SEC Filing - Acme United Corporation

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ------------------

                                    FORM 10-Q

                               ------------------

           |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1999

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES 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                                  (I.R.S. Employer
of incorporation or organization)                            Identification No.)

75 Kings Highway Cutoff, Fairfield, Connecticut                    06430
- -----------------------------------------------                    -----
(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 3,377,488  shares  outstanding as of August 14, 1999 of its $2.50
par value Common Stock.


                             ACME UNITED CORPORATION

                                                                            Page
                                                                            ----
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................................................... 12
 Item 2. Changes in Securities............................................... 12
 Item 3. Defaults Upon Senior Securities..................................... 12
 Item 4. Submission of Matters to a Vote of Security Holders................. 12
 Item 5. Other Information................................................... 12
 Item 6. Exhibits and Reports on Form 8-K.................................... 12
 Signatures.................................................................. 13


                          PART I. FINANCIAL INFORMATION

                             ACME UNITED CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                (all amounts in thousands, except per share data)


                                                                                  June 30         December 31
                                                                                   1999              1998
                                                                               ------------       -----------


                                                                                         
ASSETS
Current Assets:
  Cash and cash equivalents................................................  $          33     $          40
  Accounts receivable, less allowance......................................          9,453             7,722
  Inventories:
     Finished goods........................................................          5,187             7,122
     Work in process.......................................................            903             1,240
     Raw materials and supplies............................................          3,574             4,907
                                                                                 ----------        ----------
                                                                                     9,664            13,269
  Prepaid expenses and other current assets................................            415               424
                                                                                 ----------        ----------
          Total current assets.............................................         19,565            21,455
                                                                                 ----------        ----------

Property, plant and equipment:
  Land ....................................................................            196               219
  Buildings................................................................          2,023             2,179
  Machinery and equipment..................................................         13,404            16,216
                                                                                 ----------        ----------
                                                                                    15,623            18,614
  Less accumulated depreciation............................................         10,260            12,573
                                                                                 ----------        ----------
                                                                                     5,363             6,041
Other assets...............................................................            903               895
Goodwill, less accumulated amortization....................................            388               505
                                                                                 ----------        ----------
            Total assets...................................................  $      26,219     $      28,896
                                                                                 ==========        ==========



           See notes to condensed consolidated financial statements.


                             ACME UNITED CORPORATION

                CONDENSED CONSOLIDATED BALANCE SHEETS - continued
                                   (UNAUDITED)
                (all amounts in thousands, except per share data)


                                                                                  June 30         December 31
                                                                                   1999              1998
                                                                               ------------       -----------

LIABILITIES

Current Liabilities:
  Notes payable ...........................................................  $         753     $         882
  Accounts payable.........................................................          4,722             4,422
  Other accrued liabilities................................................          4,071             3,590
  Current portion of long term debt........................................          9,735             8,944
                                                                                 ----------        ----------
      Total current liabilities............................................         19,281            17,838
  Long term debt, less current portion.....................................            458             6,382
                                                                                 ----------        ----------
       Total liabilities...................................................         19,739            24,220
                                                                                 ----------        ----------

STOCKHOLDERS' EQUITY

  Common stock, par value $2.50 :
    Authorized-4,000,000 shares;
    issued-3,482,495 shares in 1999
    and 1998, including treasury stock ....................................          8,706             8,706
  Additional paid-in capital ..............................................          2,233             2,233
  Retained-earnings deficit................................................         (2,499)           (4,380)
  Accumulated other comprehensive loss - translation adjustment............         (1,312)           (1,235)
  Treasury stock, at cost -105,007 shares..................................           (648)             (648)
                                                                                 ----------        ----------
      Total stockholders' equity...........................................          6,480             4,676
                                                                                 ----------        ----------
        Total liabilities and stockholders' equity.........................  $      26,219     $      28,896
                                                                                 ==========        ==========

            See notes to condensed consolidated financial statements.





                             ACME UNITED CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (UNAUDITED)
                (all amounts in thousands, except per share data)


                                                                               Three Months Ended      Six Months Ended
                                                                                     June 30                June 30
                                                                              --------------------   --------------------
                                                                                 1999       1998        1999       1998
                                                                               --------   --------    --------   --------

                                                                                                     
Revenues:
  Net sales                                                                    $  9,813   $ 10,273    $ 17,383   $ 18,744
  Other income                                                                       87         72         264        125
                                                                               --------   --------    --------   --------
      Total revenues                                                              9,900     10,345      17,647     18,869
                                                                               --------   --------    --------   --------
Costs and expenses:
  Cost of goods sold                                                              7,419      7,874      13,496     14,405
  Selling, general and administrative expenses                                    2,069      2,215       3,937      4,251
  Interest expense                                                                  248        363         606        701
                                                                               --------   --------    --------   --------
      Total expenses                                                              9,736     10,452      18,039     19,357
                                                                               --------   --------    --------   --------
Income (loss) from continuing operations before income taxes                        164       (107)       (392)      (488)
Income taxes                                                                         39         22          25         18
                                                                               --------   --------    --------   --------
Income (loss) from continuing operations                                            125       (129)       (417)      (506)
Discontinued operations:
  Gain on sale of discontinued operations                                           ---        ---       2,101        ---
  Income from discontinued operations                                               ---        248         198        532
                                                                               --------   --------    --------   --------
                                                                                    ---        248       2,299        532
                                                                               --------   --------    --------   --------
Net income                                                                          125        119       1,882         26
Other comprehensive expense -
  foreign currency translation                                                       (7)       (19)        (78)       (31)
                                                                               --------   --------    --------   --------
Comprehensive income                                                           $    118   $    100    $  1,804   $    553
                                                                               ========   ========    ========   ========
Earnings (loss)  per share:
  Continuing operations                                                        $   0.04   $  (0.03)   $  (0.12)  $  (0.14)
  Discontinued operations                                                          ---        0.07        0.68       0.15
                                                                               --------   --------    --------   --------
  Net income                                                                   $   0.04   $   0.04    $   0.56   $   0.01
                                                                               ========   ========    ========   ========


Weighted average number of common shares outstanding-
  denominator used for per share computations                                     3,377      3,370       3,377      3,369


            See notes to condensed consolidated financial statements.



                             ACME UNITED CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                           (all amounts in thousands)

                                                                                      Six Months Ended
                                                                                           June 30
                                                                                 ---------------------------
                                                                                    1999              1998
                                                                                 ---------         ---------

                                                                                             
Operating activities:
  Net income...............................................................      $   1,882         $      27
  Adjustments to reconcile net income to net cash used by
     operating activities:
    Gain on sale of discontinued operations................................         (2,101)              ---
    Depreciation...........................................................            346               524
    Amortization...........................................................             15                11
    Gain on disposal of property, plant, and equipment.....................            ---                51

    Changes in operating assets and liabilities:
      Accounts receivable..................................................         (1,881)           (3,366)
      Inventories..........................................................            313             1,225
      Prepaid expenses and other current assets............................              9              (506)
      Other assets.........................................................             (2)              (18)
      Accounts payable.....................................................            300               427
      Other accrued liabilities............................................         (1,442)              169
                                                                                ----------        ----------
        Net cash used by operating activities..............................         (2,561)           (1,456)
                                                                                ----------        ----------

Investing activities:
  Capital expenditures.....................................................           (342)           (1,284)
  Proceeds from sales of property, plant, and equipment....................            ---               300
  Proceeds from sale of medical division...................................          8,156               ---
                                                                                ----------        ----------
      Net cash provided (used) by investing activities.....................          7,814              (984)
                                                                                ----------        ----------

Financing activities:
  Net proceeds (payments) on short term borrowing arrangements.............         (5,999)            1,710
  Proceeds on long term debt...............................................          2,500               736
  Payments on long term debt...............................................         (1,763)              ---
  Stock options exercised..................................................            ---                33
                                                                                ----------        ----------
      Net cash (used) provided by financing activities.....................         (5,262)            2,479
                                                                                ----------        ----------
Effect of exchange rate changes on cash....................................              2                (2)
                                                                                ----------        ----------
Net change in cash and cash equivalents ...................................             (7)               37

Cash and cash equivalents at beginning of period...........................             40                25
                                                                                ----------        ----------

Cash and cash equivalents at end of period.................................     $       33        $       62
                                                                                ==========        ==========


            See notes to condensed consolidated financial statements.


              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,  1998 for such  disclosures.  The  condensed
consolidated  balance sheet as of December 31, 1998 was derived from the audited
consolidated  balance sheet as of that date.  The results of operations  for the
six months ended June 30, 1999 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 statements of operations for 1998
have been  reclassified to reflect the  discontinuance  of the medical  business
segment.

     The condensed consolidated statements of operations relating to the medical
business follow:
                                                  Six Months Ended
                                                      June 30
                                            ---------------------------
                                              1999              1998
                                            ---------         ---------


     Net sales........................   $   3,049,000     $   5,020,000
     Costs and expenses...............       2,851,000         4,488,000
                                            ----------        ----------
     Income from operations...........   $     198,000     $     532,000
                                            ==========        ==========
     Earnings per share...............   $         .06     $         .15
                                            ==========        ==========

     Income taxes related to the medical business are 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 a limited  number of lawsuits
remain,  they are still in  preliminary  stages and there is no  indication  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.


         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 1999.  The
aggregate  amount available under these lines is $1,029,000 of which $753,000 is
outstanding at June 30, 1999.

     Long term debt consisted of the following:

          (all amounts in thousands)

                                               June 30         December 31
                                                1999              1998
                                            ------------       -----------
   Notes payable:
     U.S. and Canada arrangements.......      $   8,629         $   6,614
     Other..............................          1,564             8,712
                                              ----------        ----------
                                                 10,193            15,326
   Less current portion                           9,735             8,944
                                              ----------        ----------
                                              $     458         $   6,382
                                              ==========        ==========

     On March 22,  1999,  the  Company  used the  proceeds  from the sale of the
medical business to pay down $6,800,000 of outstanding debt.

     On April 28, 1999 the Company  refinanced its debt arrangements in the U.S.
and Canada. Under the new arrangement,  the Company may borrow up to $10,500,000
through  November  15,  1999 and from  January  1, 2000 to April  30,  2000 (the
maturity date);  between November 16, 1999 and December 31, 1999 the Company may
borrow up to  $7,250,000.  (The  amounts  the  Company may borrow are based on a
formula which applies  specific  percentages to balances of accounts  receivable
and inventories.) In addition,  the Company converted  $2,500,000 of debt into a
term loan payable in monthly  installments of $50,000,  plus interest commencing
May 1, 1999 through April 1, 2000 and a final  installment of  $1,900,000,  plus
interest, due April 30, 2000. All amounts borrowed under these arrangements bear
interest  at the prime base rate,  as  defined,  plus  1.5%.  At June 30,  1999,
outstanding  debt under the  Company's  arrangements  in the U.S. and Canada was
$8,629,000  which has been  classified as current and $223,000 was available for
additional  borrowing.  The Company is  currently  negotiating  with  lenders to
refinance  these  arrangements  to extend the maturity date beyond  December 31,
2000.  Without such adequate debt  financing the Company would be unable to fund
its  obligations  as they become due in the  ordinary  course of  business.  The
Company believes it will be successful in refinancing these arrangements.

     Under the  aforementioned  debt  arrangements,  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  June 30,  1999 and a  specified  debt  service
coverage ratio, as defined,  commencing  September 30, 1999. As of June 30, 1999
the Company is in  compliance  with the covenants and believes that they will be
met for the remainder of the  arrangement's  term.  Substantially all assets are
pledged as collateral for debt.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                For the Three and Six Months Ended June 30, 1999


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  June 30,  1999 were  $9,813,000
compared with $10,273,000 for 1998, or 4% lower. In March 1999, the Company sold
its medical business to Medical Action Industries,  Inc. Efforts were focused on
building inventory to comply with contractual obligations arising from this sale
in addition to shipping medical  inventory to Medical Action  Industries,  Inc.,
which slowed  shipments of consumer  product  impacting  continuing  operations.
Domestic  consumer sales backorder for the second quarter of 1999 was $1,472,000
compared with $631,000 for the second quarter of 1998, or 2.3 times higher.  Had
backorder levels been equal to prior year, sales would have been 4% higher.

     International sales decreased by 18% for the second quarter.  Three percent
of the decline was due to currency fluctuations. European sales decreased mainly
due to weak sales in the United  Kingdom,  as a slowing  economy and competitive
pressures negatively impacted results in the second quarter.


   Gross Profit

     The gross profit from continuing  operations for the second quarter of 1999
was  $2,394,000  (24.4% of net sales)  compared  with  $2,399,000  (23.3% of net
sales) for the second quarter of 1998. Product sourcing alternatives  positively
impacted costs in the U.S.  consumer business which lead to an increase in gross
margin  from  25.0%  in 1998  to  26.8%  in the  second  quarter  of  1999.  The
international  gross  margin  rose to 17.0% in the  second  quarter of 1999 from
15.1% in the comparable  quarter in 1998. The gain in gross profit was primarily
due to savings associated with re-sourcing products acquired from Esselte Canada
in 1997.

     Management expects to continue to consolidate sourcing product from Asia to
leverage its buying power to further improve margins.


   Selling, General and Administrative Expenses

     Selling,  general  and  administrative  ("SG&A")  expenses  for the  second
quarter of 1999 were $2,069,000 (21% of net sales) compared with $2,215,000 (22%
of net sales) for the same period of 1998,  a decrease of  $146,000,  or 7%. The
primary reason for the decrease is staff reductions. Management is continuing to
investigate other potential SG&A cost saving programs.


   Income (Loss)

     Net income for the first half of 1999 is $1,882,000, or 56 cents per share.
Net income for the first  half of 1999  includes a realized  gain on the sale of
the medical  business of $2,101,000.  Income from continuing  operations for the
second quarter of 1999 is $125,000,  or 4 cents per share,  compared with a loss
of $129,000, or 3 cents per share, for the second quarter of 1998. For the first
six months of 1999,  the loss from  continuing  operations  was $417,000,  or 12
cents per share  compared with a loss of $505,000,  or 15 cents per share in the
first six months of 1998


Financial Condition

   Liquidity and Capital Resources

     The Company's  working capital,  current ratio and long term debt to equity
ratio follow:



                                          June 30, 1999        December 31, 1998
                                       ------------------     ------------------

    Working capital...................         $284,000            $3,616,000
    Current ratio.....................        1.01 to 1             1.20 to 1
    Long-term debt to equity ratio....              .07                  1.37


     During the first six months of 1999, the total debt decreased by $5,133,000
compared to total debt at December 31, 1998.

     Debt of  $6,726,000  as of June 30, 1999 was  classified  during the second
quarter of 1999 to the current portion of long term debt to reflect its maturity
date of April 30, 2000. The Company is currently in negotiations with lenders to
refinance these loans. Without such adequate debt financing the Company would be
unable to fund its  obligations  as they  become due in the  ordinary  course of
business.  The Company fully expects to secure new debt  financing by the end of
the year.

     Capital  expenditures  for the next 12 months  are not  expected  to exceed
$250,000  and  are  expected  to be  financed  by  cash  provided  by  investing
activities and future operating activities.


Year 2000

     The Company has completed the assessment  phase of its Year 2000 compliance
program and is currently completing modifications and testing of its information
technology and other internal systems with the exception of Germany. In Germany,
the Company has selected a new financial system to mitigate a Year 2000 problem.
The Company's goal is to complete  implementation  of this new system by the end
of the third quarter 1999.  Financial  systems at the Company's  other locations
are substantially Year 2000 compliant.

     The Company is in the process of gathering  information about the Year 2000
compliance  status of its significant  suppliers and is developing a contingency
plan for alternative  sourcing.  The Company's goal is to complete its Year 2000
compliance program by the end of the third quarter 1999.

     Estimated  future  costs for the Year 2000  compliance  program  range from
$100,000 to $125,000 of which approximately $75,000 relates to Germany. Of these
costs, the Company expects that $35,000 to $50,000 will be charged to operations
as  expenses.  The costs of this  project and its  completion  date are based on
management's best estimates,  which were derived from numerous assumptions about
future events,  including the  availability  of certain  resources,  third party
remediation plans, and other factors.

     The Company continuously monitors its action plans addressing the Year 2000
issue, and is developing  contingency plans to address  unforeseen  problems and
"worst case" scenarios. This is potentially a significant issue for most, if not
all, companies, with implications which can not be anticipated or predicted with
any degree of certainty.


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.


                           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
     Form 8-K was filed by the Company on April 6, 1999.



                                   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
         ------------------------------
                Walter C. Johnsen
                 President and
             Chief Executive Officer

Dated:  August 14, 1999

By          /s/ RONALD P. DAVANZO
         ------------------------------
                Ronald P. Davanzo
               Vice President and
             Chief Financial Officer

Dated:  August 14, 1999

  


                     5

This  schedule  contains  summary  financial   information  extracted  from  the
Condensed  Consolidated  Balance Sheet and Condensed  Consolidated  Statement of
Operations  and is qualified  in its  entirety by  reference  to such  financial
statements.

                                   1,000

                             
                   6-MOS
                              DEC-31-1999
                                   JUN-30-1999
                                         33
                                   0
                                  9,605
                                   152
                                    9,664
                               19,565
                                         15,623
                                 10,260
                                 26,219
                          19,281
                                        0
                          0
                                    0
                                       8,706
                                     (2,226)
                   26,219
                                        17,383
                               17,647
                                          13,496
                                  17,433
                               0
                               0
                             606
                                (392)
                                   25
                            (417)
                                 2,299
                                0
                                      0
                                   1,882
                                  .56
                                  .56