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 June 30, 2000
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
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(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)
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 3,507,055 shares outstanding as of August 11, 2000 of its $2.50
par value Common Stock.
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 ................................. 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
2000 1999
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 9 $ 88
Accounts receivable, less allowance 8,740 6,702
Inventories:
Finished goods 6,433 5,355
Work in process 947 649
Raw materials and supplies 1,921 2,294
---------- ---------
9,301 8,298
Prepaid expenses and other current assets 801 508
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Total current assets 18,851 15,596
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Property, plant and equipment:
Land 182 191
Buildings 2,001 2,048
Machinery and equipment 7,856 8,616
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10,039 10,855
Less accumulated depreciation 6,521 6,869
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3,518 3,986
Other assets 1,254 992
Goodwill, less accumulated amortization 180 193
---------- ---------
Total assets $ 23,803 $ 20,767
========== =========
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
2000 1999
------------ -----------
LIABILITIES
Current liabilities:
Notes payable $ 587 $ 691
Accounts payable 3,465 2,763
Other accrued liabilities 2,804 3,154
Current portion of long term debt 4,121 2,032
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Total current liabilities 10,976 8,640
Long term debt, less current portion 5,125 5,012
Other 216 197
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Total liabilities 16,317 13,849
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STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
Authorized 8,000,000 shares;
issued 3,612,062 shares,
including treasury stock 9,030 9,030
Additional paid-in capital 2,038 2,038
Retained-earnings deficit (1,578) (2,212)
Accumulated other comprehensive loss-translation adjustment (1,356) (1,290)
Treasury stock, at cost-105,007 shares (648) (648)
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Total stockholders' equity 7,486 6,918
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Total liabilities and stockholders' equity $ 23,803 $ 20,767
========== =========
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
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Revenues:
Net sales $10,201 $10,209 $18,242 $18,121
Other income (expense) (21) 87 (3) 264
-------- -------- -------- --------
Total revenues 10,180 10,296 18,239 18,385
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 6,785 7,251 12,007 13,303
Selling, general and administrative expenses 2,737 2,633 5,160 4,868
Interest expense 234 248 440 606
-------- -------- -------- --------
Total expenses 9,756 10,132 17,608 18,777
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes 424 164 631 (392)
Income taxes 10 39 10 25
-------- -------- -------- --------
Income (loss) from continuing operations 414 125 621 (417)
Discontinued operations:
Gain on sale of discontinued operations - - - 2,101
Income from discontinued operations - - - 198
-------- -------- -------- --------
- - - 2,299
-------- -------- -------- --------
Net income 414 125 621 1,882
Other comprehensive expense -
foreign currency translation (78) (7) (66) (78)
-------- -------- -------- --------
Comprehensive income $ 336 $ 118 $ 555 $ 1,804
======== ======== ======== ========
Basic earnings (loss) per share:
Continuing operations $ 0.12 $ 0.04 $ 0.18 $ (0.12)
Discontinued operations - - - 0.68
-------- -------- -------- --------
Net income $ 0.12 $ 0.04 $ 0.18 $ 0.56
======== ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations $ 0.12 $ 0.04 $ 0.17 $ (0.12)
Discontinued operations - - - 0.68
-------- -------- -------- --------
Net income $ 0.12 $ 0.04 $ 0.17 $ 0.56
======== ======== ======== ========
Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,507 3,377 3,507 3,377
Weighted average number of dilutive stock options
outstanding 83 - 54 -
Denominator used for diluted per share computation 3,590 3,377 3,561 3,377
======== ======== ======== ========
See notes to condensed consolidated financial statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Six Months Ended
June 30
-------------------
2000 1999
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Operating Activities:
Net income $ 621 $ 1,882
Adjustments to reconcile net income
to net cash used by operating activities:
Gain on sale of discontinued operations - (2,101)
Depreciation 342 346
Amortization 90 24
Loss on sale of property, plant, and equipment 12 -
Changes in operating assets and liabilities:
Accounts receivable (2,038) (1,881)
Inventories (1,003) 313
Prepaid expenses and other current assets (293) (49)
Other assets (262) (2)
Accounts payable 702 300
Other accrued liabilities (350) (1,142)
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Net cash used by operating activities (2,180) (2,610)
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Investing Activities:
Capital expenditures (223) (342)
Proceeds from sale of property, plant, and equipment 233 -
Proceeds from sale of medical division - 8,156
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Net cash provided by investing activities 10 7,814
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Financing Activities:
Net proceeds (payments) on short term borrowing arrangements 2,769 (5,999)
Borrowings of long term debt 325 2,500
Payments of long term debt (927) (1,763)
Debt issuance costs (142) (27)
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Net cash provided (used) by financing activities 2,026 (5,289)
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Effect of exchange rate changes 65 78
---------- ---------
Net change in cash and cash equivalents (79) (7)
Cash and cash equivalents at beginning of period 88 40
---------- ---------
Cash and cash equivalents at end of period $ 9 $ 33
========== =========
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, 1999 for such disclosures. The condensed
consolidated balance sheet as of December 31, 1999 was derived from the audited
consolidated balance sheet as of that date. The results of operations for the
three and six months ended June 30, 2000 are not necessarily indicative of the
results to be expected for the full year.
The Company has reclassified certain prior periods amounts to conform to
the current periods presentation.
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 statement of operations for the
six months ended June 30, 1999 relating to the medical business follows:
Net sales $ 3,049,000
Costs and expenses 2,851,000
-----------
Income from operations $ 198,000
===========
Earnings per share $ 0.06
===========
Income taxes related to the medical business were 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 five 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
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 2000. The
aggregate amount available under these lines is $1,029,000 of which $587,000 is
outstanding at June 30, 2000.
Long term debt consisted of the following:
(all amounts in thousands)
June 30 December 31
2000 1999
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Notes payable:
U.S. and Canada arrangements....... $ 8,444 $ 5,225
Other.............................. 802 1,819
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9,246 7,044
Less current portion 4,121 2,032
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$ 5,125 $ 5,012
========== ==========
On January 19, 2000, the Company entered into a loan agreement (the
Agreement) with a bank to refinance debt. Under the Agreement the Company may
borrow up to $11,500,000 through January 19, 2003 (the maturity date) based on a
formula which applies specific percentages to balances of accounts receivable
and inventories. Throughout 2000, the Company expects to have a minimum of $4.4
million outstanding under this arrangement. Under the Agreement, the Company
borrowed an additional $325,000 which is payable in monthly installments of
$5,417, plus interest, from February 1, 2000 through November 1, 2002 and a
final installment of $140,822, plus interest, due December 1, 2002. Amounts
outstanding under the Agreement bear interest at varying rates as provided for
in the Agreement. As of June 30, 2000, the North American operations had $1
million in excess availability under this agreement.
On August 7, 2000 the Company entered into an interest rate swap with the
bank effectively fixing the interest rate at 10.18% for $3.5 million of debt
through the Agreement's maturity date.
Under a separate loan agreement with another bank which was amended January
19, 2000, the Company will repay $500,000, principal amount, of outstanding debt
at that date in monthly installments of $13,889, plus interest at the prime
rate, as defined, plus 2.5%, from February 1, 2000 through January 1, 2003.
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, from January 19, 2000, and a
specified debt service coverage ratio, as defined, and a fixed charge coverage
ratio, as defined, from March 31, 2000. The Company was in compliance with all
covenants as of June 30, 2000 and believes these financial covenants will be met
for the remainder of the term of the loan.
Cash expected to be generated from operating activities for the remainder
of 2000, together with funds available under the Agreement, is expected, under
current conditions, to be sufficient to finance the Company's planned operations
in 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2000
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, 2000 were $10,201,000
compared with $10,209,000 for 1999. Beginning in the first quarter of 2000, the
Company is classifying outgoing freight expense as selling expense. Such
expenses were previously classified as a component of net sales. Outgoing
freight expense for the quarter ended June 30, 1999 of $396,000 have been
reclassified to conform with the current period presentation. Net sales for the
first six months of 2000 were $18,242,387 compared with $18,120,651 for 1999, a
1% increase.
Domestic sales were down 1% in the second quarter of 2000 versus the same
period in 1999, while up 2% for the first six months in the first half of 2000
compared to 1999. Strong sales to the office superstores and wholesalers were
offset by a decline in the very price competitive bid business which resulted in
reduced sales in this segment year over year.
International sales were 2% above 1999 levels for the second quarter of
2000. Strong sales growth in England offset weakness in Canada and Germany.
Continuation of a product rationalization program of low margin products was the
main reason for the decline in Canada. For the first six months of 2000,
international sales were 2% below 1999 levels.
Gross Profit
The gross profit for the second quarter of 2000 was $3,416,000 (33.5% of
net sales) compared to $2,958,000 (29.0% of net sales) for the second quarter of
1999. The gross margin was 34.2% for the first six months of 2000 versus 26.6%
in the same period of 1999. Resourcing of scissor products to Asia coupled with
aggressive purchasing practices and improved manufacturing 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 second
quarter of 2000 were $2,737,000 (26.8% of net sales) compared with $2,633,000
(25.8% of net sales) for the same period of 1999, an increase of $104,000. SG&A
were 28.3% of net sales for the first six months of 2000 versus 26.9% in the
same period of 1999.
Income (Loss)
Net income from continuing operations for the second quarter of 2000 is
$414,000, or 12 cents per share (basic), 12 cents per share (diluted) compared
to a net income of $125,000, or 4 cents per share (basic and diluted) for the
same period of 1999. Net income from continuing operations for the first six
months of 2000 was $621,000 versus a net loss of $417,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Six Months Ended June 30, 2000
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long term debt to equity
ratio follow:
June 30, 2000 December 31, 1999
------------------ ------------------
Working capital................... $7,875,000 $6,956,481
Current ratio..................... 1.72 to 1 1.81 to 1
Long term debt to equity ratio.... .68 .72
During the first six months of 2000, total debt increased by $2,202,000
compared to total debt at December 31, 1999 as a result of seasonal demand.
On January 19, 2000, the Company entered into a loan agreement (the
Agreement) with a bank to refinance debt. Under the Agreement the Company may
borrow up to $11,500,000 through January 19, 2003 (the maturity date) based on a
formula which applies specific percentages to balances of accounts receivable
and inventories. Throughout 2000, the Company expects to have a minimum of $4.4
million outstanding under this arrangement. Under the Agreement, the Company
borrowed an additional $325,000 which is payable in monthly installments of
$5,417, plus interest, from February 1, 2000 through November 1, 2002 and a
final installment of $140,822, plus interest, due December 1, 2002. Amounts
outstanding under the Agreement bear interest at varying rates as provided for
in the Agreement. As of June 30, 2000, the North American operations had $1
million in excess availability under this agreement.
On August 7, 2000 the Company entered into an interest rate swap with the
bank effectively fixing the interest rate at 10.18% for $3.5 million of debt
through the Agreement's maturity date.
Under a separate loan agreement with another bank which was amended January
19, 2000, the Company will repay $500,000, principal amount, of outstanding debt
at that date in monthly installments of $13,889, plus interest at the prime
rate, as defined, plus 2.5%, from February 1, 2000 through January 1, 2003.
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, from January 19, 2000, and a
specified debt service coverage ratio, as defined, and a fixed charge coverage
ratio, as defined, from March 31, 2000. The Company believes these financial
covenants will be met.
Capital expenditures for the next 12 months are not expected to be material
and are expected to be financed by cash provided by investing activities and
future operating activities.
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: August 11, 2000
By /s/ RONALD P. DAVANZO
------------------------------
Ronald P. Davanzo
Vice President and
Chief Financial Officer
Dated: August 11, 2000
5
1,000
6-MOS
DEC-31-2000
JUN-30-2000
9
0
8,876
137
9,301
18,851
10,039
6,521
23,803
10,976
0
0
0
9,030
(1,544)
23,803
18,242
18,239
12,007
17,618
0
0
440
631
10
621
0
0
0
621
.18
.17
