UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM l0-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number Q4823
ACME UNITED CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0236700
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Kings Highway Cutoff, Fairfield, Connecticut 06430
- ----------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(203) 332-7330
--------------
Registrant's telephone number, including area code
- -----------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report
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 3,369,875 shares outstanding as of April 30, 1998
of its $ 2.50 par value Common Stock.
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS)
ASSETS
MARCH 31 DECEMBER 31
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
Current Assets:
Cash and cash equivalents $ 21 $ 25
Accounts receivable, net 7,445 7,446
Inventories:
Finished goods 7,325 7,658
Work in process 2,246 1,229
Raw materials and supplies 4,258 5,194
----------- -----------
13,829 14,081
Prepaid expenses and other current assets 1,004 176
----------- -----------
Total current assets 22,299 21,728
Property, plant and equipment
Land 415 420
Buildings 3,678 3,746
Machinery and equipment 15,962 15,528
----------- -----------
20,055 19,694
Less accumulated depreciation 12,996 12,929
----------- -----------
7,059 6,765
Other assets 807 837
Goodwill 522 527
----------- -----------
Total assets $ 30,687 $ 29,857
=========== ===========
See notes to condensed consolidated financial statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS)
MARCH 31 DECEMBER 31
1998 1997
(UNAUDITED) (UNAUDITED)
----------- ------------
LIABILITIES
Current Liabilities:
Accounts payable $ 4,392 $ 3,525
Notes payable 3,575 3,727
Restructuring liability 557 557
Other accrued liabilities 3,202 3,902
----------- -----------
Total current liabilities 11,726 11,711
Long term debt 12,741 11,852
----------- -----------
Total liabilities 24,467 23,563
STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
Authorized-4,000,000 shares;
Issued-3,481,495 shares in 1998
and 3,473,995 shares in 1997 8,704 8,685
Additional paid-in capital 2,249 2,238
Retained-earnings deficit (2,806) (2,714)
Translation adjustment (1,238) (1,226)
Treasury stock-111,620 shares (689) (689)
----------- -----------
Total stockholders' equity 6,220 6,294
----------- -----------
Total liabilities and stockholders' equity $ 30,687 $ 29,857
=========== ===========
See notes to condensed consolidated financial statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31
1998 1997
----------- -----------
Net sales $ 11,045 $ 10,880
Other income 53 885
----------- -----------
11,098 11,765
Costs and expenses:
Cost of goods sold 8,222 7,700
Selling, general and administrative expenses 2,635 2,972
Interest expense 338 282
Restructuring and other charges --- 530
----------- -----------
11,195 11,484
----------- -----------
(Loss) income before income taxes (97) 281
(Benefit) provision for income taxes (5) ---
----------- -----------
Net (loss) income (92) 281
Other comprehensive expenses-
foreign currency translation (12) (123)
----------- -----------
Comprehensive (loss) income $ (104) $ 158
=========== ===========
Basic (loss) earnings per share $ (.03) $ .08
=========== ===========
Diluted (loss) earnings per share $ (.03) $ .08
=========== ===========
Weighted average number of common shares
outstanding-denominator for basic
per share computation 3,368 3,369
Weighted average number of dilutive stock options
outstanding --- 298
----------- -----------
Denominator for diluted per share computation 3,368 3,667
=========== ===========
See notes to condensed consolidated financial statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(ALL AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31
1998 1997
----------- -----------
Operating activities:
Net (loss) income $ (92) $ 281
Adjustments to reconcile net (loss) income to
net cash used by operating activities:
Depreciation 263 202
Amortization 6 70
Increase in deferred income taxes 28 ---
Gain on disposal of property, plant, and equipment (3) ---
Change in operating assets and liabilities:
Accounts receivable (410) (1,440)
Inventories 255 (2,270)
Prepaid expenses and other current assets (425) (210)
Other assets 3 976
Accounts payable 869 1,602
Other accrued liabilities (692) 671
----------- -----------
Net cash used by operating activities (198) (118)
----------- -----------
Investing activities:
Capital expenditures (647) (388)
Proceeds from sale of property, plant,
and equipment 44 ---
----------- -----------
Net cash used by investing activities (603) (388)
----------- -----------
Financing activities:
Net borrowings 767 678
Treasury Stock purchased --- (330)
Common Stock issued for stock options exercised 30 9
----------- -----------
Net cash provided by financing activities 797 357
----------- -----------
Effect of exchange rate changes on cash --- (1)
----------- -----------
Net change in cash and cash equivalents (4) (150)
Cash and cash equivalents at beginning of period 25 427
----------- -----------
Cash and cash equivalents at end of period $ 21 $ 277
=========== ===========
See notes to condensed consolidated financial statements
ACME UNITED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying condensed
consolidated financial statements contain all adjustments
necessary to present fairly the financial position as of March
31, 1998 and December 31, 1997 and the results of its operations
and cash flows for the three month periods ended March 31, 1998
and 1997. 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, 1997 for such
disclosures. The condensed balance sheet as of December 31, 1997
was derived from the audited financial statements as of that
date. The results of operations for the three months ended March
31, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. The Company adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128") as of its December 31, 1997 year-end. As
such, per share amounts for the first quarter of 1997 as
presented herein reflect the adoption of SFAS. Such adoption did
not have a significant impact.
3. As of January 1, 1998, the Company adopted SFAS 130,
"Reporting Comprehensive Income". The adoption of this Statement
had no impact on the Company's net income or shareholders'
equity. Under SFAS 130 the Company's foreign currency
translation adjustments, which are reported separately in
shareholders' equity, are also required to be included in the
determination of other comprehensive income or loss. The prior
year financial statements have been reclassified to conform to
the requirements of SFAS 130.
4. 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. Based on information
available, the Company does not expect a significant impact on
the financial position, future operations or cash flows of the
Company, relating to these matters.
The Company is in the process of making a complete assessment of
the impact of the Year 2000. In the U.S., the Company
implemented a new information system in 1997, which should
address any computer system issues related to the Year 2000. The
Company has established a Year 2000 Task Force to fully evaluate
the company-wide impact of the Year 2000. The Task Force is in
the process of identifying all issues, and determining an action
plan for testing and validating all systems. Management believes
that the Year 2000 issue will not materially affect future
financial results, or cause reported financial results not to be
necessarily indicative of future operating results or future
financial condition.
ITEM 2. 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. Consolidated net sales for the quarter ended
March 31, 1998 were $11,045,000, compared to $10,880,000 for the
same period last year, an increase of $165,000, or 2%. Sales for
the first quarter of 1997 included $965,000 for product lines
that were sold to Seton Healthcare International Limited
("Seton") in 1997. Sales for the first quarter of 1998 of
$440,000 were associated with the Rotex division of Esselte
Canada which the Company purchased in December 1997. Net sales
for the first quarter of 1998 adjusted for the Seton sale and
Rotex purchase were $690,000, or 7%, higher than the first
quarter of 1997 similarly adjusted.
Domestic consumer net sales totaled $5,505,000 in the first
quarter of 1998, compared to $4,575,000 in the first quarter of
1997, an increase of $930,000, or 20%. The sales growth was due
to an increase in the core business and product line expansion.
Net sales from foreign operations were $2,966,000 in the first
quarter of 1998 compared to $2,491,000 in the first quarter of
1997. The sales increase of $475,000, or 19%, was primarily due
to sales from the Rotex products. Net sales of medical products
were $2,574,000 in the first quarter of 1998 compared to
$3,814,000 in the first quarter of 1997, a decrease of
$1,240,000. The revenue decline was primarily due to the sale of
the Seton product line, and reduced sales to the Asian market.
Gross Profit Margin
For the quarter the Company reported a gross profit margin of
29.4% in 1998 compared to 32.6% in 1997. The margin for the
consumer business declined slightly from 23.5% for the first
quarter of 1997 to 22.9% for the first quarter of 1998. The
margin for the medical business declined from 39.9% in the first
quarter of 1997 to 34.3% for the first quarter of 1998. The
decline was due primarily to sales mix.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses of
$2,635,000 for the first quarter of 1998 decreased $337,000, or
11%, compared with the first quarter of 1997. The first quarter
of 1997 included $162,000 of non-recurring charges. Excluding
the non-recurring charges, SG&A expense in the first quarter of
1998 declined by $175,000 due to headcount reductions in the
United Kingdom, and the elimination of certain expenses incurred
in 1997 associated with the product lines sold to Seton.
Net (Loss) Income
The Company reported a net loss for the first quarter of 1998 of
$92,000, or $.03 per share, compared to a net income in the first
quarter of 1997 of $281,000, or $.08 per share. The first
quarter of 1997 included a gain on the sale of marketing rights
to Seton offset by one-time charges; an increase in net income of
$157,000 was recognized.
FINANCIAL CONDITION
Liquidity and Capital Resources
During the first quarter of 1998, the total debt increased by
$737,000 compared to total debt at December 31, 1997. The
increase supported capital expenditures and increased sales
growth.
For the remainder of 1998, cash generated from operating
activities is expected to be sufficient to reduce debt and fund
capital expenditures. The Company's current debt and line of
credit arrangements coupled with cash expected from operating
activities are considered adequate to meet liquidity needs for
the remainder of 1998.
The Company's working capital, current increase supported
capital expenditures and increased sales growth.
For the remainder of 1998, cash generated from operating
activities is expected to be sufficient to reduce debt and fund
capital expenditures. The Company's current debt and line of
credit arrangements coupled with cash expected from operating
activities are considered adequate to meet liquidity needs for
the remainder of 1998.
The Company's working capital, current ratio and long term debt
to equity ratio follow:
March 31, 1998 December 31, 1997
-------------- -----------------
Working capital $10,573,000 $10,017,000
Current ratio 1.90 to 1 1.86 to 1
Long term debt to
equity ratio 2.05 1.88
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
none
ITEM 2. CHANGES IN SECURITIES
none
ITEM 3. DEFAULT UPON SENIOR SECURITIES
none
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The Annual Meeting was held on April 27, 1998.
B. The following individuals were elected Directors at the
Meeting and comprise the entire Board.
Votes Votes Votes
for against withheld
--------- ----------- ---------
David W. Clark, Jr. 3,020,482 208,108 141,285
George R. Dunbar 3,020,408 208,182 141,285
Richmond Y. Holden,Jr. 3,012,982 215,608 141,285
Walter C. Johnsen 3,020,482 208,108 141,285
Wayne R. Moore 3,020,408 208,182 141,285
Gary D. Penisten 3,020,482 208,108 141,285
James L.L. Tullis 3,020,482 208,108 141,285
Henry C. Wheeler 3,020,408 208,182 141,285
C. The Amendment to the Non-Salaried Director Stock Option Plan
was approved with 1,786,876 shares voting for the Plan, 302,127
shares voting against the Plan, 104,302 votes withheld and
1,176,570 shares not voted.
D. The Amendment to the Employees' Stock Option Plan was
approved with 1,562,150 shares voting for the Plan, 526,956
shares voting against the Plan, and 104,199 votes withheld and
1,176,570 shares not voted.
ITEM 5. OTHER INFORMATION
none
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Form 8-K was filed by the Company on March 6, 1998. A
second Form 8-K was filed by the Company on April 6, 1998 and
revised on April 17, 1998.
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
-----------------------
(Registrant)
Date: April 30, 1998 /s/ Cheryl L. Kendall
-----------------------------
Cheryl L. Kendall
Vice President and
Chief Financial Officer
Date: April 30, 1998 /s/ Richard L. Windt
-----------------------------
Richard L. Windt
Vice President/Corporate
Controller
5
1,000
3-MOS
DEC-31-1998
MAR-31-1998
21
0
7,670
225
13,829
22,299
20,055
12,996
30,687
11,726
0
0
0
8,704
(2,484)
30,687
11,045
11,098
8,222
10,857
0
0
338
(97)
(5)
(92)
0
0
0
(92)
(.03)
(.03)
