UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.D. C. 20549
__________________
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACTOF 1934 |
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2017ended: March 31, 2022
ORor
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACTOF 1934 |
For the transition period from ______from: to ______
__________________
Commission file number001-07698number: 01-07698
ACME UNITED CORPORATION
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)
__________________
Connecticut | 06-0236700 | |
State or | I.R.S. Employer Identification No. | |
Incorporation or Organization | ||
|
|
|
| 06484 | |
Address of | Zip |
Registrant’sRegistrant'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 (1)(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 [X]☒ No [_]
☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.(sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]☒ 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 the definitions of “large accelerated filer,”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 | ☐ |
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller reporting company [X]
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(a)13(s) of the Exchange Act. [_]Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_]☐ No [X]☒
As of October 24, 2017Indicate 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 outstanding 3,374,0613,520,646 shares of its $2.50 par value Common Stock.Stock outstanding as of May 5, 2022.
1
ACME UNITED CORPORATION
INDEX
Page Number | ||
3 | ||
Item 1: | 3 | |
Condensed Consolidated Balance Sheets at 2021 | 3 | |
5 | ||
2021 | 6 | |
7 | ||
2021 | 8 | |
9 | ||
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
Item 3: | 18 | |
Item 4: | 18 | |
19 | ||
Item 1: | 19 | |
Item 1A: | 19 | |
Item 2: | 19 | |
Item 3: | 19 | |
Item 4: | 19 | |
Item 5: | 19 | |
Item 6: | 19 | |
20
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
September 30, | December 31, | |||||||||||||||
2017 | 2016 |
| March 31, |
|
| December 31, |
| |||||||||
(unaudited) | (Note 1) |
| 2022 |
|
| 2021 |
| |||||||||
| (unaudited) |
|
| (Note 1) |
| |||||||||||
ASSETS |
|
|
|
|
|
|
|
| ||||||||
Current assets: |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 7,021 | $ | 5,911 |
| $ | 5,307 |
|
| $ | 4,843 |
| ||||
Accounts receivable, less allowance | 31,579 | 20,021 | ||||||||||||||
Inventories: | ||||||||||||||||
Finished goods | 30,911 | 33,972 | ||||||||||||||
Work in process | 184 | 188 | ||||||||||||||
Raw materials and supplies | 5,704 | 3,078 | ||||||||||||||
36,799 | 37,238 | |||||||||||||||
Accounts receivable, less allowance of $1,013 in 2022 and $1,007 in 2021 |
|
| 34,605 |
|
|
| 34,221 |
| ||||||||
Inventories |
|
| 60,716 |
|
|
| 53,552 |
| ||||||||
Prepaid expenses and other current assets | 2,448 | 2,293 |
|
| 3,810 |
|
|
| 2,635 |
| ||||||
Total current assets | 77,847 | 65,463 |
|
| 104,438 |
|
|
| 95,251 |
| ||||||
Property, plant and equipment: |
|
|
|
|
|
|
|
| ||||||||
Land | 427 | 413 |
|
| 1,759 |
|
|
| 1,761 |
| ||||||
Buildings | 6,232 | 5,669 |
|
| 13,516 |
|
|
| 13,456 |
| ||||||
Machinery and equipment | 15,808 | 13,428 |
|
| 30,221 |
|
|
| 29,760 |
| ||||||
22,467 | 19,510 |
|
| 45,496 |
|
|
| 44,977 |
| |||||||
Less accumulated depreciation | 13,018 | 11,537 | ||||||||||||||
Less: accumulated depreciation |
|
| 21,609 |
|
|
| 20,950 |
| ||||||||
Net property, plant and equipment |
|
| 23,887 |
|
|
| 24,027 |
| ||||||||
9,449 | 7,973 |
|
|
|
|
|
|
|
| |||||||
Operating lease right-of-use asset, net |
|
| 3,064 |
|
|
| 3,130 |
| ||||||||
Goodwill | 3,948 | 3,948 |
|
| 4,800 |
|
|
| 4,800 |
| ||||||
Intangible assets, less accumulated amortization | 18,929 | 13,988 |
|
| 16,888 |
|
|
| 17,231 |
| ||||||
Other assets | 765 | 694 | ||||||||||||||
Total assets | $ | 110,938 | $ | 92,066 |
| $ | 153,077 |
|
| $ | 144,439 |
|
See Notes to Condensed Consolidated Financial StatementsStatements.
3
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except share amounts)
September 30, | December 31, | |||||||||||||||
2017 | 2016 |
| March 31, |
|
| December 31, |
| |||||||||
(unaudited) | (Note 1) |
| 2022 |
|
| 2021 |
| |||||||||
| (unaudited) |
|
| (Note 1) |
| |||||||||||
LIABILITIES |
|
|
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
|
|
| ||||||||
Accounts payable | $ | 8,463 | $ | 7,339 |
| $ | 10,939 |
|
| $ | 8,977 |
| ||||
Operating lease liability - current portion |
|
| 1,112 |
|
|
| 1,000 |
| ||||||||
Current portion of mortgage payable |
|
| 389 |
|
|
| 389 |
| ||||||||
Other accrued liabilities | 5,520 | 5,481 |
|
| 8,937 |
|
|
| 9,909 |
| ||||||
Total current liabilities | 13,983 | 12,820 |
|
| 21,377 |
|
|
| 20,275 |
| ||||||
Non-current liabilities: |
|
|
|
|
|
|
|
| ||||||||
Long-term debt | 45,969 | 32,936 |
|
| 40,151 |
|
|
| 33,037 |
| ||||||
Mortgage payable, net of current portion |
|
| 10,989 |
|
|
| 11,081 |
| ||||||||
Operating lease liability - non-current portion |
|
| 2,187 |
|
|
| 2,365 |
| ||||||||
Other non-current liabilities | 266 | 190 |
|
| 600 |
|
|
| 599 |
| ||||||
Total liabilities | 60,218 | 45,946 |
|
| 75,304 |
|
|
| 67,357 |
| ||||||
|
|
|
|
|
|
|
| |||||||||
Commitments and Contingencies | ||||||||||||||||
Commitments and Contingencies (see note 2) |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| |||||||||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
| ||||||||
Common stock, par value $2.50: |
|
|
|
|
|
|
|
| ||||||||
authorized 8,000,000 shares; |
|
|
|
|
|
|
|
| ||||||||
issued - 4,838,071 shares in 2017 and 4,788,965 in 2016, | ||||||||||||||||
including treasury stock | 12,094 | 11,972 | ||||||||||||||
5,065,518 shares issued and 3,520,646 shares outstanding in 2022 and 2021 |
|
| 12,655 |
|
|
| 12,655 |
| ||||||||
Additional paid-in capital | 8,812 | 8,493 |
|
| 12,222 |
|
|
| 11,930 |
| ||||||
Retained earnings | 45,492 | 41,861 |
|
| 70,245 |
|
|
| 69,873 |
| ||||||
Treasury stock, at cost - 1,464,010 shares in 2017 and 2016 | (13,870 | ) | (13,870 | ) | ||||||||||||
Treasury stock, at cost - 1,544,872 shares in 2022 and 2021 |
|
| (15,996 | ) |
|
| (15,996 | ) | ||||||||
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
| ||||||||
Minimum pension liability | (664 | ) | (664 | ) | ||||||||||||
Translation adjustment | (1,144 | ) | (1,672 | ) |
|
| (1,353 | ) |
|
| (1,380 | ) | ||||
(1,808 | ) | (2,336 | ) | |||||||||||||
Total stockholders’ equity | 50,720 | 46,120 |
|
| 77,773 |
|
|
| 77,082 |
| ||||||
Total liabilities and stockholders’ equity | $ | 110,938 | $ | 92,066 |
| $ | 153,077 |
|
| $ | 144,439 |
|
See Notes to Condensed Consolidated Financial Statements Statements.
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
|
|
|
|
| |||||
|
| Three Months Ended March 31, |
|
| |||||
|
| 2022 |
|
| 2021 |
|
| ||
Net sales |
| $ | 43,333 |
|
| $ | 43,525 |
|
|
Cost of goods sold |
|
| 28,365 |
|
|
| 27,938 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 14,968 |
|
|
| 15,587 |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 13,597 |
|
|
| 12,619 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 1,371 |
|
|
| 2,968 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items: |
|
|
|
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 309 |
|
|
| 226 |
|
|
Interest income |
|
| (4 | ) |
|
| (5 | ) |
|
Interest expense, net |
|
| 305 |
|
|
| 221 |
|
|
Other (income) expense, net |
|
| (2 | ) |
|
| 77 |
|
|
Total other expense, net |
|
| 303 |
|
|
| 298 |
|
|
Income before income tax expense |
|
| 1,068 |
|
|
| 2,670 |
|
|
Income tax expense |
|
| 238 |
|
|
| 624 |
|
|
Net income |
| $ | 830 |
|
| $ | 2,046 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.24 |
|
| $ | 0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
| $ | 0.22 |
|
| $ | 0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-denominator used for basic per share computations |
|
| 3,521 |
|
|
| 3,347 |
|
|
Weighted average number of dilutive stock options outstanding |
|
| 327 |
|
|
| 564 |
|
|
Denominator used for diluted per share computations |
|
| 3,848 |
|
|
| 3,911 |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
| $ | 0.13 |
|
| $ | 0.13 |
|
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 33,785 | $ | 31,913 | $ | 100,380 | $ | 98,198 | ||||||||
Cost of goods sold | 21,559 | 20,050 | 63,107 | 62,455 | ||||||||||||
Gross profit | 12,226 | 11,863 | 37,273 | 35,743 | ||||||||||||
Selling, general and administrative expenses | 10,277 | 9,723 | 30,243 | 28,008 | ||||||||||||
Operating income | 1,949 | 2,140 | 7,030 | 7,735 | ||||||||||||
Non-operating items: | ||||||||||||||||
Interest expense, net | 365 | 247 | 949 | 642 | ||||||||||||
Other (income) expense, net | 16 | 65 | (44 | ) | 38 | |||||||||||
Total other expense, net | 381 | 312 | 905 | 680 | ||||||||||||
Income before income taxes | 1,568 | 1,828 | 6,125 | 7,055 | ||||||||||||
Income tax expense | 366 | 355 | 1,418 | 1,750 | ||||||||||||
Net income | $ | 1,202 | $ | 1,473 | $ | 4,707 | $ | 5,305 | ||||||||
Basic earnings per share | $ | 0.36 | $ | 0.44 | $ | 1.40 | $ | 1.59 | ||||||||
Diluted earnings per share | $ | 0.32 | $ | 0.40 | $ | 1.25 | $ | 1.49 | ||||||||
Weighted average number of common shares outstanding- | ||||||||||||||||
denominator used for basic per share computations | 3,373 | 3,324 | 3,351 | 3,329 | ||||||||||||
Weighted average number of dilutive stock options | ||||||||||||||||
outstanding | 421 | 317 | 414 | 233 | ||||||||||||
Denominator used for diluted per share computations | 3,794 | 3,641 | 3,765 | 3,562 | ||||||||||||
Dividends declared per share | $ | 0.11 | $ | 0.10 | $ | 0.32 | $ | 0.30 |
See Notes to Condensed Consolidated Financial StatementsStatements.
5
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands)
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net income |
| $ | 830 |
|
| $ | 2,046 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| 27 |
|
|
| (188 | ) |
Comprehensive income |
| $ | 857 |
|
| $ | 1,858 |
|
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 1,202 | $ | 1,473 | $ | 4,707 | $ | 5,305 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation | 234 | (26 | ) | 528 | 168 | |||||||||||
Comprehensive income | $ | 1,436 | $ | 1,447 | $ | 5,235 | $ | 5,473 |
See Notes to Condensed Consolidated Financial StatementsStatements.
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, 2021
|
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Loss |
|
| 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 income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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 |
|
For the three months ended March 31, 2022
|
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Loss |
|
| Retained Earnings |
|
| Total |
| |||||||
Balances, December 31, 2021 |
|
| 3,520,646 |
|
| $ | 12,655 |
|
| $ | (15,996 | ) |
| $ | 11,930 |
|
| $ | (1,380 | ) |
| $ | 69,873 |
|
| $ | 77,082 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 830 |
|
|
| 830 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 27 |
|
|
|
|
|
|
| 27 |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 400 |
|
|
|
|
|
|
|
|
|
|
| 400 |
|
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (458 | ) |
|
| (458 | ) |
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (108 | ) |
|
|
|
|
|
|
|
|
|
| (108 | ) |
Balances March 31, 2022 |
|
| 3,520,646 |
|
| $ | 12,655 |
|
| $ | (15,996 | ) |
| $ | 12,222 |
|
| $ | (1,353 | ) |
| $ | 70,245 |
|
| $ | 77,773 |
|
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, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 830 |
|
| $ | 2,046 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 652 |
|
|
| 584 |
|
Amortization of intangible assets |
|
| 374 |
|
|
| 375 |
|
Non-cash lease expense |
|
| - |
|
|
| 43 |
|
Stock compensation expense |
|
| 400 |
|
|
| 306 |
|
Provision for bad debt |
|
| - |
|
|
| 29 |
|
Amortization of deferred financing costs |
|
| 6 |
|
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (389 | ) |
|
| (4,634 | ) |
Inventories |
|
| (7,139 | ) |
|
| 1,175 |
|
Prepaid expenses and other current assets |
|
| (1,143 | ) |
|
| (787 | ) |
Accounts payable |
|
| 1,885 |
|
|
| 774 |
|
Other accrued liabilities |
|
| (955 | ) |
|
| (247 | ) |
Total adjustments |
|
| (6,309 | ) |
|
| (2,382 | ) |
Net cash used in operating activities |
|
| (5,479 | ) |
|
| (336 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
| (518 | ) |
|
| (1,480 | ) |
Net cash used in investing activities |
|
| (518 | ) |
|
| (1,480 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net borrowings of long-term debt |
|
| 7,114 |
|
|
| 1,859 |
|
Cash settlement of stock options |
|
| (108 | ) |
|
| - |
|
Repayments on mortgage |
|
| (98 | ) |
|
| (67 | ) |
Proceeds from issuance of common stock |
|
| - |
|
|
| 182 |
|
Distributions to shareholders |
|
| (458 | ) |
|
| (436 | ) |
Net cash provided by financing activities |
|
| 6,450 |
|
|
| 1,538 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| 11 |
|
|
| (32 | ) |
Net change in cash and cash equivalents |
|
| 464 |
|
|
| (310 | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 4,843 |
|
|
| 4,167 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
| $ | 5,307 |
|
| $ | 3,857 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | - |
|
| $ | 45 |
|
Cash paid for interest |
| $ | 286 |
|
| $ | 218 |
|
Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 4,707 | $ | 5,305 | ||||
Adjustments to reconcile net income | ||||||||
to net cash (used) provided by operating activities: | ||||||||
Depreciation | 1,253 | 1,097 | ||||||
Amortization | 874 | 693 | ||||||
Stock compensation expense | 552 | 306 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (10,866 | ) | (5,145 | ) | ||||
Inventories | 1,382 | (2,134 | ) | |||||
Prepaid expenses and other assets | (147 | ) | 219 | |||||
Accounts payable | 1,079 | 21 | ||||||
Other accrued liabilities | (30 | ) | 1,223 | |||||
Total adjustments | (5,903 | ) | (3,720 | ) | ||||
Net cash (used) provided by operating activities | (1,196 | ) | 1,585 | |||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | (2,401 | ) | (1,320 | ) | ||||
Purchase of patents and trademarks | — | (29 | ) | |||||
Acquisition of businesses | (7,233 | ) | (6,971 | ) | ||||
Net cash used by investing activities | (9,634 | ) | (8,320 | ) | ||||
Cash flows from financing activities: | ||||||||
Net borrowings of long-term debt | 13,033 | 13,793 | ||||||
Cash settlement of stock options | (760 | ) | (1,700 | ) | ||||
Proceeds from issuance of common stock | 649 | 390 | ||||||
Distributions to stockholders | (1,037 | ) | (1,000 | ) | ||||
Purchase of treasury stock | — | (907 | ) | |||||
Net cash provided by financing activities | 11,885 | 10,576 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 55 | 5 | ||||||
Net decrease in cash and cash equivalents | 1,110 | 3,846 | ||||||
Cash and cash equivalents at beginning of period | 5,911 | 2,426 | ||||||
Cash and cash equivalents at end of period | $ | 7,021 | $ | 6,272 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for income taxes | $ | 728 | $ | 839 | ||||
Cash paid for interest | $ | 908 | $ | 610 |
See Notes to Condensed Consolidated Financial StatementsStatements.
ACME UNITED CORPORATION
Notes toNOTES TO CONDENSED CONSOLIDATED Financial StatementsFINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
In the opinion of management, theThe 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 of 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, 20162021 for such disclosures. The condensed consolidated balance sheet as of December 31, 20162021 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 20162021 Annual Report on Form 10-K.
The Company has evaluated events and transactions subsequent to September 30, 2017March 31, 2022 and through the date these condensed consolidated financial statements were included in this Form 10-Q and filed with the SEC.issued.
Recently Issued and Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board (FASB) issued Auditing Standards Update (ASU) No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We adopted this guidance prospectively at the beginning of first quarter 2017 and it has not had a material impact on our financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new guidance clarifies the definition of a business in order to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We do not expect that ASU 2017-01 will have a material impact on our financial statements.
In March 2016, the FASB issued ASU 2016-09 to improve the accounting for employee share-based payments. This standard simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, as part of FASB’s simplification initiative to reduce cost and complexity in accounting standards while maintaining or improving the usefulness of the information provided to the users of financial statements. The new standard was effective for the Company beginning on January 1, 2017. The adoption of the new standard resulted in the recognition of excess tax benefits in the amount of approximately $350,000 in our provision for income taxes within the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2017, rather than additional paid-in capital.Additionally, our Condensed Consolidated Statement of Cash Flows now present excess tax benefits as an operating activity included in other accrued liabilities, adjusted prospectively.
In February 2016, the FASB issued guidance that will change the requirements for accounting for leases. The principal change under the new accounting guidance is that lessees under leases classified as operating leases will recognize a right-of-use asset and a lease liability. Current lease accounting does not require lessees to recognize assets and liabilities arising under operating leases on the balance sheet. Under the new guidance, lessees (including lessees under leases classified as finance leases and operating leases) will recognize a right-to-use asset and a lease liability on the balance sheet, initially measured as the present value of lease payments under the lease. Expense recognition and cash flow presentation guidance will be based upon whether the lease is classified as an operating lease or a finance lease (the classification criteria for distinguishing between finance leases and operating leases is substantially similar to the classification criteria for distinguishing between capital leases and operating leases under current guidance). The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; the guidance provides certain practical expedients. The Company will evaluate this guidance in 2018 to determine its impact on the Company’s results of operations, cash flows and financial position.
In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”), which had the effect of deferring the effective date of ASU 2014-09 to March 1, 2018 for the Company. Early adoption of ASU 2014-09 became permitted in the first quarter of fiscal year 2017. The Company expects to adopt ASU 2014-09 in the first quarter of 2018. The guidance permits the use of either the retrospective or cumulative effect transition method. We have not yet selected a transition method, and we continue to evaluate the effect that the updated standard will have on our consolidated financial condition, results of operations and cash flows. We generally do not have significant customer contracts and do not provide post-delivery services. As such, adoption of the new guidance is not expected to result in a significant change in the amount of revenue recognized or the timing of when such revenue is recognized and accordingly we do not expect adoption of the guidance to have a material impact on our financial results.
2. Commitment and Contingencies
The Company may be involved from time to time in disputes and other litigation in the ordinary course of business and may encounter other contingencies, which may include environmental and other matters. There are no pending material legal proceedings to which the registrantCompany is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
3. Revenue from Contracts with Customers
In 2014,Nature of Goods and Services
The Company recognizes revenue from the Company soldsales 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 Fremont, NC distribution facility for $850,000customers. Sales contracts (purchase orders) generally have a single performance obligation that is satisfied at a point in cash. Undertime, with shipment or delivery, depending on the terms of the sale agreement,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.
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.
9
Practical Expedient Usage and Accounting Policy Elections
For the Company’s contracts that have an original duration of one year or less, the Company is responsibleuses the practical expedient in ASC 606-10-32-18 applicable to remediate any environmental contaminationsuch 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 property. In conjunction withCompany’s condensed consolidated financial statements.
Per ASC 606-10-25-18B, the saleCompany 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 property,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 recordedfrom a liability of $300,000customer.
Applying the practical expedient in ASC 340-40-25-4, Other Assets and Deferred Costs,the second quarter of 2014, related toCompany recognizes the remediation of the property. The accrual includes the total estimatedincremental costs of remedial activitiesobtaining contracts as an expense when incurred. These costs are included in “Selling, general and post-remediation monitoring costs.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, 2022
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
| ||||
Cutting, Sharpening and Measuring |
| $ | 15,333 |
|
| $ | 1,593 |
|
| $ | 3,558 |
|
| $ | 20,484 |
|
First Aid and Medical |
|
| 20,408 |
|
|
| 2,022 |
|
| $ | 419 |
|
|
| 22,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
| $ | 35,741 |
|
| $ | 3,615 |
|
| $ | 3,977 |
|
| $ | 43,333 |
|
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 Medical |
|
| 20,484 |
|
|
| 1,784 |
|
|
| 401 |
|
|
| 22,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
| $ | 36,048 |
|
| $ | 3,333 |
|
| $ | 4,144 |
|
| $ | 43,525 |
|
Remediation work on the project was completed in 2015. The monitoring period is expected to be completed by the end of 2020.
The change in the accrual for environmental remediation for the nine months ended September 30, 2017 follows (in thousands):
Balance at December 31, 2016 | Payments | Balance at September 30, 2017 | |||||||||||
Fremont, NC | $ | 57 | $ | (9 | ) | $ | 48 |
3. Pension
Components of net periodic benefit cost (income) are as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||
Interest cost | $ | 8 | $ | 15 | $ | 36 | $ | 44 | ||||||||
Service cost | 9 | 6 | 27 | 19 | ||||||||||||
Expected return on plan assets | (12 | ) | (23 | ) | (52 | ) | (69 | ) | ||||||||
Amortization of prior service costs | (4 | ) | 2 | 0 | 7 | |||||||||||
Amortization of actuarial loss | 29 | 28 | 81 | 84 | ||||||||||||
$ | 30 | $ | 28 | $ | 92 | $ | 85 |
The Company’s funding policy with respect to its qualified plan is to contribute at least the minimum amount required by applicable laws and regulations. In 2017, the Company is not required to contribute to the plan. As of September 30, 2017, the Company had not made any contributions to the plan in 2017 and the Company does not anticipate that it will make any such contributions in the balance of 2017.
4. Debt and Shareholders’ Equity
On January 27, 2017,Long-term debt consists of (i) borrowings under the Company amended itsCompany’s revolving credit loan agreement with HSBC Bank, N.A. on a temporary basis in order to provide forand (ii) amounts outstanding under the funding offixed rate mortgage on the Company’s acquisitionmanufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of the assets of Spill Magic, Inc. as described in Note 8 above. The amended facility provided for an increase in borrowings fromup to $50 million to $55 million for the period commencing on April 1, 2017 and ending on September 30, 2017. Commencing October 1, 2017, the maximum amount outstanding at any time under thePrime Rate less 1.25%. The credit facility returned to $50 million. The interest rate on borrowings remains unchanged at a ratehas an expiration date of LIBOR plus 2.0%. In addition, the amendment modified the debt to net worth ratio covenant applicable during the same nine month period.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. All principal amounts outstanding under the agreement are requiredThe facility is intended to be repaid in a single amount on May 6, 2019, the date the loan agreement expires; interest is payable monthly. Funds borrowed under the agreement may be usedprovide liquidity for working capital, acquisitions, general operating expenses,growth, share repurchases, dividends, acquisitions and certain other purposes.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 $0,zero, measured as of the end of each fiscal year.At September 30, 2017, As of March 31, 2022, the Company was in compliance with the covenants then in effect under the loan agreement.
As of September 30, 2017March 31, 2022 and December 31, 2016,2021, the Company had outstanding borrowings of $45,969,000$40,151,000 and $32,936,000,$33,037,000, 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 Bank, N.A. 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 March 31, 2022 and December 31, 2021, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):
| March 31, 2022 |
| December 31, 2021 |
| ||
|
|
|
|
|
|
|
Mortgage Payable - HSBC Bank N.A. |
| 11,522 |
|
| 11,620 |
|
Less debt issuance costs |
| (144 | ) |
| (150 | ) |
|
| 11,378 |
|
| 11,470 |
|
Less current maturities |
| 389 |
|
| 389 |
|
Long-term mortgage payable less current maturities |
| 10,989 |
|
| 11,081 |
|
|
|
|
|
|
|
|
During the three months ended September 30, 2017,March 31, 2022, the Company, issued a total of 2,108 shares of common stock and received aggregate proceeds of $21,291 upon exercise of employee stock options. During the nine months ended September 30, 2017, the Company issued a total of 49,106 shares of common stock and received aggregate proceeds of $649,232 upon exercise of employee stock options. Also during the three and nine months ended September 30, 2017, the Companyat its discretion, paid approximately $27,680 and $759,573, respectively,$108,000 to optionees who had elected (subject to the approval of the Company) a net cash 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 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 first aid and medical products, cutting and sharpening devices and measuring instruments 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, CaliforniaTennessee, Florida and Tennessee.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 10% and 12%6% of the Company’s total net sales for the three and nine months ended September 30, 2017March 31, 2022, compared to 15% and 19%7% for the comparable periodsperiod in 2016.
2021. The decrease resulted primarily from COVID-related supply chain disruptions in China.
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 presented after convertingeliminated to U.S. dollars and consolidating eliminations.
arrive at consolidated financial results.
The following table sets forth certain financial data by segment for the three and nine months ended September 30, 2017March 31, 2022 and 2016:
2021:
Financial data by segment:
(in thousands)
|
| Three Months Ended March 31, |
|
| |||||
Sales to external customers: |
| 2022 |
|
| 2021 |
|
| ||
United States |
| $ | 35,741 |
|
| $ | 36,048 |
|
|
Canada |
|
| 3,615 |
|
|
| 3,333 |
|
|
Europe |
|
| 3,977 |
|
|
| 4,144 |
|
|
Consolidated |
| $ | 43,333 |
|
| $ | 43,525 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
United States |
| $ | 811 |
|
| $ | 2,133 |
|
|
Canada |
|
| 386 |
|
|
| 370 |
|
|
Europe |
|
| 174 |
|
|
| 465 |
|
|
Consolidated |
| $ | 1,371 |
|
| $ | 2,968 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| 305 |
|
|
| 221 |
|
|
Other (income) expense, net |
|
| (2 | ) |
|
| 77 |
|
|
Consolidated income before income taxes |
| $ | 1,068 |
|
| $ | 2,670 |
|
|
Assets by segment:
(in thousands)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
Sales to external customers: | 2017 | 2016 | 2017 | 2016 | ||||||||||||
United States | $ | 30,038 | $ | 28,489 | $ | 88,653 | $ | 87,311 | ||||||||
Canada | 1,661 | 1,585 | 5,556 | 5,623 | ||||||||||||
Europe | 2,086 | 1,839 | 6,171 | 5,264 | ||||||||||||
Consolidated | $ | 33,785 | $ | 31,913 | $ | 100,380 | $ | 98,198 | ||||||||
Operating income (loss): | ||||||||||||||||
United States | $ | 1,709 | $ | 1,974 | $ | 6,084 | $ | 7,165 | ||||||||
Canada | 209 | 148 | 744 | 558 | ||||||||||||
Europe | 31 | 18 | 202 | 12 | ||||||||||||
Consolidated | $ | 1,949 | $ | 2,140 | $ | 7,030 | $ | 7,735 | ||||||||
Interest expense, net | 365 | 247 | 949 | 642 | ||||||||||||
Other (income) expense, net | 16 | 65 | (44 | ) | 38 | |||||||||||
Consolidated income before income taxes | $ | 1,568 | $ | 1,828 | $ | 6,125 | $ | 7,055 |
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
United States |
| $ | 134,291 |
|
| $ | 125,521 |
|
Canada |
|
| 9,327 |
|
|
| 9,100 |
|
Europe |
|
| 9,459 |
|
|
| 9,818 |
|
Consolidated |
| $ | 153,077 |
|
| $ | 144,439 |
|
Assets by segment: | ||||||||
( in thousands ) | ||||||||
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
United States | $ | 101,420 | $ | 84,104 | ||||
Canada | 4,615 | 3,882 | ||||||
Europe | 4,903 | 4,080 | ||||||
Consolidated | $ | 110,938 | $ | 92,066 |
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.period, which is generally the vesting period of the equity instrument. Share-based compensation expenses were $315,000 and $122,001expense was approximately $400,000 for the three months ended September 30, 2017 and 2016, respectively. Share-based compensation expenses were $551,717 and $305,536March 31, 2022, compared to approximately $306,000 for the ninethree months ended September 30, 2017 and 2016, respectively.
March 31, 2021.
As of September 30, 2017,March 31, 2022, there was a total of $1,053,504$3,600,603 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share–basedshare-based payments granted to the Company’s employees. As of that date, the remaining unamortized expense iswas 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 approximatesis a reasonable estimate of fair value. Fair value was determined using a discounted cash flow analysis.
because of the nature of its payment terms and maturity.
8. Business Combinations
On February 1, 2017, the Company purchased the assets of Spill Magic, Inc., located in Santa Ana, CA and Smyrna, TN for $7.2 million in cash. The Spill Magic products are leaders in absorbents that encapsulate spills into dry powders that can be safely disposed. Many large retail chains use its products to remove liquids from broken glass containers, oil and gas spills, bodily fluids and solvents.
Leases
The purchase priceCompany 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.
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.
ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term. For the three months ended March 31, 2022 and 2021, lease expense in the amount of $0.1 million was allocatedincluded in cost of goods sold and $0.3 million and $0.2 million, respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.
Information related to assets acquired as followsleases (in thousands):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||
Operating cash flow information: |
| March 31, 2022 |
|
| March 31, 2021 |
| ||||
Operating lease cost |
| $ | 311 |
|
| $ | 336 |
| ||
Operating lease - cash flow |
| $ | 322 |
|
| $ | 294 |
| ||
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|
|
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|
| ||
Non-cash activity: |
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|
|
|
|
|
|
| ||
ROU assets obtained in exchange for lease liabilities |
| $ | 211 |
|
| $ | - |
| ||
|
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|
|
|
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|
|
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||
Weighted-average remaining lease term |
| 3.0 years |
|
| 4.0 years |
| ||
Weighted-average discount rate |
|
| 5 | % |
|
| 5 | % |
Future minimum lease payments under non-cancellable leases as of March 31, 2022:
2022 (remaining) |
| $ | 960 |
|
2023 |
|
| 1,081 |
|
2024 |
|
| 745 |
|
2025 |
|
| 650 |
|
2026 |
|
| 156 |
|
Thereafter |
|
| - |
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|
|
|
Total future minimum lease payments |
| $ | 3,592 |
|
Less: imputed interest |
|
| (293 | ) |
Present value of lease liabilities - current |
|
| 1,112 |
|
Present value of lease liabilities - non-current |
| $ | 2,187 |
|
Assets: | ||||
Accounts receivable | $ | 684 | ||
Inventory | 453 | |||
Equipment | 296 | |||
Intangible assets | 5,800 | |||
Total assets | $ | 7,233 |
Management’s assessment of the valuation of intangible assets is preliminary and finalization of the Company’s purchase price accounting assessment may result in changes to the valuation of the identified intangible assets. The Company will finalize, as of December 31, 2017, the purchase price allocation within the measurement period in accordance with Accounting Standards Codification Topic 805 “Business Combinations”.
9. Other Accrued Liabilities
Assuming Spill Magic assets were acquired on January 1, 2017, unaudited pro forma combined net sales for the nine months ended September 30, 2017 for the Company would have been approximately $100.8 million. Unaudited pro forma combined net income for the nine months ended September 30, 2017 for the Company would have been approximately $4.8 million.
Net sales for the three and nine months ended September 30, 2017 attributable to Spill Magic products were approximately $1.9 million and $4.9 million, respectively. Net income for the three and nine months ended September 30, 2017 attributable to Spill Magic products was approximately $0.2 million and $0.5 million, respectively.
Assuming Spill Magic assets were acquired on January 1, 2016, unaudited proforma combined net sales for the three and nine months ended September 30, 2016, for the Company would have been approximately $33.6 million and $103.2 million, respectively. Unaudited proforma combined net income for the three and nine months ended September 30, 2016 for the Company would have been approximately $1.8 million and $6.1 million, respectively.
On February 1, 2016, the Company acquired the assets of Vogel Capital, Inc., d/b/a Diamond Machining Technology (“DMT”) based in Marlborough, MA for $6.97 million in cash. The DMT products are leaders in sharpening tools for knives, scissors, chisels, and other cutting tools. The DMT products use finely dispersed diamonds on the surfaces of sharpeners. The acquired assets include over 50 patents and trademarks.
The purchase price was allocated to assets acquired and liabilities assumed as follows (in thousands):
Assets: | ||||
Accounts receivable | $ | 1,145 | ||
Inventory | 280 | |||
Equipment | 262 | |||
Prepaid expenses | 176 | |||
Intangible assets | 5,481 | |||
Total assets | $ | 7,344 |
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Customer Rebates |
| $ | 5,274 |
|
| $ | 5,414 |
|
Accrued Compensation |
|
| 1,291 |
|
|
| 1,586 |
|
Dividend Payable |
|
| 458 |
|
|
| 458 |
|
Income Tax Payable |
|
| 813 |
|
|
| 564 |
|
Other |
|
| 1,101 |
|
|
| 1,887 |
|
Total: |
| $ | 8,937 |
|
| $ | 9,909 |
|
|
|
|
|
|
|
|
|
|
Liabilities | ||||
Accounts payable | $ | 192 | ||
Accrued expense | 181 | |||
Total liabilities | $ | 373 |
Assuming the assets of DMT were acquired on January 1, 2016, unaudited pro forma combined net sales for the nine months ended September 30, 2016 for the Company would have been approximately $98.8 million. Unaudited pro forma combined net income for the nine months ended September 30, 2016 for the Company would have been approximately $5.4 million.
9. Income Taxes
The Company’s effective tax rates for the three and nine month periods ended September 30, 2017 were both 23%, compared to 19% and 25% during the same periods in 2016. In the nine months ended September 30, 2017, the Company recorded approximately $350,000 in excess tax benefits resulting from the adoption of ASU 2016-09 in 2017. Excluding the impact of the tax benefit, the effective tax rate would have been 29% for the nine months ended September 30, 2017. In 2016, the Company donated school products to the Kids In Need Foundation. Excluding the impact of the charitable donation in 2016, the effective tax rate for the three and nine months ended September 30, 2016 would have been 30%.
10. Subsequent Event
On October 26, 2017, the Company exercised its option to purchase its First Aid Only manufacturing and distribution center in Vancouver, WA for $4 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, calculated using the 30 day LIBOR rate plus 2.5%, currently at 3.74% through HSBC Bank NA.
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 by the Company 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.
These forward-lookingForward-looking statements includein this report, including without limitation, statements ofrelated to the Company’s plans, strategies, objectives, expectations, estimatesintentions 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, including those risks and uncertainties resulting from the global COVID-19 pandemic, future waves of COVID-19, including through the Delta and Omicrom variants and any new variant strains of the underlying virus; any future pandemics; the continuing effectiveness, global availability, and public acceptance of existing vaccines; the effectiveness, availability, and public acceptance of vaccines against variant strains of potential new viruses; and the heightened impact the pandemic has on many of the risks described herein, including, without limitation, risks relating to disruptions in our supply chain, and labor shortages, any of which could materially adversely impact the Company’s ability to manufacture, source or distribute its products, both domestically and internationally.
These risks and uncertainties further include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which are subject to change based on various important factors (some of which are beyondmay be made at any time at the Company’s control). The following factors, in addition to others not listed, could cause the Company’s actual results to differ materially from those expressed in forward looking statements: the strengthdiscretion of the domestic and local economies in which the Company conducts operations,Company; (ii) the impact of uncertainties in global economic conditions, whether caused by COVID-19 or otherwise, including the impact on the Company’s suppliers and customers; (iii) additional disruptions in the Company’s supply chains, whether caused by COVID-19 or otherwise; (iv) labor shortages and related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (v) the continuing adverse impact of cost inflation; (vi) the Company’s ability to effectively manage its inventory in a rapidly changing business environment, including the additional inventory the Company has acquired in anticipation of supply chain disruptions and uncertainties; (vii) changes in client needs and consumer spending habits,habits; (viii) the impact of competition and technological change on the Company,competition; (ix) the impact of any losstechnological changes including, specifically, the growth of a major customer, whether through consolidation or otherwise,online marketing and sales activity; (x) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business or assets which it might acquire,acquire; (xi) currency fluctuationsfluctuations; (xii) international trade policies and potential increasestheir impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiii) other risks and uncertainties indicated from time to time in the cost of borrowings resulting from rising interest rates. Company’s filings with the Securities and Exchange Commission.
For a more detailed discussion of these and other factors affecting us,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 ended DecemberMarch 31, 2016.2022 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
There have been no material changes to the Company’sWe discuss our critical accounting policies and estimates from the information provided 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 fiscal year ended December 31, 2016.2021.
COVID-19 Pandemic and Macroeconomic Related Considerations
As noted above under “Forward-Looking Statements”, in response to the COVID-19 pandemic U.S. federal, state, local, and foreign governments adopted mitigation measures, creating significant uncertainties in the U.S. and global economies, including the shutdown of large portions of, or imposition of restrictions on, the U.S. and global economies. While there has been a general improvement in conditions and reduction of adverse effects from the pandemic, as of the present there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it and the overall impact on the U.S., global economies, and our operating results in future periods.
Commencing late in the first quarter of 2020 and continuing through the filing of this report, the COVID-19 pandemic and certain related challenges have affected the Company’s financial results and business operations. During the first quarter of 2022, the Company experienced significant supply chain issues as a result of new Omicron outbreaks which surfaced in China. These outbreaks occurred in February 2022 and led to factory closures and slowdowns, mass quarantines in certain Chinese cities, and the complete shutdown of two if its largest ports. While the Company had previously purchased and maintained surplus inventory in the United States to minimize the impact of any disruption in our supply chain, certain of our largest customers take delivery of large shipments directly at ports in China and we were unable to fulfill these orders due to the new COVID outbreak in China and the resulting factory and port shutdowns. The resurgence in China exacerbated the
14
global supply chain issues that we had already been experiencing in recent quarters. As economies have re-opened, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions were already, in certain cases, affecting our ability to ship products in a timely manner. These factors have also contributed to increased freight, labor and product costs, which in turn had an adverse effect on our operating margin in the first three months of 2022, and those disruptions and increased costs are likely to persist in the near term and potentially for the foreseeable future. While we anticipate that the Company and its business partners will continue to experience supply chain disruptions, the Company believes that it has sufficient inventory of its products in the U.S. to at least partially offset near term supply chain disruptions anticipated demand in the near future. However, any further increase in the duration or severity of the COVID-19 pandemic or a resurgence of the pandemic and the continuation of related supply chain and labor issues, might adversely affect the Company’s ability to manufacture, source or distribute its products both domestically and internationally. The occurrence of any of these factors could have a material adverse effect on the Company’s business, operations and financial condition.
In addition, the Company has continued to experience other challenges related to the COVID-19 pandemic. These challenges include labor-related issues such as difficulties in hiring employees for its manufacturing and distribution centers due to current domestic labor shortages, increased labor costs, and higher employee turnover compared to pre-pandemic levels. In addition, a portion of the Company’s workforce in its headquarters and elsewhere continues to work remotely. As a result, the Company has experienced and continues to experience operating inefficiencies.
Further, the resurgence in the spread of COVID-19 toward the end of 2021 and into 2022 has created greater uncertainty regarding the economic outlook for at least the balance of 2022, even as vaccines have become widely available. The extent to which the COVID-19 pandemic will continue to affect the Company’s business, financial condition, liquidity and the Company’s operating results will depend on future developments, which are highly uncertain and cannot be predicted.
Results of Operations
On February 1, 2017, the Company purchased the assets of Spill Magic, Inc., located in Santa Ana, CA and Smyrna, TN. The Spill Magic products are leaders in absorbents that encapsulate spills into dry powders that can be safely disposed. Many large retail chains use its products to remove liquids from broken glass containers, oil and gas spills, bodily fluids and solvents. The Company purchased Spill Magic assets for $7.2 million in cash using funds borrowed under its revolving credit facility with HSBC. Additional information concerning the acquisition of Spill Magic assets is set forth in this report in Note 8 – Business Combinations, in the Notes to Condensed Consolidated Financial Statements.
On February 1, 2016, the Company purchased certain assets of Vogel Capital, Inc., d/b/a Diamond Machining Technology (DMT), located in Marlborough, MA. The DMT products are leaders in sharpening tools for knives, scissors, chisels and other cutting tools. The DMT products use finely dispersed diamonds on the surfaces of sharpeners. The Company purchased inventory, accounts receivable, equipment, patents, trademarks and other intellectual property for $6.97 million using funds borrowed under its revolving credit facility with HSBC. Additional information concerning the acquisition of DMT assets is set forth in this report in Note 8 – Business Combinations, in the Notes to Condensed Consolidated Financial Statements.
Traditionally, the Company’s sales are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the back-to-school market.
Our onlineNet sales across all product lines, have been growing very rapidly in recent years. The Company has made significant investment to grow the on-line business through promotional and advertising spending. Additionally, warehouse and distribution costs have increased at a higher rate than sales. Although a large majority of the shipments are to distribution centers, these orders have, in comparison to our traditional distribution channels, been smaller, lead-times shorter, shipments more frequent and have special labelling and packing requirements. The Company is making investments in its Rocky Mount, NC distribution facility to make its operations more efficient. These investments include upgrading the skill level of its employees, providing comprehensive training programs upgrading its warehouse management software and re-designed the layout of the warehouse to improve product flow.
Net Sales
Consolidated net sales for the three months ended September 30, 2017March 31, 2022 were $33,785,000$43,333,000 compared with $31,913,000$43,525,000 in the same period in 2016, a 6% increase. Consolidated net sales for the nine months ended September 30, 2017 were $100,380,000, compared with $98,198,000 for the same period in 2016, a 2% increase.2021.
Net sales for the three and nine months ended September 30, 2017 in the U.S. segment increased 5% and 2%, compared with the same periods in 2016, respectively. Sales in the U.S. for the three month period increasedmonths ended March 31, 2022 declined 1%, compared to the same period last year, primarily due to sales of Spill Magic products partially offset by the shift in timing of a promotional sale from Q3 to Q4.2021. The increasedecrease in sales for the ninethree months ended September 30, 2017 was primarily due to the salesa lower volume of Spill Magic products partially offset by lower salesshipments as a result of Westcott products primarily due to a second quarter promotion in 2016 that did not repeat in 2017. Sales of Spill Magic products were $1.9 million and $4.9 million for the three and nine months ended September 30, 2017.
COVID-19 related supply chain constraints.
Net sales in Canada for the three months ended September 30, 2017March 31, 2022, increased 5%8% in both U.S. dollars (constant inand local currency),currency compared withto the same period in 2016. Net2021, mainly due to higher sales of First Aid Central products, principally in Canada for the nine months ended September 30, 2017 decreased 1% in U.S. dollars (1% in local currency) compared with the same period in 2016.
e-commerce channel.
European net sales for the three months ended September 30, 2017 increased 13%first quarter of 2022 decreased 4% in U.S. dollars (8%but increased 3% in local currency),currency compared withto the same period in 2016. Net sales for the nine months ended September 30, 2017 increased 17% in U.S. dollars and local currency. The increases in net sales for the three and nine months ended September 30, 2017 were primarily due to market share gains in the office products and sporting goods channels.first quarter of 2021.
Gross Profitprofit
Gross profit for the three months ended September 30, 2017March 31, 2022 was $12,226,000 (36.2%$14,968,000 (34.5% of net sales) compared to $11,863,000 (37.2% of net sales) for the same period in 2016. The decrease in gross profit percentage for the three months ended September 30, 2017 was primarily due to incremental spending for the online business which included promotional, advertising as well as related warehouse and distribution costs. Gross profit for the nine months ended September 30, 2017 was $37,273,000 (37.1% of net sales) compared to $35,743,000 (36.4%$15,587,000 (35.8% of net sales) in the same period in 2016.
2021. The decline in the quarter was primarily due to cost inflation pressures as well as higher transportation costs. Price increases partially offset cost increases.
Selling, Generalgeneral and Administrative Expensesadministrative expenses
Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2017March 31, 2022 were $10,277,000 (30.4%$13,597,000 (31.4% of net sales) compared with $9,723,000 (30.5% of net sales) for the same period of 2016, an increase of $554,000. SG&A expenses for the nine months ended September 30, 2017 were $30,243,000 (30.1% of net sales) compared with $28,008,000 (28.5%$12,619,000 (29.0% of net sales) in the comparablesame period of 2016,in 2021, an increase of $2,235,000.$978,000. The increasesincrease in SG&A expenses for the three and nine months ended September 30, 2017,March 31, 2022, compared to the same periodsperiod in 2016,2021 were primarily the result of certain costs incurred in connection with the acquisition of Spill Magic assets anddue to higher personnel related costs, which include compensationincluding higher salaries and recruiting costs, and higher variable selling costs related to higher sales.stock option expenses.
Operating Incomeincome
Operating income for the three months ended September 30, 2017March 31, 2022 was $1,949,000$1,371,000 compared with $2,140,000$2,968,000 in the same period of 2016. Operating income for the nine months ended September 30, 2017 was $7,030,000 compared with $7,735,000 in the same period of 2016.2021.
Operating income in the U.S. segment decreased by approximately $0.3 million and $1.1 million$1,322,000 for the three and nine months ended September 30, 2017, respectively,March 31, 2022, compared to the same periodsperiod in 2016. The decrease in operating income was principally due to higher selling, general and administrative expenses.2021.
Operating income in the Canadian segment increased by approximately $61,000 and $186,000$16,000 for the three and nine months ended September 30, 2017, respectively,March 31, 2022, compared to the same periodsperiod in 2016.2021.
Operating income in the European segment increaseddecreased by $13,000 and $190,000$291,000 for the three and nine months ended September 30, 2017March 31, 2022, compared to the same periodsperiod in 2016. The increases in operating income in the European segment were principally due to higher sales.
2021.
Interest Expense,expense, net
Interest expense, net for the three months ended September 30, 2017March 31, 2022 was $365,000,$305,000 compared with $247,000 for$221,000 in the same period of 2016,2021, an $118,000 increase. Interest expense, net for the nine months ended September 30, 2017 was $949,000, compared with $642,000 for the same period of 2016, a $307,000$84,000 increase. The increasesincrease in interest expense, resulted fromnet is due to higher average borrowings and a higher average interest rate under the Company’s bank revolving credit facility for the three and nine months ended September 30, 2017. The higher borrowings were primarily the result of funding the acquisition of assets of Spill Magic.debt outstanding.
Other (Income) Expense, net
Other (income) expense, net
Total other (income), net was $16,000$2,000 in the three months ended September 30, 2017March 31, 2022 compared to $65,000 of other expense netof $77,000 in the same period of 2016. Other income, net was $44,000 in the nine months ended September 30, 2017 compared to $38,000 of other expense, net in the same period of 2016. The changes in other (income) expense, net for the three and nine months ended September 30, 2017 were primarily due to gains and losses from foreign currency transactions.2021.
Income Taxes
tax expense
The Company’s effective tax rates for the three and nine month periodsmonths ended September 30, 2017 were both 23%,March 31, 2022 was 22% compared to 19% and 25% during23% in the same periodsperiod in 2016. In the nine months ended September 30, 2017, the Company recorded approximately $350,000 in excess tax benefits resulting from the adoption of ASU 2016-09 in 2017. Excluding the impact of the tax benefit, the effective tax rate would have been 29% for the nine months ended September 30, 2017. In 2016, the Company donated school products to the Kids In Need Foundation. Excluding the impact of the charitable donation in 2016, the effective tax rate for the three and nine months ended September 30, 2016 would have been 30%.
2021.
Financial Condition
Liquidity and Capital Resources
During the first ninethree months of 2017,2022, working capital increased approximately $11.2$8.2 million compared to December 31, 2016.2021. Inventory decreased byincreased approximately $0.4$7.2 million at September 30, 2017March 31, 2022 compared to December 31, 2016.2021. We increased inventory during that period to anticipate our continued growth and to be positioned to offset the impact of potential supply chain disruptions related to COVID-19. The increase also reflects higher product costs. Inventory turnover, calculated using a twelve monthtwelve-month average inventory balance, was 2.2 at September 30, 2017March 31, 2022 compared to 2.12.4 at December 31, 2016.2021. Receivables increased by approximately $11.6 millionremained constant at September 30, 2017March 31, 2022 compared to December 31, 2016. This increase includes approximately $700.000 related to the acquisition of Spill Magic.2021. The average number of days sales outstanding in accounts receivable was 6460 days at September 30, 2017each of March 31, 2022 and December 31, 2016. The increase in accounts receivables is due to the seasonal nature of the Company’s back to school business. Sales are typically stronger in the second and third quarters compared to the first and fourth quarters.2021. Accounts payable and other current liabilities increased by approximately $1.2$1.1 million at September 30, 2017March 31, 2022 compared to December 31, 2016.2021.
The Company's working capital, current ratio and long-term debt to equity ratio wereare as follows:follows (dollar amounts in thousands):
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September 30, 2017 | December 31, 2016 |
| March 31, |
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| December 31, |
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| 2022 |
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| 2021 |
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Working capital | $ | 63,864 | $ | 52,643 |
| $ | 83,061 |
|
| $ | 74,976 |
| ||||
Current ratio | 5.57 | 5.11 |
|
| 4.89 |
|
|
| 4.70 |
| ||||||
Long term debt to equity ratio | 90.6 | % | 71.4 | % |
|
| 65.8 | % |
|
| 57.2 | % |
During the first nine monthsLong-term debt consists of 2017, total debt outstanding(i) borrowings under the Company’s revolving credit facility increased by approximately $13.0 million, compared to total debt thereunder at December 31, 2016. As of September 30, 2017, $45,969,000 was outstanding and $4,031,000 was available for borrowing under the Company’s credit facility. The amount available for borrowing reflects a reduction in the line from $55 million to $50 million commencing on October 1, 2017, as described in this report in note 4 – Debt and Shareholders Equity in the Notes to Condensed Consolidated Financial Statements. The increase in the debt outstanding was primarily due to funding the acquisition of the assets of Spill Magic and the increase in working capital. Increases in accounts receivable and debt outstanding under the Company’s revolving credit facility typically occur in the second and third quarter of each year due to the seasonal nature of the business.
On January 27, 2017, the Company amended its revolving credit loan agreement with HSBC Bank, N.A. on a temporary basis in order to provide forand (ii) amounts outstanding under the funding offixed rate mortgage related on the Company’s acquisitionmanufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of the assets of Spill Magic, Inc. as described in Note 8 above. The amended facility provided for an increase in borrowings fromup to $50 million to $55 million for the period commencing on April 1, 2017 and ending on September 30, 2017. Commencing October 1, 2017, the maximum amount outstanding at any time under thePrime Rate less 1.25%. The credit facility returned to $50 million. The interest rate on borrowings remains unchanged at a ratehas an expiration date of LIBOR plus 2.0%. In addition, the amendment modified the debt to net worth ratio covenant applicable during the same nine month period.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. All principal amounts outstanding under the agreement are requiredThe facility is intended to be repaid in a single amount on May 6, 2019, the date the loan agreement expires; interest is payable monthly. Funds borrowed under the agreement may be usedprovide liquidity for working capital, acquisitions, general operating expenses,growth, share repurchases, dividends, acquisition and certain other purposes.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 $0,zero, measured as of the end of each fiscal year.At September 30, 2017,March 31, 2022, the Company was in compliance with the covenants then in effect under the loan agreement.
During the first three months of 2022, total debt outstanding under the Company’s revolving credit facility increased by approximately $7.1 million, compared to total debt thereunder at December 31, 2021. As discussedof March 31, 2022, $40,151,000 was outstanding and $9,849,000 was available for borrowing under the Company’s credit facility. The increase in Note 2debt outstanding was primarily related to the Condensed Consolidated Financial Statements set forthincrease in Iteminventory.
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, above, at September 30, 2017,2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At March 31, 2022, there was approximately $11.4 million outstanding on the Company had a total of approximately $48,000 remaining in its accruals for environmental remediation and monitoring, related to property in Fremont, NC it had sold in 2014.mortgage.
16
The Company believes that cash expected to be generated from operating activities, together with funds available under its revolving credit facility, will, under current conditions, be sufficient to finance the Company’s planned operations over the next twelve months from the filing of this report.
17
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 required by(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act Rule 13a-15(b)of 1934, as amended) as of the end of the period covered by this report.March 31, 2022. 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, 2017,March 31, 2022, 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.
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, 2016.
2021.
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.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 |
Exhibit 31.2 Certification of Paul G. Driscoll pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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: |
By | ||
/s/ Paul G. Driscoll | ||
Paul G. Driscoll | ||
Vice President and | ||
Chief Financial Officer | ||
Dated: |
20