Tony Regan, of 114 Chester Road, Northwich, admitted having an offensive weapon in a public place and using threatening behaviour when he appeared before Northwich magistrates last week.
Prosecuting, Kate Evans told how the group of youngsters complained to police officers on patrol in Station Road on August 7 this year.
They pointed out Mr Regan, 37, who was standing near the Lion and Railway pub, and said that he had brandished the knife at them.
When the officers tried to speak to him, Mr Regan at first resisted by punching the wall of the nearby building, but then surrendered and handed over the knife. The officers noted that he had been drinking heavily.
He admitted that he had threatened the youngsters with his knife, but said they had been harrassing him because he was drunk. He added that he didn't know if the blade was actually extended.
Defending, Fiona Morrison said Regan's memory of the event was very dim, adding: "He was carrying the knife in his jacket pocket for work purposes.
"He works for a warehouse company, where he cuts industrial palettes, and he was simply taking the knife home.
"But he stopped off for the evening to have some drinks with a friend.
"He regrets the incident, which was nonetheless very out of character for him."
Regan was fined £200 for carrying the knife, and £50 for his threatening behaviour. The magistrates also ordered the forfeiture of the knife.
Peter Fowler, chairman of the bench, said: "I want you to know that you can go to prison for this offence.
"But we accept that the incident was out of character for you. The fine, however, is going to be substantial because of the nature of what you did."
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