-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L5yPD2DHPrRyCDoKOPBCJtH4TkpESKaf7OCtC+llvAO9HE6XR80b9YPFa1rqfVyX FcxZMctbep7Eo/gi0S45OA== 0001026608-98-000051.txt : 19981116 0001026608-98-000051.hdr.sgml : 19981116 ACCESSION NUMBER: 0001026608-98-000051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACME UNITED CORP CENTRAL INDEX KEY: 0000002098 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 060236700 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07698 FILM NUMBER: 98746512 BUSINESS ADDRESS: STREET 1: 75 KINGS HIGHWAY CUTOFF CITY: FAIRFIELD STATE: CT ZIP: 06430 BUSINESS PHONE: 2033327330 FORMER COMPANY: FORMER CONFORMED NAME: ACME SHEAR CO DATE OF NAME CHANGE: 19710713 10-Q 1 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, 1998 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 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 3,377,488 shares outstanding as of November 11, 1998 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.................................................. 12 PART I. FINANACIAL INFORMATION ACME UNITED CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (all amounts in thousands) September 30 December 31 1998 1997 ------------ -----------
ASSETS Current Assets: Cash and cash equivalents $ 331 $ 25 Accounts receivable, net 11,955 7,446 Inventories: Finished goods 5,338 7,658 Work in process 2,118 1,229 Raw materials and supplies 4,885 5,194 -------- -------- 12,341 14,081 Prepaid expenses and other current assets 901 176 -------- -------- Total current assets 25,528 21,728 -------- -------- Property, plant and equipment: Land 219 205 Buildings 2,178 2,126 Machinery and equipment 16,343 15,528 -------- -------- 18,740 17,859 Less accumulated depreciation 12,022 11,624 -------- -------- 6,718 6,235 Other assets 825 837 Goodwill 513 527 -------- -------- Total assets $ 33,584 $ 29,327 ======== ======== See notes to condensed consolidated financial statements. ACME UNITED CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS - continued (UNAUDITED) (all amounts in thousands) September 30 December 31 1998 1997 ------------ ----------- LIABILITIES Current Liabilities: Cash overdraft $ 813 $ 2,538 Accounts payable 3,863 3,525 Current portion of long term debt 14,542 1,189 Restructuring liability --- 27 Other accrued liabilities 4,662 3,902 -------- -------- Total current liabilities 23,880 11,181 Long term debt, less current portion 3,276 11,852 -------- -------- Total liabilities 27,156 23,033 -------- -------- STOCKHOLDERS' EQUITY Common stock, par value $2.50 : Authorized-4,000,000 shares; Issued-3,482,495 shares in 1998 and 3,473,995 shares in 1997 8,706 8,685 Additional paid-in capital 2,251 2,238 Retained-earnings deficit (2,617) (2,714) Accumulated other comprehensive loss - translation adjustment (1,223) (1,226) Treasury stock-111,620 shares (689) (689) -------- -------- Total stockholders' equity 6,428 6,294 -------- -------- Total liabilities and stockholders' equity $ 33,584 $ 29,327 ======== ======== 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 amounts) Three Months Ended Nine Months Ended September 30 September 30 ------------------ ----------------- 1998 1997 1998 1997 ------------------ -----------------
Revenues: Net sales $ 13,382 $ 12,715 $ 37,145 $ 36,449 Other income 125 104 257 1,046 -------- -------- -------- -------- Total revenues 13,507 12,819 37,402 37,495 -------- -------- -------- -------- Costs and expenses: Cost of goods sold 10,289 9,316 28,036 26,499 Selling, general and administrative expenses 2,737 2,925 8,133 8,742 Interest expense 412 354 1,113 960 Restructuring and other charges 1 --- 8 530 -------- -------- -------- -------- Total expenses 13,439 12,595 37,290 36,731 -------- -------- -------- -------- Income before income taxes 68 224 112 764 Provision for income taxes (2) 38 15 75 -------- -------- -------- -------- Net income 70 186 97 689 Other comprehensive income (expense) - foreign currency translation 34 (29) 3 (185) -------- -------- -------- -------- Comprehensive income $ 104 $ 157 $ 100 $ 504 ======== ======== ======== ======== Basic earnings per share $ 0.02 $ 0.06 $ 0.03 $ 0.21 ======== ======== ======== ======== Diluted earnings per share $ 0.02 $ 0.05 $ 0.03 $ 0.19 ======== ======== ======== ======== Weighted average number of common shares outstanding- denominator for basic per share computation 3,371 3,354 3,370 3,351 Weighted average number of dilutive stock options outstanding 365 317 348 315 -------- -------- -------- -------- Denominator for diluted per share computation 3,736 3,671 3,718 3,666 ======== ======== ======== ======== 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 ----------------- 1998 1997 -----------------
Operating activities: Net income $ 97 $ 689 Adjustments to reconcile net income to net cash used by operating activities: Gain on sale of marketing rights --- (846) Depreciation 782 772 Amortization 17 81 Increase in deferred income taxes 56 22 Gain on disposal of property, plant, and equipment (90) --- Changes in operating assets and liabilities: Accounts receivable (5,007) (3,872) Inventories 1,720 (2,481) Prepaid expenses and other current assets (259) (158) Other assets (15) (10) Accounts payable 311 836 Other accrued liabilities 780 663 ------- ------- Net cash used by operating activities (1,608) (4,304) ------- ------- Investing activities: Capital expenditures (1,474) (1,439) Proceeds from sales of property, plant, and equipment 446 258 Proceeds from sale of marketing rights --- 1,915 ------- ------- Net cash (used) provided by investing activities (1,028) 734 ------- ------- Financing activities: Proceeds from long term debt and credit arrangements 3,488 3,788 Payments on long term debt and credit arrangements (578) (705) Stock options exercised 34 139 ------- ------- Net cash provided by financing activities 2,944 3,222 ------- ------- Effect of exchange rate changes on cash (2) 3 ------- ------- Net change in cash and cash equivalents 306 (345) Cash and cash equivalents at beginning of period 25 427 ------- ------- Cash and cash equivalents at end of period $ 331 $ 82 ======= ======= See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - 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, 1997 for such disclosures. The condensed balance sheet as of December 31, 1997 was derived from the audited financial statements as of that date. However, certain reclassifications have been made thereto to conform to the 1998 presentation. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year. Note 2 - The Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") as of its December 31, 1997 year-end. As such, per share amounts for 1997 as presented herein reflect the adoption of SFAS 128. Note 3 - As of January 1, 1998, the Company adopted SFAS 130, "Reporting Comprehensive Income". The adoption of this Statement had no impact on the Company's net income or shareholders' equity. Under SFAS 130 the Company's foreign currency translation adjustments, which are reported separately in shareholders' equity, are also required to be included in the determination of other comprehensive income or loss. The prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Note 4 - The Company has been involved in certain environmental matters. Additionally, the Company has been involved in numerous legal actions relating to the use of certain latex products, which the Company distributes, but does not manufacture. The Company is one of many defendants. The Company has been released from the majority of the lawsuits. While four 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 it is not reasonably possible that a material adverse impact on financial position, results of operations, or liquidity, may result from environmental and product liabilities, either individually or in aggregate. The Company's Year 2000 Task Force is completing its assessment of the impact of the Year 2000. The Task Force is in the process of determining an action plan for testing and validating all systems. In the U.S., the Company implemented a new information system in 1997, which it believes addresses any computer system issues related to the Year 2000. Management believes that the Year 2000 issue will not materially affect future financial results. Note 5 - Long term debt consisted of the following: (all amounts in thousands) September 30 December31 1998 1997 ------------ ---------- Revolving Line of Credit $ 11,780 $ 10,915 Revolving Loan 2,758 --- Term Loan 1,385 600 Mortgage and Other Notes Payable 1,895 1,526 --------- --------- 17,818 13,041 --------- --------- Less, Current Portion 14,542 1,189 --------- --------- $ 3,276 $ 11,852 ========= ========= The Company's Revolving Line of Credit and Term Loan are due in May of 1999. The Company is currently in negotiations with its lender to extend the maturity date and fully expects to complete such arrangement prior to December of 1998. On May 19, 1998, the Company negotiated a $3,500,000 Revolving Loan with its current lender. Under this agreement, the amount available is determined using an asset based formula. The loan matures May 19, 2001 and bears interest at the prime rate. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Three and Nine Months Ended September 30, 1998 Results of Operations Net Sales Consolidated net sales for the quarter ended September 30, 1998 were $13,382,000 compared with $12,715,000, or 5% higher, for the same period last year. In 1997, Acme sold the marketing rights of certain wound care products to Seton Healthcare International Limited. In 1998, Acme acquired the Rotex Division of Esselte Canada. Excluding the impact of Seton, net sales increased by $1,033,000, or 8%, compared with the third quarter of 1997 with Rotex contributing $367,000, or 36%, of the increase in net sales. Net sales were $37,145,000 for the first nine months of 1998, compared with net sales of $36,449,000, or 2% higher, for the first nine months of 1997. Net sales in 1997 included $1,973,000 for Seton products. Excluding Seton, net sales increased by $2,669,000, or 8%, compared with the first nine months of 1997 with Rotex contributing $1,285,000, or 48%, of the increase in net sales. Consumer products net sales in the U.S. of $7,287,000 in the third quarter of 1998 increased 13% compared with $6,463,000 in the third quarter 1997. Sales of Tagit!, the patented children's scissor line, began during the second quarter with shipments to Kmart, Staples, Office Depot and others in time for the back-to-school season. Tagit! accounted for about half of the increase in net sales in the scissor category. Sales growth in the first aid product line resulted from sourcing and repackaging products to leverage distribution channels in combination with increased sales to existing customers and new customers. The company expects to exploit the innovative concept of Tagit! by expanding existing product lines including adult scissors and rulers. Medical products net sales of $2,730,000 in the third quarter of 1998 decreased $554,000, or 17%, compared with $3,284,000 in the third quarter 1997. Excluding Seton, net sales decreased $188,000, or 6%. The decline resulted from the lack of orders from a single Asian customer with core sales remaining steady. In June, the division won a supply contract with a national alternative care distributor to consolidate minor procedure kits around its product line. Revenues from this contract are expected to exceed $4 million over the next three years with shipments beginning during the quarter. International sales increased by 13% for the third quarter primarily due to Canada. Excluding currency fluctuations, international sales for the third quarter of 1998 were 18% higher than the third quarter of 1997. Canada sales increased 32% primarily due to the purchase of the Rotex Division of Esselte Canada. Excluding the acquisition, third quarter sales of the ongoing business improved 18% over prior year levels as the acquisition of Rotex has lead to strong growth in the existing Acme product lines. European sales were flat with 1997 levels. Gross Profit Consolidated gross profit for the third quarter of 1998 was $3,093,000 (23.1% of net sales) compared with $3,399,000 (26.7% of net sales) for the third quarter of 1997. The U.S. consumer gross margin declined from 25.4% in 1997 to 24.2% in 1998. The decline resulted from cost increases in higher volume product lines and lower manufacturing efficiencies. The medical gross margin declined $493,000 from 37.3% in 1997 to 26.8% in 1998. One third of this decline resulted from a loss of the high margin Seton products with the balance split between the loss of sales associated with a single Asian customer and lower manufacturing efficiencies. The international gross margin declined from 17.9% in 1997 to 14.9% in 1998, primarily due to Canada where lower margin products were sold from the Rotex acquisition. Consolidated gross profit for the first nine months of 1998 was $9,109,000 (24.5% of net sales) compared with $9,950,000 (27.3% of net sales) for the first nine months of 1997. The consumer gross margin declined from 24.9% in 1997 to 25.1% in 1998. The medical gross margin declined from 38.1% in 1997 to 31.1% in 1998. The international gross margin declined from 18.8% in 1997 to 16.1% in 1998. Management expects to consolidate sourcing product from Asia to leverage its buying power to improve margins. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses for the third quarter of 1998 were $2,737,000 (20.5% of net sales) compared with $2,925,000 (23.0% of net sales) for the same period of 1997, a decrease of $188,000, or 6%. The primary reason for the decrease was headcount reductions in all locations except Canada, partially offset by an increase in advertising expense that contributed to an increase in sales and higher commission costs that resulted from increased sales. SG&A expenses for the first nine months of 1998 of $8,133,000 (21.9% of net sales) compared with $8,742,000 (24.0% of net sales), a decrease of $609,000, or 7%. The first nine months of 1997 included $162,000 of non-recurring charges. Excluding the non-recurring charges, SG&A expense in the first nine months of 1998 declined by $528,000, or 6%, due to headcount reductions, and the elimination of certain expenses incurred in 1997 associated with the product lines sold to Seton offset by higher commissions and advertising in the consumer business associated with increased sales. Provision for Income Taxes The Company has tax operating loss carryforwards in the United States, England and Germany in excess of $3.4 million. The tax provision for the three and nine months periods ended September 30, 1998 was ($2,000) and $38,000, respectively, compared with $15,000 and $75,000 for the same periods for 1997. The tax provision includes minimum state and local tax obligations net of the benefit of net operating losses utilized. Management is synchronizing its manufacturing, sourcing, and tax strategies to utilize loss carryforwards. Net Income The Company reported net income for the third quarter of 1998 of $70,000, or 2 cents per share (diluted), compared with net income of $186,000, or 5 cents per share (diluted), for the third quarter of 1997. For the first nine months of 1998, net income was $97,000, or 3 cents per share (diluted), compared with net income of $689,000, or 19 cents per share (diluted), for the same period in 1997. The first nine months of 1997 included a gain of the sale of marketing rights to Seton offset by one-time charges; an increase in net income of $157,000 was recognized. Financial Condition Liquidity and Capital Resources During the first nine months of 1998, the total debt increased by $3,052,000 compared to total debt at December 31, 1997. Of the increase, $1,698,000 was related to the Company's Acme United Limited subsidiary where a new loan agreement was negotiated in May of 1998 utilizing an asset based lending formula that provides increased working capital to support the Rotex acquisition and sales growth. The remaining increase supported capital expenditures and increased sales growth in U.S. operations. For the remainder of 1998, cash generated from operating activities is expected to be sufficient to reduce debt and fund capital expenditures. The Company's current credit arrangements coupled with cash expected from operating activities are considered adequate to meet liquidity needs for the remainder of 1998. The Company's working capital, current ratio and long term debt to equity ratio follow: September 30, 1998 December 31,1997 ------------------ ---------------- Working capital $1,648,000 $10,547,000 Current ratio 1.07 to 1 1.94 to 1 Long term debt to equity ratio .51 1.88 As of September 30, 1998, $11,780,00 is outstanding under the Company's revolving line of credit. This line matures in May of 1999. The Company is currently in negotiations with its lender to extend the maturity date and fully expects to complete such an arrangement prior to December of 1998. Had negotiations been completed during the third quarter, $13,165,00 of related debt would have been classified as long term and would have resulted in working capital of $14,813,000, a current ratio of 2.38 to 1, and long term debt to equity ratio of 2.56. Safe Harbor for Forward-looking Statements Except for historical information contained herein, certain statements in this Management's Discussion and Analysis of financial condition and results of operations and other sections of this document contain forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as `expects,' `anticipates,' `intends,' `plans,' `believes,' `seeks,' `estimates,' or variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasted results. 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, 1998, and revised on April 17, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACME UNITED CORPORATION By /s/ Cheryl L. Kendall -------------------------------------- Cheryl L. Kendall Vice President and Chief Financial Officer Dated: November 11, 1998 By /s/ Richard L. Windt -------------------------------------- Richard L. Windt Vice President and Corporate Controller Dated: November 11, 1998 EX-27 2
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-31-1998 SEP-30-1998 331 0 12,161 206 12,341 25,528 20,045 13,327 33,584 23,880 0 0 0 8,706 (2,278) 33,584 37,145 37,402 28,036 36,177 0 0 1,113 112 15 97 0 0 0 97 .03 .03
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