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, 2015
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 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 August 3, 2015 the registrant had outstanding
3,346,103 shares 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 as of June 30, 2015 and December 31, 2014 |
3 |
|
Condensed Consolidated Statements
of Operations for the three and six months ended June 30, 2015 and 2014
|
5 |
|
Condensed Consolidated Statements
of Comprehensive Income (Loss) for the three and six months ended June 30,
2015 and 2014 |
6 |
|
Condensed Consolidated Statements
of Cash Flows for the six months ended June 30, 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 |
17 |
Item 4. |
Controls and Procedures |
17 |
|
|
|
Part II — OTHER INFORMATION |
|
Item 1. |
Legal Proceedings |
18 |
Item 1A. |
Risk Factors |
18 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
18 |
Item 3. |
Defaults Upon Senior Securities |
18 |
Item 4. |
Mine Safety Disclosures |
18 |
Item 5. |
Other Information |
18 |
Item 6. |
Exhibits |
19 |
Signatures |
20 |
Part
I - FINANCIAL INFORMATION
Item
1. Financial Statements
ACME
UNITED CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(all
amounts in thousands)
| |
June 30, | |
December 31, |
| |
2015 | |
2014 |
| |
(unaudited) | |
(Note 1) |
| |
| | | |
| | |
ASSETS | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,941 | | |
$ | 2,286 | |
Accounts receivable, less allowance | |
| 27,123 | | |
| 19,477 | |
Inventories: | |
| | | |
| | |
Finished goods | |
| 31,452 | | |
| 28,713 | |
Work in process | |
| 295 | | |
| 522 | |
Raw materials and supplies | |
| 4,469 | | |
| 4,436 | |
| |
| 36,216 | | |
| 33,671 | |
Prepaid expenses and other current assets | |
| 2,425 | | |
| 2,077 | |
Total current assets | |
| 67,705 | | |
| 57,511 | |
Property, plant and equipment: | |
| | | |
| | |
Land | |
| 425 | | |
| 436 | |
Buildings | |
| 5,499 | | |
| 5,126 | |
Machinery and equipment | |
| 10,437 | | |
| 10,067 | |
| |
| 16,361 | | |
| 15,629 | |
Less accumulated depreciation | |
| 9,164 | | |
| 8,698 | |
| |
| 7,197 | | |
| 6,931 | |
| |
| | | |
| | |
Goodwill | |
| 1,375 | | |
| 1,375 | |
Intangible assets, less amortization | |
| 12,173 | | |
| 12,555 | |
Other assets | |
| 971 | | |
| 936 | |
Total assets | |
$ | 89,421 | | |
$ | 79,308 | |
See notes
to condensed consolidated financial statements.
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except share amounts)
| |
June 30, | |
December 31, |
| |
2015 | |
2014 |
| |
(unaudited) | |
(Note 1) |
LIABILITIES | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 9,332 | | |
$ | 7,773 | |
Other accrued liabilities | |
| 7,039 | | |
| 7,590 | |
Total current liabilities | |
| 16,371 | | |
| 15,363 | |
Long-term debt | |
| 30,179 | | |
| 24,147 | |
Other | |
| 336 | | |
| 370 | |
Total liabilities | |
| 46,886 | | |
| 39,880 | |
| |
| | | |
| | |
Committements and Contingencies | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY | |
| | | |
| | |
Common stock, par value $2.50: | |
| | | |
| | |
authorized 8,000,000 shares; | |
| | | |
| | |
issued - 4,700,719 shares in 2015 | |
| | | |
| | |
and 4,653,424 shares in 2014, | |
| | | |
| | |
including treasury stock | |
| 11,752 | | |
| 11,633 | |
Additional paid-in capital | |
| 8,801 | | |
| 7,941 | |
Retained earnings | |
| 36,374 | | |
| 33,784 | |
Treasury stock, at cost - 1,362,072 shares | |
| (12,283 | ) | |
| (12,283 | ) |
Accumulated other comprehensive (loss) income: | |
| | | |
| | |
Minimum pension liability | |
| (895 | ) | |
| (895 | ) |
Translation adjustment | |
| (1,214 | ) | |
| (752 | ) |
| |
| (2,109 | ) | |
| (1,647 | ) |
Total stockholders’ equity | |
| 42,535 | | |
| 39,428 | |
Total liabilities and stockholders’ equity | |
$ | 89,421 | | |
$ | 79,308 | |
See notes
to condensed consolidated financial statements.
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands)
| |
Three Months Ended | |
Six Months Ended |
| |
June 30 | |
June 30 |
| |
2015 | |
2014 | |
2015 | |
2014 |
Net sales | |
$ | 33,954 | | |
$ | 33,396 | | |
$ | 56,791 | | |
$ | 52,548 | |
Cost of goods sold | |
| 21,419 | | |
| 21,675 | | |
| 35,821 | | |
| 33,950 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 12,535 | | |
| 11,721 | | |
| 20,970 | | |
| 18,598 | |
| |
| | | |
| | | |
| | | |
| | |
Selling, general and administrative expenses | |
| 8,660 | | |
| 7,983 | | |
| 16,269 | | |
| 14,235 | |
Operating income | |
| 3,875 | | |
| 3,738 | | |
| 4,701 | | |
| 4,363 | |
| |
| | | |
| | | |
| | | |
| | |
Non-operating items: | |
| | | |
| | | |
| | | |
| | |
Interest: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| 142 | | |
| 108 | | |
| 274 | | |
| 197 | |
Interest income | |
| (1 | ) | |
| (2 | ) | |
| (3 | ) | |
| (9 | ) |
Interest expense, net | |
| 141 | | |
| 106 | | |
| 271 | | |
| 188 | |
Other (income) expense, net | |
| (20 | ) | |
| (3 | ) | |
| 56 | | |
| 16 | |
Total other expense, net | |
| 121 | | |
| 103 | | |
| 327 | | |
| 204 | |
Income before income taxes | |
| 3,754 | | |
| 3,635 | | |
| 4,374 | | |
| 4,159 | |
Income tax expense | |
| 1,044 | | |
| 1,093 | | |
| 1,228 | | |
| 1,248 | |
Net income | |
$ | 2,710 | | |
$ | 2,542 | | |
$ | 3,146 | | |
$ | 2,911 | |
| |
| | | |
| | | |
| | | |
| | |
Basic earnings per share | |
$ | 0.82 | | |
$ | 0.79 | | |
$ | 0.95 | | |
$ | 0.91 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted earnings per share | |
$ | 0.74 | | |
$ | 0.72 | | |
$ | 0.85 | | |
$ | 0.83 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding- | |
| | | |
| | | |
| | | |
| | |
denominator used for basic per share computations | |
| 3,300 | | |
| 3,210 | | |
| 3,315 | | |
| 3,206 | |
Weighted average number of dilutive stock options | |
| | | |
| | | |
| | | |
| | |
outstanding | |
| 381 | | |
| 329 | | |
| 391 | | |
| 281 | |
Denominator used for diluted per share computations | |
| 3,681 | | |
| 3,539 | | |
| 3,706 | | |
| 3,487 | |
| |
| | | |
| | | |
| | | |
| | |
Dividends declared per share | |
$ | 0.09 | | |
$ | 0.08 | | |
$ | 0.18 | | |
$ | 0.16 | |
See notes to condensed consolidated financial
statements.
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(all amounts
in thousands)
| |
Three Months Ended | |
Six Months Ended |
| |
June 30, | |
June 30, |
| |
2014 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Net income | |
$ | 2,710 | | |
$ | 2,542 | | |
$ | 3,146 | | |
$ | 2,911 | |
Other comprehensive (loss) / income - | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation | |
| 91 | | |
| 165 | | |
| (462 | ) | |
| (38 | ) |
Comprehensive income | |
$ | 2,801 | | |
$ | 2,707 | | |
$ | 2,684 | | |
$ | 2,873 | |
See notes to condensed consolidated financial statements.
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
| |
Six Months Ended |
| |
June 30, |
| |
2015 | |
2014 |
Operating Activities: | |
| | | |
| | |
Net income | |
$ | 3,146 | | |
$ | 2,911 | |
Adjustments to reconcile net income | |
| | | |
| | |
to net cash used by operating activities: | |
| | | |
| | |
Depreciation | |
| 641 | | |
| 541 | |
Amortization | |
| 383 | | |
| 174 | |
Stock compensation expense | |
| 304 | | |
| 300 | |
Gain on disposal/sale of assets | |
| — | | |
| (200 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (7,698 | ) | |
| (12,796 | ) |
Inventories | |
| (3,010 | ) | |
| (1,000 | ) |
Prepaid expenses and other assets | |
| (508 | ) | |
| (357 | ) |
Accounts payable | |
| 1,766 | | |
| 5,249 | |
Other accrued liabilities | |
| (607 | ) | |
| 1,989 | |
Total adjustments | |
| (8,729 | ) | |
| (6,100 | ) |
Net cash used by operating activities | |
| (5,583 | ) | |
| (3,189 | ) |
| |
| | | |
| | |
Investing Activities: | |
| | | |
| | |
Purchase of property, plant, and equipment | |
| (867 | ) | |
| (1,022 | ) |
Purchase of patents and trademarks | |
| (3 | ) | |
| (63 | ) |
Acquisition of certain assets of First Aid Only, Inc. | |
| — | | |
| (13,806 | ) |
Proceeds from the sales of property, plant, and equipment | |
| — | | |
| 773 | |
Net cash used by investing activities | |
| (870 | ) | |
| (14,118 | ) |
| |
| | | |
| | |
Financing Activities: | |
| | | |
| | |
Borrowing of long-term debt | |
| 6,033 | | |
| 8,413 | |
Proceeds from issuance of common stock | |
| 675 | | |
| 173 | |
Distributions to stockholders | |
| (595 | ) | |
| (512 | ) |
Net cash provided by financing activities | |
| 6,113 | | |
| 8,074 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (5 | ) | |
| 17 | |
Net change in cash and cash equivalents | |
| (345 | ) | |
| (9,218 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 2,286 | | |
| 11,644 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 1,941 | | |
$ | 2,426 | |
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 June 30, 2015 and through the date these condensed consolidated financial statements
were included in this Form 10-Q and filed with the SEC.
As part of the process
of preparing our financial statements on a quarterly basis, the Company estimates its income tax expense. This process involves the
estimation of the Company’s current tax exposure based on expected annual results of operations.
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
included the total of then estimated costs of remedial activities and post-remediation monitoring 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, included in other accrued liabilities and other liabilities on the condensed consolidated balance sheets for the six
months ended June 30, 2015 follows (amounts in thousands):
| |
Balance
at
December 31, 2014 | |
Estimated
Costs | |
Payments | |
Balance
at
June 30, 2015 |
Fremont, NC | |
$ | 260 | | |
$ | — | | |
$ | (14 | ) | |
$ | 246 | |
Bridgeport, CT | |
| 6 | | |
| — | | |
| (6 | ) | |
| — | |
Total | |
$ | 266 | | |
$ | — | | |
$ | (20 | ) | |
$ | 246 | |
Note
3 — Pension
Components of net periodic benefit cost
are as follows (in thousands):
| |
Three Months Ended June 30, | |
Six Months Ended June 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
| |
| |
| |
|
Components of net periodic benefit cost: | |
| | | |
| | | |
| | | |
| | |
Interest cost | |
$ | 15 | | |
$ | 19 | | |
$ | 29 | | |
$ | 35 | |
Service cost | |
| 6 | | |
| 3 | | |
| 13 | | |
| 13 | |
Expected return on plan assets | |
| (23 | ) | |
| (29 | ) | |
| (46 | ) | |
| (47 | ) |
Amortization of prior service costs | |
| 2 | | |
| 2 | | |
| 5 | | |
| 5 | |
Amortization of actuarial loss | |
| 28 | | |
| 23 | | |
| 56 | | |
| 58 | |
| |
$ | 28 | | |
$ | 18 | | |
$ | 57 | | |
$ | 64 | |
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. As of June
30, 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 June 30, 2015,
the Company was in compliance with these covenants.
As of June 30, 2015 and December 31, 2014, the Company had outstanding
borrowings of $30,179,484 and $24,146,841, respectively, under the Company’s revolving loan agreement with HSBC.
During the three months ended June 30, 2015,
the Company issued a total of 25,595 shares of common stock and received aggregate proceeds of $354,000 upon exercise of employee
stock options. During the six months ended June 30, 2015, the Company issued a total of 47,295 shares of common stock and received
aggregate proceeds of $675,000 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 27% and 20% of the Company’s total
net sales for the three and six months ended June 30, 2015 compared to 26% and 20% for the comparable periods in 2014.
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 June 30, | |
Six months ended June 30, |
Sales to external customers: | |
2015 | |
2014 | |
2015 | |
2014 |
United States | |
$ | 29,649 | | |
$ | 27,870 | | |
$ | 49,782 | | |
$ | 43,974 | |
Canada | |
| 2,813 | | |
| 3,673 | | |
| 4,054 | | |
| 5,184 | |
Europe | |
| 1,492 | | |
| 1,853 | | |
| 2,955 | | |
| 3,390 | |
Consolidated | |
$ | 33,954 | | |
$ | 33,396 | | |
$ | 56,791 | | |
$ | 52,548 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income (loss): | |
| | | |
| | | |
| | | |
| | |
United States | |
$ | 3,552 | | |
$ | 3,239 | | |
$ | 4,522 | | |
$ | 3,916 | |
Canada | |
| 282 | | |
| 527 | | |
| 175 | | |
| 559 | |
Europe | |
| 41 | | |
| (28 | ) | |
| 4 | | |
| (112 | ) |
Consolidated | |
$ | 3,875 | | |
$ | 3,738 | | |
$ | 4,701 | | |
$ | 4,363 | |
| |
| | | |
| | | |
| | | |
| | |
Interest expense, net | |
| 141 | | |
| 106 | | |
| 271 | | |
| 188 | |
Other (income) expense , net | |
| (20 | ) | |
| (3 | ) | |
| 56 | | |
| 16 | |
Consolidated income before taxes | |
$ | 3,754 | | |
$ | 3,635 | | |
$ | 4,374 | | |
$ | 4,159 | |
Assets by segment: | |
| |
|
(in thousands) | |
| |
|
| |
June 30, | |
December 31, |
| |
2015 | |
2014 |
United States | |
$ | 79,605 | | |
$ | 70,526 | |
Canada | |
| 5,550 | | |
| 4,363 | |
Europe | |
| 4,266 | | |
| 4,419 | |
Consolidated | |
$ | 89,421 | | |
$ | 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 $174,763 and $174,000 for the quarters
ended June 30, 2015 and 2014, respectively. Share-based compensation expenses were $303,515 and $300,000 for the six months
ended June 30, 2015 and 2014, respectively. During the three months ended June 30, 2015, the Company issued 22,000 options
with a weighted average fair value of $3.38 per share. During the six months ended June 30, 2015, the Company issued 37,000
options with a weighted average fair value of $3.50 per share.
As of June 30, 2015, there was a total of $885,305 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 (including assumed liabilities) 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 and six months ended June 30, 2014 for the Company would have been
approximately $36.7 million and $59.6 million, respectively. Unaudited proforma combined net income for the three and six months
ended June 30, 2014 for the Company would have been approximately $2.7 million and $3.1 million, respectively.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Information
The Company may from
time to time make written or oral “forward-looking statements”, including statements contained in this report and in
other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions
of the Private Securities Litigation Reform Act of 1995.
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 impact
of any loss of a major customer, whether through consolidation or otherwise, 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 2 – Contingencies 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 2 – Contingencies, 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 June 30, 2015 were $33,954,000 compared with $33,396,000 in the same period in 2014, a 2% increase (4% in local currency).
Consolidated net sales for the six months ended June 30, 2015 were $56,791,000, compared with $52,548,000 for the same period in
2014, an 8% increase (10% in local currency).
Net sales for the three months ended June 30, 2015 in the U.S. segment
increased 6% compared with the same period in 2014. While purchases from office superstores declined in the second quarter due
to store closings, our recent product and customer diversification efforts offset weakness in the office channel. In particular,
sales of first aid items, Cuda fishing tools and Camillus knives have contributed to the growth in sales during the second quarter.
Net sales for the six months ended June 30, 2015 in the U.S. segment increased 10% compared with the same period in 2014 primarily
due to increased sales of first aid products, and Westcott scissors.
Net sales in Canada for the three months ended
June 30, 2015 decreased 23% in U.S. dollars (13% in local currency) compared with the same period in 2014. Net sales in Canada
for the six months ended June 30, 2015 decreased 22% in U.S. dollars (11% in local currency) compared with the same period in 2014.
These decreases in sales in Canada for the three and six months ended June 30, 2015 were primarily due to a large retail chain
exiting the Canadian market and weak economic conditions.
European net sales for the three months ended
June 30, 2015 decreased 19% in U.S. dollars (constant in local currency) compared with the same period in 2014. European net sales
for the six months ended June 30, 2015 decreased 13% in U.S. dollars but increased 6% in local currency.
Gross profit
Gross profit for the three months ended June
30, 2015 was $12,535,000 (36.9% of net sales) compared to $11,721,000 (35.0% of net sales) for the same period in 2014. Gross profit
for the six months ended June 30, 2015 was $20,970,000 (36.9% of net sales) compared to $18,598,000 (35.4% of net sales) in the
same period in 2014. The increase in gross profit for the three and six months ended June 30, 2015 was primarily due to a favorable
product mix.
Selling,
general and administrative expenses
Selling, general
and administrative ("SG&A") expenses for the three months ended June 30, 2015 were $8,660,000 (25.5% of net sales)
compared with $7,983,000 (24.0% of net sales) for the same period of 2014, an increase of $677,000. SG&A expenses for the six
months ended June 30, 2015 were $16,269,000 (28.6% of net sales) compared with $14,235,000 (27.0% of net sales) in the comparable
period of 2014, an increase of 2,034,000. The increases in SG&A expenses for the three and six months ended June 30, 2015,
compared to the same periods in 2014, were 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
which include compensation and recruiting costs.
Operating income
Operating income
for the three months ended June 30, 2015 was $3,875,000 compared with $3,738,000 in the same period of 2014. Operating income for
the six months ended June 30, 2015 was $4,701,000 compared to $4,363,000 in the same period of 2014. Operating income in the U.S.
segment increased by $313,000 and $606,000 for the three and six months ended June 30, 2015, respectively, compared to the same
periods in 2014. The increase in operating income is principally due to higher sales as described above.
Operating income
in the Canadian segment decreased by $245,000 and $384,000 for the three and six months ended June 30, 2015, respectively, compared
to the same periods in 2014. The decrease in operating income in Canada was principally due to the lower sales as described above.
For the three months
ended June 30, 2015, the European operating segment had operating income of approximately $41,000 compared to an operating loss
of $28,000 in the comparable period of 2014. For the six months ended June 30, 2015, the operating income in the European operating
segment was approximately $4,000 compared to an operating loss of $112,000 in the comparable period in 2014.
Interest expense,
net
Interest expense,
net for the three months ended June 30, 2015 was $141,000, compared with $106,000 for the same period of 2014, a $35,000 increase.
Interest expense, net for the six months ended June 30, 2015 was $271,000, compared with $188,000 for the same period of 2014,
an $83,000 increase. The increase in interest expense resulted from higher average borrowings under the Company’s bank revolving
credit facility for the three and six months ended June 30, 2015. The higher borrowings are primarily the result of the acquisition
of assets of First Aid Only.
Other
expense, net
Net other income
was $20,000 in the three months ended June 30, 2015 compared to $3,000 in the same period of 2014. Net other expense was $56,000
in the first six months of 2015 compared to $16,000 in the same period of 2014. The change in other (income) expense, net is primarily
due to gains and losses from foreign currency transactions.
Income taxes
The Company’s effective tax rates
for the three and six months ended June 30, 2015 were 28% compared to 30% during the same periods in 2014.
Financial Condition
Liquidity and Capital Resources
During the first six months of 2015, working
capital increased approximately $9,186,000 compared to December 31, 2014. Inventory increased by approximately $2.5 million at
June 30, 2015 compared to December 31, 2014 primarily due to normal seasonal purchases. Inventory turnover, calculated using a
twelve month average inventory balance, was 2.1 for the six months ended June 30, 2015 compared to 2.2 for the twelve months ended
December 31, 2014. Receivables increased by approximately $7.6 million at June 30, 2015 compared to December 31, 2014. The average
number of days sales outstanding in accounts receivable was 61 days at June 30, 2015 compared to 63 days at December 31, 2014.
Accounts payable and other current liabilities increased by approximately $1.0 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:
| |
June 30, 2015 | |
December 31, 2014 |
(in thousands) | |
| | | |
| | |
Working capital | |
$ | 51,334 | | |
$ | 42,148 | |
Current ratio | |
| 4.14 | | |
| 3.74 | |
Long term debt to equity ratio | |
| 71.0 | % | |
| 61.2 | % |
During the first six months
of 2015, total debt outstanding under the Company’s revolving credit facility increased by approximately $6.0 million, compared
to total debt thereunder at December 31, 2014 as described above. As of June 30, 2015, $30,179,484 was outstanding and $9,820,516
was available for borrowing under the Company’s credit facility. The increase in the debt outstanding was primarily related
to the increase in inventory and accounts receivable.
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 June 30, 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 June 30, 2015, the Company had a total of approximately $246,000 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 June 30, 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: August 14, 2015 |
|
|
|
By |
/s/ Paul G. Driscoll |
|
|
Paul G. Driscoll Vice President and
Chief Financial Officer |
|
|
|
|
Dated: August 14, 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: August 14, 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 June 30, 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:
August 14, 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 June 30, 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: August 14, 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 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: August 14, 2015
| |
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