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 March 31, 2015
OR
[X]
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 or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large
accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] Smaller
reporting company [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]
As
of May 3, 2015 the registrant had outstanding 3,315,852 shares of its $2.50 par value Common Stock.
ACME
UNITED CORPORATION
|
|
Page |
|
|
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Part I — FINANCIAL INFORMATION |
|
Item 1. |
Financial Statements (Unaudited) |
|
|
Condensed Consolidated Balance
Sheets as of March 31, 2015 and December 31, 2014 |
3 |
|
Condensed Consolidated Statements
of Operations for the three months ended March 31, 2015 and 2014
|
5 |
|
Condensed
Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2015 and 2014 |
6 |
|
Condensed
Consolidated Statements of Cash Flows for the three months
ended March 31, 2015 and 2014 |
7 |
|
Notes
to Condensed Consolidated Financial Statements |
8 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of
Operations |
13 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
16 |
Item 4. |
Controls and Procedures |
16 |
|
|
|
Part II — OTHER INFORMATION |
|
Item 1. |
Legal Proceedings |
17 |
Item 1A. |
Risk Factors |
17 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
17 |
Item 3. |
Defaults Upon Senior Securities |
17 |
Item 4. |
Mine Safety Disclosures |
17 |
Item 5. |
Other Information |
17 |
Item 6. |
Exhibits |
18 |
Signatures |
19 |
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
ACME
UNITED CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(all
amounts in thousands)
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(unaudited) | |
(Note
1) |
| |
| | | |
| | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,797 | | |
$ | 2,286 | |
Accounts receivable, less allowance | |
| 16,722 | | |
| 19,477 | |
Inventories: | |
| | | |
| | |
Finished goods | |
| 30,618 | | |
| 28,713 | |
Work in process | |
| 598 | | |
| 522 | |
Raw materials
and supplies | |
| 4,708 | | |
| 4,436 | |
| |
| 35,924 | | |
| 33,671 | |
Prepaid expenses and other current assets | |
| 2,476 | | |
| 2,077 | |
Total
current assets | |
| 56,919 | | |
| 57,511 | |
Property, plant and equipment: | |
| | | |
| | |
Land | |
| 421 | | |
| 436 | |
Buildings | |
| 5,377 | | |
| 5,126 | |
Machinery and equipment | |
| 10,147 | | |
| 10,067 | |
| |
| 15,945 | | |
| 15,629 | |
Less accumulated depreciation | |
| 8,785 | | |
| 8,698 | |
| |
| 7,160 | | |
| 6,931 | |
| |
| | | |
| | |
Goodwill | |
| 1,375 | | |
| 1,375 | |
Intangible assets, less amortization | |
| 12,374 | | |
| 12,555 | |
Other assets | |
| 972 | | |
| 936 | |
Total
assets | |
$ | 78,800 | | |
$ | 79,308 | |
See notes
to condensed consolidated financial statements.
ACME
UNITED CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS (continued)
(all
amounts in thousands, except share amounts)
| |
March 31, | |
December 31, |
| |
2015 | |
2014 |
| |
(unaudited) | |
(Note
1) |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 5,905 | | |
$ | 7,773 | |
Other accrued liabilities | |
| 5,564 | | |
| 7,590 | |
Total current liabilities | |
| 11,468 | | |
| 15,363 | |
Long-term debt | |
| 27,551 | | |
| 24,147 | |
Other | |
| 314 | | |
| 370 | |
Total
liabilities | |
| 39,334 | | |
| 39,880 | |
| |
| | | |
| | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common stock, par value $2.50: | |
| | | |
| | |
authorized 8,000,000 shares; | |
| | | |
| | |
issued - 4,675,424 shares in 2015 and 4,653,424
in 2014 | |
| | | |
| | |
including treasury stock | |
| 11,688 | | |
| 11,633 | |
Additional paid-in capital | |
| 8,336 | | |
| 7,941 | |
Retained earnings | |
| 33,925 | | |
| 33,784 | |
Treasury stock, at cost - 1,362,072 shares in 2015 and
2014 | |
| (12,283 | ) | |
| (12,283 | ) |
Accumulated other comprehensive (loss) income: | |
| | | |
| | |
Minimum pension liability | |
| (895 | ) | |
| (895 | ) |
Translation adjustment | |
| (1,305 | ) | |
| (752 | ) |
| |
| (2,200 | ) | |
| (1,647 | ) |
Total stockholders’
equity | |
| 39,466 | | |
| 39,428 | |
Total
liabilities and stockholders’ equity | |
$ | 78,800 | | |
$ | 79,308 | |
See
notes to condensed consolidated financial statements.
ACME
UNITED CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all
amounts in thousands, except per share amounts)
| |
Three Months Ended |
| |
March
31 |
| |
2015 | |
2014 |
| |
| | | |
| | |
Net sales | |
$ | 22,837 | | |
$ | 19,152 | |
Cost of goods sold | |
| 14,402 | | |
| 12,275 | |
| |
| | | |
| | |
Gross profit | |
| 8,435 | | |
| 6,877 | |
| |
| | | |
| | |
Selling, general and administrative expenses | |
| 7,608 | | |
| 6,252 | |
Operating income | |
| 827 | | |
| 625 | |
| |
| | | |
| | |
Non-operating items: | |
| | | |
| | |
Interest: | |
| | | |
| | |
Interest expense | |
| 132 | | |
| 89 | |
Interest income | |
| (2 | ) | |
| (6 | ) |
Interest expense, net | |
| 130 | | |
| 83 | |
Other expense, net | |
| 76 | | |
| 19 | |
Total other expense, net | |
| 206 | | |
| 102 | |
Income before income taxes | |
| 621 | | |
| 523 | |
Income tax expense | |
| 185 | | |
| 155 | |
Net income | |
$ | 436 | | |
$ | 368 | |
| |
| | | |
| | |
Basic earnings per share | |
$ | 0.13 | | |
$ | 0.12 | |
| |
| | | |
| | |
Diluted earnings per share | |
$ | 0.12 | | |
$ | 0.11 | |
| |
| | | |
| | |
Weighted average number of common shares outstanding- | |
| | | |
| | |
denominator used for basic per share computations | |
| 3,300 | | |
| 3,201 | |
Weighted average number of dilutive stock options | |
| | | |
| | |
outstanding | |
| 404 | | |
| 242 | |
Denominator used for diluted per share computations | |
| 3,704 | | |
| 3,443 | |
| |
| | | |
| | |
Dividends declared per share | |
$ | 0.09 | | |
$ | 0.08 | |
See notes
to condensed consolidated financial statements.
ACME
UNITED CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
(all
amounts in thousands)
| |
Three Months Ended |
| |
March 31 |
| |
2015 | |
2014 |
| |
| |
|
Net income | |
$ | 436 | | |
$ | 368 | |
Other comprehensive (loss) - | |
| | | |
| | |
Foreign currency translation adjustment | |
| (553 | ) | |
| (203 | ) |
Comprehensive (loss) income | |
$ | (117 | ) | |
$ | 165 | |
See
notes to condensed consolidated financial statements.
ACME
UNITED CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all
amounts in thousands)
| |
Three Months Ended |
| |
March
31, |
| |
2015 | |
2014 |
Operating Activities: | |
| | | |
| | |
Net income | |
$ | 436 | | |
$ | 368 | |
Adjustments to reconcile net income | |
| | | |
| | |
to net cash used by operating
activities: | |
| | | |
| | |
Depreciation | |
| 320 | | |
| 256 | |
Amortization | |
| 181 | | |
| 65 | |
Stock compensation
expense | |
| 129 | | |
| 126 | |
Changes in operating
assets and liabilities: | |
| | | |
| | |
Accounts
receivable | |
| 2,833 | | |
| (651 | ) |
Inventories | |
| (2,849 | ) | |
| (871 | ) |
Prepaid
expenses and other assets | |
| (535 | ) | |
| (253 | ) |
Accounts
payable | |
| (1,355 | ) | |
| (505 | ) |
Other
accrued liabilities | |
| (2,441 | ) | |
| (140 | ) |
Total
adjustments | |
| (3,717 | ) | |
| (1,973 | ) |
Net
cash used by operating activities | |
| (3,281 | ) | |
| (1,605 | ) |
| |
| | | |
| | |
Investing Activities: | |
| | | |
| | |
Purchase of property, plant, and equipment | |
| (574 | ) | |
| (762 | ) |
Purchase of patents and trademarks | |
| — | | |
| (28 | ) |
Net
cash used by investing activities | |
| (574 | ) | |
| (790 | ) |
| |
| | | |
| | |
Financing Activities: | |
| | | |
| | |
Borrowing (repayments) of long-term debt | |
| 3,404 | | |
| (5,626 | ) |
Proceeds from issuance of common stock | |
| 321 | | |
| — | |
Distributions to stockholders | |
| (296 | ) | |
| (256 | ) |
Net
cash provided (used) by financing activities | |
| 3,429 | | |
| (5,882 | ) |
| |
| | | |
| | |
Effect of exchange rate changes | |
| (63 | ) | |
| — | |
Net decrease in cash and cash equivalents | |
| (488 | ) | |
| (8,277 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 2,286 | | |
| 11,644 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 1,797 | | |
$ | 3,367 | |
| |
| | | |
| | |
Supplemental cash flow information | |
| | | |
| | |
Cash
paid for income taxes | |
$ | 767 | | |
$ | 305 | |
Cash
paid for interest expense | |
$ | 127 | | |
$ | 98 | |
See notes
to condensed consolidated financial statements.
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 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, 2014 for such disclosures.
The condensed consolidated balance sheet as of December 31, 2014 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 2014 Annual Report on Form 10-K.
The
Company has evaluated events and transactions subsequent to March 31, 2015 and through the date these condensed consolidated financial
statements were included in this Form 10-Q and filed with the SEC.
Note
2 — Contingencies
The
Company is involved from time to time in disputes and other litigation in the ordinary course of business and may encounter
other contingencies, which may include environmental and other matters. 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.
In
December 2008, the Company sold property it owned in Bridgeport, Connecticut to B&E Juices, Inc. for $2.5 million, of which
$2.0 million was secured by a mortgage on the property. The property consisted of approximately four acres of land and 48,000
sq. feet of warehouse space. The property was the site of the Company’s original scissor factory which opened in 1887 and
was closed in 1996.
Under the
terms of the sale agreement, and as required by the Connecticut Transfer Act, the Company was required to remediate any environmental
contamination on the property. During 2008, the Company hired an independent environmental consulting firm to conduct environmental
studies in order to identify the extent of the environmental contamination on the property and to develop a remediation plan.
As a result of those studies and the estimates prepared by the independent environmental consulting firm, the Company recorded
an undiscounted liability of approximately $1.8 million related to the remediation of the property. This accrual included the
costs of required investigation, remedial activities, and post-remediation operating and maintenance.
Remediation
work on the project began in the third quarter of 2009 and was completed during the third quarter of 2012. In addition to the
completed remediation work, the Company, with the assistance of its independent environmental consulting firm, was required to
monitor contaminant levels on the property to ensure they comply with applicable governmental standards. During the first quarter
of 2015, the Company received notice from the Connecticut Department of Energy & Environmental Protection that it had accepted
and approved the Company’s filing of its Form III Verification Report. As a result, the Company’s remediation obligations
have been satisfied.
On
April 7, 2014, the Company sold its Fremont, NC distribution facility for $850,000 in cash. The facility originally served as
a manufacturing site for the Company’s scissors and rulers. Under the terms of the sale agreement, the Company is responsible
to remediate any environmental contamination on the property. The Company hired an independent environmental consulting firm to
conduct environmental studies in order to identify the extent of the environmental contamination on the property and to develop
a remediation plan. As a result of those studies and the estimates prepared by the independent environmental consulting firm,
and in conjunction with the sale of the property, the Company recorded a liability of $300,000 in the second quarter of 2014,
related to the remediation of the property. The accrual includes the total estimated costs of remedial activities and post-remediation
operating and maintenance costs.
Remediation
work on the project began in the third quarter of 2014 and is expected to be completed in 2015. In addition to the remediation
work, the Company, with the assistance of its independent environmental consulting firm, must continue to monitor contaminant
levels on the property to ensure they comply with applicable North Carolina laws and regulations. The Company expects that the
monitoring period will last a period of five years after the completion of the remediation and be completed by the end of 2020.
The
change in the accrual for environmental remediation for the three months ended March 31, 2015 follows (in thousands):
| |
Balance
at
December 31, 2014 | |
Estimated
Costs | |
Payments | |
Balance
at
March 31, 2015 |
Fremont, NC | |
$ | 260 | | |
$ | — | | |
$ | (2 | ) | |
$ | 258 | |
Bridgeport, CT | |
| 6 | | |
| — | | |
| (6 | ) | |
| — | |
Total | |
$ | 266 | | |
$ | — | | |
$ | (8 | ) | |
$ | 258 | |
Note
3 — Pension
Components
of net periodic benefit cost are as follows (in thousands):
| |
Three
Months Ended March 31, |
| |
2015 | |
2014 |
| |
| |
|
Components of net periodic benefit cost: | |
| | | |
| | |
Interest cost | |
$ | 15 | | |
$ | 16 | |
Service cost | |
| 6 | | |
| 10 | |
Expected return on plan assets | |
| (23 | ) | |
| (17 | ) |
Amortization of prior service costs | |
| 2 | | |
| 2 | |
Amortization of actuarial loss | |
| 28 | | |
| 35 | |
| |
$ | 28 | | |
$ | 46 | |
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 2015, the Company is required to contribute approximately $200,000. As of March 31, 2015 the Company
had contributed approximately $30,000 to the plan.
Note
4 —Debt and Shareholders’ Equity
On April
25, 2013, the Company amended its revolving loan agreement with HSBC Bank N.A. dated April 5, 2012. The amendment increased the
borrowing limit to $40 million from $30 million. The interest rate remains the same at LIBOR plus 1.75%. All principal amounts
outstanding under the agreement are required to be repaid in a single amount on April 5, 2017, the date the agreement expires;
interest is payable monthly. During the fourth quarter of 2013, the Company and HSBC agreed to make certain technical amendments
to a covenant of the amended loan agreement to accommodate the purchase of the Rocky Mount facility. Funds borrowed under the
agreement may be used for working capital, general operating expenses, share repurchases, acquisitions and certain other purposes.
Under the amended loan agreement, the Company continues to be required to maintain specific amounts of tangible net worth, a debt/net
worth ratio, and a fixed charge coverage ratio. At March 31, 2015, the Company was in compliance with these covenants.
As of March
31, 2015 and December 31, 2014, the Company had outstanding borrowings of $27,551,089 and $24,146,841, respectively, under the
Company’s revolving loan agreement with HSBC.
During
the three months ended March 31, 2015, the Company issued a total of 22,000 shares of common stock and received aggregate proceeds
of $321,000 upon exercise of employee stock options.
Note
5— Segment Information
The Company
reports financial information based on the organizational structure used by management 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, management reviews 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 first aid products for school, office, home, hardware, sporting and industrial markets.
Domestic
sales orders are filled from the Company’s distribution center in North Carolina. 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 shipping points in Asia. Direct
import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately
10% of the Company’s total net sales for the three months ended March 31, 2015 and 2014, respectively.
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.
Financial
data by segment:
(in thousands)
| |
Three months ended
March 31 |
Sales to external customers: | |
2015 | |
2014 |
United States | |
$ | 20,134 | | |
$ | 16,103 | |
Canada | |
| 1,244 | | |
| 1,511 | |
Europe | |
| 1,459 | | |
| 1,538 | |
Consolidated | |
$ | 22,837 | | |
$ | 19,152 | |
| |
| | | |
| | |
Operating income: | |
| | | |
| | |
United States | |
$ | 971 | | |
$ | 676 | |
Canada | |
| (108 | ) | |
| 32 | |
Europe | |
| (36 | ) | |
| (83 | ) |
Consolidated | |
$ | 827 | | |
$ | 625 | |
| |
| | | |
| | |
Interest expense, net | |
| 130 | | |
| 83 | |
Other expense, net | |
| 76 | | |
| 19 | |
Consolidated income before
income taxes | |
$ | 621 | | |
$ | 523 | |
| |
March 31 | |
December 31 |
Assets by segment | |
2015 | |
2014 |
United States | |
$ | 70,917 | | |
$ | 70,526 | |
Canada | |
| 4,090 | | |
| 4,363 | |
Europe | |
| 3,793 | | |
| 4,419 | |
Consolidated | |
$ | 78,800 | | |
$ | 79,308 | |
Note
6 – 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 $128,752 and $126,000 for the quarters
ended March 31, 2015 and 2014, respectively. During the three months ended March 31, 2015, the Company issued 15,000 options with
a weighted average fair value of $3.67 per share.
As of March
31, 2015, there was a total of $993,246 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested
share –based payments granted to the Company’s employees. The remaining unamortized expense is expected to be recognized
over a weighted average period of approximately 3 years.
Note
7 – 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.
Note
8 – Business Combination
On June
2, 2014, the Company purchased certain assets of First Aid Only, Inc. (“First Aid Only”), a supplier of Smart Compliance®
first aid kits, refills, and safety products that meet regulatory requirements for a broad range of industries. The Company purchased
inventory, accounts receivable, equipment, patents, trademarks and other intellectual property for approximately $13.8 million
using funds borrowed under its revolving credit facility with HSBC.
The
purchase price was allocated to assets acquired and liabilities assumed as follows (in thousands):
Assets: | |
| | |
Accounts
Receivable | |
$ | 2,544 | |
Inventory | |
| 1,704 | |
Equipment | |
| 463 | |
Prepaid expenses | |
| 110 | |
Customer Relationships | |
| 5,430 | |
Trade Name | |
| 3,410 | |
Covenant Not-to-Compete | |
| 70 | |
Goodwill | |
| 1,340 | |
Total assets | |
$ | 15,071 | |
Liabilities | |
| | |
Accounts Payable | |
$ | 1,019 | |
Accrued Expense | |
| 252 | |
Total liabilities | |
$ | 1,271 | |
Assuming
First Aid Only was acquired on January 1, 2014, unaudited proforma combined net sales for the three months ended March 31, 2014
for the Company would have been approximately $23.0 million. Unaudited proforma combined net income for the three months ended
March 31, 2014 for the Company would have been approximately $ 400,000.
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.
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, the
impact of uncertainties in global economic conditions, 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 or assets which it might acquire, and currency fluctuations. 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, 2014. 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, 2014.
Results
of Operations
On
April 7, 2014, the Company sold its Fremont, NC distribution facility for $850,000 in cash. The facility originally served as
a manufacturing site for the Company’s scissors and rulers. In connection with the sale and as part of the terms of the
sale agreement, the Company is responsible to remediate any environmental contamination on the property. As a result, the Company
recorded a $300,000 liability for environmental remediation in the second quarter of 2014. For more information related to the
sale of the Fremont, NC facility and the required remediation, see Note 9 – Sale of Property in the Notes to Condensed Consolidated
Financial Statements.
On
June 2, 2014, the Company purchased certain assets of First Aid Only, Inc. (“First Aid Only”), located in Vancouver,
WA, a supplier of Smart Compliance® first aid kits, refills, and safety products that meet regulatory requirements for a broad
range of industries. The Company purchased inventory, accounts receivable, equipment, patents, trademarks and other intellectual
property for approximately $13.8 million using funds borrowed under its revolving credit facility with HSBC. Additional information
concerning the acquisition of First Aid Only assets is set forth in Note 8 – 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.
Net
sales
Consolidated
net sales for the three months ended March 31, 2015 were $22,837,000 compared with $19,152,000 in the same period in 2014, a 19%
increase. Net sales for the three months ended March 31, 2015 in the U.S. segment increased 25%, compared with the same period
in 2014. Sales in the U.S. increased primarily due to strong sales of Westcott school and office products, the recently introduced
Cuda brand fishing tools and First Aid Only products.
Net
sales in Canada for the three months ended March 31, 2015 decreased 18% in U.S. dollars (8% in local currency). Lower sales in
the office superstore market resulted primarily from weak economic conditions and were partially offset by sales growth to independent
office product dealers.
European
net sales for the three months ended March 31, 2015 decreased 5% in U.S. dollars but increased 14% in local currency compared
with the same period in 2014. The increase in net sales for the three months ended March 31, 2015 was primarily due to strong
office products sales.
Gross
profit
Gross
profit for the three months ended March 31, 2015 was $8,435,000 (37% of net sales) compared to $6,877,000 (36% of net sales) for
the same period in 2014.
Selling,
general and administrative expenses
Selling,
general and administrative ("SG&A") expenses for the three months ended March 31, 2015 were $7,608,000 (33.3%
of net sales) compared with $6,252,000 (32.6% of net sales) for the same period of 2014, an increase of $1,356,000. The
increases in SG&A expenses for the three months ended March 31, 2015, compared to the same period in 2014, was primarily
the result of incremental expenses from the acquisition of First Aid Only assets, increases in shipping expense and sales
commissions which resulted from higher sales and higher personnel related costs.
Operating
income
Operating
income for the three months ended March 31, 2015 was $827,000 compared with $625,000 in the same period of 2014. Operating income
in the U.S. segment increased by $295,000 for the three months ended March 31, 2015, compared to the same period in 2014. The
increase in operating income was principally due to higher sales.
The
Canadian segment had an operating loss of $106,000 for the three months ended March 31, 2015 compared to operating income of $32,000
in the same period in 2014. The increase in operating loss in Canada for the three months was principally due to the lower sales,
as described above.
For
the three months ended March 31, 2015, the operating loss in the European operating segment decreased by approximately $47,000
compared to the comparable period in 2014 due to higher sales as described above.
Interest
expense, net
Interest
expense, net for the three months ended March 31, 2015 was $130,000, compared with $83,000 for the same period of 2014, a $47,000
increase. The increase in interest expense resulted from higher average borrowings under the Company’s bank revolving credit
facility for the three months ended March 31, 2015. The higher borrowings are primarily the result of the acquisition of assets
of First Aid Only.
Other
expense, net
Net
other expense was $76,000 in the three months ended March 31, 2015 compared to $19,000 in the same period of 2014. The increase
in other expense for the three months ended March 31, 2015 was primarily due to losses from foreign currency transactions.
Income
taxes
The
Company’s effective tax rates for the three months ended March 31, 2015 and 2014 were 30%.
Financial
Condition
Liquidity
and Capital Resources
During
the first three months of 2015, working capital increased approximately $3,313,000 compared to December 31, 2014. Inventory
increased by approximately $2.3 million at March 31, 2015 compared to December 31, 2014 primarily due to normal seasonal
purchases. Inventory turnover, calculated using a twelve month average inventory balance, was 2.2 for the three months ended
March 31, 2015, the twelve months ended December 31, 2014. Receivables decreased by approximately $2.8
million at March 31, 2015 compared to December 31, 2014. The average number of days sales outstanding in accounts receivable
was 60 days at March 31, 2015 compared to 63 days at December 31, 2014. Accounts payable and other current liabilities
decreased by approximately $3.9 million primarily due to the timing of payments for inventory purchases.
The
Company's working capital, current ratio and long-term debt to equity ratio follow:
| |
March 31, 2015 | |
December 31, 2014 |
| |
| | | |
| | |
Working capital | |
$ | 45,451,130 | | |
$ | 42,148,226 | |
Current ratio | |
| 4.96 | | |
| 3.74 | |
Long term debt to equity ratio | |
| 69.8 | % | |
| 61.2 | % |
During
the first three months of 2015, total debt outstanding under the Company’s revolving credit facility increased by approximately
$3.4 million, compared to total debt thereunder at December 31, 2014 as described above. As of March 31, 2015, $27,551,089 was
outstanding and $12,448,911 was available for borrowing under the Company’s credit facility. The increase in the debt outstanding
was primarily due to borrowings to fund the acquisition of assets of First Aid Only on June 2, 2014.
On April
25, 2013, the Company amended its loan agreement with HSBC Bank, N.A. dated April 5, 2012. The amendment increased the borrowing
limit to $40 million from $30 million. The interest rate remains the same at LIBOR plus 1.75%. All principal amounts outstanding
under the agreement are required to be repaid in a single amount on April 5, 2017, the date the agreement expires; interest is
payable monthly. During the fourth quarter of 2013, the Company and HSBC agreed to make certain technical amendments to a covenant
of the amended loan agreement to accommodate the purchase of the Rocky Mount facility. Funds borrowed under the agreement may
be used for working capital, general operating expenses, share repurchases, acquisitions and certain other purposes. Under the
amended loan agreement, the Company continues to be required to maintain specific amounts of tangible net worth, a debt/net worth
ratio, and a fixed charge coverage ratio. At March 31, 2015 the Company was in compliance with the covenants then in effect under
the amended agreement with HSBC.
As
discussed in Note 2 to the Condensed Consolidated Financial Statements set forth in Item 1 above, at March 31, 2015 the Company
had a total of approximately $258,000 remaining in its accruals for environmental remediation and monitoring, related to property
it owned in Fremont, NC.
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.
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 March 31, 2015, 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.
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, 2014.
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 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
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 Chairman
of the Board and
Chief Executive Officer
|
|
|
|
|
Dated: May 13, 2015 |
|
|
|
By |
/s/ Paul G. Driscoll |
|
|
Paul G. Driscoll Vice President and
Chief Financial Officer |
|
|
|
|
Dated: May 13, 2015 |
|
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 Chairman of the Board and
Chief Executive Officer
Dated: May 13, 2015
| |
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 Vice
President and
Chief
Financial Officer
Dated: May 13, 2015
| |
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 March 31, 2015 (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 Chairman of the Board and
Chief Executive Officer
|
Dated:
May 13, 2015
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 March 31, 2015 (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: May 13, 2015
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.
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