# Acme United Corp: Form 10-Q for the period ended Jun 30, 2023

- Company: [Acme United Corp](/companies/acu.md) (CIK 2098)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 16:16 ET
- Period: 2023-06-30
- Accession: 0000950170-23-039835
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/2098/000095017023039835/acu-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/2098/000095017023039835/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $53.3m | us-gaap:Revenues |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $99.2m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $33.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $62.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $20.0m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $36.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $14.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $28.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $5.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $7.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $998.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $3.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $4.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.96 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.25 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.97 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.25 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 3,591,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 3,548,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $10.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $2.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $993.0k | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-06-30 | $3.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $103.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $161.8m | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $25.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $78.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $40.0m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-06-30 | $83.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 13,905 characters.

### Forward-Looking Information

The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “except,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.

Forward-looking statements in this report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may impact the Company’s business, operations and financial results.

These risks and uncertainties include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (iv) the continuing adverse impact of inflation, including product costs, and interest rates; (v) potential adverse effects on the Company, its customers, and suppliers resulting from the war in Ukraine; (vi) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (vii) currency fluctuations including, for example, the fluctuation of the dollar against the euro; (viii) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (ix) changes in client needs and consumer spending habits; (x) the impact of competition; (xi) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (xiii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.

For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year December 31, 2022 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

### Critical Accounting Policies

We discuss our critical accounting policies and estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

### Critical Accounting Estimates

There have been no material changes to the Company’s critical accounting estimates as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

### Results of Operations

Traditionally, the Company’s sales of its cutting, sharpening, and measuring products are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the back-to-school market.

#### Net sales

Consolidated net sales for the three and six months ended June 30, 2023 were $53,336,000 and $99,175,000 compared with $56,773,000 and $100,106,000 in the same periods in 2022, a 6% and 1% decrease, respectively.

Net Sales in the U.S. for the three and six months ended June 30, 2023 decreased 8% and 1%, compared to the same periods in 2022. The decrease in net sales for the three and six months, compared to the same period in 2022, is primarily due to lower sales of school and office products which were negatively impacted by customer reductions of their inventory. Customers acquired additional safety stock in the second quarter of 2022 to mitigate supply chain disruption concerns. These lower sales were partially offset by higher sales of first aid and medical products.

Net sales in Canada for the three and six months ended June 30, 2023 increased 13% (21% in local currency) and 2% (8% in local currency), compared to the same periods last year. The increases in net sales for the three and six months ended June 30, 2023 were mainly due to higher sales of first aid products.

European net sales for the three months ended June 30, 2023 decreased 6% (7% in local currency) compared to the same period in 2022. Net sales for the six months ended June 30, 2023 decreased 6% (5 in local currency) compared to the same period in 2022. The decline in net sales for the three and six month periods were mainly due to the economic recession in Europe.

#### Gross profit

Gross profit for the three months ended June 30, 2023 was $20,022,000 (37.5% of net sales) compared to $18,548,000 (32.7% of net sales) in the same period in 2022. Gross profit for the six months ended June 30, 2023 was $36,303,000 (36.6% of net sales) compared to $33,516,000 (32.7% of net sales) in the same period in 2022. The increases in gross profit for the three and six months were primarily due to cost saving initiatives and productivity improvements at our manufacturing and distribution facilities as well as lower ocean container costs and demurrage charges.

#### Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2023 were $14,772,000 (27.7% of net sales) compared with $14,572,000 (25.7% of net sales) in the same period in 2022, an increase of $200,000. SG&A expenses for the six months ended June 30, 2023 were $28,865,000 (29.1% of net sales) compared with $28,169,000 (28.1% of net sales) in the same period in 2022, an increase of $696,000. The increase in SG&A expenses for the six months ended June 30, 2023 is primarily related to higher personnel related expenses.

#### Operating income

Operating income for the three months ended June 30, 2023 was $5,250,000 compared with $3,976,000 in the same period of 2022. Operating income for the six months ended June 30, 2023 was $7,438,000 compared with $5,347,000 in the same period of 2022.

Operating income in the U.S. segment increased by $797,000 for the three months ended June 30, 2023, compared to the same period in 2022. Operating income in the U.S. segment increased by $1,744,000 for the six months ended June 30, 2023 compared to the same period in 2022. The increase in operating income for the three and six months ended June 30, 2023 was primarily due to productivity improvements at our manufacturing and distribution facilities, cost savings initiatives which included lowering SG&A expenses as well as lower ocean container costs and demurrage charges.

Operating income in the Canadian segment increased by $268,000 and $130,000 for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. The increases in operating income are primarily due to higher sales.

Operating income in the European segment increased by $209,000 and $217,000 for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. The increases in operating income for the three and six months ended June 30, 2023 were primarily due to higher gross margins as a result of lower ocean container costs.

#### Interest expense, net

Interest expense, net for the three months ended June 30, 2023 was $832,000 compared with $423,000 in the same period of 2022, a $409,000 increase. Interest expense, net for the six months ended June 30, 2023 was $1,734,000 compared with $729,000, in the same period of 2022, a $1,005,000 increase. The increases in interest expense for the three and six months ended June 30, 2023 resulted from a higher average interest rate on the outstanding debt under the Company’s revolving loan agreement.

#### Other (income) expense, net

Other income, net was $23,000 in the three months ended June 30, 2023 compared to other expense, net of $148,000 in the same period of 2022. Other income, net in the six months ended June 30, 2023 was $46,000 compared to other expense, net of $147,000 in the same period of 2022.

#### Income taxes

The effective income tax rate for the three and six months ended June 30, 2023 was 23% compared to 20% in the same periods of 2022. The higher effective income tax rate for the three and six month ended June 30, 2023 is primarily due to higher earnings in jurisdictions with higher tax rates.

Financial Condition

Liquidity and Capital Resources

During the first six months of 2023, working capital decreased approximately $5.3 million. Inventory decreased approximately $7.4 million during this six-month period. The decline in inventory is due to planned reductions as the risk of supply chain disruptions has diminished. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.0 at June 30, 2023 and December 31, 2022. Receivables increased approximately $7.2 million at June 30, 2023 compared to December 31, 2022. The average number of days sales outstanding in accounts receivable was 59 days at June 30, 2023 compared to 62 days at December 31, 2022. Accounts payable and other current liabilities increased by approximately $3.2 million at June 30, 2023 compared to December 31, 2022.

The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Working capital | $78,200 | $83,473 |
| Current ratio | 4.09 | 4.77 |
| Long term debt to equity ratio | 60.3% | 76.7% |

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $65 million, at an interest rate of SOFR plus 1.75%; interest is payable monthly. The loan agreement has an expiration date of May 31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisitions, and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year.

On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The amendment was in effect for four quarters commencing in the third quarter of 2022 and ending with the three months ended June 30, 2023. The amendment included an increase in the funded debt to EBITDA ratio for those four quarters ranging from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also increased the interest rate from SOFR +1.75% up to a high of SOFR + 2.35% on a basis that varies on a quarterly basis with the funded debt to EBITDA ratio. As of June 30, 2023, the Company was in compliance with the covenants under the revolving loan agreement, as amended.

During the first six months of 2023, total debt outstanding under the Company’s revolving credit facility decreased by approximately $10 million, compared to total debt thereunder at December 31, 2022. As of June 30, 2023, $39,979,000 was outstanding and $25,021,000 was available for borrowing under the Company’s credit facility.

The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At June 30, 2023, there was approximately $10.9 million outstanding on the mortgage.

In response to the supply chain challenges encountered by the Company, the Company has implemented a series of cost reduction initiatives that are expected to generate over $5.0 million in savings in 2023. These initiatives have included a wide range of productivity improvements in our manufacturing and distribution facilities as well as a reduction of SG&A expenses.

The Company believes that cash generated from operating activities, together with funds available under its revolving loan agreement, will, under current conditions, be sufficient to finance the Company’s operations over the next twelve months from the filing of this report.

## Controls and procedures

As filed, 833 characters.

(a) Evaluation of Internal Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2023, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 134 characters.

See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-039835. Last ingested by Listed: Nov 2, 2026, 19:43 ET. No prices; not investment advice.