 2,875
Deferred income taxes 540 521
Other 382 405
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Total liabilities 11,855 11,501
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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-203,261 shares (937) (937)
Additional paid-in capital 2,038 2,038
Retained earnings 251 129
Accumulated other comprehensive loss:
Translation adjustment (1,506) (1,470)
Derivative financial instrument losses (90) (121)
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Total stockholders' equity 8,789 8,672
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Total liabilities and stockholders' equity $ 20,644 $ 20,173
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See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
(all amounts in thousands, except per share amounts)
Three Months Ended
March 31
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2002 2001
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Net sales $ 6,754 $ 7,313
Costs and expenses:
Cost of goods sold 4,612 5,114
Selling, general and administrative expenses 1,943 1,775
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6,555 6,889
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Income before non operating items 199 424
Non operating items:
Interest expense 146 203
Other income 84 21
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Income before income taxes 137 242
Income taxes 15 12
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Net income 122 230
Other comprehensive (expense) income -
Foreign currency translation (36) (96)
Cumulative effect of change in accounting for
derivative financial instruments - (104)
Change in fair value of derivative financial instrument,
less deferred income taxes of $19 in 2002 31 (58)
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Comprehensive income (loss) $ 117 $ (28)
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Basic earnings per share $ 0.03 $ 0.07
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Diluted earnings per share $ 0.03 $ 0.06
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Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,410 3,508
Weighted average number of dilutive stock options
outstanding 202 65
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Denominator used for diluted per share computations 3,612 3,573
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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 of dollars)
Three Months Ended
March 31
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2002 2001
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Operating Activities:
Net income $ 122 $ 230
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation 125 115
Amortization 34 33
Changes in operating assets and liabilities:
Accounts receivable (839) (950)
Inventories 455 879
Prepaid expenses and other current assets (157) (695)
Other assets - (8)
Accounts payable (532) (17)
Other accrued liabilities (382) (89)
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Total adjustments (1,296) (732)
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Net cash used by operating activities (1,174) (502)
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Investing Activities:
Capital expenditures (54) (16)
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Net cash used by investing activities (54) (16)
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Financing Activities:
Net short term borrowings 1,248 662
Payments of long term debt (29) (19)
Debt issuance costs - (2)
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Net cash provided by financing activities 1,219 641
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Effect of exchange rate changes (36) (96)
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Net change in cash and cash equivalents (45) 27
Cash and cash equivalents at beginning of period 172 22
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Cash and cash equivalents at end of period $ 127 $ 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 include 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 of America 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, 2001 for such
disclosures. The condensed consolidated balance sheet as of December 31, 2001
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 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 three 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 -- Subsequent Event
During the second quarter of 2002, the Company initiated liquidation procedures
for Acme United Limited (AUL), a subsidiary located in the United Kingdom. For
the year ended December 31, 2001, AUL recorded a net loss of $495,000 on net
sales of $2.0 million, representing a sales decline of approximately $1.2
million or 38% from the prior year. During the first quarter of 2002, AUL
recorded a net loss of approximately $100,000 on net sales of $256,000
representing a sales decline of $456,000 or 64% from the prior year. The Company
estimates that the restructuring charges and other operating losses associated
with the liquidation of AUL will be approximately $600,000 for 2002. Such losses
should be more than offset by tax benefits in the United States for the same
period.
Note 4 -- New Accounting Standards
As of January 1, 2002, the Company adopted Financial Accounting Standards Board
Statement No. 142, Goodwill and Other Intangible Assets (FAS 142) and as such no
longer amortizes goodwill but rather tests it annually for impairment. There was
no impairment of goodwill at January 1, 2002. Had Statement No. 142 been in
effect as of the beginning of 2001, amortization expense for the period ended
March 31, 2001 would have been reduced by $7,000, increasing net income by the
same amount.
As of January 1, 2002, the Company also adopted the Emerging Issues Task Force
consensus No. 00-25, Vendor Income Statement Characterization of Consideration
Paid to a Reseller of a Vendor's Products (EITF 00-25). As such, the Company
recognizes consideration paid to a reseller of its product as a reduction of the
selling price of its products and, therefore, reduces revenue in the Company's
income statement. The adoption of EITF 00-25 had no effect on net income.
Selling, general and administrative expenses for the three months ended March
31, 2001 have been reclassified to conform to the new classification resulting
in a $637,000 decrease of selling, general and administrative expenses and net
sales for that period.
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).
(7)
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 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.
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 income.
The Company accounted for the accounting change as a cumulative effect of an
accounting principle. The adoption of Statement 133, resulted in a cumulative
effect of an accounting change of $104,277 decrease to other comprehensive
income.
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2002
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, 2002 were $6,754,000
compared with $7,313,000 for 2001, an 8% decrease. The sales decrease was mainly
driven by a sales decline of 64% in the United Kingdom as a distribution
agreement with a third party was terminated. Domestic sales were even in the
first quarter of 2002 compared with the same period in 2001.
In connection with the adoption of EITF 00-25 on January 1, 2002, the Company
reclassified $667,000 of expense related to consideration paid to customers as a
reduction of sales. To conform to the new presentation, the Company reclassified
$637,000 of similar expense from selling, general and administrative expenses to
net sales for the first quarter of 2001.
Gross Profit
The gross profit for the first quarter of 2002 was $2,113,000 (31.3% of net
sales) compared to $2,199,000 (30.0% of net sales) for the first quarter of
2001. 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
2002 were $1,943,000 (28.8% of net sales) compared with $1,775,000 (24.3% of net
sales) for the same period of 2001, an increase of $168,000.
Income Taxes
Income tax expense is calculated based on the estimated effective tax rate for
the year. The effective tax rate differs from the statutory rate due to state
taxes and the resulting tax benefit attributable to the liquidation of the
United Kingdom subsidiary.
Net Income
Net income for the first quarter of 2002 is $122,000, or 3 cents per share
(basic and diluted), compared to a net income of $230,000, or 7 cents per share
(basic), 6 cents per share (diluted) for the same period of 2001.
(9)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Three Months Ended March 31, 2002
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long-term debt to equity ratio
follow:
March 31, 2002 December 31, 2001
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Working capital..................... $5,931,000 $8,762,000
Current ratio....................... 1.54 to 1 2.14 to 1
Long term debt to equity ratio...... .03 .33
During the first three months of 2002, total debt increased by $1,219,000
compared to total debt at December 31, 2001 as a result of net additional short
term borrowings to fund advances to suppliers and higher inventory levels and
higher accounts receivable due to seasonal sales volume. At March 31, 2002,
advances to suppliers were about $122,000 and are included with prepaid expenses
and other current assets. The working capital ratio, current ratio and long-term
debt to equity ratio have been affected by the classification of all of the
United States debt as current, which is the result of the loan agreements
expiring in January 2003. The Company is currently in the process of
renegotiating these loans and expects a new loan to be in place by the third
quarter of 2002.
Cash expected to be generated from operating activities, together with funds
available under its existing loan agreement, is expected, under current
conditions, to be sufficient to finance the Company's planned operations for the
remainder of the year. 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.
(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
A. The Annual Meeting was held on April 22, 2002.
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 2,777,683 145,897 486,471
Richmond Y. Holden, Jr. 2,828,101 95,479 486,471
Walter C. Johnsen 2,807,101 116,479 486,471
Wayne R. Moore 2,774,101 149,479 486,471
Brian Olschan 2,807,101 116,479 486,471
Gary D. Penisten 2,823,101 100,479 486,471
Stevenson E. Ward III 2,828,101 95,479 486,471
C. The New Employee Stock Option Plan was approved.
Votes for Votes against Votes withheld
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2,714,601 112,305 583,145
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: _______, 2002
By /s/ RONALD P. DAVANZO
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Ronald P. Davanzo
Vice President and
Chief Financial Officer
Dated: May 14, 2002
(12)