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 September 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 November 15, 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..................  10

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)


                                                         September 30    December 31
                                                             1999            1998
                                                         ------------    -----------

                                                                      
ASSETS
Current Assets:
  Cash and cash equivalents                                  $      -       $     40
  Accounts receivable, less allowance                           9,144          7,722
  Inventories:
     Finished goods                                             6,111          7,122
     Work in process                                              732          1,240
     Raw materials and supplies                                 1,297          4,907
                                                           ----------     ----------
                                                                8,140         13,269
  Prepaid expenses and other current assets                       154            424
                                                            ----------     ----------
          Total current assets                                 17,438         21,455
                                                           ----------     ----------
Property, plant and equipment:
  Land                                                            202            219
  Buildings                                                     2,062          2,179
  Machinery and equipment                                      10,206         16,216
                                                           ----------     ----------
                                                               12,470         18,614
  Less accumulated depreciation                                 7,914         12,573
                                                           ----------     ----------
                                                                4,556          6,041
Other assets                                                      996            895
Goodwill, less accumulated amortization                           389            505
                                                           ----------     ----------
            Total assets                                     $ 23,379       $ 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)


                                                         September 30    December 31
                                                             1999            1998
                                                         ------------    -----------

                                                                      
LIABILITIES

Current Liabilities:
  Notes payable                                              $    928       $    882
  Accounts payable                                              2,882          4,422
  Other accrued liabilities                                     3,577          3,590
  Current portion of long term debt                             8,976          8,944
                                                           ----------     ----------
      Total current liabilities                                16,363         17,838
  Long term debt, less current portion                            355          6,382
                                                           ----------     ----------
       Total liabilities                                       16,718         24,220
                                                           ----------     ----------

STOCKHOLDERS' EQUITY Common stock, par value $2.50:
    Authorized-4,000,000 shares
    issued-3,482,495 shares, including treasury stock           8,706          8,706
  Additional paid-in capital                                    2,233          2,233
  Retained-earnings deficit                                    (2,363)        (4,380)
  Accumulated other comprehensive loss-translation adjustment  (1,267)        (1,235)
  Treasury stock, at cost-105,007 shares                         (648)          (648)
                                                           ----------     ----------
      Total stockholders' equity                                6,661          4,676
                                                           ----------     ----------
        Total liabilities and stockholders' equity           $ 23,379       $ 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     Nine Months Ended
                                                                                 September 30           September 30
                                                                             --------------------   --------------------
                                                                               1999        1998       1999        1998
                                                                             --------    --------   --------    --------

                                                                                                     
Revenues:
  Net sales                                                                   $ 9,327     $10,651    $26,710     $29,395
  Other income                                                                     31         124        295         248
                                                                              -------     -------    -------     -------
      Total revenues                                                            9,358      10,775     27,005      29,643
                                                                              -------     -------    -------     -------
Costs and expenses:
  Cost of goods sold                                                            7,091       8,291     20,587      22,696
  Selling, general and administrative expenses                                  1,963       2,227      5,900       6,477
  Interest expense                                                                239         412        845       1,113
                                                                              -------     -------    -------     -------
      Total expenses                                                            9,293      10,930     27,332      30,286
                                                                              -------     -------    -------     -------
Income (loss) from continuing operations before income taxes                       65        (155)      (327)       (643)
Income taxes                                                                      (71)         (2)       (46)         15
                                                                              -------     -------    -------     -------
Income (loss) from continuing operations                                          136        (153)      (281)       (658)
Discontinued operations:
  Gain on sale of discontinued operations                                         ---         ---      2,101         ---
  Income from discontinued operations                                             ---         223        198         755
                                                                              -------     -------    -------     -------
                                                                                  ---         223      2,299         755
                                                                              -------     -------    -------     -------
Net income                                                                        136          70      2,018          97
Other comprehensive income (expense) -
  foreign currency translation                                                     47          34        (31)          3
                                                                              -------     -------    -------     -------
Comprehensive income                                                          $   183     $   104    $ 1,987     $   100
                                                                              =======     =======    =======     =======
Earnings (loss)  per share:
  Continuing operations                                                       $  0.04     $ (0.05)   $ (0.08)    $ (0.19)
  Discontinued operations                                                         ---        0.07       0.68        0.22
                                                                              -------     -------    -------     -------
  Net income                                                                  $  0.04     $  0.02    $  0.60     $  0.03
                                                                              =======     =======    =======     =======

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)

                                                                                  Nine Months Ended
                                                                                     September 30
                                                                                 --------------------
                                                                                   1999         1998
                                                                                ---------    ---------

                                                                                         
Operating Activities:
  Net income                                                                      $ 2,018      $    97
  Adjustments to reconcile net income
      to net cash used by operating activities:
    Gain on sale of discontinued operations                                        (2,101)         ---
    Depreciation                                                                      504          782
    Amortization                                                                       20           17
    Gain on disposal of property, plant, and equipment                                (24)         (90)

Changes in operating assets and liabilities:
  Accounts receivable                                                              (1,603)      (5,007)
  Inventories                                                                       1,741        1,720
  Prepaid expenses and other current assets                                           270         (259)
  Other assets                                                                       (101)         (15)
  Accounts payable                                                                 (1,540)         311
  Other accrued liabilities                                                        (1,936)         836
                                                                               ----------    ---------
      Net cash used by operating activities                                        (2,752)      (1,608)
                                                                               ----------    ---------

Investing Activities:
  Capital expenditures                                                               (412)      (1,474)
  Proceeds from sale of property, plant, and equipment                                141          446
  Proceeds from sale of medical division                                            8,156          ---
                                                                               ----------    ---------
      Net cash provided (used) by investing activities                              7,885       (1,028)
                                                                               ----------    ---------

Financing Activities:
  Net proceeds (payments) on short term borrowing arrangements                     (5,235)       2,125
  Proceeds on long term debt                                                        2,500          785
  Payments on long term debt                                                       (2,440)         ---
  Stock options exercised                                                             ---           34
                                                                               ----------    ---------
      Net cash (used) provided by financing activities                             (5,175)       2,944
                                                                               ----------    ---------

Effect of exchange rate changes on cash                                                 2           (2)
                                                                               ----------    ---------
Net change in cash and cash equivalents                                               (40)         306

Cash and cash equivalents at beginning of period                                       40           25
                                                                               ----------    ---------
Cash and cash equivalents at end of period                                        $    (0)     $   331
                                                                               ==========    =========

            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
nine months  ended  September  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:

                                                    Nine Months Ended            Three Months Ended
                                                      September 30                   September 30
                                               ---------------------------       ------------------
                                                 1999              1998                 1998
                                               ---------         ---------            ---------



                                                                            
     Net sales...........................      $5,630,000       $7,752,000           $2,732,000
     Costs and expenses..................       5,432,000        6,997,000            2,509,000
                                               ----------       ----------           ----------
     Income from operations..............      $  198,000       $  755,000           $  223,000
                                               ==========       ==========           ==========
     Earnings per share..................      $      .06       $      .22           $      .07
                                               ==========       ==========           ==========


     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 $928,000 is
outstanding at September 30, 1999.

     Long term debt consisted of the following:

          (all amounts in thousands)
                                                 September 30       December 31
                                                     1999               1998
                                                 ------------       -----------
          Notes payable:
            U.S. and Canada arrangements......       $  7,905          $  6,614
            Other.............................          1,426             8,712
                                                     --------          --------
                                                        9,331            15,326
          Less current portion                          8,976             8,944
                                                     --------          --------
                                                     $    355          $  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 September 30, 1999,
outstanding  debt under the  Company's  arrangements  in the U.S. and Canada was
$7,905,000  which has been  classified as current and $438,000 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,  and a specified debt service coverage ratio, as defined. 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 Nine Months Ended September 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 September 30, 1999 were $9,327,000
compared with  $10,651,000  for 1998, or 12% 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 thereby negatively
impacting  results from  continuing  operations.

     Domestic  consumer  sales  were  $6,826,000  for the third  quarter of 1999
compared to $7,287,000, a 6% decrease. Domestic consumer sales backorder for the
third quarter of 1999 was $708,000  compared with $352,000 for the third quarter
of 1998, or 2 times higher. Had backorder levels been equal to prior year, sales
would have been 1.5% lower.

     International sales decreased by 26% for the third quarter.  European sales
decreased  mainly due to weak sales in the United Kingdom,  as a slowing economy
and competitive  pressures  negatively impacted results in the third quarter. In
addition,  a  rationalization  program of lower margin products reduced sales in
Canada when compared to the previous year.

     Net sales were $26,710,000 for the first nine months of 1999, compared with
net sales of $29,395,000,  or 9% lower, for the first nine months of 1998. Sales
declines in Canada and England were the main reasons for the lower sales.


   Gross Profit

     The gross profit from  continuing  operations for the third quarter of 1999
was  $2,236,000  (24.0% of net sales)  compared  with  $2,360,000  (22.2% of net
sales) for the third quarter of 1998. Product sourcing  alternatives  positively
impacted costs in the U.S.  consumer  business which led to an increase in gross
margin  from  24.2%  in  1998  to  28.2%  in the  third  quarter  of  1999.  The
international gross margin rose to 15.9% in the third quarter of 1999 from 14.9%
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 and the  discontinuing  of lower margin  products in Canada.  For the first
nine  months  of 1999,  gross  profit  was  $6,123,000,  or 23.0% of net  sales,
compared with $6,699,000, or 22.8%, for the first nine months of 1998.

     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 third quarter
of 1999 were $1,963,000  (21.1% of net sales) compared with $2,227,000 (20.9% of
net sales) for the same period of 1998,  a decrease of $264,000,  or 13.5%.  The
primary reason for the decrease is staff reductions. Management is continuing to
investigate other potential SG&A cost saving programs. For the first nine months
of 1999,  SG&A  expenses  were  $5,900,000  (22.1% of net sales)  compared  with
$6,477,000 (22.0% of net sales) for the same period of 1998.


   Income (Loss)

     Net income for the first nine months of 1999 is $2,018,000, or 60 cents per
share.  Net income for the first nine months of 1999 includes a realized gain on
the  sale  of  the  medical  business  of  $2,101,000.  Income  from  continuing
operations  for the third  quarter  of 1999 is  $136,000,  or 4 cents per share,
compared with a loss of $153,000, or 5 cents per share, for the third quarter of
1998. For the first nine months of 1999, the loss from continuing operations was
$281,000, or 8 cents per share compared with a loss of $658,000, or 19 cents per
share in the first nine months of 1998.


Financial Condition

   Liquidity and Capital Resources

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



                                      September 30, 1999      December 31, 1998
                                      ------------------     ------------------

   Working capital...................       $1,075,000            $3,616,000
   Current ratio.....................        1.07 to 1             1.20 to 1
   Long-term debt to equity ratio....              .05                  1.37


     During  the  first  nine  months  of 1999,  the  total  debt  decreased  by
$5,995,000 compared to total debt at December 31, 1998.

     Debt of  $7,905,000  as of September  30, 1999 is  classified as current 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  has  completed   modifications  and  testing  of  its  information
technology and other internal systems.

     The Company has gathered  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 November 1999.

     Estimated costs for the Year 2000 compliance program are $125,000. Of these
costs,  the  Company  expects  that  approximately  $50,000  will be  charged to
operations as expenses.  The project was essentially  complete subsequent to the
third  quarter  of 1999;  and the  majority  of the  costs  associated  with the
completion were incurred after the third quarter of 1999.

     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

     None.


                                   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:  November 15, 1999

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

Dated:  November 15, 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

                             
                   9-MOS
                              DEC-31-1999
                                   SEP-30-1999
                                         0
                                   0
                                  9,282
                                   139
                                    8,140
                               17,438
                                         12,470
                                 7,914
                                 23,379
                          16,363
                                        0
                          0
                                    0
                                       8,706
                                     (2,045)
                   23,379
                                        26,710
                               27,005
                                          20,587
                                  27,286
                               0
                               0
                             845
                                1,972
                                   (46)
                            (281)
                                 2,299
                                0
                                      0
                                   2,018
                                  .60
                                  .60