ACME UNITED CORP - Quarter Report: 2023 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2023
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: 01-07698
ACME UNITED CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Connecticut |
|
06-0236700 |
State or Other Jurisdiction of |
|
I.R.S. Employer Identification No. |
Incorporation or Organization |
|
|
|
|
|
1 Waterview Drive, Shelton, Connecticut |
|
06484 |
Address of Principal Executive Offices |
|
Zip Code |
Registrant's telephone number, including area code: (203) 254-6060
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
$2.50 par value Common Stock |
ACU |
NYSE American |
Indicate by check mark whether the registrant (l) 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer |
☐ |
|
Accelerated filer |
☒ |
|
|
|
|
|
Non-accelerated filer |
☐ |
|
Smaller Reporting Company |
☒ |
|
|
|
|
|
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(s) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Registrant had 3,585,070 shares of its $2.50 par value Common Stock outstanding as of November 3, 2023.
ACME UNITED CORPORATION
INDEX
|
|
Page Number |
|
|
|
3 |
||
Item 1: |
3 |
|
|
Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 |
3 |
|
5 |
|
|
6 |
|
|
7 |
|
|
9 |
|
|
10 |
|
Item 2: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3: |
20 |
|
Item 4: |
20 |
|
|
|
|
21 |
||
Item 1: |
21 |
|
Item 1A: |
21 |
|
Item 2: |
21 |
|
Item 3: |
21 |
|
Item 4: |
21 |
|
Item 5: |
21 |
|
Item 6: |
21 |
|
22 |
||
2
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|
(Note 1) |
|
||
ASSETS |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
5,567 |
|
|
$ |
6,100 |
|
Accounts receivable, less allowance of $885 in 2023 and $1,061 in 2022 |
|
|
33,855 |
|
|
|
32,604 |
|
Inventories |
|
|
54,575 |
|
|
|
63,325 |
|
Prepaid expenses and other current assets |
|
|
3,779 |
|
|
|
2,821 |
|
Restricted cash |
|
|
750 |
|
|
|
750 |
|
Total current assets |
|
|
98,526 |
|
|
|
105,600 |
|
Property, plant and equipment: |
|
|
|
|
|
|
||
Land |
|
|
1,978 |
|
|
|
1,979 |
|
Buildings |
|
|
16,378 |
|
|
|
16,614 |
|
Machinery and equipment |
|
|
35,182 |
|
|
|
31,492 |
|
|
|
|
53,538 |
|
|
|
50,085 |
|
Less: accumulated depreciation |
|
|
25,830 |
|
|
|
23,669 |
|
Net property, plant and equipment |
|
|
27,708 |
|
|
|
26,416 |
|
|
|
|
|
|
|
|
||
Operating lease right-of-use asset, net |
|
|
2,300 |
|
|
|
2,632 |
|
Goodwill |
|
|
8,189 |
|
|
|
8,189 |
|
Intangible assets, less accumulated amortization |
|
|
19,546 |
|
|
|
20,790 |
|
Other assets - restricted cash |
|
|
- |
|
|
|
750 |
|
Total assets |
|
$ |
156,269 |
|
|
$ |
164,377 |
|
See Notes to Condensed Consolidated Financial Statements.
3
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except par value and share amounts)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(unaudited) |
|
|
(Note 1) |
|
||
LIABILITIES |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
9,976 |
|
|
$ |
10,514 |
|
Operating lease liability - current portion |
|
|
1,165 |
|
|
|
1,130 |
|
Current portion of mortgage payable |
|
|
415 |
|
|
|
405 |
|
Other current liabilities |
|
|
13,873 |
|
|
|
10,078 |
|
Total current liabilities |
|
|
25,429 |
|
|
|
22,127 |
|
Non-current liabilities: |
|
|
|
|
|
|
||
Long-term debt |
|
|
32,934 |
|
|
|
49,916 |
|
Mortgage payable, net of current portion |
|
|
10,393 |
|
|
|
10,694 |
|
Operating lease liability - non-current portion |
|
|
1,279 |
|
|
|
1,683 |
|
Deferred income taxes |
|
|
305 |
|
|
|
305 |
|
Other non-current liabilities |
|
|
23 |
|
|
|
622 |
|
Total liabilities |
|
|
70,363 |
|
|
|
85,347 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Common stock, par value $2.50: |
|
|
|
|
|
|
||
authorized 8,000,000 shares; |
|
|
|
|
|
|
||
5,129,942 shares issued and 3,585,070 shares outstanding in 2023 and |
|
|
|
|
|
|
||
5,083,051 shares issued and 3,538,179 shares outstanding in 2022 |
|
|
12,816 |
|
|
|
12,699 |
|
Additional paid-in capital |
|
|
15,201 |
|
|
|
13,448 |
|
Retained earnings |
|
|
76,055 |
|
|
|
70,967 |
|
Treasury stock, at cost - 1,544,872 shares in 2023 and 2022 |
|
|
(15,996 |
) |
|
|
(15,996 |
) |
Accumulated other comprehensive loss: |
|
|
|
|
|
|
||
Translation adjustment |
|
|
(2,170 |
) |
|
|
(2,088 |
) |
Total stockholders’ equity |
|
|
85,906 |
|
|
|
79,030 |
|
Total liabilities and stockholders’ equity |
|
$ |
156,269 |
|
|
$ |
164,377 |
|
See Notes to Condensed Consolidated Financial Statements.
4
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
||||||||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net sales |
|
$ |
50,384 |
|
|
$ |
49,744 |
|
|
$ |
149,559 |
|
|
$ |
149,849 |
|
Cost of goods sold |
|
|
30,881 |
|
|
|
33,819 |
|
|
|
93,752 |
|
|
|
100,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
19,503 |
|
|
|
15,925 |
|
|
|
55,807 |
|
|
|
49,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
15,846 |
|
|
|
14,972 |
|
|
|
44,711 |
|
|
|
43,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
|
3,657 |
|
|
|
953 |
|
|
|
11,096 |
|
|
|
6,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-operating items: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
816 |
|
|
|
722 |
|
|
|
2,595 |
|
|
|
1,459 |
|
Interest income |
|
|
(32 |
) |
|
|
(8 |
) |
|
|
(78 |
) |
|
|
(16 |
) |
Interest expense, net |
|
|
784 |
|
|
|
714 |
|
|
|
2,517 |
|
|
|
1,443 |
|
Other expense, net |
|
|
55 |
|
|
|
209 |
|
|
|
9 |
|
|
|
354 |
|
Income before income tax expense |
|
|
2,818 |
|
|
|
30 |
|
|
|
8,570 |
|
|
|
4,502 |
|
Income tax expense (benefit) |
|
|
666 |
|
|
|
(34 |
) |
|
|
1,984 |
|
|
|
870 |
|
Net income |
|
$ |
2,152 |
|
|
$ |
64 |
|
|
$ |
6,586 |
|
|
$ |
3,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share |
|
$ |
0.60 |
|
|
$ |
0.02 |
|
|
$ |
1.85 |
|
|
$ |
1.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share |
|
$ |
0.58 |
|
|
$ |
0.02 |
|
|
$ |
1.83 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common shares outstanding-denominator used for basic per share computations |
|
|
3,578 |
|
|
|
3,530 |
|
|
|
3,558 |
|
|
|
3,525 |
|
Weighted average number of dilutive stock options outstanding |
|
|
143 |
|
|
|
162 |
|
|
|
38 |
|
|
|
256 |
|
Denominator used for diluted per share computations |
|
|
3,721 |
|
|
|
3,692 |
|
|
|
3,596 |
|
|
|
3,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dividends declared per share |
|
$ |
0.14 |
|
|
$ |
0.14 |
|
|
$ |
0.42 |
|
|
$ |
0.41 |
|
See Notes to Condensed Consolidated Financial Statements.
5
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net income |
|
$ |
2,152 |
|
|
$ |
64 |
|
|
$ |
6,586 |
|
|
$ |
3,632 |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustment |
|
|
(305 |
) |
|
|
(904 |
) |
|
|
(82 |
) |
|
|
(1,451 |
) |
Comprehensive income (loss) |
|
$ |
1,847 |
|
|
$ |
(840 |
) |
|
$ |
6,504 |
|
|
$ |
2,181 |
|
See Notes to Condensed Consolidated Financial Statements.
6
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(all amounts in thousands, except share amounts)
For the three months ended September 30, 2022
|
Outstanding Shares of Common Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Additional Paid-In Capital |
|
|
Accumulated |
|
|
Retained Earnings |
|
|
Total |
|
|||||||
Balances, June 30, 2022 |
|
3,521,373 |
|
|
$ |
12,657 |
|
|
$ |
(15,996 |
) |
|
$ |
12,598 |
|
|
$ |
(1,927 |
) |
|
$ |
72,491 |
|
|
$ |
79,823 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
64 |
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(904 |
) |
|
|
|
|
|
(904 |
) |
|||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
637 |
|
|
|
|
|
|
|
|
|
637 |
|
|||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(495 |
) |
|
|
(495 |
) |
|||||
Issuance of common stock |
|
5,239 |
|
|
|
13 |
|
|
|
|
|
|
55 |
|
|
|
|
|
|
|
|
|
68 |
|
|||
Cash settlement of stock options |
|
8,117 |
|
|
|
20 |
|
|
|
|
|
|
(232 |
) |
|
|
|
|
|
|
|
|
(212 |
) |
|||
Balances September 30, 2022 |
|
3,534,729 |
|
|
$ |
12,690 |
|
|
$ |
(15,996 |
) |
|
$ |
13,058 |
|
|
$ |
(2,831 |
) |
|
$ |
72,060 |
|
|
$ |
78,981 |
|
For the three months ended September 30, 2023
|
Outstanding Shares of Common Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Additional Paid-In Capital |
|
|
Accumulated |
|
|
Retained Earnings |
|
|
Total |
|
|||||||
Balances, June 30, 2023 |
|
3,568,006 |
|
|
$ |
12,773 |
|
|
$ |
(15,996 |
) |
|
$ |
14,333 |
|
|
$ |
(1,865 |
) |
|
$ |
74,406 |
|
|
$ |
83,651 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,152 |
|
|
|
2,152 |
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
(305 |
) |
|
|
|
|
|
(305 |
) |
|||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
674 |
|
|
|
|
|
|
|
|
|
674 |
|
|||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(503 |
) |
|
|
(503 |
) |
|||||
Issuance of common stock |
|
14,875 |
|
|
|
37 |
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
|
|
237 |
|
|||
Net share settlement of stock options |
|
2,189 |
|
|
|
6 |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
(0 |
) |
|||
Balances September 30, 2023 |
|
3,585,070 |
|
|
$ |
12,816 |
|
|
$ |
(15,996 |
) |
|
$ |
15,201 |
|
|
$ |
(2,170 |
) |
|
$ |
76,055 |
|
|
$ |
85,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
||||||||||||||||||||||||||
For the nine months ended September 30, 2022
|
|
Outstanding |
|
|
Common |
|
|
Treasury |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Total |
|
|||||||
Balances, December 31, 2021 |
|
|
3,520,646 |
|
|
$ |
12,655 |
|
|
$ |
(15,996 |
) |
|
$ |
11,930 |
|
|
$ |
(1,380 |
) |
|
$ |
69,873 |
|
|
$ |
77,082 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,632 |
|
|
|
3,632 |
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,451 |
) |
|
|
|
|
|
(1,451 |
) |
|||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
1,405 |
|
|
|
|
|
|
|
|
|
1,405 |
|
|||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,445 |
) |
|
|
(1,445 |
) |
|||||
Issuance of common stock |
|
|
5,966 |
|
|
|
15 |
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
78 |
|
|||
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
|
(108 |
) |
|
|
|
|
|
|
|
|
(108 |
) |
|||||
Net share settlement of stock options |
|
|
8,117 |
|
|
|
20 |
|
|
|
|
|
|
(232 |
) |
|
|
|
|
|
|
|
|
(212 |
) |
|||
Balances September 30, 2022 |
|
|
3,534,729 |
|
|
$ |
12,690 |
|
|
$ |
(15,996 |
) |
|
$ |
13,058 |
|
|
$ |
(2,831 |
) |
|
$ |
72,060 |
|
|
$ |
78,981 |
|
For the nine months ended September 30, 2023
7
|
|
Outstanding |
|
|
Common |
|
|
Treasury |
|
|
Additional |
|
|
Accumulated |
|
|
Retained |
|
|
Total |
|
|||||||
Balances, December 31, 2022 |
|
|
3,538,179 |
|
|
$ |
12,699 |
|
|
$ |
(15,996 |
) |
|
$ |
13,448 |
|
|
$ |
(2,088 |
) |
|
$ |
70,967 |
|
|
$ |
79,030 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,586 |
|
|
|
6,586 |
|
|||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82 |
) |
|
|
|
|
|
(82 |
) |
|||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
1,487 |
|
|
|
|
|
|
|
|
|
1,487 |
|
|||||
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,498 |
) |
|
|
(1,498 |
) |
|||||
Issuance of common stock |
|
|
35,577 |
|
|
|
89 |
|
|
|
|
|
|
437 |
|
|
|
|
|
|
|
|
|
526 |
|
|||
Net share settlement of stock options |
|
|
11,314 |
|
|
|
28 |
|
|
|
|
|
|
(171 |
) |
|
|
|
|
|
|
|
|
(143 |
) |
|||
Balances September 30, 2023 |
|
|
3,585,070 |
|
|
$ |
12,816 |
|
|
$ |
(15,996 |
) |
|
$ |
15,201 |
|
|
$ |
(2,170 |
) |
|
$ |
76,055 |
|
|
$ |
85,906 |
|
See Notes to Condensed Consolidated Financial Statements.
8
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income |
|
$ |
6,586 |
|
|
$ |
3,632 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
2,191 |
|
|
|
2,006 |
|
Amortization of intangible assets |
|
|
1,541 |
|
|
|
1,298 |
|
Non-cash lease adjustment |
|
|
(15 |
) |
|
|
- |
|
Stock compensation expense |
|
|
1,487 |
|
|
|
1,405 |
|
Provision for bad debt |
|
|
76 |
|
|
|
75 |
|
Amortization of deferred financing costs |
|
|
29 |
|
|
|
11 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(1,572 |
) |
|
|
(5,836 |
) |
Inventories |
|
|
8,707 |
|
|
|
(12,807 |
) |
Prepaid expenses and other assets |
|
|
(221 |
) |
|
|
(1,393 |
) |
Accounts payable |
|
|
(935 |
) |
|
|
3,048 |
|
Other accrued liabilities |
|
|
3,788 |
|
|
|
954 |
|
Total adjustments |
|
|
15,076 |
|
|
|
(11,239 |
) |
Net cash provided by (used in) operating activities |
|
|
21,662 |
|
|
|
(7,607 |
) |
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of property, plant and equipment |
|
|
(3,477 |
) |
|
|
(3,299 |
) |
Purchase of intangible assets |
|
|
(296 |
) |
|
|
(300 |
) |
Contingent payment related to the acquisition of Safety Made |
|
|
(750 |
) |
|
|
(9,609 |
) |
Net cash used in investing activities |
|
|
(4,523 |
) |
|
|
(13,208 |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Net (repayments) borrowings of long-term debt |
|
|
(17,000 |
) |
|
|
24,094 |
|
Tax withholding on net share settlement of stock options |
|
|
(143 |
) |
|
|
(211 |
) |
Cash settlement of stock options |
|
|
- |
|
|
|
(108 |
) |
Repayments on mortgage |
|
|
(301 |
) |
|
|
(290 |
) |
Proceeds from issuance of common stock |
|
|
526 |
|
|
|
78 |
|
Distributions to shareholders |
|
|
(1,491 |
) |
|
|
(1,408 |
) |
Net cash (used in) provided by financing activities |
|
|
(18,408 |
) |
|
|
22,155 |
|
|
|
|
|
|
|
|
||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(15 |
) |
|
|
(465 |
) |
Net change in cash, cash equivalents and restricted cash |
|
|
(1,283 |
) |
|
|
875 |
|
|
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
7,600 |
|
|
|
4,843 |
|
|
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
6,317 |
|
|
$ |
5,718 |
|
|
|
|
|
|
|
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Cash paid for income taxes |
|
$ |
776 |
|
|
$ |
242 |
|
Cash paid for interest |
|
$ |
2,592 |
|
|
$ |
1,292 |
|
Non-cash financing activity |
|
|
|
|
|
|
||
Net share settlement of stock options |
|
$ |
28 |
|
|
$ |
- |
|
Safety Made acquisitions contingent consideration |
|
$ |
- |
|
|
$ |
1,270 |
|
See Notes to Condensed Consolidated Financial Statements.
9
ACME UNITED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of Acme United Corporation (the “Company”). These adjustments are of a normal, recurring nature. However, the financial statements do not include all the disclosures normally required by accounting principles generally accepted in the United States 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, 2022 for such disclosures. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated balance sheet as of that date. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K.
The Company has evaluated events and transactions subsequent to September 30, 2023 and through the date these condensed consolidated financial statements were issued.
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”), which provides new authoritative guidance with respect to the measurement of credit losses on financial instruments. This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted ASU 2016-13 on January 1, 2023. The adoption did not have an impact on our condensed consolidated financial statements.
2. Commitment and Contingencies
There are no pending material legal proceedings to which the Company is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
3. Revenue from Contracts with Customers
Nature of Goods and Services
The Company recognizes revenue from the sales of a broad line of products that are grouped into two main categories: (a) first aid and medical; and (b) cutting, sharpening and measuring. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The first aid and medical category includes first aid kits and refills, over-the-counter medications and a variety of medical products. Revenue recognition is evaluated through the following five steps: (i) identification of the contract or contracts with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is generated by the sale of the Company’s products to its customers. Sales contracts (purchase orders) generally have a single performance obligation that is satisfied at a point in time, upon shipment or delivery, depending on the terms of the underlying contract. Revenue is measured based on the consideration specified in the contract. The amount of consideration we receive and revenue we recognize is impacted by incentives ("customer rebates"), including sales rebates, which are generally tied to sales volume levels, in-store promotional allowances, shared media and customer catalog allowances and other cooperative advertising arrangements; freight allowance programs offered to our customers; and allowance for returns and discounts. We generally recognize customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.
Significant Payment Terms
Payment terms for each customer are dependent on the agreed upon contractual repayment terms. Payment terms typically are between 30 and 90 days and vary depending on the size of the customer and its risk profile to the Company. Some customers receive discounts for early payment.
10
Product Returns
The Company accepts product returns in the normal course of business. The Company estimates reserves for returns and the related refunds to customers based on historical experience. Reserves for returned merchandise are included as a component of “Accounts receivable” in the condensed consolidated balance sheets.
Practical Expedient Usage and Accounting Policy Elections
For the Company’s contracts that have an original duration of one year or less, the Company uses the practical expedient in ASC 606-10-32-18 applicable to such contracts and does not consider the time value of money in relation to significant financing components. The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.
Per ASC 606-10-25-18B, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control as a fulfillment activity instead of a performance obligation. Furthermore, shipping and handling activities performed before transfer of control of the product also do not constitute a separate and distinct performance obligation. The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.
The Company has elected to exclude from the transaction price those amounts which relate to sales and other taxes that are assessed by governmental authorities and that are imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.
Applying the practical expedient in ASC 340-40-25-4, Other Assets and Deferred Costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred. These costs are included in “Selling, general and administrative expenses.”
Disaggregation of Revenues
The following table represents external net sales disaggregated by product category, by segment (amounts in thousands):
For the three months ended September 30, 2023
|
|
United States |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
||||
Cutting, Sharpening and Measuring |
|
$ |
15,834 |
|
|
$ |
1,454 |
|
|
$ |
3,027 |
|
|
$ |
20,315 |
|
First Aid and Medical |
|
|
27,854 |
|
|
|
1,851 |
|
|
|
364 |
|
|
|
30,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Net Sales |
|
$ |
43,688 |
|
|
$ |
3,305 |
|
|
$ |
3,391 |
|
|
$ |
50,384 |
|
For the three months ended September 30, 2022
|
|
United States |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
||||
Cutting, Sharpening and Measuring |
|
$ |
17,934 |
|
|
$ |
1,799 |
|
|
$ |
2,792 |
|
|
$ |
22,525 |
|
First Aid and Medical |
|
|
25,009 |
|
|
|
1,830 |
|
|
|
380 |
|
|
|
27,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Net Sales |
|
$ |
42,943 |
|
|
$ |
3,629 |
|
|
$ |
3,172 |
|
|
$ |
49,744 |
|
For the nine months ended September 30, 2023
|
|
United States |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
||||
Cutting, Sharpening and Measuring |
|
$ |
46,450 |
|
|
$ |
4,841 |
|
|
$ |
9,871 |
|
|
$ |
61,162 |
|
First Aid and Medical |
|
|
81,293 |
|
|
|
6,097 |
|
|
|
1,007 |
|
|
|
88,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Net Sales |
|
$ |
127,743 |
|
|
$ |
10,938 |
|
|
$ |
10,878 |
|
|
$ |
149,559 |
|
For the nine months ended September 30, 2022
|
|
United States |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
||||
Cutting, Sharpening and Measuring |
|
$ |
55,221 |
|
|
$ |
5,584 |
|
|
$ |
9,905 |
|
|
$ |
70,710 |
|
First Aid and Medical |
|
|
72,368 |
|
|
|
5,536 |
|
|
|
1,235 |
|
|
|
79,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Net Sales |
|
$ |
127,589 |
|
|
$ |
11,120 |
|
|
$ |
11,140 |
|
|
$ |
149,849 |
|
11
4. Debt and Shareholders’ Equity
Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A.(“HSBC”) and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $65 million at an interest rate of Secured Overnight Financing Rate (“SOFR”) plus 1.75%; interest is payable monthly. The credit facility has an expiration date of May 31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, acquisitions, dividends, share repurchases, and other operating activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The increase was in effect during the four quarters commencing in the third quarter of 2022 and ending with the three months ended June 30, 2023. The increase for those four quarters ranged from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also modified the interest rate from SOFR +1.75% to range from SOFR +1.60% up to a high of SOFR + 2.35% on a basis that varies quarterly with the funded debt to EBITDA ratio. As of September 30, 2023, the Company was in compliance with the covenants under the revolving loan agreement as then in effect.
As of September 30, 2023 and December 31, 2022, the Company had outstanding borrowings of $33,000,000 and $49,916,000, respectively, under the Company’s revolving loan agreement with HSBC.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Commencing on January 1, 2022, payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. As of September 30, 2023 and December 31, 2022, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):
|
September 30, 2023 |
|
December 31, 2022 |
|
||
|
|
|
|
|
||
Mortgage payable - HSBC Bank N.A. |
$ |
10,932 |
|
$ |
11,233 |
|
Less debt issuance costs |
|
(124 |
) |
|
(134 |
) |
|
|
10,808 |
|
|
11,099 |
|
Less current maturities |
|
415 |
|
|
405 |
|
Long-term mortgage payable less current maturities |
$ |
10,393 |
|
$ |
10,694 |
|
|
|
|
|
|
||
During the three and nine months ended September 30, 2023, the Company issued a total of 14,875 and 35,577 shares of common stock and received aggregate proceeds of $237,000 and $526,000 upon exercise of employee stock options. Also, during the three and nine months ended September 30, 2023, the Company issued 2,189 and 11,314 shares of common stock to optionees who had elected a net share settlement of certain of their respective options.
5. Segment Information
The Company reports financial information based on the organizational structure used by the Company’s chief operating decision maker for making operating and investment decisions and for assessing performance. The Company’s reportable business segments consist of: (1) United States; (2) Canada; and (3) Europe. As described below, the activities of the Company’s Asian operations are closely linked to those of the U.S. operations; accordingly, the Company’s chief operating decision maker reviews the financial results of both, on a consolidated basis, and as such, the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S. segment”. Each reportable segment derives its revenue from the sales of first aid and medical products, cutting and sharpening devices and measuring instruments for school, office, home, hardware, sporting and industrial use.
Domestic sales orders are filled primarily from the Company’s distribution centers in North Carolina, Washington, Massachusetts, Tennessee, Florida, New Hampshire and California. The Company is responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products. Orders filled from the Company’s inventory are generally for less than container-sized lots.
Direct import sales are products sold by the Company’s Asian subsidiary, directly to major U.S. retailers, who take ownership of the products in Asia. These sales are completed by delivering products to the customers’ common carriers at the shipping points in Asia. Direct import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately 7% of the Company’s total net sales for the three and nine months ended September 30, 2023 compared to 8% and 9%, respectively for the same periods in 2022.
The chief operating decision maker evaluates the performance of each operating segment based on segment revenues and operating income. Segment revenues are defined as total revenues, including both external customer revenue and inter-segment revenue. Segment operating earnings
12
are defined as segment revenues, less cost of goods sold and operating expenses. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Inter-segment amounts are eliminated to arrive at consolidated financial results.
The following table sets forth certain financial data by segment for the three and nine months ended September 30, 2023 and 2022:
Financial data by segment:
(in thousands)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
Sales to external customers: |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
United States |
|
$ |
43,688 |
|
|
$ |
42,943 |
|
|
$ |
127,743 |
|
|
$ |
127,589 |
|
Canada |
|
|
3,305 |
|
|
|
3,629 |
|
|
|
10,938 |
|
|
|
11,120 |
|
Europe |
|
|
3,391 |
|
|
|
3,172 |
|
|
|
10,878 |
|
|
|
11,140 |
|
Consolidated |
|
$ |
50,384 |
|
|
$ |
49,744 |
|
|
$ |
149,559 |
|
|
$ |
149,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
3,420 |
|
|
$ |
767 |
|
|
$ |
9,451 |
|
|
$ |
5,032 |
|
Canada |
|
|
34 |
|
|
|
354 |
|
|
|
995 |
|
|
|
1,214 |
|
Europe |
|
|
203 |
|
|
|
(168 |
) |
|
|
650 |
|
|
|
53 |
|
Consolidated |
|
$ |
3,657 |
|
|
$ |
953 |
|
|
$ |
11,096 |
|
|
$ |
6,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
784 |
|
|
|
714 |
|
|
|
2,517 |
|
|
|
1,443 |
|
Other expense, net |
|
|
55 |
|
|
|
209 |
|
|
|
9 |
|
|
|
354 |
|
Consolidated income before income taxes |
|
$ |
2,818 |
|
|
$ |
30 |
|
|
$ |
8,570 |
|
|
$ |
4,502 |
|
Assets by segment:
(in thousands)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
United States |
|
$ |
136,903 |
|
|
$ |
144,466 |
|
Canada |
|
|
9,246 |
|
|
|
9,078 |
|
Europe |
|
|
10,120 |
|
|
|
10,833 |
|
Consolidated |
|
$ |
156,269 |
|
|
$ |
164,377 |
|
6. Stock Based Compensation
The Company recognizes share-based compensation at the fair value of the equity instrument on the grant date. Compensation expense is recognized over the required service period, which is generally the vesting period of the equity instrument. Share-based compensation expense was approximately $674,000 and $1,487,000 for the three and nine months ended September 30, 2023 compared to approximately $637,000 and $1,405,000 for the three and nine months ended September 30, 2022.
As of September 30, 2023, there was a total of $3,992,950 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based payments granted to the Company’s employees. As of that date, the remaining unamortized expense was expected to be recognized over a weighted average period of approximately three years.
7. Fair Value Measurements
The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity. The Company’s contingent liability related to the acquisition of Safety Made is recorded at its fair value of $750,000 which is recorded in other current liabilities on the condensed consolidated balance sheet as of September 30, 2023. Changes in the fair value of the liability are recorded in earnings. There was an increase in the liability of $45,000 and $170,000, respectively, during the three and nine months ended September 30, 2023. During the nine months ended September 30, 2023, the Company paid $750,000 of the $1.5 million held in escrow related to the contingent liability.
8. Leases
The Company has operating leases for office and warehouse space and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2026.
13
Certain of the Company’s lease arrangements contain renewal provisions, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with right-of-use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.
Operating lease cost was $0.3 million for the three months ended September 30, 2023, of which $0.1 million was included in cost of goods sold and $0.2 million was included in selling, general and administrative expenses. Operating lease cost was $1.0 million for the nine months ended September 30, 2023, of which $0.3 million was included in cost of goods sold and $0.7 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Information related to leases (in thousands):
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
Operating cash flow information: |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Operating lease cost |
|
$ |
343 |
|
|
$ |
308 |
|
Operating lease - cash flow |
|
$ |
369 |
|
|
$ |
319 |
|
|
|
|
|
|
|
|
||
Non-cash activity: |
|
|
|
|
|
|
||
ROU assets obtained in exchange for lease liabilities |
|
$ |
240 |
|
|
$ |
334 |
|
|
|
|
|
|
|
|
||
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||
Operating cash flow information: |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Operating lease cost |
|
$ |
1,020 |
|
|
$ |
926 |
|
Operating lease - cash flow |
|
$ |
1,062 |
|
|
$ |
964 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Non-cash activity: |
|
|
|
|
|
|
||
ROU assets obtained in exchange for lease liabilities |
|
$ |
581 |
|
|
$ |
545 |
|
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Weighted-average remaining lease term |
|
2.0 years |
|
|
3.0 years |
|
||
Weighted-average discount rate |
|
|
5 |
% |
|
|
5 |
% |
Future minimum lease payments under non-cancelable leases as of September 30, 2023:
2023 (remaining) |
|
$ |
357 |
|
2024 |
|
|
1,172 |
|
2025 |
|
|
883 |
|
2026 |
|
|
165 |
|
|
|
|
|
|
Total future minimum lease payments |
|
$ |
2,577 |
|
Less: imputed interest |
|
|
(133 |
) |
Present value of lease liabilities - current |
|
|
1,165 |
|
Present value of lease liabilities - non-current |
|
$ |
1,279 |
|
9. Other Accrued Liabilities
Other current and non-current accrued liabilities consisted of (in thousands):
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Customer rebates |
|
$ |
6,218 |
|
|
$ |
5,534 |
|
Contingent liability - Safety Made |
|
|
750 |
|
|
|
1,330 |
|
Accrued compensation |
|
|
2,408 |
|
|
|
791 |
|
Dividend payable |
|
|
503 |
|
|
|
495 |
|
Income tax payable |
|
|
1,321 |
|
|
|
534 |
|
Other |
|
|
2,696 |
|
|
|
2,016 |
|
Total: |
|
$ |
13,896 |
|
|
$ |
10,700 |
|
|
|
|
|
|
|
|
||
14
10. Cash, Cash Equivalents and Restricted Cash
(in thousands):
|
|
September 30, 2023 |
|
December 31, 2022 |
|
||
Cash and cash equivalents |
|
$ |
5,567 |
|
$ |
6,100 |
|
Restricted Cash - current |
|
|
750 |
|
|
750 |
|
Restricted Cash - non-current |
|
|
- |
|
|
750 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
6,317 |
|
$ |
7,600 |
|
Restricted cash, which is reported within current assets in the condensed consolidated balance sheets consists of the contingent payment held in escrow related to the acquisition of Safety Made. During the nine months ended September 30, 2023, the Company paid $750,000 upon the satisfaction of certain financial targets associated with the Safety Made acquisition.
11. Intangible Assets and Goodwill
The Company’s intangible assets and goodwill consisted of (in thousands):
|
|
|
|
|
|
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Tradename |
|
$ |
10,008 |
|
|
$ |
10,008 |
|
Customer list |
|
|
18,798 |
|
|
|
18,501 |
|
Non-compete |
|
|
1,248 |
|
|
|
1,248 |
|
Slice license agreement |
|
|
380 |
|
|
|
380 |
|
Patents |
|
|
2,272 |
|
|
|
2,272 |
|
Subtotal |
|
|
32,706 |
|
|
|
32,409 |
|
Less: Accumulated amortization |
|
|
13,160 |
|
|
|
11,619 |
|
Intangible assets |
|
$ |
19,546 |
|
|
$ |
20,790 |
|
Goodwill |
|
$ |
8,189 |
|
|
$ |
8,189 |
|
Total: |
|
$ |
27,735 |
|
|
$ |
28,979 |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
The useful lives of the identifiable intangible assets range from 5 years to 15 years.
12. Inventories
Inventories consisted of (in thousands):
|
|
|
|
|
|
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Finished goods |
|
$ |
38,581 |
|
|
$ |
45,371 |
|
Work in process |
|
|
285 |
|
|
|
408 |
|
Materials and supplies |
|
|
15,709 |
|
|
|
17,546 |
|
|
|
$ |
54,575 |
|
|
$ |
63,325 |
|
Inventories are stated at the lower of cost or net realizable value, determined by the first-in, first-out method.
13. Subsequent Event
On November 1, 2023, the Company sold the assets of its Camillus Cutlery and Cuda business lines (the “Business”) to GSM Holdings, Inc., a Delaware corporation (“GSM Holdings”), pursuant to an Asset Purchase Agreement entered into on the same date.
The purchase price for the Business was $19,773,000. At closing, GSM Holdings paid $18,273,000 to the Company; the balance of the purchase price, $1,500,000, is subject to a 12-month holdback as a non-exclusive source of recovery primarily to satisfy indemnification claims under the Asset Purchase Agreement.
The Asset Purchase Agreement contains customary representations, warranties and covenants by the Company and GSM Holdings, including confidentiality, non-solicitation obligations and indemnification obligations. Under the terms of a related License Agreement dated November
15
1, 2023, the Company has provided a royalty-free, perpetual, non-exclusive license to certain patents held by the Company that are used in the Business.
16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “except,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.
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 that may impact the Company’s business, operations and financial results.
These risks and uncertainties include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) the continuing adverse impact of inflation, including product costs, and interest rates; (iv) potential adverse effects on the Company, its customers, and suppliers resulting from the wars in Ukraine and the Middle East; (v) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (vi) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (vii) currency fluctuations including, for example, the fluctuation of the dollar against the euro; (viii) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (ix) changes in client needs and consumer spending habits; (x) the impact of competition; (xi) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (xiii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.
For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year December 31, 2022 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
We discuss our critical accounting policies and estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Critical Accounting Estimates
There have been no material changes to the Company’s critical accounting estimates as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Results of Operations
Traditionally, the Company’s sales of its cutting, sharpening, and measuring products 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 back-to-school market.
Net sales
Consolidated net sales for the three months ended September 30, 2023 were $50,384,000 compared to $49,744,000 the same period in 2022, an increase of 1%. Net sales for the nine months ended September 30, 2023 were $149,559,000 compared to $149,849,000 in the same period in 2022.
Net sales in the U.S. for the three months ended September 30, 2023 increased 2% compared to the same period in 2022. The increase in sales was primarily related to higher sales of first aid and medical products partially offset by lower sales of school and office products. Net sales for
17
the nine months ended September 30, 2023 remained constant compared to the same period in 2022. Net sales of school and office products for the nine months ended September 30, 2023 were negatively impacted by customer reduction of inventory in the first half of 2023.
Net sales in Canada for the three months ended September 30, 2023 decreased 9% (7% in local currency). The decrease in nets sales for the three months ended September 30, 2023 was due to lower sales of cutting, sharpening and measuring products. Net sales for the nine months ended September 30, 2023 decreased 2% in U.S. dollars but increased 3% in local currency, compared to the same period in 2022. The increase in net sales in local currency for the nine months ended September 30, 2023was mainly due to higher sales of first aid products.
European net sales for the three months ended September 30, 2023 increased 7% in U.S. dollars but decreased 1% in local currency compared to the same period in 2022. Net sales for the nine months ended September 30, 2023 decreased 2% in U.S. dollars (4% in local currency) compared to the same period in 2022. The declines in net sales in local currency for the three and nine months were mainly due to the economic weakness in Europe.
Gross profit
Gross profit for the three months ended September 30, 2023 was $19,503,000 (38.7% of net sales) compared to $15,925,000 (32.0% of net sales) in the same period in 2022. Gross profit for the nine months ended September 30, 2023 was $55,807,000 (37.3% of net sales) compared to $49,475,000 (32.0% of net sales) in the same period in 2022. The increases in gross profit for the three and nine months were primarily due to productivity improvements in the Company's manufacturing and distribution facilities, as well as lower in-bound freight costs.
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2023 were $15,846,000 (31.4% of net sales) compared with $14,972,000 (30.1% of net sales) in the same period in 2022, an increase of $874,000. SG&A expenses for the nine months ended September 30, 2023 were $44,711,000 (29.9% of net sales) compared with $43,176,000 (28.8% of net sales) in the same period in 2022, an increase of $1,535,000. The increases in SG&A expenses for the three and nine months ended September 30, 2023 were primarily related to higher personnel related expenses.
Operating income
Operating income for the three months ended September 30, 2023 was $3,657,000 compared with $953,000 in the same period of 2022. Operating income for the nine months ended September 30, 2023 was $11,096,000 compared with $6,299,000 in the same period of 2022.
Operating income in the U.S. segment increased by $2,653,000 for the three months ended September 30, 2023, compared to the same period in 2022. Operating income in the U.S. segment increased by $4,419,000 for the nine months ended September 30, 2023 compared to the same period in 2022. The increase in operating income for the three and nine months ended September 30, 2023 was primarily due to productivity improvements at our manufacturing and distribution facilities, cost savings initiatives which included lowering SG&A expenses as well as lower in-bound freight costs.
Operating income in the Canadian segment decreased by $320,000 and $219,000 for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decreases in operating income were primarily due to lower sales of cutting, sharpening and measuring products.
Operating income in the European segment increased by $371,000 and $597,000 for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increases in operating income for the three and nine months ended September 30, 2023 were primarily due to higher gross margins as a result of lower in-bound freight costs.
Interest expense, net
Interest expense, net for the three months ended September 30, 2023 was $784,000 compared with $714,000 in the same period of 2022, a $70,000 increase. Interest expense, net for the nine months ended September 30, 2023 was $2,517,000 compared with $1,443,000, in the same period of 2022, a $1,074,000 increase. The increases in interest expense for the three and nine months ended September 30, 2023 resulted from a higher average interest rate on the outstanding debt under the Company’s revolving loan agreement.
Other expense, net
Other expense, net was $55,000 in the three months ended September 30, 2023 compared to $209,000 in the same period of 2022. Other expense, net in the nine months ended September 30, 2023 was $9,000 compared to $354,000 in the same period of 2022.
18
Income taxes
The effective income tax rate for the nine months ended September 30, 2023 was 23% compared to 19% in the same period of 2022. The higher effective income tax rate for the nine months ended September 30, 2023 was primarily due to higher earnings in jurisdictions with higher tax rates.
Financial Condition
Liquidity and Capital Resources
During the first nine months of 2023, working capital decreased approximately $10.4 million. Inventory decreased approximately $8.8 million during this nine-month period. The decline in inventory was due to planned reductions as the risk of supply chain disruptions has diminished. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.1 at September 30, 2023 compared to 2.0 at December 31, 2022. Receivables increased approximately $1.3 million at September 30, 2023 compared to December 31, 2022. The average number of days sales outstanding in accounts receivable was 57 days at September 30, 2023 compared to 62 days at December 31, 2022. Accounts payable and other current liabilities increased by approximately $3.3 million at September 30, 2023 compared to December 31, 2022.
The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):
|
|
|
|
|
|
|
||
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Working capital |
|
$ |
73,097 |
|
|
$ |
83,473 |
|
Current ratio |
|
|
3.87 |
|
|
|
4.77 |
|
Long term debt to equity ratio |
|
|
50.4 |
% |
|
|
76.7 |
% |
Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $65 million, at an interest rate of SOFR plus 1.75%; interest is payable monthly. The loan agreement has an expiration date of May 31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisitions, and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year.
On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The increase was in effect during the four quarters commencing in the third quarter of 2022 and ending with the three months ended June 30, 2023. The increase for those four quarters ranged from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also modified the interest rate from SOFR +1.75% to range from SOFR +1.60% up to a high of SOFR + 2.35% on a basis that varies quarterly with the funded debt to EBITDA ratio. As of September 30, 2023, the Company was in compliance with the covenants under the revolving loan agreement as then in effect.
During the first nine months of 2023, total debt outstanding under the Company’s revolving credit facility decreased by approximately $17 million, compared to total debt thereunder at December 31, 2022. As of September 30, 2023, $33,000,000 was outstanding and $32,000,000 was available for borrowing under the Company’s credit facility.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At September 30, 2023, there was approximately $10.8 million outstanding on the mortgage.
In response to the supply chain challenges encountered by the Company, the Company has implemented a series of cost reduction initiatives that are expected to generate over $6.0 million in savings in 2023. These initiatives have included a wide range of productivity improvements in our manufacturing and distribution facilities as well as a reduction of SG&A expenses.
The Company believes that cash generated from operating activities, together with funds available under its revolving loan agreement, will, under current conditions, be sufficient to finance the Company’s operations over the next twelve months from the filing of this report.
19
Item 3: Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 4: Controls and Procedures
(a) Evaluation of Internal Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.
(b) Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2023, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
20
PART II. OTHER INFORMATION
Item 1 — Legal Proceedings
There are no pending material legal proceedings to which the registrant is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
Item 1A — Risk Factors
See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 — Defaults upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
Not applicable.
Item 5 — Other Information
None.
Item 6 — Exhibits
Documents filed as part of this report:
|
|
|
|
|
|
Exhibit 31.1 |
|
|
|
|
|
Exhibit 31.2 |
|
|
|
|
|
Exhibit 32.1 |
|
|
|
|
|
Exhibit 32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
104 |
|
The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
21
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 |
|
|
Chairman of the Board and |
|
|
Chief Executive Officer |
|
|
|
|
Dated: November 8, 2023 |
|
|
By |
/s/ Paul G. Driscoll |
|
|
Paul G. Driscoll |
|
|
Vice President and |
|
|
Chief Financial Officer |
|
|
|
|
Dated: November 8, 2023 |
|
|
22