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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 March 31, 2003
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 Q4823
ACME UNITED CORPORATION
(Exact name of registrant as specified in its charter)
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CONNECTICUT 06-0236700
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1931 BLACK ROCK TURNPIKE, Fairfield, Connecticut 06825
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 332-7330
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 |_|
Registrant had 3,373,251 shares outstanding as of April 30, 2003 of its $2.50
par value Common Stock.
(1)
ACME UNITED CORPORATION
Page
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Part I-- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets.......................... 3
Condensed Consolidated Statements of Operations
and Comprehensive Income.................................... 5
Condensed Consolidated Statements of Cash Flows................ 6
Notes to Condensed Consolidated Financial Statements........... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk........ 11
Item 4. Controls and Procedures.......................................... 11
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings................................................ 12
Item 2. Changes in Securities............................................ 12
Item 3. Defaults Upon Senior Securities.................................. 12
Item 4. Submission of Matters to a Vote of Security Holders.............. 12
Item 5. Other Information................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................. 12
Signatures............................................................... 13
(2)
PART I. FINANCIAL INFORMATION
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(all amounts in thousands, except per share data)
March 31 December 31
2003 2002
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 789 $ 597
Accounts receivable, less allowance 6,059 6,410
Inventories:
Finished goods 5,791 5,307
Work in process 489 374
Raw materials and supplies 932 994
--------------- ---------------
7,212 6,675
Prepaid expenses and other current assets 571 517
Deferred income taxes 459 733
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Total current assets 15,090 14,932
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Property, plant and equipment:
Land 205 198
Buildings 2,286 2,302
Machinery and equipment 5,251 5,801
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7,742 8,301
Less accumulated depreciation 5,473 6,019
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2,269 2,282
Other assets 286 311
Deferred income taxes 26 -
Goodwill 89 89
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Total assets $ 17,760 $ 17,614
=============== ===============
See notes to condensed consolidated financial statements.
(3)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(UNAUDITED)
(all amounts in thousands, except per share data)
March 31 December 31
2003 2002
--------------- ---------------
LIABILITIES
Current liabilities:
Notes payable $ - $ 362
Accounts payable 1,206 1,296
Other accrued liabilities 1,587 2,027
Current portion of long-term debt 3,397 2,731
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Total current liabilities 6,190 6,416
Long-term debt, less current portion 2,061 2,033
Other 732 685
--------------- ---------------
Total liabilities 8,983 9,134
STOCKHOLDERS' EQUITY Common stock, par value $2.50:
authorized 8,000,000 shares;
issued 3,613,312 shares,
including treasury stock 9,131 9,131
Treasury stock, at cost - 279,061 shares
in 2003 and 269,061 shares in 2002 (1,184) (1,152)
Additional paid-in capital 2,029 2,029
Retained earnings 866 788
Accumulated other comprehensive loss:
Translation adjustment (1,116) (1,350)
Minimum pension liability (949) (949)
Derivative financial instrument - (17)
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(2,065) (2,316)
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Total stockholders' equity 8,777 8,480
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Total liabilities and stockholders' equity $ 17,760 $ 17,614
=============== ===============
See notes to condensed consolidated financial statements.
(4)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands of dollars, except per share amounts)
Three Months Ended
March 31
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2003 2002
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Net sales $ 7,189 $ 6,754
Costs and expenses:
Cost of goods sold 4,307 4,612
Selling, general and administrative expenses 2,301 1,943
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6,608 6,555
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Income before non operating items 581 199
Non operating items:
Interest expense 79 146
Other (income)expense 150 (84)
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229 62
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Income before income taxes 352 137
Income tax expense 274 15
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Net income 78 122
Other comprehensive (expense) income -
Foreign currency translation 234 (36)
Change in fair value of derivative financial instrument
less deferred income taxes of $9 in 2003 and $19 in 2002 17 31
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Comprehensive income $ 329 $ 117
========== ===========
Basic earnings per share $ 0.02 $ 0.03
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Diluted earnings per share $ 0.02 $ 0.03
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Weighted average number of common shares outstanding-
denominator used for basic per share computations 3,378 3,410
Weighted average number of dilutive stock options
outstanding 102 202
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Denominator used for diluted per share computations 3,480 3,612
========== ===========
See notes to condensed consolidated financial statements
(5)
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED) (all amounts in thousands of dollars)
Three Months Ended
March 31
-----------------------------
2003 2002
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Operating Activities:
Net income $ 78 $ 122
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation 104 125
Amortization 6 34
Deferred income taxes 274
Changes in operating assets and liabilities:
Accounts receivable 391 (839)
Inventories (410) 455
Prepaid expenses and other current assets 2 (157)
Other assets 33
Accounts payable 117 (532)
Other accrued liabilities (591) (382)
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Total adjustments (74) (1,296)
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Net cash provided (used) by operating activities 4 (1,174)
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Investing Activities:
Purchase of plant, property and equipment (114) (54)
Purchase of patents and trademarks (17)
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Net cash (used) by investing activities (131) (54)
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Financing Activities:
Net short-term borrowings 321 1,248
Payments of long-term debt (29)
Purchase of 10,000 shares of common stock in 2003 for treasury (32)
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Net cash provided by financing activities 289 1,219
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Effect of exchange rate changes 30 (36)
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Net change in cash and cash equivalents 192 (45)
Cash and cash equivalents at beginning of period 597 172
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Cash and cash equivalents at end of period $ 789 $ 127
============== ==============
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. 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, 2002 for such
disclosures. The condensed consolidated balance sheet as of December 31, 2002
was derived from the audited consolidated balance sheet as of that date. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year.
Note 2 -- Contingencies
The Company has been involved in certain environmental and other matters.
Additionally, the Company has been involved in numerous legal actions relating
to the use of certain latex products, which the Company distributes, but does
not manufacture. The Company is one of many defendants. The Company has been
released from the majority of the lawsuits. While one lawsuit remains, it is
still in the preliminary stages and it has not been determined whether the
Company's products were involved. Based on information available, the Company
believes there will not be a material adverse impact on financial position,
results of operations, or liquidity, from these matters, either individually or
in aggregate.
Note 3 -- Accounting for Stock-Based Compensation
At March 31, 2003, the Company has one stock-based employee compensation plan.
The Company has elected to adopt the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
and continues to measure costs for its employee stock compensation plans by
using the accounting methods prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees, which allows that no compensation cost be recognized
unless the exercise price of the options granted is greater than the fair market
value of the Company's stock at date of grant. Accordingly, no stock-based
employee compensation cost is reflected in net income, as all options granted
had an exercise price equal to the market value of the underlying common stock
on the date of grant. The following table illustrates the effect on net income
and earnings per share as if the Company had applied the fair value method under
SFAS No. 123, Accounting for Stock Based Compensation, to stock-based employee
compensation.
March 31 March 31
2003 2002
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Net income, as reported $ 77,834 $ 121,677
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related income tax effects 18,977 23,025
- ------------------------------------------------------------------------------------------------------------------
Pro forma net income $ 58,857 $ 98,652
==================================================================================================================
Basic-as reported $ 0.02 $ 0.03
Basic-pro forma $ 0.02 $ 0.03
Diluted-as reported $ 0.02 $ 0.03
Diluted-pro forma $ 0.02 $ 0.03
Note 4 -- Litigation Settlement
As a result of significant developments in the first quarter of 2003 the
Company's German subsidiary settled litigation for $175,000. This exceeded
previous accruals by $153,000 and has been charged to expense.
Note 5 -- Income taxes
In 2002, the Company recognized a significant one-time income tax benefit
associated with liquidating its UK business. The benefit recognized was
substantially in excess of income taxes computed at the statutory rate. In
2003, consolidated income before income taxes includes losses of foreign
subsidiaries with no income tax benefit resulting in a high effective income tax
rate.
(7)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three Months Ended March 31, 2003
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 business specific to the back-to-school season.
Consolidated net sales for the quarter ended March 31, 2003 were $7,189,000
compared with $6,755,000 for 2002, a 6% increase. Excluding the favorable effect
of currency gains in Canada and Europe the net sales increase represented 4%.
The sales increase was mainly driven by a 13% increase in the U.S. due to the
success of new product launches. International sales were down 18% in local
currency principally due to discontinuing certain product lines in the UK
business and a weak economy in Germany.
Gross Profit
The gross profit for the first quarter of 2003 was $2,882,000 (40% of net sales)
compared to $2,143,000 (32% of net sales) for the first quarter of 2002. The
introduction of new products coupled with higher sales to a significant customer
in the U.S., positive impacts from product rationalization efforts in Europe and
overall productivity gains were the main reasons for the improved gross margins.
The U.S. accounted for approximately 60% of the 8% point improvement. Gross
margin is expected to vary in future quarters depending on product, customer and
entity mix.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the first quarter of
2003 were $2,301,000 (32% of net sales) compared with $1,943,000 (29% of net
sales) for the same period of 2002, an increase of $358,000. Major contributors
to the increase were market research, new product development and the addition
of sales executives in Canada and Europe.
Interest Expense
Interest expense for the first quarter of 2003 was $79,000, compared with
$147,000 for 2002, a $68,000 decrease. This is mainly attributable to the
decline in debt and lower interest rates. Total debt declined to $5,548,000
million at March 31, 2003 compared to $6,871,000 million at March 31, 2002.
Other Expense
Net other expense was $150,000 in the first quarter of 2003 compared to net
other income of $84,000 in the first quarter of 2002. The change from 2002
relates to the settlement of a lawsuit in Germany in late March of 2003 and the
gain on sale of equipment in 2002.
Income Before Income Taxes
Income before income taxes was $352,000 in the first quarter of 2003 compared
with $137,000 in the first quarter of 2002, an increase of $215,000. Pretax
income for North America was $730,000 compared to $312,000 in 2002. The European
operations lost $378,000 including a one-time expense of $175,000 for settlement
of a lawsuit. The pretax loss in Europe for the first quarter of 2002 was
$175,000.
Income Taxes
Income tax expense for the first quarter of 2003 was $274,000 compared to
$15,000 in the first quarter of 2002. In 2002, the Company recognized a
significant one-time income tax benefit associated with liquidating its UK
business. The benefit recognized was substantially in excess of income taxes
computed at the statutory rate. In 2003, consolidated income before taxes
includes losses in foreign subsidiaries with no income tax benefit resulting in
a high effective income tax rate.
(8)
Net Income
Net income for the first quarter of 2003 was $78,000, or 2 cents per share
(diluted), compared to a net income of $122,000, or 3 cents per share (diluted)
for the same period of 2002.
(9)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Three Months Ended March 31, 2003
Financial Condition
Liquidity and Capital Resources
The Company's working capital, current ratio and long-term debt to equity ratio
follow:
March 31, 2003 December 31, 2002
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Working capital..................... $8,900,000 $8,516,000
Current ratio....................... 2.44 to 1 2.33 to 1
Long-term debt to equity ratio...... 23.0% 24.0%
During the first three months of 2003, total debt increased by $332,000 compared
to total debt at December 31, 2002 principally as a result of net additional
short-term borrowings to fund inventory purchases in anticipation of next
quarter's seasonal sales volume.
The Company has a revolving loan agreement, which allows for borrowings up to a
maximum of $10,000,000 based on a formula, which applies specific percentages to
balances of accounts receivable and inventory. Interest is payable monthly and
is charged at the LIBOR rate plus 1.75 percent. As of March 31, 2003, $4,481,612
was outstanding and $2,429,460 was available for borrowing under this agreement.
Maturities of long-term debt follow: 2004 - $2,913,000, 2005 - $1,120,000, and
2006 - $448,612. All outstanding borrowings are due on July 31, 2005.
Cash expected to be generated from operating activities, together with funds
available under its existing loan agreement, are expected, under current
conditions, to be sufficient to finance the Company's planned operations over
the next twelve months. Over that same period, the Company does not expect to
make significant investments in plant, property, and equipment.
Safe Harbor for Forward-looking Statements
Forward-looking statements in this report, including without limitation,
statements related to the Company's plans, strategies, objectives, expectations,
intentions and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the discretion of the Company; (ii) the Company's plans and
results of operations will be affected by the Company's ability to manage its
growth and inventory; and (iii) other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
(10)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued
For the Three Months Ended March 31, 2003
Item 3. Quantitative and Qualitative Disclosure About Market Risk
There are no material changes in market risks since our most recent filing on
Form 10-K for the year ended December 31, 2002.
Item 4. Controls and Procedures
(a) Evaluation of Internal Controls and Procedures
As of a date within 90 days prior to the date of the filing of this report, 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 our
disclosure controls and procedures are 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 Controls
Subsequent to the date of their evaluation, there have not been any significant
changes in our internal controls or in other factors that could significantly
affect these controls, including any corrective action with regard to
significant deficiencies and material weaknesses.
(11)
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
None.
Item 2 -- Changes in Securities
None.
Item 3. --Defaults Upon Senior Management
None
Item 4 -- Submission of Matters to a Vote of Security Holders
A. The Annual Meeting was held on April 28, 2003.
B. The following individuals were elected Directors at the Meeting and
comprise the entire Board.
Votes for Votes against Votes withheld
--------- ------------- --------------
George R. Dunbar 3,213,194 156,219 177,892
Richmond Y. Holden, Jr. 3,213,873 155,540 177,892
Walter C. Johnsen 3,263,873 105,540 177,892
Wayne R. Moore 3,213,799 155,614 177,892
Susan H. Murphy 3,213,673 155,740 177,892
Brian Olschan 3,213,873 155,540 177,892
Gary D. Penisten 3,263,799 105,614 177,892
Stevenson E. Ward III 3,213,873 155,540 177,892
Votes for Votes against Votes withheld
--------- ------------- --------------
3,194,330 174,287 178,688
C. Approval of an Amendment to the Company's Certificate of Incorporation to
broaden the indemnification of directors and officers to the fullest extent
permitted by applicable law and limiting the liability of directors was
approved.
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Form 8-K was filed by the Company on April 29, 2003.
(12)
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
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Walter C. Johnsen
President and
Chief Executive Officer
Dated: April 30, 2003
By /s/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: April 30, 2003
(13)
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures 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
quarterly report is being reported;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
filing date of this quarterly report March 31, 2003; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of March 31, 2003;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By /s/ WALTER C. JOHNSEN
------------------------------
Walter C. Johnsen
President and
Chief Executive Officer
Dated: April 30, 2003
(14)
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 quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures 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
quarterly report is being reported;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date 90 days prior to filing date
of this quarterly report March 31, 2003; and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of March 31, 2003;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By /s/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: April 30, 2003
(15)
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Acme United Corporation (the "Company") hereby
certifies to my knowledge that the Company's quarterly report on Form 10-Q for
the quarterly period ended March 31, 2003 (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(b), as applicable, of the Securities
Exchange Act of 1934, as amended, and that the information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operations of the Company. This certification is provided solely
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, and shall not be deemed to be a part of the Report
or "filed" for any purpose whatsoever.
By /s/ WALTER C. JOHNSEN
------------------------------
Walter C. Johnsen
President and
Chief Executive Officer
Dated: April 30, 2003
By /s/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: April 30, 2003
(16)