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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
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Commission file number 001-07698
ACME UNITED CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0236700
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
60 ROUND HILL ROAD, FAIRFIELD, CONNECTICUT 06824
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 254-6060
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check
one).
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |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 July 18, 2006 the registrant had outstanding 3,495,333 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 June 30, 2006
and December 31, 2005 .................................... 3
Condensed Consolidated Statements of Operations
and Comprehensive Income for the three and six months
ended June 30, 2006 and 2005................................ 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2006 and 2005..................... 6
Notes to Condensed Consolidated Financial Statements........... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk........ 14
Item 4. Controls and Procedures.......................................... 14
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 15
Item 1A. Risk Factors................................................... 15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 15
Item 3. Defaults Upon Senior Securities................................ 15
Item 4. Submission of Matters to a Vote of Security Holders............ 15
Item 5. Other Information.............................................. 15
Item 6. Exhibits....................................................... 16
Signatures............................................................... 17
(2)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all dollar amounts in thousands)
June 30 December 31
2006 2005
(unaudited) (Note 1)
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,053 $ 1,076
Accounts receivable, less allowance 14,960 9,392
Inventories:
Finished goods 14,061 11,691
Work in process 80 116
Raw materials and supplies 849 723
------------- -------------
14,990 12,530
Prepaid expenses and other current assets 897 542
Deferred income taxes 325 325
------------- -------------
Total current assets 32,225 23,865
------------- -------------
Property, plant and equipment:
Land 163 152
Buildings 2,985 2,954
Machinery and equipment 6,866 6,525
------------- -------------
10,014 9,631
Less accumulated depreciation 7,448 6,845
------------- -------------
2,566 2,786
Other assets 1,502 1,454
Goodwill 89 89
------------- -------------
Total assets $ 36,382 $ 28,194
============= =============
See notes to condensed consolidated financial statements.
(3)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all dollar amounts in thousands)
June 30 December 31
2006 2005
(unaudited) (Note 1)
------------- -------------
LIABILITIES
Current liabilities:
Accounts payable $ 3,715 $ 2,174
Other accrued liabilities 4,768 5,356
Current portion of long-term debt - 10
------------- -------------
Total current liabilities 8,483 7,540
Deferred income taxes 131 141
Long-term debt, less current portion 10,256 5,577
Other 953 871
------------- -------------
Total liabilities 19,823 14,129
STOCKHOLDERS' EQUITY Common stock, par value $2.50:
authorized 8,000,000 shares;
issued 4,174,324 shares in 2006
and 4,164,824 in 2005, including treasury stock 10,434 10,405
Treasury stock, at cost - 678,991 shares
in 2006 and 2005 (5,439) (5,439)
Additional paid-in capital 2,818 2,624
Retained earnings 9,605 7,547
Accumulated other comprehensive loss:
Translation adjustment 31 (182)
Minimum pension liability (890) (890)
------------- -------------
(859) (1,072)
------------- -------------
Total stockholders' equity 16,559 14,065
------------- -------------
Total liabilities and stockholders' equity $ 36,382 $ 28,194
============= =============
See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $ 16,984 $ 14,904 $ 29,241 $ 25,487
Costs and expenses:
Cost of goods sold 9,556 8,173 16,261 13,895
Selling, general and administrative expenses 4,995 4,577 9,254 8,296
------------ ------------ ------------ ------------
14,551 12,750 25,515 22,191
------------ ------------ ------------ ------------
Income before non-operating items 2,433 2,154 3,726 3,296
Non-operating items:
Interest expense 130 43 255 56
Other (income) expense, net (38) 97 (114) 146
------------ ------------ ------------ ------------
92 140 141 202
------------ ------------ ------------ ------------
Income before income taxes 2,341 2,014 3,585 3,094
Income tax expense 835 700 1,320 1,130
------------ ------------ ------------ ------------
Net income 1,506 1,314 2,265 1,964
Other comprehensive income (expense) -
Foreign currency translation 240 (81) 213 (96)
------------ ------------ ------------ ------------
Comprehensive income $ 1,746 $ 1,233 $ 2,478 $ 1,868
============ ============ ============ ============
Basic earnings per share $ 0.43 $ 0.37 $ 0.65 $ 0.56
============ ============ ============ ============
Diluted earnings per share $ 0.40 $ 0.34 $ 0.61 $ 0.52
============ ============ ============ ============
Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,489 3,541 3,487 3,508
Weighted average number of dilutive stock options
outstanding 242 307 238 302
------------ ------------ ------------ ------------
Denominator used for diluted per share computations 3,731 3,848 3,725 3,810
============ ============ ============ ============
Dividends declared per share 0.03 0.03 0.06 0.05
============ ============ ============ ============
See notes to condensed consolidated financial statements.
(5)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Six Months Ended
June 30
---------------------------
2006 2005
------------ ------------
Operating Activities:
Net income $ 2,265 $ 1,964
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation 403 259
Amortization 17 21
Stock compensation expense 173 -
Loss on disposal/sale of assets - 43
Changes in operating assets and liabilities:
Accounts receivable (5,425) (3,708)
Inventories (2,327) (2,888)
Prepaid expenses and other current assets (333) (61)
Accounts payable 1,523 1,488
Other accrued liabilities (587) (51)
------------ ------------
Total adjustments (6,556) (4,897)
------------ ------------
Net cash used by operating activities (4,291) (2,933)
------------ ------------
Investing Activities:
Purchase of property, plant, and equipment (128) (453)
Proceeds from sale of property, plant, and equipment - 166
Purchase of patents and trademarks (65) (85)
------------ ------------
Net cash used by investing activities (193) (372)
------------ ------------
Financing Activities:
Net borrowing of long-term debt 4,665 3,594
Proceeds from issuance of common stock 51 788
Distribution to stockholders (222) (146)
Purchase of treasury stock - (2,203)
------------ ------------
Net cash provided by financing activities 4,494 2,033
------------ ------------
Effect of exchange rate changes (33) (14)
------------ ------------
Net change in cash and cash equivalents (23) (1,286)
Cash and cash equivalents at beginning of period 1,076 1,888
------------ ------------
Cash and cash equivalents at end of period $ 1,053 $ 602
============ ============
See notes to condensed consolidated financial statements
(6)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 -- Basis of Presentation
In the opinion of management, the accompanying condensed consolidated
financial statements include all adjustments necessary to present fairly the
financial position, results of operations and cash flows 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, 2005 for such disclosures. The condensed consolidated balance
sheet as of December 31, 2005 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 Form 10-Q should be read in conjunction with the
Managements Discussion and Analysis of Financial Condition and Results of
Operations and financial statements and notes thereto, included in the Company's
2005 Form 10-K.
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. The Company presently believes that
none of these matters, individually or in the aggregate, would be likely to have
a material adverse impact on financial position, results of operations, or
liquidity.
Note 3 -- Pension
Components of net periodic pension cost are as follows:
Three Months Ended Six Months Ended
-------------------------- -------------------------
June 30 June 30 June 30 June 30
2006 2005 2006 2005
----------- ----------- ----------- -----------
Components of net periodic benefit cost:
Interest cost $ 45,948 $ 53,365 $ 93,948 $ 106,729
Service cost 6,250 8,750 15,000 17,500
Expected return on plan assets (62,048) (69,045) (114,298) (138,089)
Amortization of prior service costs 2,138 2,138 4,388 4,276
Amortization of actuarial gain 24,408 17,102 46,408 34,204
------------------------------------------------------
$ 16,696 $ 12,310 $ 45,446 $ 24,620
======================================================
Note 4 -- Long Term Debt and Capital Structure
The Company's revolving loan agreement, as amended, provides for
borrowing up to $15 million with all amounts outstanding to be repaid by June
30, 2009. At June 30, 2006 and December 31, 2005, the Company had borrowings
under the revolving loan agreement of $10,165,000 and $5,544,500, respectively.
Based on the scheduled maturity date, the Company has classified these
borrowings at June 30, 2006 as long-term.
During the first six months of 2006, the Company issued 12,500 shares of
common stock with proceeds of $51,155 upon the exercise of outstanding stock
options.
(7)
Note 5 -- Non-Recurring Charge
In the quarter ended September 30, 2005, the Company accrued a charge of
$1.5 million related to the estimated cost to demolish the Company's former
manufacturing facility located in Bridgeport, CT, and remove certain
environmentally hazardous material contained in the buildings to be demolished.
The estimated costs were based on a third party contractor's estimate. After the
demolition is complete, the Company will explore options to sell the property.
As of June 30, 2006, the Company had approximately $482,000 remaining in
its accrual for demolition costs related to the former manufacturing site.
Please refer to Company's Annual Report on Form 10-K for the year ended
December 31, 2005 for a more detailed discussion.
Note 6-- 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 include:
(1) United States; (2) Canada and (3) Europe. The activities of the Company's
Asian operating segment are closely linked to those of the U.S. operating
segment; consequently, management reviews the financial results of both segments
on a consolidated basis. Therefore, the results of the Asian operating segment
have been aggregated with the results of the United States operating segment to
form one reportable segment. The determination of reportable segments is based
on the guidance set forth in SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Each reportable segment derives its revenue
from the sales of cutting devices, measuring instruments and safety products for
school, office, home and industrial use.
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
2006 2005 2006 2005
------------- ------------- ------------- -------------
Sales to external customers
United States $ 13,238 $ 11,729 $ 22,918 $ 19,858
Canada 2,388 2,209 3,910 3,551
Europe 1,358 966 2,413 2,078
------------- ------------- ------------- -------------
Consolidated $ 16,984 $ 14,904 $ 29,241 $ 25,487
============= ============= ============= =============
Operating Income
United States $ 2,320 $ 1,846 $ 3,726 $ 2,978
Canada 322 271 390 322
Europe (209) 37 (390) (4)
------------- ------------- ------------- -------------
Consolidated $ 2,433 $ 2,154 $ 3,726 $ 3,296
============= ============= ============= =============
June 30 December 31
Total assets by segment 2006 2005
------------- -------------
United States $ 27,976 $ 21,735
Canada 4,687 3,900
Europe 3,719 2,559
------------- -------------
Consolidated $ 36,382 $ 28,194
============= =============
(8)
Note 7 - Stock Based Compensation
Effective January 1, 2006, the Company adopted the provisions of, and
accounted for stock-based compensation in accordance with, the Financial
Accounting Standards Board's ("FASB") Statement of Financial Accounting
Standards No. 123--revised 2004 ("SFAS 123R"), "Share-Based Payment" which
replaced Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." Under the fair value
recognition provisions of SFAS 123R, stock-based compensation cost is measured
at the grant date based on the fair value of the award and is recognized as
expense over the requisite service period, which is generally the vesting
period. The Company adopted SFAS 123R using the modified-prospective method,
under which prior periods are not restated for comparative purposes. The
valuation provisions of SFAS 123R apply to new grants and any grants that were
outstanding as of the effective date and are subsequently modified. Estimated
compensation for grants that were outstanding as of the effective date will be
recognized over the remaining service period using the compensation cost
estimated for pro forma disclosures.
The Company uses the Black-Scholes option pricing model to determine the
fair value of employee and non-employee director stock options. The
determination of the fair value of stock-based payment awards on the date of
grant, using an option-pricing model, is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables. These
assumptions include estimating the length of time employees will retain their
vested stock options before exercising them ("expected term"), the estimated
volatility of the Company's common stock price over the expected term
("volatility") and the number of options that will ultimately not complete their
vesting requirements ("forfeitures").
The Company estimates the expected term of options granted by evaluating
various factors including the vesting period, historical employee information as
well as current and historical stock prices and market conditions. The Company
estimates the volatility of its common stock by calculating historical
volatility based on the closing stock price on the last day of each of the
forty-eight months leading up to the month the option was granted. The risk-free
interest rate that the Company uses in the option valuation model is the
interest rate on U.S. Treasury zero-coupon issues with remaining terms similar
to the expected term of the options granted. Historical information was the
basis for calculating the dividend yield. The Company is required to estimate
forfeitures at the time of grant and to revise those estimates in subsequent
periods if actual forfeitures differ from those estimates. The Company used a
mix of historical data and future assumptions to estimate pre-vesting option
forfeitures and to record stock-based compensation expense only for those awards
that are expected to vest. All stock-based payment awards are amortized over the
requisite service periods of the awards, which are generally the vesting
periods. The option grants generally vest at a rate of 25% one day after the
date of grant and 25% on the day after the anniversary of the grant date in each
of the next three years.
The assumptions used to value option grants for the quarters ended June 30,
2006 and June 30, 2005 are as follows:
Three months ended Six months ended
June 30 June 30
-------------------------------- --------------------------------
2006 2005 2006 2005
-------------------------------- --------------------------------
Expected life in years 4 5 4 5
Interest rate 4.90% 3.84% 4.32 - 4.90% 3.72 - 3.90%
Volatility 0.34 0.36 .34 0.36 - 0.39
Dividend yield 0.80% 0.70% 0.80 - 0.90% 0.70%
Total stock-based compensation recognized on the Company's consolidated
statement of operations for the three and six months ended June 30, 2006 is
$106,966 and $173,372, respectively. As of June 30, 2006, there was
approximately $281,337 of unrecognized compensation cost, adjusted for estimated
forfeitures, related to non-vested stock-based payments granted to the Company's
employees. As of June 30, 2006, the remaining unamortized expense is expected to
be recognized over a weighted average period of 1.9 years.
(9)
The pro forma effects of recognizing the estimated fair value of
stock-based compensation for the three and six months ended June 30, 2005 has
been disclosed previously in the Company's footnotes under provisions of SFAS
123, Accounting for Stock-Based Compensation. The previously-disclosed pro forma
information, as adjusted to reflect a 36 month, instead of a 48 month option
vesting schedule, is presented below.
Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
------------------- -------------------
Net income, as reported $ 1,314,000 $ 1,964,000
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related income tax effects 230,497 251,701
------------------- -------------------
Pro forma net income $ 1,083,503 $ 1,712,299
=================== ===================
Net income per share:
Basic-as reported $ 0.37 $ 0.56
Basic-pro forma $ 0.31 $ 0.49
Diluted-as reported $ 0.34 $ 0.52
Diluted-pro forma $ 0.28 $ 0.45
(10)
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, changes in client needs and consumer
spending habits, the impact of competition and technological change on the
Company, the Company's ability to manage its growth effectively, including its
ability to successfully integrate any business which it might acquire, and
currency fluctuations. All forward-looking statements in this report are based
upon information available to the Company on the date of this report. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events, or otherwise, except as required by law.
Critical Accounting Policies
----------------------------
There have been no material changes to our 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 our
Annual Report on Form 10-K for the fiscal year ended December 31, 2005, except
as follows:
Accounting for Stock-Based Compensation. In the first quarter of 2006, the
Company began accounting for stock-based compensation in accordance with the
fair value recognition provisions of Statement of Financial Accounting Standards
("SFAS") No. 123R. The Company uses the Black-Scholes option - pricing model,
which requires the input of subjective assumptions. These assumptions include
estimating the length of time employees will retain their vested stock options
before exercising them ("expected term"), the estimated volatility of the
Company's common stock price over the expected term ("volatility") and the
number of options that will ultimately not complete their vesting requirements
("forfeitures"). Changes in the subjective assumptions can materially affect the
estimate of fair value stock-based compensation, and consequently, the related
amount recognized on the consolidated statements of operations. Refer to Note 7
"Stock Based Compensation" for a more detailed discussion of the effects of SFAS
123R on our results of operations and financial condition.
Results of Operations
---------------------
Net Sales
Traditionally, the Company's sales are stronger in the second and third
quarters, and weaker in the first and fourth quarters of the fiscal year due to
the seasonal nature of the back-to-school season. Consolidated net sales for the
three months ended June 30, 2006 were $16,984,000 compared with $14,904,000 in
the same period of 2005, a 14% increase. Consolidated net sales for the six
months ended June 30, 2006 were $29,241,000, compared with $25,487,000 for the
same period in 2005, a 15% increase (14% at constant currency). Net sales for
the first six months ended June 30, 2006 in the U.S. operating segment increased
15% as the result of sales initiatives with several major retailers and
superstores. Sales in Europe and Canada for the six months ended June 30, 2006
increased by 12% in U.S. dollars and 8% in local currency. This sales growth was
principally driven by new sales to a large pan-European superstore and an
expanded product line with a major European retailer.
(11)
Gross Profit
Gross profit for the three months ended June 30, 2006 was $7,428,000 (43.7%
of net sales) compared to $6,731,000 (45.2% of net sales) for the same period in
2005. Gross profit for the six months ended June 30, 2006 was $12,980,000 (44.4%
of net sales) compared to $11,592,000 (45.5% of net sales) in the same period of
2005. The lower margin in the first six months of 2006 is primarily the result
of expedited freight costs and other one-time expenses associated with the new
business in Europe.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the three months
ended June 30, 2006 were $4,995,000 (29.4% of net sales) compared with
$4,577,000 (30.7% of net sales) for the same period of 2005, an increase of
$418,000. SG&A expenses for the six months ended June 30, 2006 were $9,254,000
(31.6% of net sales) compared with $8,296,000 (32.5% of net sales) in the
comparable period of 2005. The majority of the increase was due to higher sales
commissions and freight costs associated with higher sales, the addition of
sales, marketing, logistics and quality control personnel. SG&A expenses for the
first six months of 2006 also included $173,000 in stock option compensation
expense due to the Company's adoption of SFAS 123R.
Operating Income
Operating income for the three months ended June 30, 2006 was $2,433,000
compared with $2,154,000 in the same period of 2005. Operating income for the
six months ended June 30, 2006 was $3,726,000 as compared to $3,296,000 in the
same period of 2005. For the six months ended June 30, 2006, operating income
for the United States increased by $748,000 or 25% compared to the same period
of 2005, primarily as a result of increased sales; operating income in Canada
for the six months ended June 30, 2006 increased by $68,000 or 21% due to an
improved gross margin. The European operating loss increased during the six
months ended June 30, 2006 by $386,000 primarily due to expedited freight costs
and other one-time expenses associated with the launch of the new customer
programs.
Interest Expense
Interest expense for the three months ended June 30, 2006 was $130,000,
compared with $43,000 for the same quarter of 2005, an $87,000 increase.
Interest expense for the six months ended June 30, 2006 was $255,000 as compared
to $56,000 for the same period in 2005. The increase in interest expense was
primarily the result of higher borrowings under the Company's bank revolving
credit facility to fund inventory purchases, demolish a former manufacturing
site and a higher LIBOR interest rate.
Other (Income) Expense, Net
Net other income was $38,000 in the second quarter of 2006 compared to net
other expense of $97,000 in the second quarter of 2005. Net other income was
$114,000 in the first six months of 2006 compared to net other expense of
$146,000 in the first six months of 2005. The change from 2005 is primarily due
to increased gains from foreign currency transactions in the first six months of
2006 compared to losses from foreign currency transactions in the first six
months of 2005.
Income Taxes
The effective tax rate in the first six months of 2006 and 2005 was 37%.
(12)
Financial Condition
-------------------
Liquidity and Capital Resources
The Company's working capital, current ratio and long-term debt to equity ratio
follow:
June 30, 2006 December 31, 2005
----------------- -----------------
Working capital $ 23,741,517 $ 16,325,098
Current ratio 3.80 3.17
Long term debt to equity ratio 61.9% 39.7%
During the first six months of 2006, total debt outstanding under the
Company's modified revolving loan agreement increased by $4,620,500 compared to
total debt at December 31, 2005, principally as a result of the buildup of
inventory in anticipation of future business and payments associated with the
demolition of the Company's former manufacturing site located in Bridgeport, CT
(approximately $1.0 million). Refer to Note 5 "Non-Recurring Charges" for
further information.
On March 6, 2006, the Company modified its Revolving Loan Agreement (the
"Modified Loan Agreement") with Wachovia Bank. The amendments include an
increase in the maximum borrowing amount from $10 million to $15 million; an
extension of the maturity date from June 30, 2007 to June 30, 2009; a decrease
in the interest rate to LIBOR plus 1% from LIBOR plus 1.5%, as well as
modifications to certain covenant restrictions. Funds borrowed under the
Modified Loan Agreement will be used for working capital, general operating
expenses and other purposes. As of June 30, 2006, $10,165,000 was outstanding
and $4,835,000 was available for borrowing under the Modified Loan Agreement.
The remaining estimated demolition costs of approximately $482,000 related to
the former manufacturing site will be paid with funds to be borrowed under the
Modified Loan Agreement
The Company anticipates that cash generated from operating activities,
together with funds available under the Modified Loan Agreement, are expected,
under current conditions, to be sufficient to finance the Company's planned
operations over the next twelve months. Over that same period, the Company does
not expect to make significant investments in property, plant and equipment.
(13)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
Recently Issued Accounting Standards
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4," to clarify that abnormal amounts of idle
facility expense, freight, handling costs and wasted material (spoilage) should
be recognized as current period charges, and that fixed production overhead
costs should be allocated to inventory based on normal capacity of production
facilities. This statement is effective for the Company's fiscal year 2006. The
adoption of this standard has not had a material effect on its financial
position, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There are no material changes in market risks as disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2005.
Item 4. Controls and Procedures
(a) Evaluation of Internal Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of our disclosure controls and procedures, which
included inquiries made to certain other of our employees. Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have each
concluded that, as of June 30, 2006, our disclosure controls and procedures were
effective and sufficient to ensure that we record, process, summarize and report
information required to be disclosed by us in our periodic reports filed under
the Securities and Exchange Commission's rules and forms.
(b) Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2006, there were no changes in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, this internal control.
(14)
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The Company is involved from time to time in disputes and other litigation
in the ordinary course of business, including certain environmental and other
matters. The Company presently believes that none of these matters, individually
or in the aggregate, would be likely to have a material adverse impact on its
financial position, results of operations, or liquidity from these matters.
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, 2005.
Item 2 -- Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 -- Defaults Upon Senior Securities
None
Item 4 -- Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of shareholders was held on April 24, 2006.
A. The following individuals were elected Directors at the Meeting and
comprise the entire Board.
Votes for Votes against
--------- -------------
Rex Davidson 2,967,718 163,610
George R. Dunbar 3.116.349 14,979
Richmond Y. Holden, Jr. 3,119,331 11,997
Walter C. Johnsen 3,009,448 121,880
Susan H. Murphy 2,967,080 164,248
Brian Olschan 3,009,191 122,137
Gary D. Penisten 3,114,763 16,565
Stephen Spinelli, Jr. 2,967,718 163,610
Stevenson E. Ward 3,101,931 29,397
Item 5 -- Other Information
None.
(15)
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
(16)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME UNITED CORPORATION
By /s/ WALTER C. JOHNSEN
------------------------------
Walter C. Johnsen
President and
Chief Executive Officer
Dated: August 3, 2006
By /s/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: August 3, 2006
(17)