UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
___________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
__________________
Commission file number 001-07698
ACME UNITED CORPORATION
(Exact name of registrant as specified in its charter)
__________________
CONNECTICUT | 06-0236700 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
55 WALLS DRIVE, Fairfield, Connecticut |
06824 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (203) 254-6060
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [_]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_] Smaller reporting company [_]
Emerging growth company [_]
1 |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]
As of August 5, 2018 the registrant had outstanding 3,374,061 shares of its $2.50 par value Common Stock.
2 |
ACME UNITED CORPORATION
INDEX
Page Number | ||
Part I — FINANCIAL INFORMATION: | ||
Item 1: | Financial Statements (Unaudited) | |
Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017 | 4 | |
Condensed
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017 |
6 | |
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017 |
7 | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017
|
8 | |
Notes to Condensed Consolidated Financial Statements | 9 | |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3: | Quantitative and Qualitative Disclosures about Market Risk | 19 |
Item 4: | Controls and Procedures | 19 |
Part II — OTHER INFORMATION: | ||
Item 1: | Legal Proceedings | 20 |
Item 1A: | Risk Factors | 20 |
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
Item 3: | Defaults Upon Senior Securities | 20 |
Item 4: | Mine Safety Disclosures | 20 |
Item 5: | Other Information | 20 |
Item 6: | Exhibits | 20 |
Signatures | 21 |
3 |
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
(unaudited) | (Note 1) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,894 | $ | 9,338 | ||||
Accounts receivable, less allowance | 34,511 | 26,012 | ||||||
Inventories, net | 42,510 | 40,087 | ||||||
Prepaid expenses and other current assets | 2,525 | 2,381 | ||||||
Total current assets | 81,440 | 77,818 | ||||||
Property, plant and equipment: | ||||||||
Land | 1,425 | 1,429 | ||||||
Buildings | 10,480 | 9,561 | ||||||
Machinery and equipment | 17,042 | 16,243 | ||||||
28,947 | 27,233 | |||||||
Less accumulated depreciation | 14,371 | 13,505 | ||||||
14,576 | 13,728 | |||||||
Goodwill | 4,696 | 4,696 | ||||||
Intangible assets, less accumulated amortization | 17,268 | 17,882 | ||||||
Other assets | 598 | 606 | ||||||
Total assets | $ | 118,578 | $ | 114,730 |
See Notes to Condensed Consolidated Financial Statements
4 |
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except share amounts)
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
(unaudited) | (Note 1) | |||||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 12,972 | $ | 11,151 | ||||
Other accrued liabilities | 4,640 | 5,633 | ||||||
Total current liabilities | 17,612 | 16,784 | ||||||
Long-term debt | 44,318 | 43,450 | ||||||
Mortgage payable, net of current portion | 3,578 | 3,711 | ||||||
Other non-current liabilities | 846 | 847 | ||||||
Total liabilities | 66,354 | 64,792 | ||||||
Commitments and Contingencies | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, par value $2.50: | ||||||||
authorized 8,000,000 shares; | ||||||||
issued - 4,838,071 shares in 2018 and 2017, | ||||||||
including treasury stock | 12,094 | 12,094 | ||||||
Additional paid-in capital | 8,945 | 8,881 | ||||||
Retained earnings | 46,924 | 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 | (1,292 | ) | (1,057 | ) | ||||
(1,869 | ) | (1,634 | ) | |||||
Total stockholders’ equity | 52,224 | 49,938 | ||||||
Total liabilities and stockholders’ equity | $ | 118,578 | $ | 114,730 |
See Notes to Condensed Consolidated Financial Statements
5 |
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net sales | $ | 39,751 | $ | 38,849 | $ | 71,460 | $ | 66,595 | ||||||||
Cost of goods sold | 25,039 | 24,366 | 44,624 | 41,548 | ||||||||||||
Gross profit | 14,712 | 14,483 | 26,836 | 25,047 | ||||||||||||
Selling, general and administrative expenses | 11,087 | 10,572 | 21,846 | 19,922 | ||||||||||||
Operating income | 3,625 | 3,911 | 4,990 | 5,125 | ||||||||||||
Non-operating items: | ||||||||||||||||
Interest expense, net | 445 | 321 | 850 | 583 | ||||||||||||
Other expense (income), net | 74 | (29 | ) | 61 | (16 | ) | ||||||||||
Total other expense, net | 519 | 292 | 911 | 567 | ||||||||||||
Income before income tax expense | 3,106 | 3,619 | 4,079 | 4,558 | ||||||||||||
Income tax expense | 670 | 773 | 879 | 1,052 | ||||||||||||
Net income | $ | 2,436 | $ | 2,846 | $ | 3,200 | $ | 3,506 | ||||||||
Basic earnings per share | $ | 0.72 | $ | 0.85 | $ | 0.95 | $ | 1.05 | ||||||||
Diluted earnings per share | $ | 0.67 | $ | 0.75 | $ | 0.88 | $ | 0.94 | ||||||||
Weighted average number of common shares outstanding- | ||||||||||||||||
denominator used for basic per share computations | 3,374 | 3,353 | 3,374 | 3,342 | ||||||||||||
Weighted average number of dilutive stock options | ||||||||||||||||
outstanding | 250 | 427 | 268 | 402 | ||||||||||||
Denominator used for diluted per share computations | 3,624 | 3,780 | 3,642 | 3,744 | ||||||||||||
Dividends declared per share | $ | 0.11 | $ | 0.11 | $ | 0.22 | $ | 0.21 |
See Notes to Condensed Consolidated Financial Statements
6 |
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 2,436 | $ | 2,846 | $ | 3,200 | $ | 3,506 | ||||||||
Other comprehensive (loss) income : | ||||||||||||||||
Foreign currency translation adjustment | (253 | ) | 209 | (235 | ) | 294 | ||||||||||
Comprehensive income | $ | 2,183 | $ | 3,055 | $ | 2,965 | $ | 3,800 |
See Notes to Condensed Consolidated Financial Statements
7 |
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 3,200 | $ | 3,506 | ||||
Adjustments to reconcile net income | ||||||||
to net cash used in operating activities: | ||||||||
Depreciation | 946 | 811 | ||||||
Amortization | 614 | 575 | ||||||
Stock compensation expense | 307 | 237 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (8,508 | ) | (11,840 | ) | ||||
Inventories, net | (2,603 | ) | 2,347 | |||||
Prepaid expenses and other assets | (235 | ) | (107 | ) | ||||
Accounts payable | 1,868 | 141 | ||||||
Other accrued liabilities | (836 | ) | (329 | ) | ||||
Total adjustments | (8,447 | ) | (8,165 | ) | ||||
Net cash used in operating activities | (5,247 | ) | (4,659 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property, plant and equipment | (1,819 | ) | (1,600 | ) | ||||
Acquisition of business | — | (7,233 | ) | |||||
Net cash used in investing activities | (1,819 | ) | (8,833 | ) | ||||
Cash flows from financing activities: | ||||||||
Net borrowings of long-term debt | 868 | 14,010 | ||||||
Cash settlement of stock options | (242 | ) | (732 | ) | ||||
Repayment on mortgage payable | (133 | ) | — | |||||
Proceeds from issuance of common stock | — | 628 | ||||||
Distributions to stockholders | (743 | ) | (666 | ) | ||||
Net cash (used in) provided by financing activities | (250 | ) | 13,240 | |||||
Effect of exchange rate changes on cash and cash equivalents | (128 | ) | 15 | |||||
Net decrease in cash and cash equivalents | (7,444 | ) | (237 | ) | ||||
Cash and cash equivalents at beginning of period | 9,338 | 5,911 | ||||||
Cash and cash equivalents at end of period | $ | 1,894 | $ | 5,674 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for income taxes | $ | 327 | $ | 175 | ||||
Cash paid for interest | $ | 831 | $ | 550 |
See Notes to Condensed Consolidated Financial Statements
8 |
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 June 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. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating this guidance to determine its impact on the Company’s consolidated financial position, results of operations or cash flows of the Company.
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.
9 |
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. Early adoption is permitted. 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 beginning to evaluate the impact the adoption of ASU No. 2018-02 will have on the Company’s consolidated financial position, results of operations and cash flows.
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 $22,000 and $44,000 to “Other expense (income), net” in the condensed consolidated statements of operations for the three and six months ended June 30, 2017, respectively, while service cost remains in “Selling, general and administrative expenses.”
Components of net periodic benefit cost are as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Service cost | $ | 9 | $ | 9 | $ | 18 | $ | 18 | ||||||||
Interest cost | $ | 10 | $ | 14 | $ | 20 | $ | 28 | ||||||||
Expected return on plan assets | (17 | ) | (20 | ) | (34 | ) | (40 | ) | ||||||||
Amortization of prior service costs | — | 2 | — | 4 | ||||||||||||
Amortization of actuarial loss | 22 | 26 | 44 | 52 | ||||||||||||
Total non-service cost | $ | 15 | $ | 22 | $ | 30 | $ | 44 | ||||||||
Net periodic pension cost | $ | 24 | $ | 31 | $ | 48 | $ | 62 |
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. In 2018, the Company is required to contribute a minimum of $25,000 to the plan. As of June 30, 2018, the Company had not made any contributions to the plan.
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 six months ended June 30, 2018.
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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 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.
11 |
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 June 30, 2018 | ||||||||||||||||
(amounts in 000's) | ||||||||||||||||
US | Canada | Europe | Total | |||||||||||||
Cutting, Sharpening and Other | $ | 19,808 | $ | 2,472 | $ | 2,501 | $ | 24,781 | ||||||||
First Aid and Safety | 14,970 | — | — | 14,970 | ||||||||||||
Total Net Sales | $ | 34,778 | $ | 2,472 | $ | 2,501 | $ | 39,751 |
For the six months ended June 30, 2018 | ||||||||||||||||
(amounts in 000's) | ||||||||||||||||
US | Canada | Europe | Total | |||||||||||||
Cutting, Sharpening and Other | $ | 32,304 | $ | 4,024 | $ | 4,881 | $ | 41,209 | ||||||||
First Aid and Safety | 30,251 | — | — | 30,251 | ||||||||||||
Total Net Sales | $ | 62,555 | $ | 4,024 | $ | 4,881 | $ | 71,460 |
5.
Debt and Shareholders’ Equity
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 June 30, 2018, the Company was in compliance with the covenants then in effect under the loan agreement.
As of June 30, 2018 and December 31, 2017, the Company had outstanding borrowings of $44,318,000 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 six months ended June 30, 2018, the Company paid approximately $197,825 and $242,435, respectively, to optionees who had elected a net cash settlement of their respective options, which elections were subject to the approval of the Company.
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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 and Massachusetts. 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 18% and 13% of the Company’s total net sales for the three and six months ended June 30, 2018 compared to 17% and 13% 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 six months ended June 30, 2018 and 2017:
Financial data by segment:
(in thousands)
Three
months ended June 30, | Six
months ended June 30, | |||||||||||||||
Sales to external customers: | 2018 | 2017 | 2018 | 2017 | ||||||||||||
United States | $ | 34,778 | $ | 34,140 | $ | 62,555 | $ | 58,615 | ||||||||
Canada | 2,472 | 2,503 | 4,024 | 3,895 | ||||||||||||
Europe | 2,501 | 2,206 | 4,881 | 4,085 | ||||||||||||
Consolidated | $ | 39,751 | $ | 38,849 | $ | 71,460 | $ | 66,595 | ||||||||
Operating income (loss): | ||||||||||||||||
United States | $ | 2,912 | $ | 3,289 | $ | 4,028 | $ | 4,419 | ||||||||
Canada | 543 | 503 | 682 | 535 | ||||||||||||
Europe | 170 | 119 | 280 | 171 | ||||||||||||
Consolidated | $ | 3,625 | $ | 3,911 | $ | 4,990 | $ | 5,125 | ||||||||
Interest expense, net | 445 | 321 | 850 | 583 | ||||||||||||
Other expense (income), net | 74 | (29 | ) | 61 | (16 | ) | ||||||||||
Consolidated income before income taxes | $ | 3,106 | $ | 3,619 | $ | 4,079 | $ | 4,558 |
13 |
Assets by segment: | ||||||||
(in thousands) | ||||||||
June 30, | December 31, | |||||||
2018 | 2017 | |||||||
United States | $ | 107,841 | $ | 104,431 | ||||
Canada | 4,758 | 4,926 | ||||||
Europe | 5,979 | 5,373 | ||||||
Consolidated | $ | 118,578 | $ | 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 $138,829 and $121,717 for the three months ended June 30, 2018 and 2017, respectively. Share-based compensation expenses were $307,180 and $236,717 for the six months ended June 30, 2018 and 2017, respectively.
As of June 30, 2018, there was a total of $1,579,923 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 six months ended June 30, 2017 for the Company would have been approximately $67.0 million. Unaudited pro forma combined net income for the six months ended June 30, 2017 for the Company would have been approximately $3.6 million.
Net sales for the three and six months ended June 30, 2017 attributable to Spill Magic products were approximately $1.8 million and $3.0 million, respectively. Net income for the three and six months ended June 30, 2017 attributable to Spill Magic products was approximately $0.2 million and $0.3 million, respectively.
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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; and (ix) 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. 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.
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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.
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. Our online sales have been growing very rapidly in recent years, and their order and fulfillment patterns are affecting the timing of our revenues. With our online sales we are receiving orders that closely match the timing of actual purchases by end users, resulting in a shift in some sales from the second quarter to the third quarter.
Net Sales
Consolidated net sales for the three months ended June 30, 2018 were $39,751,000 compared with $38,849,000 in the same period in 2017, a 2% increase. Consolidated net sales for the six months ended June 30, 2018 were $71,460,000, compared with $66,595,000 for the same period in 2017, a 7% increase.
Net sales for the three and six months ended June 30, 2018 in the U.S. segment increased 2% and 7%, respectively, compared with the same periods in 2017. Sales in the U.S. for the three and six month period increased compared to the same period last year, primarily due to market share gains of first aid and safety products.
Net sales in Canada for the three months ended June 30, 2018 decreased 1% in U.S. dollars (5% in local currency), compared with the same period in 2017. Net sales in Canada for the six months ended June 30, 2018 increased 3% in U.S. dollars (remained constant in local currency) compared with the same period in 2017.
Net sales in Europe for the three months ended June 30, 2018 increased 13% in U.S. dollars (5% in local currency), compared with the same period in 2017. Net sales for the six months ended June 30, 2018 increased 19% in U.S. dollars (7% in local currency). The increases in net sales for the three and six months ended June 30, 2018 were primarily due to new customers in the office products and sporting goods channels as well as higher sales of DMT sharpening products.
Gross Profit
Gross profit for the three months ended June 30, 2018 was $14,712,000 (37.0% of net sales) compared to $14,483,000 (37.3% of net sales) for the same period in 2017. Gross profit for the six months ended June 30, 2018 was $26,836,000 (37.6% of net sales) compared to $25,047,000 (37.6% of net sales) in the same period in 2017. The increases in gross profit for the three and six months ended June 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 June 30, 2018 were $11,087,000 (27.9% of net sales) compared with $10,572,000 (27.2% of net sales) for the same period of 2017, an increase of $515,000. SG&A expenses for the six months ended June 30, 2018 were $21,846,000 (30.6% of net sales) compared with $19,922,000 (29.9% of net sales) in the comparable period of 2017, an increase of $1,924,000. The increases in SG&A expenses for the three and six months ended June 30, 2018, compared to the same period in 2017, were primarily due to the addition of sales and marketing personnel, which include compensation and recruiting costs, and higher freight and commission expenses due to higher sales.
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Operating Income
Operating income for the three months ended June 30, 2018 was $3,625,000 compared with $3,911,000 in the same period of 2017. Operating income for the six months ended June 30, 2018 was $4,990,000 compared with $5,125,000 in the same period of 2017. The decreases in operating income were primarily driven by an increase in selling, general and administration expenses for the three and six-month periods.
Operating income in the U.S. segment decreased by approximately $377,000 and $391,000 for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017.
Operating income in the Canadian segment increased by $40,000 and $147,000 for the three and six months ended June 30, 2018, compared to the same periods in 2017.
Operating income in the European segment increased by $51,000 and $109,000 for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The increases in operating income in the European segment were principally due to higher sales.
Interest Expense, net
Interest expense, net for the three months ended June 30, 2018 was $445,000, compared with $321,000 for the same period of 2017, a $124,000 increase. Interest expense, net for the six months ended June 30, 2018 was $850,000, compared with $583,000 for the same period of 2017, a $267,000 increase. The increase in interest expense resulted from higher average interest rates for borrowings under the Company’s bank revolving credit facility for the three and six months ended June 30, 2018, as well as expense associated with the mortgage on the Vancouver, WA building, which we acquired in October 2017.
Other Expense (Income), net
Other expense, net was $74,000 in the three months ended June 2018 compared to $29,000 of other income, net in the same period of 2017, an increase in other expense of $103,000. Other expense, net was $61,000 in the six months ended June 30, 2018 compared to $16,000 of other income, net in the same period of 2017, an increase in other expense of $77,000. The changes in other expense (income), net for the three and six months ended June 30, 2018 were primarily due to losses from foreign currency transactions.
Income Taxes
The Company’s effective tax rates for the three and six-month periods ended June 30, 2018 were 22% and 22%, respectively, compared to 21% and 23% during the same periods in 2017. In the three and six months ended June 30, 2017, the Company recorded approximately $350,000 in excess tax benefits resulting from the adoption of ASU 2016-09 in 2017. Excluding the impact of the tax benefit, the effective tax rate would have been 31% for the three and six months ended June 30, 2017. The lower effective tax rate is primarily the result of the Tax Cuts and Jobs Act which resulted in a reduction of the corporate tax rate from 35% to 21%.
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Financial Condition
Liquidity and Capital Resources
During the first six months of 2018, working capital increased approximately $2.8 million compared to December 31, 2017. Inventory increased by approximately $2.4 million at June 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 2.2 at June 30, 2018 and December 31, 2017, respectively. Receivables increased by approximately $8.5 million at June 30, 2018 compared to December 31, 2017. The average number of days sales outstanding in accounts receivable was 66 days at June 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 increased by approximately $828,000 during the first six months of 2018.
The Company's working capital, current ratio and long-term debt to equity ratio are as follows:
June 30, 2018 | December 31, 2017 | |||||||
Working capital | $ | 63,828 | $ | 61,034 | ||||
Current ratio | 4.62 | 4.64 | ||||||
Long term debt to equity ratio | 91.7 | % | 94.4 | % |
During the first six months of 2018, total debt outstanding under the Company’s revolving credit facility increased by approximately $868,000, compared to total debt thereunder at December 31, 2017. As of June 30, 2018, $44,318,000 was outstanding and $5,682,000 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 business.
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 June 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 sufficient to finance the Company’s planned operations over the next twelve months from the filing of this report.
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Item 3: Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 4: Controls and Procedures
(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 required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. 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, 2018, 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.
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PART II. OTHER INFORMATION
Item 1 — Legal Proceedings
There are no pending material legal proceedings to which the registrant is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
Item 1A — Risk Factors
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, 2017.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 — Defaults upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
Not applicable.
Item 5 — Other Information
None.
Item 6 — Exhibits
Documents filed as part of this report.
Exhibit 10.10(i) Amendment No. 7 to Revolving Loan Agreement with HSBC dated May 24, 2018
Exhibit 31.1 Certification of Walter C. Johnsen pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Paul G. Driscoll pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACME UNITED CORPORATION | ||
By | /s/ Walter C. Johnsen | |
Walter
C. Johnsen |
||
Dated: August 9, 2018 |
By | /s/ Paul G. Driscoll | |
Paul
G. Driscoll Vice President and Chief Financial Officer |
||
Dated: August 9, 2018 |
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Exhibit 10.10(i)
SEVENTH
AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the “Amendment”) is entered into as of May 24, 2018 between ACME UNITED CORPORATION, a Connecticut corporation (the “Borrower”) and HSBC BANK USA, NATIONAL ASSOCIATION (the “Lender”).
RECITALS
The Borrower and the Lender are parties to a Loan and Security Agreement dated as of April 5, 2012, as amended (collectively, the “Loan Agreement”). Capitalized terms used herein shall have the meanings given to them in the Loan Agreement unless otherwise specified.
The Borrower has requested that the Lender amend certain terms and conditions of the Loan Agreement, pursuant to the terms of this Amendment.
NOW, THEREFORE, in consideration of the promises, covenants and understandings set forth in this Amendment and the benefits to be received from the performance of such promises, covenants and understandings, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent set forth in Section 3 below, the Loan Agreement is hereby amended as follows:
(a) The definition of “LIBOR Rate Margin” appearing in Section 1.2 of the Loan Agreement is hereby amended to read in its entirety as set forth below:
“LIBOR Rate Margin” means one and three quarters of one percent (1.75%).
(b) The definition of “Revolving Line Maturity Date” appearing in Section 1.2 of the Loan Agreement is hereby amended to read in its entirety as set forth below:
“Revolving Line Maturity Date” is May [__], 2023.
(c) Section 6.7(a) of the Loan Agreement is hereby amended to read in its entirety as set forth below:
“(a) Debt/Net Worth Ratio. Measured as of the end of each fiscal quarter, a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth of not more than 2.50 to 1.00.
(d) The definition of “Fixed Charge Coverage Ratio” appearing in Section 6.7(e) of the Loan Agreement is hereby amended to read in its entirety as set forth below:
“Fixed Charge Coverage Ratio” means, for any period, the ratio of (x) EBITDA minus capital expenditures (net of Unfinanced Capital Expenditures) to (y) the sum of (i) Interest Expense, plus (ii) income tax expense plus (iii) all dividends and distributions actually paid in such period (including all share repurchases), plus (iv) all scheduled payments of principal with respect to Indebtedness (excluding, for the avoidance of doubt, repayments of principal of the Advances).
2. No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Loan Agreement shall remain in full force and effect.
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3. Conditions Precedent. This Amendment shall be effective (the “Seventh Amendment Closing Date”) when the Lender shall have received a copy hereof executed by the Borrower.
4. Representations and Warranties. The Borrower hereby represents and warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to execute this Amendment and to perform all of the obligations hereunder and thereunder, and this Amendment has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of this Amendment has been duly authorized by all necessary corporate action and does not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or (iii) result in a breach of or constitute a default under any indenture or loan or loan agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Section 5 of the Loan Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.
(d) No Default or Event of Default has occurred and is continuing or will result from Borrower entering into this Amendment.
5. References. All references in the Loan Agreement to “this Agreement” shall be deemed to refer to the Loan Agreement as amended hereby; and any and all references in the Loan Documents to the Loan Agreement shall be deemed to refer to the Loan Agreement as amended hereby.
6. No Other Waiver. The execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Loan Agreement, or breach, default or event of default under any Loan Documents or other document held by the Lender, whether or not known to the Lender and whether or not existing on the date of this Amendment.
7. Costs and Expenses. The Borrower hereby reaffirms its agreement under the Loan Agreement to pay or reimburse the Lender on demand for all reasonable costs and expenses incurred by the Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all reasonable fees and disbursements of counsel to the Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto.
8. Miscellaneous. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument.
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9. Reaffirmation. The Borrower as debtor, grantor, pledgor, assignor, or in any other similar capacity in which the Borrower grants liens or security interests in its property hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under the Loan Agreement and each of the other Loan Documents to which it is a party (after giving effect hereto) and (ii) ratifies and reaffirms the liens on or security interests in any of its property granted pursuant to the Loan Agreement and any such other Loan Document as security for the Obligations under or with respect to the Loan Agreement or the other Loan Documents, and confirms and agrees that such security interests and liens hereafter secure all of the Obligations as amended hereby. The Borrower acknowledges that the Loan Agreement and each of the other Loan Documents remains in full force and effect and are hereby ratified and reaffirmed. The execution of this Amendment shall not operate as a waiver of any right, power or remedy of the Lender (except as expressly provided for herein), constitute a waiver of any provision of any of the Loan Agreement or any of the other Loan Documents (except as expressly provided for herein) or serve to effect a novation of the Obligations.
10. Release.
(a) Borrower hereby releases and forever discharges Lender and its parents, subsidiaries and affiliates, past or present, and each of them, as well as their respective directors, officers, agents, servants, employees, shareholders, representatives, attorneys, administrators, executors, heirs, assigns, predecessors and successors in interest, and all other persons, firms or corporations with whom any of the former have been, are now, or may hereafter be affiliated, and each of them (collectively, the “Releasees”), from and against any and all claims, demands, liens, agreements, contracts, covenants, actions, suits, causes of action in law or equity, obligations, controversies, debts, costs, expenses, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether known or unknown, fixed or contingent, suspected or unsuspected by Borrower, and whether concealed or hidden (collectively, “Claims”), which Borrower now owns or holds or has at any time heretofore owned or held, which are based upon or arise out of or in connection with any matter, cause or thing existing at any time prior to the date hereof or anything done, omitted or suffered to be done or omitted at any time prior to the date hereof in connection with the Loan Agreement or the other Loan Documents (collectively the “Released Matters”).
(b) Borrower represents, warrants and agrees, that in executing and entering into this release, it is not relying and have not relied upon any representation, promise or statement made by anyone which is not recited, contained or embodied in this Amendment, the Loan Agreement or the other Loan Documents. Borrower has reviewed this release with Borrower’s legal counsel, and understands and acknowledges the significance and consequence of this release and of the specific waiver thereof contained herein. Borrower understands and expressly assumes the risk that any fact not recited, contained or embodied therein may turn out hereafter to be other than, different from, or contrary to the facts now known to Borrower or believed by Borrower to be true. Nevertheless, Borrower intends by this release to release fully, finally and forever all Released Matters and agrees that this release shall be effective in all respects notwithstanding any such difference in facts, and shall not be subject to termination, modification or rescission by reason of any such difference in facts.
(c) Borrower, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claims released, remised and discharged by Borrower pursuant to this Section 10. If Borrower violates the foregoing covenant, Borrower agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys’ fees and costs incurred by any Releasee as a result of such violation.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.
HSBC BANK USA, NATIONAL ASSOCIATION | ACME UNITED CORPORATION | |||
By: | /s/ Bradly Reiner | By: | /s/ Paul Driscoll | |
Name: | Bradly Reiner | Name: | Paul Driscoll | |
Title | Global Relationship Manager | Title | Vice President & Chief Financial Officer |
[SIGNATURE
PAGE TO SEVENTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT]
4 |
Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, WALTER C. JOHNSEN, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Acme United Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By | /s/ Walter C. Johnsen | |
Walter C. Johnsen Chief Executive Officer |
Dated: August 9, 2018
Exhibit 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, PAUL G. DRISCOLL, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Acme United Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
By | /s/ Paul G. Driscoll | |
Paul G. Driscoll Chief Financial Officer |
Dated: August 9, 2018
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Acme United Corporation (the “Company”) hereby certifies to my knowledge that the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2018 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report or “filed” for any purpose whatsoever.
By | /s/ Walter C. Johnsen | |
Walter C. Johnsen Chief Executive Officer |
Dated: August 9, 2018
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Acme United Corporation and will be retained by Acme United Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Acme United Corporation (the “Company”) hereby certifies to my knowledge that the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2018 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report or “filed” for any purpose whatsoever.
By | /s/ Paul G. Driscoll | |
Paul
G. Driscoll Vice President and Chief Financial Officer |
Dated: August 9, 2018
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Acme United Corporation and will be retained by Acme United Corporation and furnished to the Securities and Exchange Commission or its staff upon request.