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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number 001-07698
ACME UNITED CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0236700
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
60 ROUND HILL ROAD, 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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Registrant had 3,482,833 shares outstanding as of October 28, 2005 of its $2.50
par value Common Stock.
ACME UNITED CORPORATION
Page
----
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets..................... 3
Condensed Consolidated Statements of Operations
and Comprehensive Income............................... 5
Condensed Consolidated Statements of Cash Flows........... 6
Notes to Condensed Consolidated Financial Statements...... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 13
Item 4. Controls and Procedures..................................... 13
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 14
Item 3. Defaults Upon Senior Securities............................. 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 5. Other Information........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signatures.......................................................... 16
(2)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
September 30 December 31
2005 2004
(unaudited)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 518 $ 1,888
Accounts receivable, less allowance 11,491 8,885
Inventories:
Finished goods 10,770 7,739
Work in process 156 92
Raw materials and supplies 773 558
------------ ------------
11,699 8,389
Prepaid expenses and other current assets 595 485
Deferred income taxes 412 279
------------ ------------
Total current assets 24,715 19,926
------------ ------------
Property, plant and equipment:
Land 153 251
Buildings 3,051 2,796
Machinery and equipment 6,305 6,102
------------ ------------
9,509 9,149
Less accumulated depreciation 6,750 6,853
------------ ------------
2,759 2,296
Other assets 758 656
Goodwill 89 89
------------ ------------
Total assets $ 28,321 $ 22,967
=========== ============
See notes to condensed consolidated financial statements.
(3)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands)
September 30 December 31
2005 2004
(unaudited)
------------ ------------
LIABILITIES
Current liabilities:
Accounts payable $ 1,918 $ 2,316
Other accrued liabilities 5,285 4,682
------------ ------------
Total current liabilities 7,203 6,999
Deferred income taxes 131 131
Long-term debt 6,587 1,434
Other 420 420
------------ ------------
Total liabilities 14,341 8,983
STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
authorized 8,000,000 shares;
issued 4,150,324 shares in 2005
and 3,849,512 in 2004, including treasury stock 10,376 9,624
Treasury stock, at cost - 653,991 shares
in 2005 and 436,091 shares in 2004 (5,076) (1,875)
Additional paid-in capital 2,593 2,231
Retained earnings 6,890 5,034
Accumulated other comprehensive loss:
Translation adjustment (179) (351)
Derivative financial instruments (26) (81)
Minimum pension liability (598) (598)
------------ ------------
(803) (1,030)
------------ ------------
Total stockholders' equity 13,980 13,984
------------ ------------
Total liabilities and stockholders' equity $ 28,321 $ 22,967
============ ============
See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales $ 13,400 $ 11,595 $ 38,887 $ 32,460
Costs and expenses:
Cost of goods sold 7,234 6,142 21,129 17,769
Selling, general and administrative expenses 4,159 3,739 12,455 10,288
Provision for loss on property demolition 1,500 - 1,500 -
------------ ------------ ------------ ------------
12,893 9,881 35,084 28,057
------------ ------------ ------------ ------------
Income before non-operating items 507 1,714 3,803 4,403
Non-operating items:
Interest expense 83 46 139 131
Other expense 86 52 232 126
------------ ------------ ------------ ------------
169 98 371 257
------------ ------------ ------------ ------------
Income before income taxes 338 1,616 3,432 4,146
Income tax expense 138 599 1,268 1,662
------------ ------------ ------------ ------------
Net income 200 1,017 2,164 2,484
Other comprehensive expense -
Foreign currency translation 269 241 173 110
Change in fair value of derivative financial instrument (2) (46) 55 (46)
------------ ------------ ------------ ------------
Comprehensive income $ 467 $ 1,212 $ 2,392 $ 2,548
============ ============ ============ ============
Basic earnings per share $ 0.06 $ 0.30 $ 0.62 $ 0.74
============ ============ ============ ============
Diluted earnings per share $ 0.05 $ 0.26 $ 0.57 $ 0.66
============ ============ ============ ============
Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,542 3,400 3,517 3,352
Weighted average number of dilutive stock options
outstanding 298 442 296 387
------------ ------------ ------------ ------------
Denominator used for diluted per share computations 3,840 3,842 3,813 3,739
============ ============ ============ ============
Dividends declared per share $ 0.03 $ 0.02 $ 0.05 $ 0.02
============ ============ ============ ============
See notes to condensed consolidated financial statements
(5)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Nine Months Ended
September 30
-----------------------------
2005 2004
-------------- --------------
Operating Activities:
Net income $ 2,164 $ 2,484
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation 400 352
Amortization 32 21
Deferred income taxes (133) 20
Loss on disposal/sale of assets 61 34
Tax benefit on stock option exercise 300 -
Changes in operating assets and liabilities:
Accounts receivable (2,421) (4,042)
Inventories (3,448) 93
Prepaid expenses and other current assets (118) 6
Other assets - 39
Accounts payable (381) 152
Other accrued liabilities 688 2,754
-------------- --------------
Total adjustments (5,020) (571)
-------------- --------------
Net cash (used) provided by operating activities (2,856) 1,913
-------------- --------------
Investing Activities:
Purchase of property, plant, and equipment (1,165) (330)
Purchase of patents and trademarks (134) (286)
Proceeds from sale of property, plant, and equipment 165 52
-------------- --------------
Net cash used by investing activities (1,134) (564)
-------------- --------------
Financing Activities:
Net long-term borrowings (payments) 5,160 (1,451)
Distribution to stockholders (263) (71)
Purchase of 217,900 shares of common stock in 2005 and
46,830 shares of common stock in 2004 for treasury (3,201) (235)
Proceeds from exercise of stock options 813 663
-------------- --------------
Net cash provided (used) by financing activities 2,509 (1,094)
-------------- --------------
Effect of exchange rate changes 111 (24)
-------------- --------------
Net change in cash and cash equivalents (1,370) 231
Cash and cash equivalents at beginning of period 1,888 1,250
-------------- --------------
Cash and cash equivalents at end of period $ 518 $ 1,481
============== ==============
See notes to condensed consolidated financial statements
(6)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 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. 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, 2004 for such disclosures. The condensed
consolidated balance sheet as of December 31, 2004 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.
Note 2 -- Contingencies
The Company is involved from time to time in disputes and other litigation in
the ordinary course of business, including certain environmental and other
matters. The Company presently believes that none of these matters, individually
or in the aggregate, would be likely to have a material adverse impact on
financial position, results of operations, or liquidity from these matters.
Note 3 -- Pension
Components of net periodic pension cost are as follows for the periods ended:
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30 September 30 September 30 September 30
2005 2004 2005 2004
------------ ------------ ------------ ------------
Components of net periodic benefit cost:
Interest cost $ 51,057 $ 49,727 $ 153,172 $ 149,180
Service cost 8,750 8,750 $ 26,250 $ 26,250
Expected return on plan assets (65,022) (64,281) $(195,067) $(192,844)
Amortization of prior service costs 2,194 2,194 $ 6,582 $ 6,582
Amortization of actuarial gain 16,551 12,399 $ 49,653 $ 37,196
- ------------------------------------------------------------------------------------------------------
$ 13,530 $ 8,789 $ 40,590 $ 26,364
======================================================================================================
Note 4 -- Accounting for Stock-Based Compensation
The Company has elected to adopt only the disclosure provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
and continues to measure costs for its employee stock compensation plans by
using the accounting methods prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees, which allows that no compensation cost be recognized
unless the exercise price of the options granted is less than the fair market
value of the Company's stock at date of grant. Generally, no stock-based
employee compensation cost is reflected in net income, as all options granted
had an exercise price equal to the market value of the underlying common stock
on the date of grant.
The following table illustrates the proforma effect on net income and earnings
per share as if the Company had applied the fair value method under SFAS No.
123, Accounting for Stock Based Compensation, to stock-based employee
compensation for the periods ended:
(7)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net income, as reported $ 200,101 $1,017,289 $2,164,000 $2,484,404
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related income tax effects 64,174 17,655 213,148 56,149
- ------------------------------------------------------------------------ ---------------------------
Pro forma net income $ 135,927 $ 999,634 $1,950,852 $2,428,255
======================================================================== ===========================
Basic-as reported $ 0.06 $ 0.30 $ 0.62 $ 0.74
Basic-pro forma $ 0.04 $ 0.29 $ 0.55 $ 0.72
Diluted-as reported $ 0.05 $ 0.26 $ 0.57 $ 0.66
Diluted-pro forma $ 0.04 $ 0.26 $ 0.51 $ 0.65
Note 5 -- Long Term Debt and Capital Structure
The Company's revolving loan agreement provides for borrowing up to $10 million
with a maturity of the agreement in June 2007. At September 30, 2005 and
December 31, 2004, the Company had borrowings of $6,533,500 and $1,208,000,
respectively. Based on the scheduled maturity date, the Company has classified
the borrowings at September 30, 2005 as long-term. The borrowings at December
31, 2004 have been reclassified to conform to the current year classification.
During the first nine months of 2005, the Company issued 300,812 shares of
common stock with proceeds of $813,639 upon the exercise of outstanding stock
options. The Company also repurchased 217,900 shares of common stock for
treasury. The shares were purchased at fair market value, with a total cost to
the Company of $3,201,859.
Note 6 -- Business Combination
On May 28, 2004, the Company purchased Clauss Cutlery, a division of Alco
Industries, Inc.. The purchase price was the aggregate value of inventory,
trademarks and brand names totaling $446,754. Included in the accompanying
Statement of Operations for the three and nine months ended September 30, 2005
is the operations of the acquired business. Sales for Clauss products for the
three and nine months ended September 30, 2005 were $707,000 and $2,457,000,
respectively. Sales of Clauss products for three and nine months ended September
30, 2004 were $682,000 and $878,000, respectively. Sales figures for 2004 are
from the date of acquisition. In accordance with Regulation S-X, proforma
information for the nine months ended September 30, 2004 is not provided because
of the immateriality of the transaction.
Note 7 -- Non-Recurring Charge
The Company is the owner of certain commercial property located in Bridgeport,
Connecticut. Buildings, totaling approximately 150,000 square feet, are located
on this property. The Company ceased using the property as a manufacturing
facility in 1996 and the property has a zero carrying value. In October 1998,
the Company leased the property to a commercial tenant for a term of 24 years.
The lease had provided for the payment of one dollar ($1.00), per year as base
rent and required that the tenant pay all taxes, insurance and other expenses in
connection with the property. The lease also had granted the tenant an option to
purchase the property for one dollar. Since then the tenant has leased several
of the buildings to subtenants primarily for use as commercial warehouses.
In July 2005, one of the buildings at the property sustained serious roof
damage. As a result of an inspection of the property by local authorities, the
Company received notice that it must either repair certain portions of the
damaged building and two others or demolish them because of unsafe conditions.
As a result of discussions between the Company and the tenant regarding the
required actions, the Company and the tenant agreed to terminate the lease; the
Company also decided to pursue a plan to demolish all unoccupied structures on
the property.
(8)
Pursuant to a Termination of Lease Agreement entered into by the Company and the
tenant on September 16, 2005, the parties terminated this lease, effective
September 1, 2005. The Company paid $400,000 and secured all rights to the
subtenant rental agreements. The lease termination cost has been capitalized and
will be amortized over the term of the rental agreements.
Several subtenants continue to occupy portions of the property and are paying
rent presently totaling approximately $190,000 per year to the Company. In
addition, the principal subtenant will pay a portion of the taxes and insurance
expenses related to the property it leases.
In the quarter ended September 30, 2005, the Company accrued a charge of
approximately $1.5 million related to the estimated cost to demolish the
structures and remove certain environmentally hazardous material included in the
buildings to be demolished. After the demolition is complete, the Company will
explore the options to sell the property.
The Company has received preliminary information on the fair value of the
property after the demolition plan has been completed and estimates that the
fair value of the land, approximately six acres, is minimal. The estimated costs
are based on a third party contractor's estimate. Adjustments to the cost will
be recorded when better estimates or actual costs are known.
(9)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. -- 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.
These forward-looking statements include statements of the Company's plans,
objectives, expectations, estimates and intentions, which are subject to change
based on various important factors (some of which are beyond the Company's
control). The following factors, in addition to others not listed, could cause
the Company's actual results to differ materially from those expressed in
forward looking statements: the strength of the domestic and local economies in
which the Company conducts operations, changes in client needs and consumer
spending habits, the impact of competition and technological change on the
Company, the Company's ability to manage its growth effectively, including its
ability to successfully integrate any business which it might acquire, and
currency fluctuations. 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.
Net Sales
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 business. Consolidated net sales for
the quarter ended September 30, 2005 were $13,400,000 compared with $11,595,000
for the same period in 2004, a 16% increase. Net sales for the first nine months
of 2005 were $38,887,000 compared with $32,460,000 for the same period in 2004,
a 20% increase. Excluding the favorable effect of currency gains in Canada and
Europe, the net sales increase for the nine month period represented 18%. The
sales increase was mainly driven by a 21% increase in U.S. sales and Hong Kong
direct import sales due to market share gains and new product launches. Combined
Europe and Canada sales were up 9% in local currency.
Gross Profit
Gross profit for the third quarter of 2005 was $6,166,000 (46.0% of net sales)
compared to $5,453,000 (47.0% of net sales) for the third quarter of 2004. The
lower gross margin as a percentage of net sales in the third quarter was due to
increased raw material costs and a higher volume of airfreight costs as a result
of demand of some items in excess of that originally anticipated. Gross profit
for the first nine months of 2005 was $17,758,000 (45.7% of net sales) compared
to $14,691,000 (45.3% of net sales) in the same period of 2004. The increased
percentage of new products with higher gross margins and sales of a more
profitable product mix in Europe were the main reasons for improved gross
margins. Offsetting factors to the improved margins were increased raw material
costs and a higher volume of airfreight costs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the third quarter of
2005 were $4,159,000 (31% of net sales) compared with $3,739,000 (32% of net
sales) for the same period of 2004, an increase of $420,000. SG&A expenses were
32% of net sales for the first nine months of 2005 and 32% in the comparable
period of 2004. The majority of the increase in SG&A expenses relate to higher
sales commission and freight costs associated with increased sales, investment
in new products and the addition of sales, marketing, logistics and quality
control personnel.
(10)
Interest Expense
Interest expense for the third quarter of 2005 was $83,000, compared with
$46,000 for the same quarter of 2004. Interest expense for the first nine months
of 2005 was $139,000, compared with $131,000 for the same period of 2004. The
increase in interest expense was primarily the result of higher borrowings on
the Company's bank revolving credit agreement.
Other Expense, Net
Net other expense was $86,000 in the third quarter of 2005 compared to net other
expense of $52,000 in the third quarter of 2004. Net other expense was $232,000
for the first nine months of 2005 as compared to $126,000 for the same period of
2004. The change from 2004 is primarily due to higher foreign exchange
transaction losses in 2005.
Non-Recurring Charge
During the third quarter 2005, the Company recorded a non-recurring charge of
approximately $1,500,000 related to the required demolition of former
manufacturing buildings.
The Company is the owner of certain commercial property located in Bridgeport,
Connecticut. Buildings, totaling approximately 150,000 square feet, are located
on this property. The Company ceased using the property as a manufacturing
facility in 1996 and the property has a zero carrying value. In October 1998,
the Company leased the property to a commercial tenant for a term of 24 years.
The lease had provided for the payment of one dollar ($1.00), per year as base
rent and required that the tenant pay all taxes, insurance and other expenses in
connection with the property. The lease also had granted the tenant an option to
purchase the property for one dollar. Since then the tenant has leased several
of the buildings to subtenants primarily for use as commercial warehouses.
In July 2005, one of the buildings on the property sustained roof damage. As a
result of an inspection of the damaged building by local authorities, the
Company received notice that the Company must either repair certain portions of
the damaged building and two others or demolish them because of unsafe
conditions. As a result of discussions with the tenant regarding the required
actions, the Company mutually agreed to terminate the lease; the Company also
decided to demolish all unoccupied structures on the property.
Income Before Income Taxes
Income before income taxes was $338,000 in the third quarter of 2005 compared
with $1,616,000 in the third quarter of 2004. Income before income taxes was
$3,432,000 for the first nine months of 2005 compared with $4,146,000 in the
first nine months of 2004. Pretax income for North America and Asia decreased by
$1,055,000 for the first nine months of 2005 because of the loss on the
Bridgeport property. The European operations had a net loss of $131,000 in the
first nine months of 2005 compared to a net loss of $472,000 in the same period
of 2004. The results of the European operations are improving due to higher
sales and a more profitable product mix. The higher sales are primarily due to
increases in the sales force and increases in advertising.
Income Taxes
The effective tax rate in the first nine months of 2005 was 37% compared to 40%
in 2004. The lower effective tax rate is principally due to lower losses in
Europe for which there is no recorded tax benefit because the losses in Europe
cannot be utilized to offset earnings in other countries.
Net Income
Net income for the third quarter of 2005 was $200,000, or 5 cents per share
(diluted), compared to a net income of $1,017,000, or 26 cents per share
(diluted), for the same period of 2004. Net income for the first nine months of
2005 was $2,164,000, or 57 cents per share (diluted), compared to a net income
of $2,484,000, or 66 cents per share (diluted), for the same period of 2004.
(11)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long-term debt to equity ratio
follow:
September 30, 2005 December 31, 2004
------------------ -----------------
Working capital $ 17,512,157 $ 12,927,322
Current ratio 3.43 2.85
Long term debt to equity ratio 47.1% 10.3%
During the first nine months of 2005, total debt increased by $5,153,000
compared to total debt at December 31, 2004, principally as a result of
$3,201,000 of repurchases of Company stock and the buildup of inventory in
anticipation of future business.
During September 2004, the Company renewed its revolving loan agreement, which
originally allowed for borrowings up to a maximum of $10,000,000 based on a
borrowing base formula, which applied specific percentages to balances of
accounts receivable and inventory. The renewal modified several terms of the
original agreement, the most significant of which are reducing the interest rate
to LIBOR plus 1.50% from LIBOR plus 1.75%, eliminating the borrowing base
formula, allowing the Company to borrow up to $10,000,000, regardless of its
inventory and receivable levels, and extending the maturity of the loan to June
30, 2007. As of September 30, 2005, $6,533,500 was outstanding and $3,466,500
was available for borrowing under this agreement.
Cash expected to be generated from operating activities, which together with
funds available under its existing loan agreement, are expected, under current
conditions, to be sufficient to finance the Company's planned operations over
the next twelve months. Over that same period, the Company does not expect to
make significant investments in property, plant and equipment.
The demolition costs of $1,500,000 related to the former manufacturing site will
be paid with funds borrowed under the Company's existing revolving credit
facility.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004) ("SFAS 123
(R)"), "Share-Based Payment", which revised SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement supercedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The revised statement addresses the
accounting for share-based payment transactions with employees and other third
parties, eliminates the ability to account for share-based compensation
transactions using APB 25 and requires that the compensation costs relating to
such transactions be recognized in the consolidated statement of operations. The
revised statement is effective as of the first annual period beginning after
June 15, 2005. Acme will adopt the statement on January 1, 2006 as required. The
impact of adoption of SFAS 123 (R) cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future. However,
had Acme adopted SFAS 123 in prior periods, the impact of that standard would
have approximated the impact of Statement 123 as described in the disclosure of
pro forma net income and net income per share in the stock-based compensation
accounting policy note included in Note 4 to the condensed consolidated
financial statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4," to clarify that abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage) should be
recognized as current period charges, and that fixed production overheads should
be allocated to inventory based on normal capacity of production facilities.
This statement is effective for Acme's fiscal year 2006. We do not expect the
adoption of this standard to have a material effect on our financial position,
results of operations or cash flows.
(12)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There are no material changes in market risks as disclosed in our annual Report
on Form 10-K for the year ended December 31, 2004.
Item 4. Controls and Procedures
(a) Evaluation of Internal Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of our disclosure controls and procedures, which
included inquiries made to certain other of our employees. Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have each
concluded that, as of September 30, 2005, our disclosure controls and procedures
were effective and sufficient to ensure that we record, process, summarize and
report information required to be disclosed by us in our periodic reports filed
under the Securities and Exchange Commission's rules and forms.
(b) Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2005, there were no changes in our
internal control over financial reporting that materially affected, or was
reasonably likely to materially affect, this control.
(13)
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The Company is involved from time to time in disputes and other litigation in
the ordinary course of business, including certain environmental and other
matters. The Company presently believes that none of these matters, individually
or in the aggregate, would be likely to have a material adverse impact on
financial position, results of operations, or liquidity from these matters.
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds
(c) On July 23, 2003, the Company announced a stock repurchase program of up to
150,000 shares. In April, 2005, all shares available under this program had been
repurchased. On March 30, 2005, the Company announced a further stock repurchase
program of up to 150,000 shares. The new program does not have an expiration
date. The following table discloses the total shares repurchased under these
programs for the quarter ended September 30, 2005:
Total Number of
shares Purchased Maximum Number
as Part of Publicly of Shares that can
Total Number of Average Price Announced be Purchased
Period Shares Purchased Paid per Share Program Under the Program
- --------------------------------------------------------------------------------------------------
July - - -
August 14,000 16.35 14,000
September 57,900 13.30 57,900
-----------------------------------------------------------------------------
71,900 13.89 71,900 -
Item 3. -- Defaults Upon Senior Securities
None
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
None.
(14)
Item 6 -- Exhibits
Documents filed as part of this report.
Exhibit 10.6 Modification to Revolving Promissory Note and Revolving
Credit and Security Agreement, and Reaffirmation of Guaranty
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
(15)
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
President and
Chief Executive Officer
Dated: November 14, 2005
By /s/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: November 14, 2005
(16)
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:
I have reviewed this Quarterly Report on Form 10-Q of Acme United
Corporation;
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;
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;
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)) 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) 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
(c) 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 (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
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
President and
Chief Executive Officer
Dated: November 14, 2005
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:
I have reviewed this Quarterly Report on Form 10-Q of Acme United
Corporation;
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;
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;
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)) 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) 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
(c) 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 (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
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
Vice President and
Chief Financial Officer
Dated: November 14, 2005
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 September 30, 2005 (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
President and
Chief Executive Officer
Dated: November 14, 2005
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 September 30, 2005 (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 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: November 14, 2005
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.