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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, 2009
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 of (I.R.S. Employer
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 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 ( 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 |_| No |_|
(1)
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
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 |_|
Small 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 1, 2009 the registrant had outstanding 3,318,368 shares of its
$2.50 par value Common Stock.
(2)
ACME UNITED CORPORATION
Page
----
Part I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2009
and December 31, 2008....................................... 4
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 2009 and 2008........... 6
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2009 and 2008..................... 7
Notes to Condensed Consolidated Financial Statements.......... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk....... 16
Item 4T. 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. Submission of Matters to a Vote of Security Holders............. 17
Item 5. Other Information............................................... 18
Item 6. Exhibits........................................................ 18
Signatures............................................................... 19
(3)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands, except share and per share data)
June 30, December 31,
2009 2008
(unaudited) (Note 1)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,228 $ 5,225
Accounts receivable, less allowance 18,467 10,564
Inventories:
Finished goods 18,436 20,825
Work in process 25 21
Raw materials and supplies 838 923
------------ ------------
19,299 21,769
Prepaid expenses and other current assets 961 1,088
------------ ------------
Total current assets 41,955 38,646
------------ ------------
Property, plant and equipment:
Land 168 167
Buildings 2,528 2,966
Machinery and equipment 7,856 7,455
------------ ------------
10,552 10,587
Less accumulated depreciation 8,303 8,318
------------ ------------
2,249 2,269
Note receivable 1,919 2,000
Other assets 2,509 2,508
------------ ------------
Total assets $ 48,632 $ 45,424
============ ============
See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except share and per share data)
June 30, December 31,
2009 2008
(unaudited) (Note 1)
------------ ------------
LIABILITIES
Current liabilities:
Accounts payable $ 4,276 $ 3,669
Other accrued liabilities 6,131 5,158
Bank debt, due June 30, 2010 12,122 -
------------ ------------
Total current liabilities 22,529 8,827
Bank debt, due June 30, 2010 - 11,719
Other 1,995 1,991
------------ ------------
Total liabilities 24,524 22,536
STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
authorized 8,000,000 shares;
issued - 4,308,024 shares in 2009
and 4,293,024 shares in 2008,
including treasury stock 10,770 10,733
Additional paid-in capital 4,063 3,906
Retained earnings 19,371 18,319
Treasury stock, at cost - 979,656 shares
in 2009 and 949,656 shares in 2008 (8,621) (8,407)
Accumulated other comprehensive income:
Translation adjustment (200) (388)
Unrecognized pension costs (1,275) (1,275)
------------ ------------
(1,475) (1,663)
------------ ------------
Total stockholders' equity 24,108 22,888
------------ ------------
Total liabilities and stockholders' equity $ 48,632 $ 45,424
============ ============
See notes to condensed consolidated financial statements.
(5)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net sales $ 19,161 $ 22,708 $ 30,458 $ 36,977
Cost of goods sold 12,056 13,790 19,056 22,073
---------- ---------- ---------- ----------
Gross Profit 7,105 8,918 11,402 14,904
Selling, general and administrative expenses 5,086 6,121 9,302 11,039
---------- ---------- ---------- ----------
Operating income 2,019 2,797 2,100 3,865
---------- ---------- ---------- ----------
Non-operating items:
Interest:
Interest expense (44) (121) (86) (255)
Interest income 31 31 66 69
---------- ---------- ---------- ----------
Interest expense, net (13) (90) (20) (186)
Other income (expense), net 30 (24) 19 162
---------- ---------- ---------- ----------
Total other income (expense) 17 (114) (1) (24)
---------- ---------- ---------- ----------
Income before income taxes 2,036 2,683 2,099 3,841
Income tax expense 695 953 716 1,358
---------- ---------- ---------- ----------
Net income $ 1,341 $ 1,730 $ 1,383 $ 2,483
========== ========== ========== ==========
Basic earnings per share $ 0.40 $ 0.49 $ 0.41 $ 0.71
========== ========== ========== ==========
Diluted earnings per share $ 0.40 $ 0.47 $ 0.41 $ 0.68
========== ========== ========== ==========
Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,325 3,518 3,336 3,519
Weighted average number of dilutive stock options
outstanding 63 147 60 147
---------- ---------- ---------- ----------
Denominator used for diluted per share computations 3,388 3,665 3,396 3,666
========== ========== ========== ==========
Dividends declared per share $ 0.05 $ 0.04 $ 0.10 $ 0.08
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
(6)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
Six Months Ended
June 30,
-----------------------------
2009 2008
-------------- --------------
Operating Activities:
Net income $ 1,383 $ 2,482
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation 393 451
Amortization 56 53
Stock compensation expense 146 166
Changes in operating assets and liabilities:
Accounts receivable (7,453) (8,122)
Inventories 2,580 (2,330)
Prepaid expenses and other current assets 209 92
Accounts payable 599 2,007
Other accrued liabilities 650 678
-------------- --------------
Total adjustments (2,818) (7,006)
-------------- --------------
Net cash used by operating activities (1,435) (4,524)
-------------- --------------
Investing Activities:
Purchase of property, plant, and equipment (360) (412)
Purchase of patents and trademarks (57) (97)
-------------- --------------
Net cash used by investing activities (417) (510)
-------------- --------------
Financing Activities:
Net borrowing of bank debt 403 4,851
Proceeds from issuance of common stock 32 133
Distributions to stockholders (333) (281)
Purchase of treasury stock (215) (787)
-------------- --------------
Net cash (used) provided by financing activities (113) 3,916
-------------- --------------
Effect of exchange rate changes (33) (167)
-------------- --------------
Net change in cash and cash equivalents (1,997) (1,285)
Cash and cash equivalents at beginning of period 5,225 4,988
-------------- --------------
Cash and cash equivalents at end of period $ 3,228 $ 3,703
============== ==============
See notes to condensed consolidated financial statements.
(7)
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, 2008
for such disclosures. The condensed consolidated balance sheet as of December
31, 2008 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 the Management's Discussion and Analysis of Financial Condition and Results
of Operations and financial statements and notes thereto, included in the
Company's 2008 Annual Report on Form 10-K.
The Company has evaluated events and transactions subsequent to June 30, 2009
through August 14, 2009, the date these consolidated financial statements were
included in this Form 10-Q and filed with the SEC. Based on the definitions and
requirements of Statement of Financial Accounting Standards ("SFAS") No. 165,
"Subsequent Events", the Company has not identified any events that occurred
subsequent to June 30, 2009 and through August 14, 2009, that require
recognition or disclosure in the consolidated financial statements.
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 its financial position, results of operations or
liquidity, as set forth in these financial statements.
In December 2008, the Company sold property it owned in Bridgeport, Connecticut
to B&E Juices, Inc. for $2.5 million. The property consists of approximately
four acres of land and 48,000 sq. feet of warehouse space. The property was the
site of the original Acme United 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 will be responsible 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 an independent environmental consulting firm, the Company recorded
an undiscounted liability of approximately $1.8 million related to the
remediation of the property. This accrual includes costs of required
investigation, remedial activities, and post-remediation operating and
maintenance. At June 30, 2009, the Company had approximately $1.6 million
remaining in its accrual for environmental remediation, of which approximately
$1.2 million was classified as a current liability.
Note 3 -- Pension
Components of net periodic pension cost are as follows:
(8)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -------------------------------
2009 2008 2009 2008
-------------- -------------- -------------- --------------
Components of net periodic benefit cost:
Interest cost $ 43,750 $ 45,000 $ 87,500 $ 90,000
Service cost 1,250 7,500 7,500 15,000
Expected return on plan assets (25,000) (56,250) (75,000) (112,500)
Amortization of prior service costs 2,250 2,250 4,500 4,500
Amortization of actuarial loss 18,750 18,750 37,500 37,500
-----------------------------------------------------------------
$ 41,000 $ 17,250 $ 62,000 $ 34,500
=================================================================
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
2009, the Company is required to contribute approximately $60,000. The Company
expects to make contributions to the plan as required during the remainder of
the year.
Note 4 --Debt and Shareholders Equity
The Company's revolving loan agreement, as amended, provides for borrowings up
to $20 million, with all principal amounts outstanding thereunder required to be
repaid in a single amount on June 30, 2010. In addition, the Company's revolving
loan agreement requires monthly interest payments. As of June 30, 2009 and
December 31, 2008, the Company had outstanding borrowings of $12,122,000 and
$11,719,000, respectively, under the revolving loan agreement. Based on the
scheduled payment date for the principal, the Company has classified all
borrowings under the revolving loan agreement as of June 30, 2009 as a current
liability.
During the first six months of 2009, the Company issued 15,000 shares of common
stock upon the exercise of outstanding stock options and received total proceeds
of $31,875. During the same period, the Company also repurchased 30,000 shares
of common stock for its treasury. These shares were purchased at fair market
value, with a total cost to the Company of $214,500.
Note 5-- Segment Information
The Company reports financial information based on the organization 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. The activities of the Company's Asian
operating segment are closely linked to those of the U.S. operating segment;
accordingly, management reviews the financial results of both segments on a
consolidated basis, and the results of the Asian operating segment have been
aggregated with the results of the United States operating segment to form one
reportable segment called the "United States operating segment". 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.
(9)
Financial data by segment:
(in thousands)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
Sales to external customers: 2009 2008 2009 2008
---------- ---------- ---------- ----------
United States $ 14,892 $ 18,018 $ 23,374 $ 28,935
Canada 2,618 2,988 3,911 4,686
Europe 1,651 1,702 3,172 3,356
---------- ---------- ---------- ----------
Consolidated $ 19,161 $ 22,708 $ 30,458 $ 36,977
========== ========== ========== ==========
Operating income (loss):
United States $ 1,898 $ 2,545 $ 2,241 $ 3,635
Canada 257 469 245 579
Europe (136) (217) (385) (349)
---------- ---------- ---------- ----------
Consolidated $ 2,019 $ 2,797 $ 2,100 $ 3,865
---------- ---------- ---------- ----------
Interest expense, net (13) (90) (20) (186)
Other income (expense), net 30 (24) 19 162
---------- ---------- ---------- ----------
Consolidated income before taxes $ 2,036 $ 2,683 $ 2,099 $ 3,841
========== ========== ========== ==========
Assets by segment:
June 30, December 31,
2009 2008
------------- -------------
United States $ 37,746 $ 33,719
Canada 5,190 5,890
Europe 5,696 5,815
------------- -------------
Consolidated $ 48,632 $ 45,424
============= =============
Note 6 - Stock Based Compensation
The Company recognizes share-based compensation at fair value of the equity
instrument on the grant date. Compensation expense is recognized over the
required service period. Share-based compensation expense was $94,500 and
$94,000 for the quarters ended June 30, 2009 and June 30, 2008, respectively.
Share-based compensation expense was $146,000 and $166,000 for the six months
ended June 30, 2009 and June 30, 2008, respectively. During the three and six
months ended June 30, 2009, the Company issued 151,000 options with a weighted
average fair value of $2.34 per share. During the three and six months ended
June 30, 2008, the Company issued 12,250 options with a weighted average fair
value of $3.86 per share. The assumptions used to value option grants for the
three and six months ended June 30, 2009 and June 30, 2008 are as follows:
Three months ended Six months ended
June 30, June 30,
----------------------------- -----------------------------
2009 2008 2009 2008
-----------------------------------------------------------------
Expected life in years 5 5 5 5
Interest rate 1.82% - 2.95% 2.95% 1.82% - 2.95% 2.95%
Volatility 0.384 - 0.386 0.31 0.384 - 0.386 0.31
Dividend yield 2.5% 1.2% 2.5% 1.2%
(10)
As of June 30, 2009, there was a total of $664,000 of unrecognized compensation
cost 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 - Comprehensive Income
Comprehensive income for the three and six months ended June 30, 2009 and June
30, 2008 consisted of the following:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
2009 2008 2009 2008
------------- ------------- ------------- -------------
Net income $ 1,341 $ 1,730 $ 1,383 $ 2,483
Other comprehensive income / (loss) -
Foreign currency translation 554 47 188 (16)
------------- ------------- ------------- -------------
Comprehensive income $ 1,895 $ 1,777 $ 1,571 $ 2,467
============= ============= ============= =============
Note 8 - Fair Value Measurements
The carrying values of cash and cash equivalents, accounts receivable, accounts
payable, bank debt are a reasonable estimate of fair value because of their
short term nature. The carrying value of the Company's note receivable
approximates fair value. Fair value was determined using a discounted cash flow
analysis.
(11)
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 current uncertainties in
global economic conditions and the ongoing financial crisis affecting the
domestic and foreign banking systems and financial markets, including the impact
on the Company's supplier and customers, currency fluctuations, changes in
client needs and consumer spending habits, the impact of competition and
technological change on the Company, and the Company's ability to manage its
growth effectively, including its ability to successfully integrate any business
which it might acquire. A more detailed discussion of risk factors is set forth
in Item 1A, "Risk Factors", included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2008. 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, 2008.
Results of Operations
Net sales
Consolidated net sales for the three months ended June 30, 2009 were
$19,161,000 compared with $22,708,000 in the same period in 2008, a 16% decrease
(13% at constant currency). Consolidated net sales for the six months ended June
30, 2009 were $30,458,000, compared with $36,977,000 for the same period in
2008, an 18% decrease (14% at constant currency). Net sales for the three and
six months ended June 30, 2009 in the U.S. segment decreased 17% and 19%,
respectively, compared with the same periods in 2008. Net sales in Canada for
the three and six months ended June 30, 2009 decreased by 12% and 17%,
respectively, in U.S. dollars and approximately 1% in local currency compared
with the same periods in 2008. The decline in net sales for the three and six
months in the U.S. and Canadian segments is primarily due to a reduction in
customer orders across all of our product lines as a result of the continued
economic downturn. European net sales for the three and six months ended June
30, 2009 decreased 3% and 5% in U.S. dollars but increased 11% and 9% in local
currency compared with the same periods in 2008. The increase in net sales (in
local currency) in Europe for the three and six months is primarily due to
increased distribution of manicure products, which include scissors, clippers
and other related items, partially offset by a decline in sales of office
products.
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.
(12)
Gross profit
Gross profit for the three months ended June 30, 2009 was $7,105,000 (37.1%
of net sales) compared to $8,918,000 (39.3% of net sales) for the same period in
2008. Gross profit for the six months ended June 30, 2009 was $11,402,000 (37.4%
of net sales) compared to $14,904,000 (40.3% of net sales) in the same period in
2008. The gross margin declines for the three and six months ended June 30, 2009
were primarily due to fixed costs spread over lower sales, the weaker Canadian
dollar, which raised the cost of our products in the Canadian operating segment,
and a product mix which consisted of a higher proportion of sales of lower
margin products.
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses for the three months
ended June 30, 2009 were $5,086,000 (26.5% of net sales) compared with
$6,121,000 (27.0% of net sales) for the same period of 2008, a decrease of
$1,035,000. SG&A expenses for the six months ended June 30, 2009 were $9,302,000
(30.5% of net sales) compared with $11,039,000 (29.9% of net sales) in the
comparable period of 2008, a decrease of $1,737,000. The decrease in SG&A
expenses for the three and six months ended June 30, 2009, compared to the same
periods in 2008, was primarily the result of benefits of cost cutting
initiatives, lower freight and commission cost as a result of lower sales and a
lower impact from foreign currency translation as a result of a weaker Euro and
Canadian dollar.
Operating income
Operating income for the three months ended June 30, 2009 was $2,019,000
compared with $2,797,000 in the same period of 2008. Operating income for the
six months ended June 30, 2009 was $2,100,000 compared to $3,865,000 in the same
period of 2008. Operating income in the U.S. segment decreased by $647,000 and
$1,394,000 for the three and six months, respectively, compared to the same
periods in 2008. Operating income in the Canadian segment decreased by $212,000
and $334,000 for the three and six months, respectively, compared to the same
periods in 2008. The decline in operating income for the three and six months in
the U.S. and Canadian segment is principally due to the lower sales and
associated gross profits partially offset by lower selling, general and
administrative costs. The operating loss in Europe decreased by $81,000 for the
three months ended June 30, 2009 compared to the same period in 2008. The
operating loss in Europe increased by $36,000 for the six months ended June 30,
2009 compared to the same period in 2008.
Interest expense, net
Interest expense, net for the three months ended June 30, 2009 was $13,000,
compared with $90,000 for the same period of 2008, a $77,000 decrease. Interest
expense, net for the six months ended June 30, 2009 was $20,000 as compared to
$186,000 for the same period in 2008, a $166,000 decrease. The decrease in
interest expense, net for both the three and six months ended June 30, 2009 was
primarily the result of lower interest rates on the Company's debt outstanding
under it revolving loan agreement.
Other income (expense), net
Net other income was $30,000 in the three months ended June 30, 2009 as
compared to net other expense of $24,000 in the same period of 2008. Net other
income was $19,000 in the first six months of 2009 compared to $162,000 in the
first six months of 2008. The decrease in other income, net for the six months
ended June 30, 2009 was primarily due to lower gains from foreign currency
transactions.
Income taxes
The effective tax rate for each of the three and six month periods ended
June 30, 2009 was 34% compared to 36% and 35%, respectively, in the same periods
of 2008. The decrease in the effective tax rate for the three and six months
ended June 30, 2009 was primarily caused by a higher proportion of earnings in
foreign jurisdictions with a lower tax rate.
(13)
Financial Condition
Liquidity and Capital Resources
The Company continues to experience the effects of the ongoing global recession.
This economic downturn has softened demand for the Company's products and caused
our customers to reduce their inventory levels which have negatively impacted
our sales and earnings. In response to these circumstances, management has cut
expenses where possible, including incentive pay, travel, professional service
fees and other discretionary spending. The Company has also implemented a freeze
on salary increases and hiring employees. To date, the Company does not believe
that it has material excess inventory issues, potentially unrecoverable accounts
receivable balances or supply issues with its third party manufacturers as a
result of the current economic crisis. Despite the weak economic conditions, we
continue to have sufficient access to the credit market. However, the Company
has not pursued its current options to renew its revolving loan agreement in
order to continue to take advantage of the low interest rate it has today.
Management will explore its options later in 2009. However, there can be no
assurance that the terms of a new loan agreement will be as favorable as the
current agreement.
During the first six months of 2009, working capital decreased by approximately
$10.4 million compared to December 31, 2008. Inventory decreased by
approximately $2.5 million at June 30, 2009 compared to December 31, 2008. The
inventory decline is principally related to the Company managing inventory
levels to compensate for lower sales in the trailing twelve months ended June
30, 2009 as compared to the twelve months ended December 31, 2008. Inventory
turnover, calculated using a twelve month average inventory balance, decreased
to 1.8 at June 30, 2009 from 2.0 at December 31, 2008. Receivables increased
approximately $7.9 million at June 30, 2009 compared to December 31, 2008
primarily as a result of the seasonal nature of the back to school business
where sales are typically higher in the second and third quarters as compared to
the first and fourth quarters. The average number of days sales outstanding in
accounts receivable was 65 days at June 30, 2009 compared to 64 days at December
31, 2008. Also impacting working capital at June 30, 2009 was the
reclassification of all bank debt, due June 30, 2010 (approximately $12.1
million) as short-term, compared to long-term at December 31, 2008.
The Company's working capital, current ratio and long-term debt to equity ratio
follow:
(000's omitted) June 30, 2009 December 31, 2008
------------------------------------
Working capital $ 19,426 $ 29,820
Current ratio 1.86 4.38
Long term debt to equity ratio 0.0% 51.1%
During the first six months of 2009, total debt outstanding under the Company's
Modified Loan Agreement, (referred to below) increased by $403,000 compared to
total debt at December 31, 2008. As of June 30, 2009, $12,122,000 was
outstanding and $7,878,000 was available for borrowing under the Modified Loan
Agreement.
On June 23, 2008, the Company modified its revolving loan agreement (the
"Modified Loan Agreement") with Wachovia Bank. The Modified Loan Agreement
amends certain provisions of the original revolving loan agreement. The
amendments include (a) an increase in the maximum borrowing amount from $15
million to $20 million; (b) an extension of the maturity date of the loan from
June 30, 2009 to June 30, 2010; (c) a decrease in the interest rate to LIBOR
plus 7/8% (from LIBOR plus 1.0%) and (d) modification of certain covenant
restrictions. Funds borrowed under the Modified Loan Agreement are used for
working capital, general operating expenses, share repurchases and certain other
purposes.
(14)
As discussed in Note 2, the Company has accrued and expects to pay $1.8 million
for remediation costs related to the sale of the Bridgeport property. Through
June 30, 2009, the Company had paid approximately $200,000 for legal and
pre-remediation costs related to the Bridgeport property. The Company plans to
begin the remediation work on the property in the second half of 2009 and
expects to pay approximately $1.2 million over the next twelve months. The
Company will use cash flow from operations or borrowings under its loan
agreement to pay for these costs. The Company does not believe that payment of
such remediation costs will have a material adverse affect on the Company's
ability to implement its business plan. In addition, the buyer of the property
has financed the purchase by providing the Company with a $2.0 million mortgage
at 6 percent interest. Payments on the mortgage are due monthly and will also
help fund the remediation.
Cash expected to be generated from operating activities, together with funds
available under the revolving loan agreement are expected, under current
conditions, to be sufficient to finance the Company's planned operations over
the next twelve months.
Recently Issued Accounting Standards
In April 2009, the Financial Accounting Standards Board (the "FASB") issued
Staff Position ("FSP) FAS No. 107-1 and APB 28-1, "Interim Disclosures about
Fair Value of Financial Instruments." This FSP amends Statement of Financial
Accounting Standards No. 107, "Disclosures about the Fair Value of Financial
Instruments" to require disclosure about the fair value of financial instruments
in interim financial statements. This FSP is effective for interim reporting
periods ending after June 15, 2009. The adoption of FSP 107-1 did not have a
material impact on the Company's consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165")
which establishes accounting and disclosure requirements for subsequent events.
SFAS 165 details the period after the balance sheet date during which the
Company should evaluate events or transactions that occur for potential
recognition or disclosure in the financial statements, the circumstances under
which the Company should recognize events or transactions occurring after the
balance sheet date in its financial statements and the required disclosures for
such events. SFAS 165 is effective for interim and annual financial statement
periods ending after June 15, 2009. The adoption of SFAS 165 did not have a
material impact on the Company's consolidated financial statements.
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Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 4T. 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, 2009, there were no changes in our internal
control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The Company is involved from time to time in disputes and other litigation
in the ordinary course of business. 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.
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, 2008.
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 20, 2009.
Proxies were solicited for the Annual Meeting pursuant to section 14(a) of
the Securities Exchange Act of 1934 and there was no solicitation in
opposition to the Company's solicitation. At the meeting shareholders were
requested to (i) elect a board of directors; (ii) approve an amendment to
the Employee Stock Option Plan to increase the authorized share and; (iii)
ratify the appointment of the Company's independent registered public
accounting firm, UHY LLP for the fiscal year ending December 31, 2008. The
following action was taken by the Company's shareholders with respect to
each of the above items.
A. The following individuals were elected Directors at the Annual Meeting
and comprise the entire Board. There were no broker non-votes.
Votes for Votes against
--------- -------------
Rex Davidson 3,089,347 98,702
Richmond Y. Holden, Jr. 2,972,815 215,234
Walter C. Johnsen 3,086,142 101,907
Susan H. Murphy 3,089,347 98,702
Brian Olschan 3,085,655 102,394
Stevenson E. Ward 3,089,348 98,701
B. The Amendment to the Employee Stock Option Plan to increase the number
of shares authorized to be issued thereunder from 460,000 to 610,000
was approved with 1,723,431 votes for the proposal, 288,872 votes
against and 96,316 votes abstaining. There were 1,079,430 broker
non-votes.
C. The ratification of the appointment of our independent registered
public accounting firm, UHY LLP, for the fiscal year ending December
31, 2009 is approved with 3,068,318 votes for the proposal, 6,624
votes against and 113,108 votes abstaining. There were no broker
non-votes.
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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
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME UNITED CORPORATION
By /s/ WALTER C. JOHNSEN
------------------------------
Walter C. Johnsen
Chairman of the Board and
Chief Executive Officer
Dated: August 14, 2009
By /s/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: August 14, 2009
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