Item
1: Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(unaudited)
|
|
(Note 1)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,021
|
|
|
$
|
9,338
|
|
Accounts receivable, less allowance
|
|
|
30,869
|
|
|
|
26,012
|
|
Inventories, net
|
|
|
41,274
|
|
|
|
40,087
|
|
Prepaid expenses and other current assets
|
|
|
2,270
|
|
|
|
2,381
|
|
Total current assets
|
|
|
78,434
|
|
|
|
77,818
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,424
|
|
|
|
1,429
|
|
Buildings
|
|
|
10,097
|
|
|
|
9,561
|
|
Machinery and equipment
|
|
|
17,846
|
|
|
|
16,243
|
|
|
|
|
29,367
|
|
|
|
27,233
|
|
Less: accumulated depreciation
|
|
|
14,879
|
|
|
|
13,505
|
|
|
|
|
14,488
|
|
|
|
13,728
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,696
|
|
|
|
4,696
|
|
Intangible assets, less accumulated amortization
|
|
|
16,959
|
|
|
|
17,882
|
|
Other assets
|
|
|
606
|
|
|
|
606
|
|
Total assets
|
|
$
|
115,183
|
|
|
$
|
114,730
|
|
See Notes to Condensed Consolidated Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except share amounts)
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
(unaudited)
|
|
(Note 1)
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,654
|
|
|
$
|
11,151
|
|
Other accrued liabilities
|
|
|
4,684
|
|
|
|
5,633
|
|
Total current liabilities
|
|
|
11,338
|
|
|
|
16,784
|
|
Long-term debt
|
|
|
47,028
|
|
|
|
43,450
|
|
Mortgage payable, net of current portion
|
|
|
3,511
|
|
|
|
3,711
|
|
Other non-current liabilities
|
|
|
815
|
|
|
|
847
|
|
Total liabilities
|
|
|
62,692
|
|
|
|
64,792
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50:
|
|
|
|
|
|
|
|
|
authorized 8,000,000 shares;
|
|
|
|
|
|
|
|
|
issued and outstanding- 4,838,071 shares in 2018 and 2017,
|
|
|
|
|
|
|
|
|
including treasury stock
|
|
|
12,094
|
|
|
|
12,094
|
|
Additional paid-in capital
|
|
|
8,768
|
|
|
|
8,881
|
|
Retained earnings
|
|
|
47,360
|
|
|
|
44,467
|
|
Treasury stock, at cost - 1,464,010 shares in 2018 and 2017
|
|
|
(13,870
|
)
|
|
|
(13,870
|
)
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Minimum pension liability
|
|
|
(577
|
)
|
|
|
(577
|
)
|
Translation adjustment
|
|
|
(1,284
|
)
|
|
|
(1,057
|
)
|
|
|
|
(1,861
|
)
|
|
|
(1,634
|
)
|
Total stockholders’ equity
|
|
|
52,491
|
|
|
|
49,938
|
|
Total liabilities and stockholders’ equity
|
|
$
|
115,183
|
|
|
$
|
114,730
|
|
See Notes to Condensed Consolidated Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net sales
|
|
$
|
34,731
|
|
|
$
|
33,785
|
|
|
$
|
106,191
|
|
|
$
|
100,380
|
|
Cost of goods sold
|
|
|
22,281
|
|
|
|
21,559
|
|
|
|
66,905
|
|
|
|
63,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,450
|
|
|
|
12,226
|
|
|
|
39,286
|
|
|
|
37,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
11,077
|
|
|
|
10,256
|
|
|
|
32,923
|
|
|
|
30,178
|
|
Operating income
|
|
|
1,373
|
|
|
|
1,970
|
|
|
|
6,363
|
|
|
|
7,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
496
|
|
|
|
365
|
|
|
|
1,346
|
|
|
|
949
|
|
Other expense, net
|
|
|
23
|
|
|
|
37
|
|
|
|
84
|
|
|
|
21
|
|
Total other expense, net
|
|
|
519
|
|
|
|
402
|
|
|
|
1,430
|
|
|
|
970
|
|
Income before income tax expense
|
|
|
854
|
|
|
|
1,568
|
|
|
|
4,933
|
|
|
|
6,125
|
|
Income tax expense
|
|
|
47
|
|
|
|
366
|
|
|
|
926
|
|
|
|
1,418
|
|
Net income
|
|
$
|
807
|
|
|
$
|
1,202
|
|
|
$
|
4,007
|
|
|
$
|
4,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.36
|
|
|
$
|
1.19
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.23
|
|
|
$
|
0.32
|
|
|
$
|
1.12
|
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
denominator used for basic per share computations
|
|
|
3,374
|
|
|
|
3,373
|
|
|
|
3,374
|
|
|
|
3,351
|
|
Weighted average number of dilutive stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
177
|
|
|
|
421
|
|
|
|
200
|
|
|
|
414
|
|
Denominator used for diluted per share computations
|
|
|
3,551
|
|
|
|
3,794
|
|
|
|
3,574
|
|
|
|
3,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.33
|
|
|
$
|
0.32
|
|
See Notes to Condensed Consolidated Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
807
|
|
|
$
|
1,202
|
|
|
$
|
4,007
|
|
|
$
|
4,707
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
8
|
|
|
|
234
|
|
|
|
(227
|
)
|
|
|
528
|
|
Comprehensive income
|
|
$
|
815
|
|
|
$
|
1,436
|
|
|
$
|
3,780
|
|
|
$
|
5,235
|
|
See Notes to Condensed Consolidated Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2018
|
|
2017
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,007
|
|
|
$
|
4,707
|
|
Adjustments to reconcile net income
|
|
|
|
|
|
|
|
|
to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,480
|
|
|
|
1,253
|
|
Amortization
|
|
|
923
|
|
|
|
874
|
|
Stock compensation expense
|
|
|
641
|
|
|
|
552
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,903
|
)
|
|
|
(10,866
|
)
|
Inventories
|
|
|
(1,357
|
)
|
|
|
1,382
|
|
Prepaid expenses and other assets
|
|
|
(1
|
)
|
|
|
(147
|
)
|
Accounts payable
|
|
|
(4,404
|
)
|
|
|
1,079
|
|
Other accrued liabilities
|
|
|
(882
|
)
|
|
|
(30
|
)
|
Total adjustments
|
|
|
(8,503
|
)
|
|
|
(5,903
|
)
|
Net cash used in operating activities
|
|
|
(4,496
|
)
|
|
|
(1,196
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(2,252
|
)
|
|
|
(2,401
|
)
|
Purchase of patents and trademarks
|
|
|
—
|
|
|
|
—
|
|
Acquisition of business
|
|
|
—
|
|
|
|
(7,233
|
)
|
Net cash used in investing activities
|
|
|
(2,252
|
)
|
|
|
(9,634
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net borrowings of long-term debt
|
|
|
3,578
|
|
|
|
13,033
|
|
Cash settlement of stock options
|
|
|
(754
|
)
|
|
|
(760
|
)
|
Proceeds from issuance of common stock
|
|
|
—
|
|
|
|
649
|
|
Distributions to stockholders
|
|
|
(1,114
|
)
|
|
|
(1,037
|
)
|
Repayment on mortgage payable
|
|
|
(200
|
)
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
1,510
|
|
|
|
11,885
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(79
|
)
|
|
|
55
|
|
Net decrease in cash and cash equivalents
|
|
|
(5,317
|
)
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
9,338
|
|
|
|
5,911
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,021
|
|
|
$
|
7,021
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
502
|
|
|
$
|
728
|
|
Cash paid for interest
|
|
$
|
1,316
|
|
|
$
|
908
|
|
See Notes to Condensed Consolidated Financial Statements
ACME
UNITED CORPORATION
Notes
to CONDENSED CONSOLIDATED Financial Statements
(UNAUDITED)
1. Basis of Presentation
In the opinion of management, the 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, 2017 for such disclosures. The condensed consolidated balance
sheet as of December 31, 2017 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 2017 Annual Report on
Form 10-K.
The Company has evaluated events and transactions
subsequent to September 30, 2018 and through the date these condensed consolidated financial statements were included in this Form 10-Q
and filed with the SEC.
Recently Issued and Adopted Accounting Standards
In August 2015, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-14, which defers the effective
date of ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, by one year. ASU 2015-14 is a comprehensive
new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer
at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The Company has adopted
the new guidance as of January 1, 2018 using the modified retrospective method. The adoption of the new guidance did not have a
material effect on the condensed consolidated financial position, results of operations or cash flows of the Company beyond the
increase in the level of disclosures. Refer to Note 4 – Revenue from Contracts with Customers.
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.
The
new standard requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the
adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening
balance of retained earnings on the adoption date with prior periods not recast. The Company will adopt this standard on
January 1, 2019 using the prospective adoption approach.
The Company is currently evaluating
the new guidance to determine the impact it will have on its consolidated financial statements and related disclosures. At this
time, the Company does not expect the adoption of ASU 2016-02 to have a material impact on its Consolidated Statements of
Income. The Company is in the process of analyzing existing leases, practical expedients, and deploying its implementation strategy.
As a result of the adoption of this standard, management anticipates that a right-of-use asset and a related lease liability
will be established in our consolidated balance sheet to reflect the present value of the future lease payments.
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. The Company adopted ASU 2017-01 effective January 1, 2018. The adoption of the new accounting standard
did not have a material impact on the Company’s condensed consolidated financial condition, results of operations or cash
flows.
In February 2018, the FASB issued ASU
No. 2018-02
Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income.
ASU No. 2018-02 provides companies with an option to reclassify stranded tax effects
within accumulated other comprehensive income (“AOCI”) to retained earnings in each period in which the effect of
the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. ASU No.
2018-02 also requires disclosure of a description of the accounting policy for releasing income tax effects from AOCI and whether
an election was made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act. ASU No. 2018-02 is effective
for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Companies can adopt the provisions
of ASU No. 2018-02 in either the period of adoption or retrospectively to each period (or periods) in which the effect of the
change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is in the process
of assessing the impact of the new accounting rules on the Company’s financial condition and management presently does not
expect the adoption of ASU 2018-02 to have a material impact on the Company’s results of operations or cash flows.
In June 2018, the FASB issued ASU 2018-07
Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
. ASU 2018-07 aligns the accounting
for share-based payment awards issued to employees and non-employees. ASU 2018-07 is effective for fiscal years beginning
after December 15, 2018, including interim periods within that reporting period.
In August 2018, the FASB issued ASU No. 2018-14,
Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the
Disclosures Requirements for Defined Benefit Plans Income Statement - Reporting Comprehensive Income (Topic 220)
. This ASU
removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds
disclosure requirements identified as relevant. The Company does not expect the adoption of ASU 2018-14 to have a material impact
on its consolidated financial statements. ASU 2018-14 is effective for fiscal years ending after December 15, 2020.
2. Contingencies
There are no pending material legal proceedings
to which the Company is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
3. Pension
In December 1995, the Company’s
Board of Directors approved an amendment to the Company’s United States pension plan that terminated all future benefit accruals
as of February 1, 1996, without terminating the pension plan.
In accordance with the adoption of ASU 2017-07,
Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost
, the Company has retrospectively revised the presentation of the non-service components of periodic
pension cost of $21,000 and $65,000 to “Other expense, net” in the condensed consolidated statements of operations
for the three and nine months ended September 30, 2017, while service cost remains in “Selling, general and administrative
expenses.”
Components of net periodic benefit cost
are as follows (in thousands):
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
25
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
10
|
|
|
$
|
8
|
|
|
$
|
30
|
|
|
$
|
36
|
|
Expected return on plan assets
|
|
|
(17
|
)
|
|
|
(12
|
)
|
|
|
(51
|
)
|
|
|
(52
|
)
|
Amortization of prior service costs
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization of actuarial loss
|
|
|
21
|
|
|
|
29
|
|
|
|
65
|
|
|
|
81
|
|
Total non-service cost
|
|
$
|
14
|
|
|
$
|
21
|
|
|
$
|
44
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
21
|
|
|
$
|
30
|
|
|
$
|
69
|
|
|
$
|
92
|
|
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 with respect
to each year. As of September, 30, 2018, the Company had contributed $25,000 to the plan with respect to the year ending December
31, 2018; the amount contributed satisfied the Company’s funding obligations for that year.
4. Revenue from Contracts with Customers
On January 1, 2018, the Company
adopted ASC 606,
Revenue from Contracts with Customers
, using the modified retrospective method. The new revenue standard
requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those goods or services. The adoption of this standard
did not impact the timing of revenue recognition for customer sales in the three and nine months ended September 30, 2018.
Nature of Goods and Services
The Company recognizes revenue from the sales
of a broad line of products that are grouped into two main categories: (i) cutting and sharpening; and (ii) first aid and safety.
The cutting and sharpening category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The
first aid and safety category includes first aid kits and refills, over-the-counter medications and a variety of safety 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 customers. Sales contracts (purchase orders) generally
have a single performance obligation that is satisfied at a point in time, with shipment or delivery, depending on the terms of
the 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 catalog 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. Typically between 30 and 90 days, but they vary dependent 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 receivables” in the condensed
consolidated balance sheets.
Practical Expedient Usage and Accounting Policy Elections
The Company has determined to utilize the modified
retrospective approach which requires cumulative effect adjustment to the opening balance of retained earnings in the current year.
This opening adjustment is determined based on the impact of the new revenue standard’s application on contracts that were
not completed as of January 1, 2018, the date of initial application of the standard. This election did not have an impact on the
Company’s condensed consolidated financial statements.
For the Company’s contracts that have
an original duration of one year or less, the Company uses the practical expedient in ASC 606-10-32-18 applicable to such contracts
and accordingly, 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 Company’s condensed consolidated financial statements.
Per ASC 606-10-25-18B, the Company has elected
to account for shipping and handling activities that occur after the customer has obtained control as a fulfillment activity instead
of a performance obligation. Furthermore, shipping and handling activities performed before transfer of control of the product
also do not constitute a separate and distinct performance obligation.
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 from a customer.
Applying the practical expedient in ASC 340-40-25-4,
the Company recognizes the incremental costs of obtaining contracts as an expense when incurred. These costs are included in “Selling,
general and 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:
For the three months ended September 30, 2018
|
|
|
|
|
|
|
|
|
(amounts in 000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
Canada
|
|
|
|
Europe
|
|
|
|
Total
|
|
Cutting,
Sharpening and Other
|
|
$
|
16,376
|
|
|
$
|
1,691
|
|
|
$
|
2,127
|
|
|
$
|
20,194
|
|
First
Aid and Safety
|
|
|
14,537
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Sales
|
|
$
|
30,913
|
|
|
$
|
1,691
|
|
|
$
|
2,127
|
|
|
$
|
34,731
|
|
For the nine months ended September 30, 2018
|
|
|
|
|
|
|
|
|
(amounts in 000's)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
|
Canada
|
|
|
|
Europe
|
|
|
|
Total
|
|
Cutting,
Sharpening and Other
|
|
$
|
48,680
|
|
|
$
|
5,715
|
|
|
$
|
7,008
|
|
|
$
|
61,403
|
|
First
Aid and Safety
|
|
|
44,788
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Sales
|
|
$
|
93,468
|
|
|
$
|
5,715
|
|
|
$
|
7,008
|
|
|
$
|
106,191
|
|
5. Debt and Shareholders’ Equity
On May 24, 2018, the Company amended its revolving
loan agreement with HSBC Bank, N.A. The amendment lowered the interest rate to LIBOR plus 1.75%; interest is payable monthly. In
addition, the expiration date of the credit facility was extended to May 24, 2023. The prior interest rate was LIBOR plus 2%. The
amount available for borrowing remains unchanged at $50 million. 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. 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 tangible net worth, a specified debt
to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end
of each fiscal year. At September 30, 2018, the Company was in compliance with the covenants then in effect under the loan agreement.
As of September 30, 2018 and December 31, 2017,
the Company had outstanding borrowings of $47,028,000 and $43,450,000, respectively, under the Company’s revolving loan agreement
with HSBC.
On October 26, 2017, the Company exercised
its option to purchase its First Aid Only manufacturing and distribution center in Vancouver, WA for $4.0 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 with HSBC Bank, N.A. at an interest rate of LIBOR plus 2.5%. Commencing on December 1, 2017, principal payments of
$22,222 and interest are due monthly, with all amounts outstanding due on maturity on October 31, 2024.
During the three and nine months ended September
30, 2018, the Company paid approximately $511,200 and $753,635, respectively, to optionees who had elected a net cash settlement
of their respective options, which elections were subject to the approval of the Company.
6. 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 cutting devices, 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, Tennessee and 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 12% and
11% of the Company’s total net sales for the three and nine months ended September 30, 2018 compared to 10% and 12% for the
comparable periods in 2017.
The chief operating decision maker evaluates
the performance of each operating segment based on segment revenues and operating income. Segment amounts are presented after converting
to U.S. dollars and consolidating eliminations.
The following table sets forth certain financial
data by segment for the three and nine months ended September 30, 2018 and 2017:
Financial
data by segment:
(in thousands)
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
Sales to external customers:
|
|
2018
|
|
2017
|
|
|
2018
|
|
|
2017
|
United States
|
|
$
|
30,913
|
|
|
$
|
30,038
|
|
|
$
|
93,468
|
|
|
$
|
88,653
|
|
Canada
|
|
|
1,691
|
|
|
|
1,661
|
|
|
|
5,715
|
|
|
|
5,556
|
|
Europe
|
|
|
2,127
|
|
|
|
2,086
|
|
|
|
7,008
|
|
|
|
6,171
|
|
Consolidated
|
|
$
|
34,731
|
|
|
$
|
33,785
|
|
|
$
|
106,191
|
|
|
$
|
100,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,182
|
|
|
$
|
1,730
|
|
|
$
|
5,209
|
|
|
$
|
6,149
|
|
Canada
|
|
|
193
|
|
|
|
209
|
|
|
|
876
|
|
|
|
744
|
|
Europe
|
|
|
(2
|
)
|
|
|
31
|
|
|
|
278
|
|
|
|
202
|
|
Consolidated
|
|
|
1,373
|
|
|
|
1,970
|
|
|
|
6,363
|
|
|
|
7,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
496
|
|
|
|
365
|
|
|
|
1,346
|
|
|
|
949
|
|
Other expense, net
|
|
|
23
|
|
|
|
37
|
|
|
|
84
|
|
|
|
21
|
|
Consolidated income before income taxes
|
|
$
|
854
|
|
|
$
|
1,568
|
|
|
$
|
4,933
|
|
|
$
|
6,125
|
|
Assets by segment:
|
|
|
|
|
( in thousands )
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2018
|
|
2017
|
United States
|
|
$
|
105,071
|
|
|
$
|
104,431
|
|
Canada
|
|
|
4,367
|
|
|
|
4,926
|
|
Europe
|
|
|
5,745
|
|
|
|
5,373
|
|
Consolidated
|
|
$
|
115,183
|
|
|
$
|
114,730
|
|
7. 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.
Share-based compensation expenses were $334,238 and $315,000 for the three months ended September 30, 2018 and 2017, respectively.
Share-based compensation expenses were $641,418 and $551,717 for the nine months ended September 30, 2018 and 2017, respectively.
As of September 30, 2018, there was a total
of $2,337,200 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based payments
granted to the Company’s employees. As of that date, the remaining unamortized expense is expected to be recognized over
a weighted average period of approximately three years.
8. Fair Value Measurements
The carrying value of the Company’s bank
debt approximates fair value. Fair value was determined using a discounted cash flow analysis.
9. 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. Customers, including many large retail
chains, use the Spill Magic products to remove liquids from broken glass containers, oil and gas spills, bodily fluids and solvents.
The purchase price was allocated to assets
acquired as follows (in thousands):
Assets:
|
|
|
|
|
Accounts
receivable
|
|
$
|
684
|
|
Inventory
|
|
|
453
|
|
Equipment
|
|
|
296
|
|
Intangible
assets
|
|
|
5,066
|
|
Goodwill
|
|
|
748
|
|
Total
assets
|
|
$
|
7,247
|
|
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.
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.
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 including, 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) changes in client needs and consumer spending habits; (iv) the impact of
competition and technological changes on the Company; (v) the Company’s ability to manage its growth effectively, including
its ability to successfully integrate any business it might acquire; (vi) currency fluctuations; (vii) increases in the cost of
borrowings resulting from rising interest rates; (viii) uncertainties arising from the interpretation and application of the U.S.
Tax Cuts and Jobs Act enacted in December 2017; (ix) 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 (x) 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 us, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 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’s 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, 2017.
Revenue Recognition
The Company recognizes revenues from the sale
of products at a point in time, shipment or delivery, based on the terms of the underlying contract with the customer. Customer
program costs, including rebates, cooperative advertising, slotting fees and other sales related discounts are recorded as a reduction
to sales. Returns are also recognized as a reduction in sales and are immaterial in relation to total sales.
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU
2014-09”), which amended the existing accounting standards for revenue recognition. ASU 2014-09 established principles for
recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration
received in exchange for those goods or services. The Company adopted ASU 2014-09 in the first quarter of 2018 using the modified
retrospective approach. Because the Company’s primary source of revenues is from the sale of products which are recognized
at a point in time, the impact on its condensed consolidated financial statements was not material.
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. Customers, including many large retail chains,
use the Spill Magic 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 Note 9 – Business Combinations, in
the Notes to Condensed Consolidated Financial Statements in this report.
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.
Net Sales
Consolidated net sales for the three months
ended September 30, 2018 were $34,731,000 compared with $33,785,000 in the same period in 2017, a 3% increase. Consolidated net
sales for the nine months ended September 30, 2018 were $106,191,000, compared with $100,380,000 for the same period in 2017, a
6% increase.
Net sales for the three months ended September
30, 2018 in the U.S. segment increased 3%, compared with the same periods in 2017. Sales of first aid and safety products increased
7% while sales of Westcott school and office products declined 6%, despite a strong back-to-school. Office product sales were negatively
impacted by overstock of office scissors at a large on-line retailer and store closings. Net sales for the nine months ended September
30, 2018 increased 5% compared to the same period in 2017. The increase was primarily due to market share gains of first aid and
safety products.
Net sales in Canada for the three months ended
September 30, 2018 increased 2% in U.S. dollars (6% in local currency), compared with the same period in 2017. Net sales in Canada
for the nine months ended September 30, 2018 increased 3% in U.S. dollars (2% in local currency) compared with the same period
in 2017. The increases in sales for the three and nine months ended September 30, 2018 were primarily due to higher sales of Camillus
knives.
Net sales in Europe for the three months ended
September 30, 2018 increased 2% in U.S. dollars (3% in local currency), compared with the same period in 2017. Net sales for the
nine months ended September 30, 2018 increased 13% in U.S. dollars (6% in local currency). The increases in net sales for the three
and nine months ended September 30, 2018 were primarily due to new customers in the office products channel, higher sales of DMT
sharpening products, and strong e-commerce demand for these products.
Gross Profit
Gross profit for the three months ended September
30, 2018 was $12,450,000 (35.8% of net sales) compared to $12,226,000 (36.2% of net sales) for the same period in 2017. Gross profit
for the nine months ended September 30, 2018 was $39,286,000 (37.0% of net sales) compared to $37,273,000 (37.1% of net sales)
in the same period in 2017. The increases in gross profit for the three and nine months ended September 30, 2018 were primarily
due to higher net sales.
Selling, General and Administrative
Expenses
Selling, general and administrative ("SG&A")
expenses for the three months ended September 30, 2018 were $11,077,000 (31.9% of net sales) compared with $10,256,000 (30.4% of
net sales) for the same period of 2017, an increase of $821,000. SG&A expenses for the nine months ended September 30, 2018
were $32,923,000 (31.0% of net sales) compared with $30,178,000 (30.1% of net sales) in the comparable period of 2017, an increase
of $2,745,000. The increases in SG&A expenses for the three and nine months ended September 30, 2018, compared to the same
periods in 2017, were primarily due to costs relating to the addition of sales and marketing personnel, which include compensation
and recruiting costs, and higher freight and commission expense due to higher sales.
Operating Income
Operating income for the three months ended
September 30, 2018 was $1,373,000 compared with $1,970,000 in the same period of 2017. Operating income for the nine months ended
September 30, 2018 was $6,363,000 compared with $7,095,000 in the same period of 2017. The decreases in operating income were primarily
from additions of sales and marketing personnel to support growth initiatives as well as higher interest rates on our variable
rate credit facility. In the third quarter of 2018, the Company began to take actions to reduce expenses. These reductions are
meant to bring operating expenses in-line with anticipated sales growth and are expected to result in annual savings of approximately
$1.5 million. The reductions include approximately $700,000 annually in personnel expenses, $400,000 in print advertising costs
and $400,000 in productivity initiatives.
Operating income in the U.S.
segment decreased by approximately $0.5 million and $0.9 million for the three and nine months ended September 30, 2018, respectively,
compared to the same periods in 2017. The decreases in operating income for the three and nine months ended September 30, 2018
are primarily due to higher selling, general and administrative expenses.
Operating income in the
Canadian segment decreased by approximately $16,000 for the three months ended September 30, 2018 and increased approximately
$132,000 for the nine months ended September 30, 2018, compared to the same periods in 2017. The increase in operating income
for the nine months ended September 30, 2018 is primarily due to higher sales.
Operating income in the European
segment decreased by approximately $33,000 for the three months ended September 30, 2018 and increased approximately $76,000 for
the nine months ended September 30, 2018 compared to the same periods in 2017. The increase in operating income in the European
segment for the three and nine months ended September 30, 2018 was principally due to higher sales.
Interest Expense, net
Interest expense, net for the three months
ended September 30, 2018 was $496,000, compared with $365,000 for the same period of 2017, a $131,000 increase. Interest expense,
net for the nine months ended September 30, 2018 was $1,346,000, compared with $949,000 for the same period of 2017, a $397,000
increase. The increases in interest expense resulted from higher average interest rates for borrowings under the Company’s
bank revolving credit facility for the three and nine months ended September 30, 2018, as well as interest expense associated with
the mortgage on the Vancouver, WA building, which we acquired in October 2017. Refer to Note 5 – Debt and Shareholders’
Equity.
Other Expense, net
Other expense, net was $23,000 in the three
months ended September 30, 2018 compared to $37,000 in the same period of 2017, a decrease in other expense of $14,000. The decrease
in other expense, net for the three months ended September 30, 2018 was primarily due to lower losses from foreign currency transactions.
Other expense, net was $84,000 in the nine months ended September 30, 2018 compared to $21,000 in the same period of 2017, an increase
in other expense, net of $63,000. The changes in other expense, net for the nine months ended September 30, 2018 were primarily
due to higher losses from foreign currency transactions.
Income Taxes
The Company’s effective tax rates
for the three and nine-month periods ended September 30, 2018 were 5% and 19%, respectively, compared to 23% during the same periods
in 2017. In the three and nine months ended September 30, 2018, the Company recorded approximately $115,000 in excess tax benefits
resulting from the exercise of stock options. In the nine months ended September 30, 2017, the Company recorded approximately $350,000
in excess tax benefits. Excluding the impact of the tax benefit in both years, the effective tax rate would have been 19% and 21%
for the three and nine months ended September 30, 2018 compared to 23% and 29% in the same periods of 2017. The lower effective
tax rates were primarily the result of the Tax Cuts and Jobs Act which reduced the corporate tax rate from 35% to 21%.
Financial Condition
Liquidity and Capital Resources
During the first nine months of 2018,
working capital increased approximately $6.1 million compared to December 31, 2017. Inventory increased by approximately $1.2 million
at September 30, 2018 compared to December 31, 2017 primarily due to the seasonal nature of the Company’s back to school
business and anticipation of new business. Inventory turnover calculated using a twelve-month average inventory balance, was 2.1
and 2.2 at September 30, 2018 and December 31, 2017, respectively. Receivables increased by approximately $4.9 million at September
30, 2018 compared to December 31, 2017. The average number of days sales outstanding in accounts receivable was 62 days at September
30, 2018, compared with 65 days at December 31, 2017. 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. Accounts payable and other current liabilities decreased by approximately $5.4 million.
The Company's working capital,
current ratio and long-term debt to equity ratio are as follows:
|
|
September
30, 2018
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
67,096
|
|
|
$
|
61,034
|
|
Current ratio
|
|
|
6.92
|
|
|
|
4.64
|
|
Long term debt to equity ratio
|
|
|
96.3
|
%
|
|
|
94.4
|
%
|
During
the first nine months of 2018, total debt outstanding under the Company’s revolving credit facility increased by approximately
$3.6 million, compared to total debt thereunder at December 31, 2017. As of September 30, 2018, $47,028,000 was outstanding and
$2,972,000 was available for borrowing under the Company’s credit facility. The increase in the debt outstanding was primarily
to fund the increase in working capital. Increases in accounts receivable, inventory 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 back-to-school
market.
On September 24, 2018, the United States levied a third round of
tariffs on the import of some products from China, which is an important source of many of the Company’s products. The first
two rounds targeted $50 billion of Chinese goods and applied a 25% tariff; these rounds had no impact on the Company.
The third round targeted an additional $200 billion of Chinese goods and applied a 10% tariff that is scheduled to increase
to 25% at the start of 2019. This latest round affects approximately 10% of the Company’s product purchases and will increase
our costs of procurement. These tariffs affect certain measuring products, folding knives and first aid components. In response
to these tariffs, the Company has implemented a price increase on the affected products in order to offset their impact. Tariff
levels may be further increased and the types of products subject to tariffs may be expanded. Although the Company intends to pass
additional price increases on to our customers, such tariff-related developments could have a negative impact on customer demand
and adversely affect our business, financial condition and results of operations. In addition, we might have to modify our current
business practices, including potentially sourcing from alternative vendors.
On May 24, 2018, the Company amended its revolving
loan agreement with HSBC Bank, N.A. The amended agreement lowers the interest rate to LIBOR plus 1.75%; interest is payable monthly.
In addition, the expiration date of the credit facility was extended to May 24, 2023. The prior interest rate was LIBOR plus 2%.
The amount available for borrowing remains unchanged at $50 million. 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.
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 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, measured as of the end of
each fiscal year. At September 30, 2018, the Company was in compliance with the covenants then in effect under the loan agreement.
On October 26, 2017, the
Company exercised its option to purchase its First Aid Only manufacturing and distribution center in Vancouver, WA for $4.0 million.
The purchase was financed by a variable rate mortgage with HSBC Bank, N.A. at an interest rate of LIBOR plus 2.5%. Commencing on
December 1, 2017, principal payments of $22,222 and interest are due monthly, with all amounts outstanding due on maturity on October
31, 2024.
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 enough to finance the Company’s planned operations over the next twelve months from the filing of this report.