Acme United(ACU) - 2019 Q4 - Annual Report

Part I Business Acme United Corporation is a global supplier of safety solutions and cutting technology, achieving sales growth and debt reduction in 2019, with significant customer concentration - The company is a leading supplier of safety solutions and cutting technology with operations in the United States, Canada, Europe, and Asia, with total net sales in 2019 of $142.5 million[4][5] - Key business initiatives and accomplishments include ten consecutive years of sales growth averaging 9%, an innovation rate approaching 30%, and a 25% reduction in debt in 2019[7] - On January 7, 2020, the company acquired First Aid Central for $2.1 million in cash, expanding its first aid and safety product line[8] - The company has significant customer concentration, with one customer accounting for approximately 17% of consolidated net sales in 2019, up from 16% in 2018[20] - The business experiences seasonality, with sales typically stronger in the second and third quarters due to the back-to-school market[22] Principal Products The company's product portfolio is categorized into cutting, sharpening, and measuring tools, and first aid and safety solutions - The company's products fall into two main categories: i) cutting, sharpening and measuring; and ii) first aid and safety[9] - Key brands in the cutting category include Westcott®, Clauss®, Camillus®, Cuda®, and DMT®, serving school, home, office, hardware, industrial, and sporting goods markets[10][12][13] - The First Aid and Safety category includes brands like First Aid Only®, PhysiciansCare®, and Spill Magic®, providing OSHA-compliant first aid systems, OTC medications, and spill cleanup solutions[16][17][18] Risk Factors The company faces significant risks including customer concentration, supply chain disruptions, trade policy impacts, seasonality, and e-commerce challenges - The company is exposed to operational risks such as changes in customer demand, the emergence of new competitors, and industry fluctuations[26] - A significant risk is the reliance on foreign suppliers, primarily in China, which exposes the company to regulatory, political, economic, and currency changes, as well as rising labor costs and potential supply interruptions[33][34] - The COVID-19 outbreak, which began in December 2019, is identified as a potential risk that could negatively impact the company's ability to manufacture, source, or distribute products and reduce demand in 2020 and beyond[39][40] - Changes in U.S. trade policy, specifically tariffs on Chinese goods implemented in September 2018, affect approximately 10% of the company's product purchases, leading to increased costs and potential negative impacts on customer demand[43] - The loss of a major customer is a key risk, as one customer accounted for 17% of consolidated net sales in 2019, and its loss could significantly decrease future sales and earnings[47] - The company's e-commerce business constituted about 12% of net sales in 2019, facing risks related to demand forecasting, changing consumer preferences, and reliance on third-party logistics and platforms[49] Unresolved Staff Comments The company reports no unresolved staff comments - Not applicable[64] Properties The company owns three facilities and leases ten properties globally for operations, deemed adequate for future needs Owned and Leased Properties | Type | Total Square Footage | Primary Purpose | | :--- | :--- | :--- | | Owned | 428,000 | Warehousing, distribution, and administrative | | Leased | 121,300 | Administrative, manufacturing, warehousing, and distribution | | Total | 549,300 | | - Management believes that the company's current facilities are adequate to meet its current and foreseeable future needs[65] Legal Proceedings The company reports no pending material legal proceedings - There are no pending material legal proceedings[66] Mine Safety Disclosures This item is not applicable - Not applicable[66] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American under 'ACU', with a new repurchase program announced in 2019 and shares available for future purchase - The company's Common Stock is traded on the NYSE American under the symbol 'ACU'[67] - A new Common Stock repurchase program for up to 200,000 shares was announced on November 14, 2019, with no shares repurchased in 2019, and 217,999 shares remaining available for repurchase under existing programs as of year-end[67] Selected Financial Data As a smaller reporting company, the company is not required to provide this information - As a smaller reporting company, the company is not required to provide this information[68] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, net sales grew 4% to $142.5 million, operating income increased, debt was reduced, and working capital decreased, with sufficient liquidity Results of Operations 2019 Compared with 2018 In 2019, net sales increased 4% to $142.5 million, driven by U.S. and European growth, while gross margin slightly decreased and operating income rose Financial Performance (2019 vs. 2018) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $142.5M | $137.3M | +4% | | Gross Profit % | 36.5% | 36.9% | -0.4 p.p. | | Operating Income | $8.4M | $7.5M | +13% | | Net Interest Expense | $1.79M | $1.86M | -3.7% | Net Sales Change by Segment (2019 vs. 2018) | Segment | Change (USD) | Change (Local Currency) | Key Driver | | :--- | :--- | :--- | :--- | | U.S. | +4% | N/A | Strong sales of first aid and safety products | | Canada | -5% | -3% | Lower sales in the office products market | | Europe | +8% | +14% | New customers and strong e-commerce demand | Liquidity and Capital Resources In 2019, working capital decreased, total debt was significantly reduced to $33.2 million, and capital expenditures declined, with sufficient liquidity - Working capital decreased by approximately $3.1 million in 2019, with inventory decreasing by $2.1 million[92] - Total debt outstanding under the revolving credit facility decreased by approximately $7.0 million in 2019[95] Revolving Credit Facility Status (as of Dec 31, 2019) | Metric | Amount (in millions) | | :--- | :--- | | Total Borrowing Capacity | $50.0 | | Amount Outstanding | $33.2 | | Amount Available | $16.8 | - Capital expenditures were $1.68 million in 2019, compared to $2.85 million in 2018[97] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide this information - As a smaller reporting company, the company is not required to provide this information[105] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019 and 2018, with an unqualified audit opinion from Marcum LLP Consolidated Statements of Operations Highlights (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net sales | $142,457 | $137,321 | | Gross profit | $52,001 | $50,649 | | Operating income | $8,429 | $7,457 | | Net income | $5,514 | $4,598 | | Diluted EPS | $1.60 | $1.30 | Consolidated Balance Sheets Highlights (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total current assets | $73,146 | $72,992 | | Total assets | $110,749 | $109,478 | | Total current liabilities | $16,583 | $13,365 | | Total liabilities | $55,044 | $57,145 | | Total stockholders' equity | $55,705 | $52,332 | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,702 | $4,475 | | Net cash used by investing activities | ($1,680) | ($3,231) | | Net cash used by financing activities | ($10,606) | ($6,052) | | Net increase (decrease) in cash | $2,413 | ($4,929) | - The independent registered public accounting firm, Marcum LLP, issued an unqualified opinion on the financial statements and the effectiveness of the company's internal control over financial reporting[209][210] Changes In and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting principles, financial disclosure, or auditing scope in 2019 - There have been no disagreements with accountants related to accounting and financial disclosures in 2019[220] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, confirmed by Marcum LLP - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[221] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework (2013), and this was audited by Marcum, LLP[222] Other Information There is no other information for this item - None[223] Part III Directors, Executive Officers and Corporate Governance This section identifies the company's directors and executive officers, outlines the Code of Conduct, and incorporates further governance details by reference Key Executive Officers | Name | Position | | :--- | :--- | | Walter C. Johnsen | Chairman of the Board and Chief Executive Officer | | Brian S. Olschan | President, Chief Operating Officer and Director | | Paul G. Driscoll | Vice President, Chief Financial Officer, Secretary and Treasurer | - The company has adopted a Code of Conduct, which is available on its website[234] - Further information regarding corporate governance matters is incorporated by reference from the company's Proxy Statement for its 2020 Annual Meeting[236] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2020 Proxy Statement - Information with respect to executive compensation is incorporated by reference to the company's Proxy Statement[237] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners, directors, and executive officers is incorporated by reference from the 2020 Proxy Statement - Information regarding security ownership of certain beneficial owners, directors and executive officers is incorporated by reference to the company's Proxy Statement[238] Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the 2020 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference to the company's Proxy Statement[239][240] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference to the company's Proxy Statement[241] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key financial statements and corporate governance documents - This item lists the financial statements filed with the report, including Consolidated Balance Sheets, Statements of Operations, Statements of Changes in Stockholders' Equity, and Statements of Cash Flows[243] - A list of exhibits filed with the report is provided, including corporate governance documents, compensatory plans, loan agreements, and required certifications[244][245] Form 10-K Summary This item is not applicable - Not applicable[249]