Acme United(US:ACU)2023-03-09 16:00markdown [Part I](index=3&type=section&id=Part%20I) [Business](index=3&type=section&id=Item%201.%20Business) Acme United is a global supplier of first aid, medical, and cutting products, achieving record $194 million net sales in 2022 [Overview](index=3&type=section&id=Overview) - Acme United is a leading supplier of first aid, medical, and cutting technology products for various markets, with total net sales of **$194 million** in 2022[3](index=3&type=chunk) - The company has achieved **thirteen consecutive years of record annual sales growth**, averaging **10%** per year[3](index=3&type=chunk) - First aid and medical products have grown to represent approximately **55% of total sales**, reducing reliance on school and office products[3](index=3&type=chunk) - In 2022, the company acquired Safety Made, a first aid promotional business, and increased its revolving loan facility from **$50 million to $65 million**[3](index=3&type=chunk) - Cost reduction initiatives implemented in the second half of 2022 are expected to generate over **$5 million in savings** in 2023[3](index=3&type=chunk) [Principal Products](index=3&type=section&id=Principal%20Products) - The company's products are categorized into two main groups: 'first aid and medical' and 'cutting, sharpening and measuring'[4](index=4&type=chunk) - The 'first aid and medical' category includes brands such as First Aid Only®, PhysiciansCare®, Pac-Kit®, Spill Magic®, First Aid Central®, Med-Nap, and Safety Made[4](index=4&type=chunk)[5](index=5&type=chunk) - The 'cutting, sharpening and measuring' category includes brands like Westcott®, Clauss®, Camillus®, Cuda®, and DMT® for various markets including school, home, office, hardware, and sporting goods[4](index=4&type=chunk)[5](index=5&type=chunk)[6](index=6&type=chunk) [Intellectual Property](index=5&type=section&id=Intellectual%20Property) - The company holds numerous patents and trademarks crucial to its business, including Westcott, Clauss, Camillus, PhysiciansCare, First Aid Only, Cuda, DMT, Pac-Kit, Spill Magic, and First Aid Central[9](index=9&type=chunk) - The weighted average amortization period remaining for intangible assets as of December 31, 2022, was **9 years**[9](index=9&type=chunk) [Product Distribution; Major Customers](index=5&type=section&id=Product%20Distribution%3B%20Major%20Customers) - Products are sold through independent manufacturer representatives and direct sales to a variety of channels, including mass market, e-commerce, and industrial distributors[10](index=10&type=chunk) Major Customer Sales Concentration | Year | Customer 1 (% of Net Sales) | Customer 2 (% of Net Sales) | | :--- | :--- | :--- | | 2022 | 15% | 10% | | 2021 | 17% | 11% | [Competition](index=6&type=section&id=Competition) - The company faces competition based on product innovation, quality, price, and design[11](index=11&type=chunk) - Major competitors in the cutting category are 3M and Fiskars Corporation[11](index=11&type=chunk) - Major competitors in the first aid and safety category are Honeywell and Cintas[11](index=11&type=chunk) [Seasonality](index=6&type=section&id=Seasonality) - Sales and profits are typically stronger in the second and third quarters due to the seasonal nature of the Westcott back-to-school market[12](index=12&type=chunk) [Employees and Human Capital Considerations](index=6&type=section&id=Employees%20and%20Human%20Capital%20Considerations) - As of December 31, 2022, the company employed **619 full-time people**, none of whom are covered by union contracts[14](index=14&type=chunk) - The company is committed to a diverse workforce and provides market-competitive pay and benefits, including medical, dental, vision, 401(k), and flexible spending accounts[15](index=15&type=chunk) [Risk Factors](index=6&type=section&id=Item%201A.%20Risk%20Factors) The company faces operational, legal, regulatory, and market risks, including supply chain, IP, and geopolitical factors [Industry and Operational Risks](index=6&type=section&id=Industry%20and%20Operational%20Risks) - The company expects to continue experiencing inflationary pressure on its cost structure, and price increases may not fully offset these costs or could lead to lower sales volumes[20](index=20&type=chunk) - Supply chain issues, including vendor delays and shipping difficulties, can impact timely product delivery and may result in contractual penalties[22](index=22&type=chunk) - The loss of a major customer could significantly decrease sales and earnings, as two customers accounted for approximately **15% and 10%** of consolidated net sales in 2022[28](index=28&type=chunk) - The e-commerce business, which constituted about **17%** of net sales in 2022, faces risks related to demand forecasting and reliance on third-party platforms[31](index=31&type=chunk) - The company has substantial indebtedness, with **$50 million** outstanding under its revolving credit facility and over **$11 million** on a mortgage as of year-end 2022, which could affect financial flexibility[35](index=35&type=chunk) [Legal and Regulatory Risks](index=11&type=section&id=Legal%20and%20Regulatory%20Risks) - The company's success is partly dependent on its ability to obtain and protect patents, trademarks, and other intellectual property rights[38](index=38&type=chunk) - Product liability claims or regulatory actions could lead to monetary judgments, negative publicity, and costly recalls, potentially harming the company's reputation and financial results[39](index=39&type=chunk) - Certain products and facilities are subject to regulation by the FDA and analogous foreign regulators, and failure to comply could lead to facility shutdowns or product recalls[41](index=41&type=chunk) - The company is subject to various environmental laws and regulations, and the costs of compliance or liability for contamination could have a material adverse effect[42](index=42&type=chunk) [Risks Related to Our Overseas Operations](index=12&type=section&id=Risks%20Related%20to%20Our%20Overseas%20Operations) - Global operations expose the company to risks from political, regulatory, and economic conditions in foreign countries, as well as currency exchange rate fluctuations[43](index=43&type=chunk)[44](index=44&type=chunk) - The company relies on foreign suppliers, primarily in China, subjecting it to risks such as regulatory changes, political instability, and the impact of pandemics on the supply chain[45](index=45&type=chunk) - Changes in U.S. trade policies, including the imposition of tariffs on products from China, may negatively impact customer demand and financial results[47](index=47&type=chunk) [Risks Related to Our Common Stock](index=13&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) - There is no assurance that the company will continue to pay dividends or repurchase shares under its stock repurchase program[48](index=48&type=chunk)[49](index=49&type=chunk) - The company's common stock is thinly traded, which can lead to greater price volatility compared to the broader market[49](index=49&type=chunk) [Properties](index=14&type=section&id=Item%202.%20Properties) The company owns 481,460 sq ft and leases 197,600 sq ft for operations across various locations Owned and Leased Properties | Status | Total Square Footage | Primary Use | | :--- | :--- | :--- | | Owned | 481,460 | Warehousing, manufacturing, distribution, administrative | | Leased | 197,600 | Administrative, manufacturing, warehousing, distribution | [Legal Proceedings](index=14&type=section&id=Item%203.%20Legal%20Proceedings) No pending material legal proceedings exist, nor is the company aware of any contemplated by governmental agencies - There are no pending material legal proceedings to which the Company is a party[49](index=49&type=chunk) [Part II](index=15&type=section&id=Part%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=15&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on NYSE American; no repurchases in 2022, 160,365 shares remain available - The Company's Common Stock is traded on the NYSE American under the symbol 'ACU'[50](index=50&type=chunk) - The company did not repurchase any shares of its Common Stock during 2022. As of December 31, 2022, **160,365 shares** may still be purchased under the 2019 repurchase program[51](index=51&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net sales grew 7% to $194.0 million in 2022, but gross margin declined due to high costs, impacting net income [Results of Operations 2022 Compared with 2021](index=17&type=section&id=Results%20of%20Operations%202022%20Compared%20with%202021) Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 | 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $194.0M | $182.1M | +$11.9M | +7% | | Gross Profit | $63.6M | $64.8M | -$1.2M | -1.8% | | Gross Margin | 32.8% | 35.6% | -2.8 pts | N/A | | Operating Income | $6.3M | $12.8M | -$6.5M | -50.9% | | Net Income | $3.0M | $13.7M | -$10.7M | -78.4% | - The decline in gross profit margin was primarily due to exceptionally high ocean container costs and demurrage charges, which had a **1.7% negative impact**[59](index=59&type=chunk) - SG&A expenses increased by **10.1%** to **$57.3 million**, driven by higher personnel costs, commissions, and shipping costs, including fuel surcharges[59](index=59&type=chunk) - Net interest expense more than doubled to **$2.4 million** from **$0.9 million** in 2021, due to higher average interest rates and higher average debt outstanding[60](index=60&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) - Working capital increased by approximately **$8.5 million** in 2022, primarily due to an **$9.7 million (18%)** increase in inventory to offset potential supply chain disruptions[63](index=63&type=chunk) - The company amended its revolving loan agreement, increasing the borrowing availability from **$50 million to $65 million** and extending the expiration to May 2026[63](index=63&type=chunk) - As of December 31, 2022, **$50 million** was outstanding under the revolving credit facility, with **$15 million** available for borrowing[63](index=63&type=chunk) - On June 1, 2022, the company acquired Safety Made for approximately **$11 million**, including **$1.5 million** in contingent payments[63](index=63&type=chunk) [Financial Statements and Supplementary Data](index=20&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) 2022 financial statements show $194.0 million net sales, $3.0 million net income, and increased assets, with unqualified audit opinion [Consolidated Statements of Operations](index=21&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights (Year ended Dec 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Net sales | $193,962,357 | $182,087,559 | | Gross profit | $63,558,785 | $64,800,357 | | Operating income | $6,273,302 | $12,769,987 | | Net income | $3,034,766 | $13,655,679 | | Diluted EPS | $0.82 | $3.45 | [Consolidated Balance Sheets](index=23&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (As of Dec 31) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | $105,600,013 | $95,250,614 | | Total Assets | $164,377,104 | $144,438,684 | | Total Current Liabilities | $22,126,662 | $20,275,112 | | Total Liabilities | $85,346,972 | $67,356,723 | | Total Stockholders' Equity | $79,030,132 | $77,081,961 | [Consolidated Statements of Cash Flows](index=25&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statement of Cash Flows Highlights (Year ended Dec 31) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,891,739 | $5,140,578 | | Net cash used by investing activities | ($14,226,655) | ($6,372,615) | | Net cash provided by financing activities | $14,276,667 | $2,042,646 | | Net increase in cash and cash equivalents | $2,757,060 | $675,973 | [Notes to Consolidated Financial Statements](index=26&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company's operations consist of three reportable geographic segments: United States (including Asia), Canada, and Europe[75](index=75&type=chunk) - The acquisition of Safety Made on June 1, 2022, for approximately **$11 million** resulted in the recording of **$3.4 million** in goodwill and **$5.1 million** in other intangible assets[112](index=112&type=chunk) - The company's revolving loan agreement was amended to increase borrowing capacity to **$65 million** and extend the maturity to **May 2026**. As of year-end, **$50 million** was outstanding[88](index=88&type=chunk) - In 2021, the company recorded **$3.5 million** in income from the forgiveness of its Paycheck Protection Program (PPP) loan[90](index=90&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[128](index=128&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[129](index=129&type=chunk) - The independent registered public accounting firm, Marcum LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[129](index=129&type=chunk) [Part III](index=42&type=section&id=Part%20III) [Directors, Executive Officers and Corporate Governance](index=42&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and governance is incorporated by reference from the 2023 Proxy Statement - Detailed information is incorporated by reference from the Company's 2023 Proxy Statement[131](index=131&type=chunk) [Executive Compensation](index=42&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2023 Proxy Statement - Detailed information is incorporated by reference from the Company's 2023 Proxy Statement[132](index=132&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=42&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2023 Proxy Statement - Detailed information is incorporated by reference from the Company's 2023 Proxy Statement[132](index=132&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=42&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Related transactions and director independence details are incorporated by reference from the 2023 Proxy Statement - Detailed information is incorporated by reference from the Company's 2023 Proxy Statement[132](index=132&type=chunk) [Principal Accounting Fees and Services](index=42&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Principal accounting fees and services information is incorporated by reference from the 2023 Proxy Statement - Detailed information is incorporated by reference from the Company's 2023 Proxy Statement[133](index=133&type=chunk) [Part IV](index=43&type=section&id=Part%20IV) [Exhibits and Financial Statement Schedules](index=43&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K - This section lists all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K[134](index=134&type=chunk)[135](index=135&type=chunk)