0001564590-21-025584.txt : 20210507 0001564590-21-025584.hdr.sgml : 20210507 20210507163058 ACCESSION NUMBER: 0001564590-21-025584 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 48 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210507 DATE AS OF CHANGE: 20210507 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: 1934 Act SEC FILE NUMBER: 001-07698 FILM NUMBER: 21903266 BUSINESS ADDRESS: STREET 1: 55 WALLS DRIVE CITY: FAIRFIELD STATE: CT ZIP: 06824 BUSINESS PHONE: 203-254-6060 MAIL ADDRESS: STREET 1: 55 WALLS DRIVE CITY: FAIRFIELD STATE: CT ZIP: 06824 FORMER COMPANY: FORMER CONFORMED NAME: ACME SHEAR CO DATE OF NAME CHANGE: 19710713 10-Q 1 acu-10q_20210331.htm 10-Q acu-10q_20210331.htm
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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: March 31, 2021

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  

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes       No  

 

Registrant had 3,483,527 shares of its $2.50 par value Common Stock outstanding as of May 4, 2021.

 

 

 


 

 

ACME UNITED CORPORATION

INDEX

 

 

 

Page

Number

 

 

 

Part I — FINANCIAL INFORMATION:

 

Item 1:

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020

3

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020

5

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020

6

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020

7

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3: 

Quantitative and Qualitative Disclosures about Market Risk

19

Item 4: 

Controls and Procedures

19

 

 

 

Part II — OTHER INFORMATION:

 

Item 1:   

Legal Proceedings

20

Item 1A:

Risk Factors

20

Item 2:   

Unregistered Sales of Equity Securities and Use of Proceeds

20

Item 3:   

Defaults Upon Senior Securities

20

Item 4:   

Mine Safety Disclosures

20

Item 5:   

Other Information

20

Item 6:  

Exhibits

20

Signatures

21

 

2


 

 

Part I - FINANCIAL INFORMATION

 

Item 1: Financial Statements

 

ACME UNITED CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(all amounts in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(Note 1)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

3,857

 

 

$

4,167

 

Accounts receivable, less allowance of $1,179 in 2021 and $1,152 in 2020

 

 

31,592

 

 

 

27,173

 

Inventories

 

 

49,389

 

 

 

50,704

 

Prepaid expenses and other current assets

 

 

2,477

 

 

 

1,641

 

Total current assets

 

 

87,315

 

 

 

83,685

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Land

 

 

1,766

 

 

 

1,770

 

Buildings

 

 

13,494

 

 

 

12,899

 

Machinery and equipment

 

 

25,571

 

 

 

24,524

 

 

 

 

40,831

 

 

 

39,193

 

Less: accumulated depreciation

 

 

19,693

 

 

 

18,954

 

   Net property, plant and equipment

 

 

21,138

 

 

 

20,239

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset, net

 

 

3,700

 

 

 

2,422

 

Goodwill

 

 

4,800

 

 

 

4,800

 

Intangible assets, less accumulated amortization

 

 

18,361

 

 

 

18,721

 

Total assets

 

$

135,314

 

 

$

129,868

 

 

 

See Notes to Condensed Consolidated Financial Statements

3


 

ACME UNITED CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(all amounts in thousands, except share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(Note 1)

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,151

 

 

$

7,601

 

Operating lease liability - current portion

 

 

932

 

 

 

873

 

Current portion of mortgage payable

 

 

267

 

 

 

267

 

Other accrued liabilities

 

 

11,323

 

 

 

11,460

 

Total current liabilities

 

 

20,673

 

 

 

20,201

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Long-term debt

 

 

40,626

 

 

 

38,767

 

Long-term debt - PPP Loan

 

 

3,508

 

 

 

3,508

 

Mortgage payable, net of current portion

 

 

2,844

 

 

 

2,911

 

Operating lease liability - non-current portion

 

 

2,926

 

 

 

1,654

 

Other non-current liabilities

 

 

110

 

 

 

110

 

Total liabilities

 

 

70,687

 

 

 

67,151

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Common stock, par value $2.50:

 

 

 

 

 

 

 

 

authorized 8,000,000 shares;

 

 

 

 

 

 

 

 

issued - 4,858,272 shares in 2021 and 4,840,571 in 2020,

 

 

 

 

 

 

 

 

including treasury stock

 

 

12,145

 

 

 

12,101

 

Additional paid-in capital

 

 

8,375

 

 

 

7,931

 

Retained earnings

 

 

59,643

 

 

 

58,033

 

Treasury stock, at cost - 1,501,658 shares in 2021 and 1,501,658 in 2020

 

 

(14,522

)

 

 

(14,522

)

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

Translation adjustment

 

 

(1,014

)

 

 

(826

)

Total stockholders’ equity

 

 

64,627

 

 

 

62,717

 

Total liabilities and stockholders’ equity

 

$

135,314

 

 

$

129,868

 

 

 

 

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 March 31,

 

 

 

 

2021

 

 

2020

 

 

Net sales

 

$

43,525

 

 

$

35,775

 

 

Cost of goods sold

 

 

27,938

 

 

 

22,244

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

15,587

 

 

 

13,531

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

12,619

 

 

 

11,521

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,968

 

 

 

2,010

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating items:

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

Interest expense

 

 

226

 

 

 

322

 

 

Interest income

 

 

(5

)

 

 

(7

)

 

Interest expense, net

 

 

221

 

 

 

315

 

 

Other expense, net

 

 

77

 

 

 

43

 

 

Total other expense, net

 

 

298

 

 

 

358

 

 

Income before income tax expense

 

 

2,670

 

 

 

1,652

 

 

Income tax expense

 

 

624

 

 

 

375

 

 

Net income

 

$

2,046

 

 

$

1,277

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.61

 

 

$

0.38

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.52

 

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding-denominator used for basic

   per share computations

 

 

3,347

 

 

 

3,349

 

 

Weighted average number of dilutive stock options outstanding

 

 

564

 

 

 

170

 

 

Denominator used for diluted per share computations

 

 

3,911

 

 

 

3,519

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.13

 

 

$

0.12

 

 

 

 

 

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

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Net income

 

$

2,046

 

 

$

1,277

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(188

)

 

 

(329

)

Comprehensive income

 

$

1,858

 

 

$

948

 

 

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 March 31, 2020

 

 

Outstanding Shares of Common Stock

 

 

Common Stock

 

 

Treasury

Stock

 

 

Additional Paid-In Capital

 

 

Accumulated

Other Comprehensive (Loss) Gain

 

 

Retained Earnings

 

 

Total

 

Balances, December 31, 2019

 

3,350,833

 

 

$

12,094

 

 

$

(14,235

)

 

$

8,262

 

 

$

(1,988

)

 

$

51,571

 

 

$

55,705

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,277

 

 

 

1,277

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(329

)

 

 

 

 

 

 

(329

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

243

 

 

 

 

 

 

 

 

 

 

 

243

 

Distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(401

)

 

 

(401

)

Cash settlement of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

(457

)

 

 

 

 

 

 

 

 

 

 

(457

)

Purchase of treasury stock

 

(10,719

)

 

 

 

 

 

 

(214

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(214

)

Balances, March 31, 2020

 

3,340,114

 

 

$

12,094

 

 

$

(14,449

)

 

$

8,048

 

 

$

(2,317

)

 

$

52,447

 

 

$

55,824

 

 

For the three months ended March 31, 2021

 

 

Outstanding Shares of Common Stock

 

 

Common Stock

 

 

Treasury

Stock

 

 

Additional Paid-In Capital

 

 

Accumulated

Other Comprehensive (Loss) Gain

 

 

Retained Earnings

 

 

Total

 

Balances, December 31, 2020

 

3,338,913

 

 

$

12,101

 

 

$

(14,522

)

 

$

7,931

 

 

$

(826

)

 

$

58,033

 

 

$

62,717

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,046

 

 

 

2,046

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(188

)

 

 

 

 

 

 

(188

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

306

 

 

 

 

 

 

 

 

 

 

 

306

 

Distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(436

)

 

 

(436

)

Issuance of common stock

 

17,701

 

 

 

44

 

 

 

 

 

 

 

138

 

 

 

 

 

 

 

 

 

 

 

182

 

Balances, March 31, 2021

 

3,356,614

 

 

$

12,145

 

 

$

(14,522

)

 

$

8,375

 

 

$

(1,014

)

 

$

59,643

 

 

$

64,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

            

 

See Notes to Condensed Consolidated Financial Statements.

7


 

ACME UNITED CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(all amounts in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

2,046

 

 

$

1,277

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

584

 

 

 

568

 

Amortization of intangible assets

 

 

375

 

 

 

329

 

Non-cash lease expense

 

 

43

 

 

 

38

 

Stock compensation expense

 

 

306

 

 

 

243

 

Provision for bad debt

 

 

29

 

 

 

252

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,634

)

 

 

(1,716

)

Inventories

 

 

1,175

 

 

 

3,027

 

Prepaid expenses and other current assets

 

 

(787

)

 

 

(120

)

Accounts payable

 

 

774

 

 

 

(1,506

)

Other accrued liabilities

 

 

(247

)

 

 

(1,599

)

Total adjustments

 

 

(2,382

)

 

 

(484

)

Net cash (used in) provided by operating activities

 

 

(336

)

 

 

793

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(1,480

)

 

 

(597

)

  Acquisition of First Aid Central

 

 

-

 

 

 

(2,074

)

Net cash used in investing activities

 

 

(1,480

)

 

 

(2,671

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net borrowings of long-term debt

 

 

1,859

 

 

 

612

 

Cash settlement of stock options

 

 

-

 

 

 

(457

)

Repayments on mortgage

 

 

(67

)

 

 

(67

)

Proceeds from issuance of common stock

 

 

182

 

 

 

-

 

Distributions to shareholders

 

 

(436

)

 

 

(400

)

Purchase of treasury shares

 

 

-

 

 

 

(214

)

Net cash provided by (used in) financing activities

 

 

1,538

 

 

 

(526

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(32

)

 

 

(146

)

Net change in cash and cash equivalents

 

 

(310

)

 

 

(2,550

)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

4,167

 

 

 

6,822

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

3,857

 

 

$

4,272

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

45

 

 

$

319

 

Cash paid for interest

 

$

218

 

 

$

340

 

 

See Notes to Condensed Consolidated Financial Statements

 

8


 

 

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 of America 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, 2020 for such disclosures. The condensed consolidated balance sheet as of December 31, 2020 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 2020 Annual Report on Form 10-K.

The Company has evaluated events and transactions subsequent to March 31, 2021 and through the date these condensed consolidated financial statements were issued.

Recently Issued and Adopted Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update eliminates, clarifies and modifies certain guidance related to the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, i.e. commencing with our current fiscal year.  The adoption of ASU 2019-12 did not have a material effect on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.  The Company adopted this standard on January 1, 2020. The adoption of this standard has not had an impact to the financial statements of the Company.

 

 

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: (i) cutting, sharpening and measuring; and (ii) first aid and safety. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The first aid and safety category includes first aid kits and refills, over-the-counter medications and a variety of safety 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, with 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 catalogue 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.

9


 

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.

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 fulfilment 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.” The effect of applying this practical expedient did not have an impact on the Company’s condensed consolidated financial statements.

Disaggregation of Revenues

The following table represents external net sales disaggregated by product category, by segment (amounts in thousands):

For the three months ended March 31, 2021

 

 

 

United States

 

 

Canada

 

 

Europe

 

 

Total

 

Cutting, Sharpening and Measuring

 

$

15,564

 

 

$

1,549

 

 

$

3,743

 

 

$

20,856

 

First Aid and Safety

 

 

20,484

 

 

 

1,784

 

 

$

401

 

 

 

22,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

36,048

 

 

$

3,333

 

 

$

4,144

 

 

$

43,525

 

 

For the three months ended March 31, 2020

 

 

 

United States

 

 

Canada

 

 

Europe

 

 

Total

 

Cutting, Sharpening and Measuring

 

$

11,728

 

 

$

1,422

 

 

$

2,598

 

 

$

15,748

 

First Aid and Safety

 

 

18,715

 

 

 

1,000

 

 

 

312

 

 

 

20,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

30,443

 

 

$

2,422

 

 

$

2,910

 

 

$

35,775

 

 

 

4. Debt and Shareholders’ Equity

Long-term debt consists of borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. The agreement provides for borrowings of up to $50 million at Prime Rate less 1.25%. The credit facility has an expiration date of May 24, 2023. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line.  The facility is intended to provide liquidity for working capital, growth, dividends, acquisitions, share repurchases and other business activities.  Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year. March 31, 2021, the Company was in compliance with the covenants then in effect under the loan agreement.  

10


 

As of March 31, 2021, and December 31, 2020, the Company had outstanding borrowings of $40,626,000 and $38,767,000, respectively, under the Company’s revolving loan agreement with HSBC.

On October 26, 2017, the Company exercised its option to purchase its First Aid Only manufacturing and distribution center in Vancouver, WA for $4.0 million. The property consists of 53,000 square feet of office, manufacturing, and warehouse space on 2.86 acres. The purchase was financed by a variable rate mortgage with HSBC Bank, N.A. at an interest rate of LIBOR plus 2.5%. Commencing on December 1, 2017, principal payments of $22,222 are due monthly, with all amounts outstanding due on maturity on October 31, 2024.

Also included in long term debt is the amount outstanding under a Paycheck Protection Program (PPP) loan. See Note 9 – Paycheck Protection Program Loan for additional details.   

5. Segment Information

The Company reports financial information based on the organizational structure used by the Company’s chief operating decision makers 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 makers review the financial results of both on a consolidated basis, and 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 cutting and sharpening devices, measuring instruments and first aid and safety products 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 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 product 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 months ended March 31, 2021, compared to 6% for the comparable period in 2020.

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 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 three months ended March 31, 2021 and 2020:

Financial data by segment:

(in thousands)

 

 

 

Three months ended March 31,

 

 

Sales to external customers:

 

2021

 

 

2020

 

 

United States

 

$

36,048

 

 

$

30,443

 

 

Canada

 

 

3,333

 

 

 

2,422

 

 

Europe

 

 

4,144

 

 

 

2,910

 

 

Consolidated

 

$

43,525

 

 

$

35,775

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

United States

 

$

2,133

 

 

$

1,571

 

 

Canada

 

 

370

 

 

 

205

 

 

Europe

 

 

465

 

 

 

234

 

 

Consolidated

 

$

2,968

 

 

$

2,010

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

221

 

 

 

315

 

 

Other expense, net

 

 

77

 

 

 

43

 

 

Consolidated income before income taxes

 

$

2,670

 

 

$

1,652

 

 

 

11


 

 

Assets by segment:

(in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2021

 

 

2020

 

United States

 

$

118,158

 

 

$

113,831

 

Canada

 

 

8,340

 

 

 

7,432

 

Europe

 

 

8,816

 

 

 

8,605

 

Consolidated

 

$

135,314

 

 

$

129,868