Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ACU > SEC Filings for ACU > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for ACME UNITED CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ACME UNITED CORP


9-Nov-2012

Quarterly Report


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.

These forward-looking statements include statements of the Company's plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond 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 strength of the domestic and local economies in which the Company conducts operations, the impact of current uncertainties in global economic conditions and the impact on the Company's suppliers and customers, currency fluctuations, changes in client needs and consumer spending habits, the impact of competition and technological change on the Company, and the Company's ability to manage its growth effectively, including its ability to successfully integrate any business which it might acquire. A more detailed discussion of risk factors is set forth in Item 1A, "Risk Factors", included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011. 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 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Results of Operations

On June 7, 2012, the Company purchased certain assets of The C-Thru Ruler Company, a leading supplier of drafting, measuring, lettering and stencil products. The Company purchased inventory and intellectual property for approximately $1.47 million using funds borrowed under its revolving loan agreement with HSBC. The Company recorded approximately $0.42 million for inventory, as well as approximately $1.05 million for intangible assets, consisting of customer relationships.

On February 28, 2011, the Company purchased substantially all of the assets of The Pac-Kit Safety Equipment Company, a leading manufacturer of first aid kits for the industrial, safety, transportation and marine markets. The Company purchased the accounts receivable, inventory, equipment and intangible assets of Pac-Kit for approximately $3.4 million using funds borrowed under its revolving loan agreement with Wells Fargo. The Pac-Kit line of products consists of high quality, unitized first aid kits sold to a broad range of customers and distributors. The Company recorded approximately $1.9 million for assets acquired from Pac-Kit, including accounts receivable, inventory and fixed assets, as well as approximately $1.5 million for intangible assets, consisting of customer relationships and the Pac-Kit trade name.


Net sales

Consolidated net sales for the three months ended September 30, 2012 were $20,363,000 compared with $19,036,000 in the same period in 2011, a 7% increase (8% in local currency). Consolidated net sales for the nine months ended September 30, 2012 were $64,835,000, compared with $57,466,000 for the same period in 2011, a 13% increase. Net sales for the three and nine months ended September 30, 2012 in the U.S. segment increased 10% and 17%, respectively, compared with the same periods in 2011. Sales in the U.S. for the three months ended September 30, 2012 increased primarily due to new distribution of Camillus knives and sales resulting from the acquisition of C-Thru assets. Also, contributing to the increase in net sales for the year to date period were higher sales of first aid products as well as the iPoint pencil sharpener. Net sales in Canada for the three months ended September 30, 2012 increased by 19% in U.S. dollars (21% in local currency) compared with the same period in 2011. Net sales in Canada for the nine months ended September 30, 2012 increased by 2% in U.S. dollars (5% in local currency) compared with the same period in 2011. Sales in Canada increased primarily due to the introduction of Camillus brand knives. European net sales for the three months ended September 30, 2012 decreased 25% in U.S. dollars (14% in local currency) compared with the same period in 2011. European net sales for the nine months ended September 30, 2012 declined 6% in U.S. dollars but increased 4% in local currency. The decrease in net sales in Europe for the three month period on a comparative basis was primarily due to the loss of Schlecker, a major customer, due to their liquidation. The increase in sales for the year to date period compared to 2011 was primarily related to higher sales to mass market customers partially offset by the loss of sales to Schlecker.

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.

Gross profit

Gross profit for the three months ended September 30, 2012 was $7,426,000 (36.4% of net sales) compared to $6,640,000 (34.9% of net sales) for the same period in 2011. Gross profit for the nine months ended September 30, 2012 was $23,191,000 (35.8% of net sales) compared to $20,631,000 (35.9% of net sales) in the same period in 2011. The improvement in the gross margin as a percent of sales for the three months ended September 30, 2012 was primarily the result of the mix of customers and products. The mix included a higher proportion of Camillus brand products and C-Thru products, which in general, yield a higher gross margin than the Company's historical average gross margins.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2012 were $6,067,000 (29.8% of net sales) compared with $5,520,000 (29.0% of net sales) for the same period of 2011, an increase of $547,000. SG&A expenses for the nine months ended September 30, 2012 were $18,296,000 (28.2% of net sales) compared with $16,868,000 (29.4% of net sales) in the comparable period of 2011, an increase of $1,428,000. The increases in SG&A expenses for the three and nine months ended September 30, 2012, compared to the same periods in 2011, were primarily the result of higher freight expense and sales commissions as a result of higher sales as well as higher personnel related expenses and increased spending on new products.

Operating income

Operating income for the three months ended September 30, 2012 was $1,359,000 compared with $1,120,000 in the same period of 2011, a 21% increase. Operating income for the nine months ended September 30, 2012 was $4,895,000 compared to $3,763,000 in the same period of 2011, a 30% increase. Operating income in the U.S. segment increased by $317,000 and $1,088,000 for the three and nine months, respectively, compared to the same periods in 2011. The increase in operating income is principally due to higher sales. Operating income in the Canadian segment increased by $68,000 for the three months and decreased $110,000 for the nine months ended September 30, 2012, compared to the same periods in 2011. Europe had an operating loss of $63,000 for the three months ended September 30, 2012 compared to income of $83,000 for to the same period in 2011. The operating loss was principally due to lower sales resulting from the loss of Schlecker, a major customer, due to their liquidation.

Interest expense, net

Interest expense, net for the three months ended September 30, 2012 was $83,000, compared with $70,000 for the same period of 2011, a $13,000 increase. Interest expense, net for the nine months ended September 30, 2012, was $200,000 as compared to $191,000 for the same period in 2011, an $9,000 increase. The increases in interest expense, net for both the three and nine months ended September 30, 2012 were primarily the result of higher average borrowings under the Company's revolving loan agreement.


Other expense (income), net

Net other expense was $7,000 in the three months ended September 30, 2012 compared to $20,000 in the same period of 2011. Net other expense was $93,000 in the first nine months of 2012 compared to net other income of $2,000 in the first nine months of 2011. The changes in other expense (income), net for the three and nine months ended September 30, 2012 were primarily due to gains/losses from foreign currency transactions.

Income taxes

The effective tax rate for the three and nine month periods ended September 30, 2012 was 37% and 32%, respectively compared to 34% and 29%, respectively, in the same periods of 2011. The increase in the effective tax rate for the three and nine months ended September 30, 2012 was due to a higher proportion of earnings in jurisdictions with higher tax rates.

Financial Condition

Liquidity and Capital Resources

During the first nine months of 2012, working capital increased approximately $8.4 million compared to December 31, 2011. Inventory increased by approximately $5.5 million at September 30, 2012 compared to December 31, 2011. The increase in inventory is principally due to increases in Camillus products as well as pencil sharpeners and first aid product in advance of new business. Inventory turnover, calculated using a twelve month average inventory balance, was 2.0 at September 30, 2012 compared to 2.0 at December 31, 2011. Accounts receivable increased by approximately $3.1 million at September 30, 2012 compared to December 31 primarily as a result of the seasonal nature of the back to school business where sales are typically higher in the second and third quarters as compared to the first and fourth quarters. The average number of days sales outstanding in accounts receivable was 62 days at September 30, 2012 compared to 65 days at December 31, 2011. The improvement in the days sales outstanding is primarily due to the loss of sales to Schlecker whose payment terms were longer than the Company's average terms.

The Company's working capital, current ratio and long-term debt to equity ratio follow:

                               September 30, 2012   December 31, 2011

Working capital                        $   46,257          $   37,818
Current ratio                                4.92                5.34
Long term debt to equity ratio              80.1%               63.2%

During the first nine months of 2012, total debt outstanding under the Company's credit facility increased by $6.8 million, compared to total debt at December 31, 2011. The increase in the debt outstanding is primarily related to the purchase of inventory and the acquisition of C-Thru. As of September 30, 2012, $24,321,000 was outstanding and $5,679,000 was available for borrowing under the Company's credit facility.

On April 5, 2012, the Company entered into a new revolving loan agreement with HSBC Bank, N.A. In conjunction with signing the new agreement, the Company ended its agreement with Wells Fargo and used funds borrowed under the new loan agreement to pay all amounts then outstanding under the revolving loan agreement with Wells Fargo Bank. The new five-year credit facility provides for increased borrowings of up to an aggregate of $30 million at an interest rate of LIBOR plus 1.75%, which is 0.25% lower than the interest rate under our former loan agreement. All principal amounts outstanding under the agreement are required to be repaid in a single amount on April 5, 2017, the date the agreement expires; interest is payable monthly. Funds borrowed under the agreement may be used for working capital, general operating expenses, share repurchases, acquisitions and certain other purposes. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt service coverage ratio, and a fixed charge coverage ratio. These financial covenants in the new loan agreement are similar to the covenants in the prior agreement with Wells Fargo. At September 30, 2012, the Company was in compliance with these financial covenants.


As discussed above, Schlecker, once one of Germany's largest drug store chains, filed for bankruptcy and is in the process of liquidating a majority of its business. Sales to Schlecker represented approximately 2% of the Company's total net sales in 2011. The Company has not incurred and does not expect to incur any future material charges related to the write-off of receivables or inventory related to the loss of the Schlecker business.

As discussed in Note 2, at September 30, 2012 the Company had approximately $148,000 remaining in its accrual for post-remediation monitoring and project closing costs, with approximately $30,000 classified as a current liability. The Company intends to use cash flow from operations, borrowings under its revolving credit facility and/or payments made to the Company under the 2008 mortgage to pay for these costs.

The Company believes that cash expected to be generated from operating activities, together with funds available under its new revolving credit facility are expected, under current conditions, to be sufficient to finance the Company's planned operations over the next twelve months.

  Add ACU to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ACU - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.