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ACME UNITED CORPORATION
TO MY FELLOW SHAREHOLDERS:
The year 1999 was one of solid accomplishment at Acme United. Most
significantly, we had three consecutive quarters of net income from continuing
operations of $125,000, $136,000 and $125,000 for the quarters ended June,
September and December 1999. We expect the first quarter of 2000 to be
profitable. We also sold our Medical Division and placed our entire focus on
consumer sales. The Company shifted some U.S. stainless scissor manufacturing to
Asia.
Net sales from continuing operations were $34.3 million compared to $36.5
million in 1998. Net income for 1999 was $2.2 million versus a loss of $1.7
million in 1998. The net income in 1999 included a gain on the sale of the
Medical Division and income from discontinued operations of $2.3 million. For
the year 1999, the net loss from continuing operations was $156,000 compared to
a loss of $2.4 million in 1998, an improvement of $2.3 million.
There were major accomplishments during the year.
- - In March, 1999 we sold our Medical Division for approximately $8.2 million
and reported a gain on the transaction of $2.1 million. The sale was the
culmination of the strategic decision to focus on consumer products. The
proceeds reduced total debt from $16 million in 1998 to $7.7 million in
1999.
- - In October, 1999 we entered into a multi-year agreement with Esselte AB, to
license the Tagit! brand name in Europe, Russia, Australia, and New
Zealand. Acme will also supply Tagit! scissors in those areas for sale by
Esselte. The agreement calls for the co-development of additional products
and collaborative sales in North America. It brings one of Acme's
proprietary franchises to new markets quickly, with the sales and marketing
strength of one of the largest suppliers of office products in the world.
We look forward to building that partnership.
- - In January, 2000, Acme United signed a new credit agreement with Bank of
America Business Credit, a division of Bank of America. The facility
provides the Company with an $11.8 million revolving debt and term loan for
its North America operations. We are excited about our long term prospects
and appreciate Bank of America's confidence.
- - Acme introduced the Tagit! family of scissors and rulers in many major
chains in the U.S. The Tagit! franchise now includes staplers and hole
punches through our partnership with Esselte. Nearly all of our major
product lines have been redesigned or refreshed, and are selling well.
- - On the financial side in 1999, we:
- improved our gross margin from 21% in 1998 to 24% through productivity
gains.
- doubled our working capital to $7.0 million.
- improved our book value to $1.97 per share.
- lowered our long term debt to equity ratio from 1.37 to .72.
The new products and reduced cost structure provide solid reasons for our
customers to grow with Acme. During 2000, we expect to devote significant
attention to new products, supply chain logistics, and increased revenues.
Your management moves into 2000 with great confidence in our strategy, our
people and our ability to succeed. We want to thank our customers, employees and
shareholders for their continued support.
Thank you.
Sincerely,
Walter C. Johnsen
President and Chief Executive Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-4823
ACME UNITED CORPORATION
-----------------------
Exact name of registrant as specified in its charter
Connecticut 06-0236700
----------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 Kings Highway Cutoff
Fairfield, Connecticut 06430
----------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 332-7330
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
$2.50 par value Common Stock American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (l) 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Registrant had 3,507,055 shares outstanding as of March 24, 2000 of its $2.50
par value Common Stock. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 24, 2000 was approximately
$9,206,019.
Documents Incorporated By Reference
(1) Proxy Statement for the annual meeting scheduled for April 24, 2000
incorporated into 1999 10-K, Part III
PART I
Item 1. Business
General
Acme United Corporation (together with its subsidiaries the "Company") was
organized as a partnership in l867 and incorporated in l882 under the laws of
the State of Connecticut. On March 22, 1999 the Company sold its medical
segment. Prior thereto, the Company operated two business segments - consumer
and medical. The Company's continuing operations are in the United States,
Canada, England and Germany. Financial information concerning net sales, and
long-lived assets by geographic area appears in note 11 of the notes to
consolidated financial statements.
Consumer
The Company manufactures and distributes scissors, shears, rulers and first aid
kits for school, office and home use. Acquisitions of Emil Schlemper GmbH and
Co. KG of Solingen, Germany in January l990, Homeric, Ltd. of Sheffield, England
in July l990 and Peter Altenbach and Sohne GmbH of Solingen, Germany in l99l
extended the Company's presence in Europe as a scissor and shear manufacturer.
On May 1, 1996, the Company sold the assets (excluding accounts receivable) of
Peter Altenbach and Sohne GmbH. The Company continues to be a major manufacturer
of scissors and shears in the United States and Germany, and rulers in the
United States; a distributor of scissors, shears, rulers and other office
products in Canada; and a distributor of scissors, shears and other office
products in England. In addition to local competitors in each country, the
Company competes with imported products from China, Taiwan and Korea. The
Company also imports scissors, shears, rulers and other products to supplement
its manufactured products.
Independent manufacturer representatives are primarily used to sell its line of
consumer products with wholesale, contract and retail stationery distributors,
office supply super stores, school supply distributors, and mass market
retailers in the United States. Foreign operations use a combination of
independent commission agents and an internal sales force.
A seasonal surge in revenues arises from March through July which is attributed
to sales in the educational field, primarily through school supply distributors
and mass market retailers. Unfilled order backlog at year end 1999 was
$1,629,612 compared to $1,400,498 in 1998.
Medical
The Company entered the medical products field in l965, producing disposable
medical scissors and instruments in bulk for hospital distributors. In l972, the
Company's Medical Products Division began marketing its own line of products.
New products were added to the procedure tray line every year to meet the
specialized needs of hospitals, clinics and convalescent homes. In l978, wound
dressings were introduced by the Company. Bandage products were added in January
l992, when the Company acquired the major portion of the United States medical
products business of SePro Healthcare, Inc., the United States subsidiary of
Seton Healthcare Group, plc of Oldham, England. The Company entered into
distribution agreements with Seton Healthcare International Limited for
exclusive United States rights to an extensive line of state-of-the-art pressure
therapy bandages and specialized wound dressings. Subsequently, in March 1997,
the Company sold its distribution rights of certain wound care products to Seton
Healthcare International Limited. Under the agreement, Acme continued to
distribute the products for a portion of 1997.
On March 22, 1999, the Company sold the medical business to Medical Action
Industries, Inc.
The Company had historically sold its products through a network of medical
dealers who distributed its line of medical products with hospitals, nursing
facilities, other alternate care providers, and certain major buying groups. The
Company's field sales force historically provided technical assistance in
addition to overseeing a network of manufacturer representatives.
Other
Environmental Rules and Regulations - Environmental rules and regulations
regarding hazardous waste control and electroplating effluent have been complied
with and the Company believes no major financial impact is expected to result
from current and future compliance with these rules and regulations.
Employment - As of year end, the Company employed 172 persons, most of whom are
full time and none are covered by union contracts. Employee relations are
considered good and no foreseeable problems with the work force are evident.
Item 2. Properties
Acme United Corporation is headquartered at 75 Kings Highway Cutoff, Fairfield,
Connecticut in 7,500 square feet of leased space. The Company owns and leases
manufacturing and warehousing facilities in the United States, owns a facility
in Germany, and leases 52,000 square feet of warehousing space in Canada and
6,000 square feet of warehousing space in England. All United States
manufacturing is conducted at a 58,000 square foot owned Fremont, North Carolina
plant.
Manufacturing for Europe is presently being conducted at a 48,000 square foot
owned plant in Solingen, Germany.
Management believes that the Company's facilities, whether leased or owned, are
adequate to meet its current needs and should continue to be adequate for the
foreseeable future.
Properties owned by the Company in Fremont, North Carolina and Solingen, Germany
are collateralized by notes and mortgages. The leased facilities are occupied
under leases for terms ranging from less than one year to six years.
Item 3. Legal Proceedings
The Company has been involved in certain environmental 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 five lawsuits remain, they are still in
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 environmental and product liabilities, either individually or
in aggregate.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the security holders of the Company
through the solicitation of proxies or otherwise during the fourth quarter of
the fiscal year ended December 31,1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
The Company's Common Stock is traded on the American Stock Exchange under the
symbol "ACU". The following table sets forth the high and low sale prices on the
American Stock Exchange for the Common Stock for the periods indicated:
High Low
Year Ended December 31, 1999
First Quarter 2 1/2 1 3/8
Second Quarter 2 3/8 2
Third Quarter 2 1/8 1 1/4
Fourth Quarter 1 9/16 13/16
Year Ended December 31, 1998
First Quarter 6 4 7/8
Second Quarter 6 1/2 4
Third Quarter 4 1/8 2 1/4
Fourth Quarter 3 1 7/8
As of March 24, 2000 there were approximately 1,300 holders of record of the
Company's Common Stock.
The Company did not pay cash dividends on its Common Stock in 1999 and 1998. The
Company presently intends to retain earnings to finance business improvements.
Item 6. Selected Financial Data
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(All figures in thousands except per share data)
1999 1998 (A) 1997 (A) 1996 (A)(B) 1995 (A)
- ----------------------------------------------------- ------------ ------------ ------------ --------------- -----------
Net Sales $34,309 $36,457 $32,843 $33,125 $35,882
- ----------------------------------------------------- ------------ ------------ ------------ --------------- -----------
Loss from Continuing Operations (156) (2,364) (2,847) (4,744) (9,110)
- ----------------------------------------------------- ------------ ------------ ------------ --------------- -----------
Total Assets 20,767 28,896 29,327 27,251 37,021
- ----------------------------------------------------- ------------ ------------ ------------ --------------- -----------
Long Term Debt, Less Current Portion 5,013 6,382 11,852 8,444 14,880
- ----------------------------------------------------- ------------ ------------ ------------ --------------- -----------
Loss Per Share from Continuing Operations (C) (.05) (.70) (.85) (1.42) (2.73)
(A) As restated to reflect the sale of the medical business on March 22, 1999
which is reported as discontinued operations.
(B) Reflects the divestiture of Altenbach as of May 1, 1996.
(C) The effects of the weighted average number of stock options outstanding are
antidilutive for all years presented and have been excluded from the per share
calculations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Acme United Corporation (the "Company") sold its medical business segment in
March 1999, and has classified the operating results of this segment as
discontinued operations in the accompanying financial statements. Prior thereto
the Company operated in two principal business segments - consumer and medical.
The Company's continuing operations consist of a single reportable consumer
segment which operates in the United States, Canada, England and Germany.
On March 22, 1999, the Company sold its medical business, including customer
lists, inventory, and certain equipment for cash of approximately $8.15 million
resulting in a gain of approximately $2.1 million. Net sales of that business
had declined from $13,435,000 in 1997 to $10,090,000 in 1998. The Company used
the net proceeds from the sale to reduce debt. The sale of the medical business
enabled management to focus its sales efforts on scissors, rulers, and first aid
kits in the consumer market. The Company believes the consumer market provides a
strong foundation for growth.
The loss from continuing operations was $156,000 in 1999; $2,364,242 in 1998 and
$2,847,263 in 1997.
The following comments on the results of operations relate exclusively to the
continuing operations of the Company's consumer business.
Results of Operations 1999 Compared with 1998
Net sales from continuing operations decreased $2,147,196 or 6% in 1999 to
$34,309,491 compared to $36,456,687 in 1998. Net sales in the United States
decreased $191,490 or 1%. Foreign net sales decreased $1,955,706 or 16%
primarily due to weak sales in England and a product rationalization program in
Canada.
Net other income was $305,196 in 1999 compared to net other expense of $51,758
in 1998. Net other income in 1999 includes foreign currency transaction gains of
$215,040 in 1999 compared to currency losses of $194,000 in 1998. A currency
loss of $220,000 was incurred in 1998 related to the Company's Canadian
operations.
Gross profit was 24% of net sales in 1999 compared to 21% of net sales in 1998.
Gross profit improved in all operating entities due to purchasing select
products from Asia at lower costs and improvements in manufacturing
productivity.
Selling, general and administrative expenses were $7,609,361 in 1999 compared
with $8,519,808 in 1998, a decrease of $910,447 or 11%. Decreased compensation
expense applicable to fewer employees was offset in part by increased
advertising expense.
Interest expense decreased $437,336 in 1999 to $1,064,239 compared to $1,501,575
due to lower borrowings in 1999 as debt was paid down from the proceeds from the
sale of the medical business coupled with aggressive working capital management.
An income tax benefit of $26,554 was recognized in 1999 compared to a benefit of
$44,002 in 1998. The Company has significant net operating loss carryovers for
United States federal and state and foreign tax reporting purposes. The benefits
from such loss carryovers will only be recognized when realized.
Results of Operations 1998 Compared with 1997
Net sales from continuing operations increased $3,614,173 or 11% in 1998 to
$36,456,687 compared to $32,842,514 in 1997. Net sales in the United States
increased $2,233,000 or 10% driven mainly by increased volume in the first aid
line and the new Tagit! scissors. Foreign net sales increased $1,381,173 or 13%
primarily on increased volume in Canada, including Rotex products. The Company
purchased the majority of the inventory of the Rotex division of Esselte Canada
on December 8, 1997.
Net other expense was $51,758 in 1998 compared to net other income of $367,406
in 1997. Net other expense in 1998 includes foreign currency transaction losses
of $194,000 in 1998 compared to currency gains of $182,000 in 1997. A currency
loss of $220,000 was incurred in 1998 related to the Company's Canadian
operations.
Gross profit was 21% of net sales in 1998 compared to 22% of net sales in 1997.
Temporary manufacturing inefficiencies negatively impacted manufacturing costs
for 1998. In addition, customer rebates which are netted against sales, were
higher in 1998 than 1997 as a percentage of gross sales.
Selling, general and administrative expenses were $8,519,808 in 1998 compared
with $8,678,687 in 1997, a decrease of $158,879 or 2%. Decreased compensation
expense applicable to fewer employees was offset in part by increased
advertising expense.
Interest expense increased $175,289 in 1998 to $1,501,575 compared to $1,326,286
in 1997 on higher borrowings to fund the purchase of the Rotex inventory and, in
part, to fund a portion of the net operating loss for the current year.
An income tax benefit of $44,002 was recognized in 1998 compared to an expense
of $94,317 in 1997. The Company has significant net operating loss carryovers
for United States federal and state, and foreign tax reporting purposes. The
benefits from such carryovers will only be recognized when realized.
Liquidity and Capital Resources
The Company's working capital, current ratio and long - term debt to equity
ratio follow:
1999 1998
------------------------------------- ----------------- -----------------
Working Capital $6,956,481 $3,616,421
Current Ratio 1.81 to 1 1.20 to 1
Long - Term Debt to Equity Ratio .72 1.37
The increase in working capital and current ratio in 1999 is primarily a result
of a decrease of inventories, a decrease in accounts payable and a decrease in
current portion of long-term debt. Inventories decreased $4,971,358 or 37% in
1999 due to the Company's sale of the medical division and aggressive inventory
management. The current portion of long-term debt decreased $6,911,685. On March
22, 1999, the Company sold its medical business for approximately $8,156,000. At
the closing the Company used a portion of the cash proceeds to repay
approximately $6,000,000 of debt.
Long-term debt decreased $1,369,797 to $5,012,634 as of December 31, 1999 due to
a refinancing. Net cash provided by operating activities was $495,443 for 1999
compared to net cash provided by operating activities of $607,885 for 1998.
On January 19, 2000, the Company entered into a loan agreement (the Agreement)
with a bank to refinance debt. Under the Agreement the Company may borrow up to
$11,500,000 through January 19, 2003 (the maturity date) based on a formula
which applies specific percentages to balances of accounts receivable and
inventories. Throughout 2000, the Company expects to have a minimum of $4.4
million outstanding under this arrangement. Under the Agreement, the Company
borrowed an additional $325,000 which is payable in monthly installments of
$5,417, plus interest, commencing February 1, 2000 through November 1, 2002 and
a final installment of $140,822, plus interest, due December 1, 2002. Amounts
outstanding under the Agreement bear interest at varying rates as provided for
in the Agreement.
Under a separate loan agreement with another bank which was amended January 19,
2000, the Company will repay $500,000, principal amount, of outstanding debt at
that date in monthly installments of $13,889, plus interest at the prime rate,
as defined, plus 2.5%, commencing February 1, 2000 through January 1, 2003.
The Company, among other things, is restricted with respect to dividends,
additional borrowings, investments, mergers, distributions, and property and
equipment acquisitions. Further, the Company is required to maintain specific
amounts of tangible net worth, as defined, commencing January 19, 2000, and a
specified debt service coverage ratio, as defined, and a fixed charge coverage
ratio, as defined, commencing March 31, 2000. The Company believes these
financial covenants will be met.
Capital expenditures during 1999 were $459,707 which were, in part, financed
with debt. Capital expenditures in 2000 are not expected to be material.
Cash generated from operating activities, together with funds available under
the Agreement, is expected, under current conditions, to be sufficient to
finance the Company's planned operations in 2000.
Item 7A. Qualitative and Quantitative Disclosures about Market Risk
Foreign Currency Risk:
The Company manufactures products in the United States and Germany. Further, the
Company engages in intracompany sales which are denominated in currencies other
then those of the operating entity making the sale. As such, these transaction
give rise to foreign currency risk. The Company's currency exposures vary, but
are concentrated in the Canadian dollar, British pound, and German mark.
At times, the Company utilizes forward foreign exchange contracts to hedge
specific transactions with third parties denominated in foreign currencies. The
terms of these forward foreign exchange contracts are typically under 90 days.
Because the contracts are acquired for specific transactions, they are an
effective hedge against fluctuations in the value of the foreign currency
underlying the transaction. The Company does not hedge intracompany sales nor
does it enter into financial instruments for speculation or trading purposes.
The Company and its foreign subsidiaries utilize bank loans to finance their
operations. To mitigate foreign currency risk, foreign loans are denominated in
the local currency of the foreign subsidiary wherever possible.
Interest Rate Risk:
The Company's interest expense on debt is most sensitive to changes in the level
of United States interest rates. To mitigate the impact of these fluctuations,
the Company periodically evaluates alternative interest rate arrangements.
The Company's debt portfolio and associated interest rates follows:
2000 2001 2002 2003 Total Fair Value
- -------------------------------------- --------------- ------------- --------------- -------------- ----------------- --------------
Current Liabilities -Notes payable $690,738 $690,738 $690,738
Average interest rate 8.6% 8.6% 8.6%
- -------------------------------------- --------------- ------------- --------------- -------------- ----------------- --------------
Long-term Debt:
Fixed rate $907,856 $907,856 $907,856
Average interest rate 6.3% 6.3% 6.3%
Variable rate:
To be refinanced $212,366 $231,672 $367,097 $4,413,865 $5,225,000 $5,225,000
Average interest rate 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
Other $911,871 $911,871 $911,871
Average interest rate 10.0% 10.0% 10.0%
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $50,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
Inflation
Inflation had a negligible effect on the Company's operations during 1999 and
1998. The Company estimates that inflationary effects, in the aggregate, were
generally recovered or offset through increased pricing or cost reductions in
both years.
Forward-Looking Information
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.
Item 8. Financial Statements and Supplementary Data
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net Sales $ 34,309,491 $ 36,456,687 $ 32,842,514
Other Income/(Expense) - Net 275,787 (51,758) 367,406
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
34,585,278 36,404,929 33,209,920
Costs and Expenses:
Cost of Goods Sold 26,094,668 28,791,790 25,572,257
Selling, General and Administrative Expenses 7,609,361 8,519,808 8,678,687
Interest Expense 1,064,239 1,501,575 1,326,286
Restructuring and Other Charges - - 385,636
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
34,768,268 38,813,173 35,962,866
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Loss from Continuing Operations before Income Taxes (182,990) (2,408,244) (2,752,946)
Income Taxes (Benefit) (26,554) (44,002) 94,317
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Loss from Continuing Operations (156,436) (2,364,242) (2,847,263)
Discontinued Operations:
Income from Discontinued Operations 223,840 698,000 3,050,000
Gain from Sale of Discontinued Operations 2,101,000 - -
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Income from Discontinued Operations 2,324,840 698,000 3,050,000
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net Income/(Loss) 2,168,404 (1,666,242) 202,737
Other Comprehensive Expense - Foreign Currency Translation (55,223) (8,675) (250,436)
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Comprehensive Income/(Loss) $ 2,113,181 $ (1,674,917) $ (47,699)
================================================================ ================= ================ =================
Earnings/(Loss) Per Share:
Continuing Operations $ (.05) $ (.70) $ (.85)
Discontinued Operations .69 .21 .91
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net Income/(Loss) $ .64 $ (.49) $ .06
================================================================ ================= ================ =================
See accompanying notes.
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
Accumulated
Other
Outstanding Comprehensive
Shares of Additional Loss- Retained
Common Stock Common Stock Treasury Paid-In Translation Earnings
Stock Capital Adjustment (Deficit)
- ------------------------------- ---------------- -------------- ------------- --------------- ------------------ ---------------
Balances, December 31, 1996 3,387,620 $ 8,586,550 $ (357,631) $ 2,179,494 $ (976,104) $(2,916,979)
Net Income 202,737
Exercise of Stock Options 39,375 98,438 58,734
Purchase of Treasury Stock (64,620) (331,178)
Translation Adjustment (250,436)
- ------------------------------- ---------------- -------------- ------------- --------------- ------------------ ---------------
Balances, December 31, 1997 3,362,375 8,684,988 (688,809) 2,238,228 (1,226,540) (2,714,242)
Net Loss (1,666,242)
Exercise of Stock Options 8,500 21,250 12,375
Issuance of Treasury Stock 6,613 40,809 (17,898)
Translation Adjustment (8,675)
- ------------------------------- ---------------- -------------- ------------- --------------- ------------------ ---------------
Balances, December 31, 1998 3,377,488 8,706,238 (648,000) 2,232,705 (1,235,215) (4,380,484)
Net Income 2,168,404
Issuance of Common Stock in
Payment of Accrued
Compensation 129,567 323,917 (194,351)
Translation Adjustment (55,223)
- ------------------------------- ---------------- -------------- ------------- --------------- ------------------ ---------------
Balances, December 31, 1999 3,507,055 $ 9,030,155 $ (648,000) $ 2,038,354 $(1,290,438) $(2,212,080)
=============================== ================ ============== ============= =============== ================== ===============
See accompanying notes.
Acme United Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
- -------------------------------------------------------------------------------- ---------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 88,468 $ 39,805
Accounts receivable, less allowance 6,702,148 7,721,699
Inventories 8,297,631 13,268,989
Prepaid expenses and other current assets 508,011 423,772
- -------------------------------------------------------------------------------- ---------------- -----------------
Total current assets 15,596,258 21,454,265
Plant, Property and Equipment:
Land 190,884 219,249
Buildings 2,047,593 2,178,805
Machinery and equipment 8,616,263 16,216,082
- -------------------------------------------------------------------------------- ---------------- -----------------
Total plant, property and equipment 10,854,740 18,614,136
Less accumulated depreciation 6,868,588 12,572,886
- -------------------------------------------------------------------------------- ---------------- -----------------
Net plant, property and equipment 3,986,152 6,041,250
Goodwill and other, less accumulated amortization 192,510 504,848
Other assets 992,530 895,156
- -------------------------------------------------------------------------------- ---------------- -----------------
Total Assets $20,767,450 $28,895,519
================================================================================ ================ =================
LIABILITIES
- ------------------------------------------------------------------------------- ----------------- -----------------
Current Liabilities:
Notes payable $ 690,738 $ 881,538
Accounts payable 2,763,272 4,422,315
Other accrued liabilities 3,153,674 3,384,544
Current portion of long-term debt 2,032,093 8,943,778
- ------------------------------------------------------------------------------- ----------------- -----------------
Total current liabilities 8,639,777 17,632,175
Long-term debt, less current portion 5,012,634 6,382,431
Other 197,048 205,669
- ------------------------------------------------------------------------------- ----------------- -----------------
Total Liabilities 13,849,459 24,220,275
- ------------------------------------------------------------------------------- ----------------- -----------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock, par value $2.50: authorized 4,000,000 shares; issued -
3,612,062 shares in 1999 and 3,482,495 shares in 1998, including Treasury
Stock 9,030,155 8,706,238
Treasury Stock, at cost, 105,007 shares (648,000) (648,000)
Additional paid-in capital 2,038,354 2,232,705
Accumulated other comprehensive loss - translation adjustment (1,290,438) (1,235,215)
Retained - earnings deficit (2,212,080) (4,380,484)
- ------------------------------------------------------------------------------- ----------------- -----------------
Total Stockholders' Equity 6,917,991 4,675,244
- ------------------------------------------------------------------------------- ----------------- -----------------
Total Liabilities and Stockholders' Equity $20,767,450 $28,895,519
=============================================================================== ================= =================
See accompanying notes.
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Operating activities:
Net income (loss) $ 2,168,404 $ (1,666,242) $ 202,737
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Gain on sale of discontinued operations (2,101,000) - -
Gain on sale of marketing rights - - (846,178)
Depreciation 950,000 1,242,605 979,196
Amortization 29,710 33,421 92,480
Loss (gain) on disposal of plant, property and equipment 240,873 (98,264) -
Changes in operating assets and liabilities
Accounts receivable 1,004,551 (275,860) (709,695)
Inventories 1,648,394 812,362 (4,030,034)
Prepaid expenses and other current assets (84,239) (247,549) (114,580)
Other assets 74,254 (69,796) (196,518)
Accounts payable (1,659,043) 897,731 1,034,140
Other accrued liabilities (1,776,461) (20,523) 231,487
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Total adjustments (1,672,961) 2,274,127 (3,559,702)
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net cash provided (used) by operating activities 495,443 607,885 (3,356,965)
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Investing activities:
Capital expenditures (459,707) (1,572,516) (1,824,394)
Proceeds from sales of plant, property and equipment 384,432 326,000 345,106
Proceeds from sale of marketing rights - - 1,915,178
Proceeds from sale of medical division 8,156,000 - -
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net cash provided (used) by investing activities 8,080,725 (1,246,516) 435,890
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Financing activities:
Net (repayments) borrowings on notes payable and revolving
credit facilities (8,031,802) (400,375) 3,661,074
Borrowings of long-term debt 2,500,000 1,266,557 600,000
Payments of long term debt (2,940,480) (237,402) (1,903,896)
Exercise of stock options 33,625 157,172
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net cash (used) provided for financing activities (8,472,282) 662,405 2,514,350
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Effect of exchange rate changes (55,223) (8,675) 4,229
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 48,663 15,099 (402,496)
Cash and cash equivalents at beginning of year 39,805 24,706 427,202
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 88,468 $ 39,805 $ 24,706
================================================================ ================= ================ =================
See accompanying notes.
Acme United Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Continuing Operations
The continuing operations of Acme United Corporation (the Company) consist of a
single reportable "consumer" segment. The consumer segment operates in the
United States, Canada, England and Germany. Principal consumer segment products
are scissors, shears, rulers, first aid kits, and related products which are
sold primarily to wholesale, contract and retail stationery distributors, office
supply super stores, school supply distributors, drug store retailers and mass
market retailers. Revenues related to sales of such products are recognized at
the time of shipment. Continuous credit evaluations are made of customers;
collateral is not required. Allowances for credit losses are provided and have
been within management's expectations. Net sales for 1999, 1998 and 1997 include
two customers which aggregate approximately 26% in 1999 and 20% for each year,
1998 and 1997.
2. Discontinued Operations
On March 22, 1999 the Company sold its medical business, including customer
lists, inventory, and certain equipment for cash of approximately $8,156,000
realizing a gain of $2,101,000. The consolidated statements of operations for
1999, 1998 and 1997 reflect the discontinuance of the medical business segment.
Substantially all assets of the medical business segments have been disposed of
at December 31, 1999. The 1998 consolidated balance sheet includes the assets of
the discontinued medical business. A summary of those assets follows:
1998
--------------------------------------------------------- --------------
Current assets:
Accounts receivable $ 1,121,000
Inventories 3,464,000
Other 150,000
--------------------------------------------------------- --------------
4,735,000
Equipment, net and other 1,215,000
--------------------------------------------------------- --------------
$ 5,950,000
========================================================= ==============
The condensed statements of operations relating to the medical business follow:
1999 1998 1997
-------------------------------------- ---------------- ---------------- ---------------
Net sales $ 5,536,000 $ 10,090,000 $ 13,435,000
Costs and expenses 5,312,160 9,392,000 11,231,000
-------------------------------------- ---------------- ---------------- ---------------
223,840 698,000 2,204,000
Gain on sale of marketing rights (A) - - 846,000
-------------------------------------- ---------------- ---------------- ---------------
Income from operations (B) $ 223,840 $ 698,000 $ 3,050,000
====================================== ================ ================ ===============
(A) On March 3, 1997, the Company sold marketing rights of certain wound care
products applicable to the medical business for approximately $2.0 million
which resulted in a gain of $846,000.
(B) Income taxes related to the medical business are not material.
3. Accounting Policies
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts are eliminated in consolidation.
Translation of Foreign Currency - For foreign operations, assets and liabilities
are translated at rates in effect at the end of the year; revenues and expenses
are translated at average rates in effect during the year. Translation
adjustments are shown as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are recognized at the time of settlement
of the underlying purchase transactions and treated as purchasing variances.
Resulting translation adjustments are made directly to a separate component of
stockholders' equity--"Accumulated other comprehensive loss - translation
adjustment". Foreign currency transaction gains (losses) which are included in
other income (expense) were $215,000 in 1999, $(194,000) in 1998 and $182,000 in
1997.
Hedging Activity - Foreign currency contracts are occasionally purchased as
hedges against foreign currency fluctuation risk related to specific purchase
commitments. The Company does not engage in foreign currency exchange contracts
for speculative purposes and accordingly, the contracts are accounted for as
hedges. There were no significant foreign currency contracts outstanding as of
December 31, 1999 and 1998.
Cash Equivalents - Investments with an original maturity of three months or less
at the date of purchase are considered cash equivalents.
Accounts Receivable - Accounts receivable are shown less an allowance for
doubtful accounts of $125,862 in 1999 and $195,325 in 1998.
Inventories - Inventories are stated at the lower of average cost determined by
the first in, first out method or market.
Plant, Property and Equipment and Depreciation - Plant, property and equipment
is recorded at cost. Depreciation is computed by the straight-line method over
the estimated useful lives of the assets.
Goodwill - Goodwill represents the excess of the cost of investments in
businesses acquired over the net asset values at acquisition. Goodwill is being
amortized by the straight line method over periods ranging from 3 to 40 years.
Accumulated amortization thereon aggregated $299,143 and $269,433 at December
31, 1999 and 1998, respectively.
Asset Impairments -The Company evaluates the propriety of the carrying amounts
of its long-lived assets, including goodwill, as well as their estimated useful
lives, when current events and circumstances indicate a potential impairment.
The Company believes that there are no significant impairments of the carrying
amounts of such assets and no reduction in their estimated useful lives is
warranted.
Deferred Income Taxes - Deferred income taxes are provided on the differences
between the financial statement and tax bases of assets and liabilities and on
operating loss carryovers using enacted tax rates in effect in years in which
the differences are expected to reverse.
Research and Development - Research and development costs ($18,688 in 1999,
$90,651 in 1998 and $385,000 in 1997) are charged to operations as incurred.
Advertising - Advertising costs ($2,444,343 in 1999, $2,353,188 in 1998 and
$2,044,179 in 1997) are expensed as incurred.
Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation.
4. Inventories
Inventories consists of:
1999 1998
-------------------------------------- ---------------- ----------------
Finished goods $ 5,354,828 $ 7,122,146
Work in process 648,404 1,240,055
Materials and supplies 2,294,399 4,906,788
-------------------------------------- ---------------- ----------------
$ 8,297,631 $ 13,268,989
====================================== ================ ================
5. Other Assets
Other assets consist of:
1999 1998
-------------------------------------- ----------------- ---------------
Prepaid pension costs $ 980,395 $ 867,540
Other 12,135 27,616
-------------------------------------- ----------------- ---------------
$ 992,530 $ 895,156
====================================== ================= ===============
6. Other Accrued Liabilities
Other accrued liabilities consist of:
1999 1998
-------------------------------------- ----------------- ---------------
Vendor rebates $ 1,743,722 $ 1,278,226
Other 1,229,603 2,106,318
-------------------------------------- ----------------- ---------------
$ 3,153,674 $ 3,384,544
====================================== ================= ===============
7. Pension and Profit Sharing
United States employees, hired prior to July 1, 1993, are covered by a funded,
defined benefit pension plan. The benefits are based on years of service and the
average compensation of the highest three consecutive years during the last ten
years of employment. In December 1995, the Company's Board of Directors approved
an amendment to the United States pension plan ceasing all future benefit
accruals as of February 1, 1996, without terminating the pension plan.
Other disclosures related to the pension plan follow:
1999 1998
--------------------------------------------------------------- ----------------- ----------------
Changes in benefit obligation
Benefit obligation at beginning of year $ (5,311,539) $ (5,306,010)
Interest cost (363,481) (381,457)
Plan participants' contributions (27,934)
Actuarial gain/(loss) 312,480 (350,647)
Benefits paid 535,425 726,575
--------------------------------------------------------------- ----------------- ----------------
Benefit obligation at end of year $ (4,855,049) $ (5,311,539)
--------------------------------------------------------------- ----------------- ----------------
Changes in plan assets
Fair value of plan assets at beginning of year $ 5,870,338 $ 5,911,452
Actual return on plan assets 825,671 685,461
Plan participants' contributions 27,934
Benefits paid (535,425) (726,575)
--------------------------------------------------------------- ----------------- ----------------
Fair value of plan assets at end of year $ 6,188,518 $ 5,870,338
--------------------------------------------------------------- ----------------- ----------------
Funded status $ 1,333,469 $ 558,799
Unrecognized (gain)/loss (353,074) 308,741
--------------------------------------------------------------- ----------------- ----------------
Prepaid benefit costs $ 980,395 $ 867,540
=============================================================== ================= ================
At December 31, 1999 and 1998, plan assets include 30,000 shares of the
Company's Common Stock having a market value of $33,750 and $67,500 at those
dates, respectively.
1999 1998 1997
--------------------------------------------------- --------------- --------------- ---------------
Assumptions:
Discount rate 7.75% 6.5% 7.0%
Expected return on plan assets 8.5% 8.5% 8.5%
1999 1998 1997
--------------------------------------------------- --------------- --------------- ---------------
Components of net benefit income:
Interest cost $ 363,481 $ 381,457 $ 376,622
Expected return on plan assets (476,336) (480,121) (446,996)
--------------------------------------------------- --------------- --------------- ---------------
$ (112,855) $ (98,664) $ (70,374)
=================================================== =============== =============== ===============
The Company also has a qualified, non-contributory profit sharing plan covering
substantially all United States employees. Annual Company contributions are
determined by the Compensation Committee and have amounted to 2% of eligible
employee earnings. Total contribution expense under this plan approximated
$51,000, $102,000 and $104,000 for 1999, 1998, and 1997, respectively.
8. Income Taxes
The amounts of income taxes (benefit) reflected in operations follow:
1999 1998 1997
--------------------------------------------------- --------------- --------------- ---------------
Current:
State $ (27,059) $ 29,808 $ 49,800
Foreign 505 (73,810) 44,517
--------------------------------------------------- --------------- --------------- ---------------
$ (26,554) $ (44,002) $ 94,317
=================================================== =============== =============== ===============
The current state tax provision is comprised of the minimum capital tax and
other franchise taxes related to the jurisdictions in which the Company's
manufacturing plants are located.
A summary of United States and foreign loss before income taxes from continuing
operations follows:
1999 1998 1997
---------------------------------------------- ---------------- ----------------- ----------------
United States $ (61,829) $ (1,443,434) $ (2,280,601)
Foreign (121,161) (964,810) (472,345)
---------------------------------------------- ---------------- ----------------- ----------------
$ (182,990) $ (2,408,244) $ (2,752,946)
============================================== ================ ================= ================
The following schedule reconciles the amounts of income taxes (benefit) computed
at the United States statutory rate to the actual amounts reported in
continuing operations.
1999 1998 1997
---------------------------------------------- ---------------- ----------------- ----------------
Federal income taxes (benefit) at 34%
statutory rate $ (62,217) $ (818,803) $ (936,002)
State and local taxes, net of federal income
tax effect (50,587) (15,227) (119,632)
Foreign income taxes (benefit) 1,332 (22,345) (19,473)
Deferred income tax asset valuation allowance (334,172) 895,888 1,307,167
Foreign permanent differences 354,249
Other 64,841 (83,515) (137,743)
---------------------------------------------- ---------------- ----------------- ----------------
Provision (benefit) for income taxes $ (26,554) $ (44,002) $ 94,317
============================================== ================ ================= ================
Income taxes paid, net of refunds received, were $45,871 in 1999, $66,363 in
1998 and $13,267 in 1997.
Deferred income taxes relate to:
1999 1998
--------------------------------------------------------------- ----------------- ----------------
Deferred income tax liabilities:
Plant, property and equipment $ 445,695 $ 373,115
Pension 351,830 301,170
Other 78,558 -
--------------------------------------------------------------- ----------------- ----------------
876,083 674,285
Deferred income tax assets:
Asset valuations 402,779 381,595
Operating loss carryforwards 3,420,039 4,279,050
Intangible assets - 126,962
Other 42,530 88,022
--------------------------------------------------------------- ----------------- ----------------
3,865,348 4,875,629
--------------------------------------------------------------- ----------------- ----------------
Net deferred income tax asset before valuation allowance 2,989,265 4,201,344
Valuation allowance (2,989,265) (4,201,344)
--------------------------------------------------------------- ----------------- ----------------
Net deferred income taxes $ - $ -
=============================================================== ================= ================
The deferred income tax asset valuation allowance was $3,622,743 as of December
31, 1997.
The Company provides deferred income taxes on foreign subsidiary earnings which
are not considered permanently reinvested. Earnings permanently reinvested would
become taxable upon the sale or liquidation of a foreign subsidiary or upon the
remittance of dividends. Foreign subsidiary earnings of $1,335,000 and
$1,414,000 are considered permanently reinvested as of December 31, 1999 and
1998, respectively, and the amount of deferred income taxes thereon cannot be
reasonably determined.
Due to the uncertain nature of the realization of the Company's deferred income
tax assets based on past performance and carryforward expiration dates, the
Company has recorded a valuation allowance for the amount of deferred income tax
assets which are not expected to be realized. This valuation allowance is
subject to periodic review, and if the allowance is reduced, the tax benefit
will be recorded in future operations as a reduction of the Company's tax
expense.
At December 31, 1999, the Company has tax operating loss carryforwards
aggregating $11,404,000 of which $4,642,000 relate to United States Federal
income taxes which expire from 2012 through 2019, $2,842,000 relate to state
income taxes which expire from 2000 through 2009 and $3,920,000 relate to
foreign operations income taxes which can be carried forward indefinitely.
9. Debt
The Company has short-term lines of credit for its foreign subsidiaries which
expire in 2000. The aggregate amount available under these lines is $773,348 of
which $690,738 is outstanding at December 31, 1999 and bears interest at rates
ranging from local prime to local prime plus 4.00%. The weighted average
interest rate for outstanding borrowings was 8.61% at December 31, 1999 (8.3% at
December 31, 1998).
Long-term debt consists of:
1999 1998
-------------------------------------- ----------------- ----------------
Notes payable to Bank:
To be refinanced $ 5,225,000 $ 6,613,630
Other 754,741 7,120,533
Other notes payable 1,064,986 1,592,026
-------------------------------------- ----------------- ----------------
7,044,727 15,326,209
Less current portion 2,032,093 8,943,778
-------------------------------------- ----------------- ----------------
$ 5,012,634 $ 6,382,431
====================================== ================= ================
On January 19, 2000, the Company entered into a loan agreement (the Agreement)
with a bank to refinance debt. Under the Agreement the Company may borrow up to
$11,500,000 through January 19, 2003 (the maturity date) based on a formula
which applies specific percentages to balances of accounts receivable and
inventories. Throughout 2000, the Company expects to have a minimum of $4.4
million outstanding under this arrangement. Under the Agreement, the Company
borrowed an additional $325,000 which is payable in monthly installments of
$5,417, plus interest, commencing February 1, 2000 through November 1, 2002 and
a final installment of $140,822, plus interest, due December 1, 2002. Amounts
outstanding under the Agreement bear interest at varying rates as provided for
in the Agreement.
Under a separate loan agreement with another bank which was amended January 19,
2000, the Company will repay $500,000, principal amount, of outstanding debt at
that date in monthly installments of $13,889, plus interest at the prime rate,
as defined, plus 2.5%, commencing February 1, 2000 through January 1, 2003.
The Company, among other things, is restricted with respect to dividends,
additional borrowings, investments, mergers, distributions, and property and
equipment acquisitions. Further, the Company is required to maintain specific
amounts of tangible net worth, as defined, commencing January 19, 2000, and a
specified debt service coverage ratio, as defined, and a fixed charge coverage
ratio, as defined, commencing March 31, 2000. The Company believes these
financial covenants will be met.
Current maturities of long-term debt which reflect the refinancing referred to
above follow: 2000 - $2,032,093; 2001 - $231,672; 2002 - $367,097 and 2003 -
$4,413,865.
The interest rates of the other notes payable range from 6.35% to 9.75%.
Interest paid was $1,117,048 in 1999, $1,530,290 in 1998 and $1,306,694 in 1997.
Substantially all assets are pledged as collateral for outstanding debt,
including the portion refinanced January 19, 2000.
10. Commitments and Contingencies
The Company leases certain office, manufacturing and warehouse facilities and
various equipment under non-cancelable operating leases. Total rent expense was
$461,396 in 1999, $684,000 in 1998 and $613,000 in 1997. Minimum annual rental
commitments under non-cancelable leases with initial or remaining terms of one
year or more as of December 31, 1999 follow: 2000 - $375,724; 2001 - $106,511;
2002 - $71,962; 2003 - $46,024; 2004 - $43,004 and thereafter - $11,207.
The Company has been involved in certain environmental 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 five lawsuits remain, they are still in
preliminary stages and it has not been determined whether the Company's products
were involved. Based on information available, the Company believes that there
will not be a material adverse impact on financial position, results of
operations, or liquidity, from environmental and product liabilities, either
individually or in aggregate.
11. Geographic Data
Net sales of the Company's continuing operations by geographic area follow
(000's omitted):
1999 1998 1997
--------------------------------------------- ------------- ------------- -------------
Net Sales:
United States $ 23,916 $ 24,108 $ 21,875
Canada 5,166 5,880 4,235
England 2,177 3,296 4,067
Germany and other European countries 3,050 3,173 2,666
--------------------------------------------- ------------- ------------- -------------
$ 34,309 $ 36,457 $ 32,843
============================================= ============= ============= =============
Long-lived assets by geographic area follow (000's omitted):
1999 1998 1997
--------------------------------------------- ------------- ------------- -------------
Long-Lived Assets:
United States $ 2,506 $ 4,354 $ 3,730
Canada 79 83 66
England 32 78 517
Germany 1,369 1,526 1,922
--------------------------------------------- ------------- ------------- -------------
$ 3,986 $ 6,041 $ 6,235
============================================= ============= ============= =============
12. Stock Option Plans
The Company has a stock option plan which provides incentive and nonqualified
stock options for up to 520,000 shares of the Company's Common Stock to officers
and key employees (the Employee's Plan). The Employee's Plan provides for the
purchase of shares of the Company's Common Stock at a price of not less than
100% of its fair market value at the date of grant. Generally, options granted
under the Employee's Plan prior to June 24, 1996 vested immediately or within a
year; after June 24, 1996, 25% of options granted vest immediately with the
balance vesting over the next three years. The term of options issued cannot
exceed 10 years from the date of grant.
The Company also has a stock option plan which provides nonqualified stock
options for up to 120,000 shares of the Company's Common Stock to non-salaried
directors (the Director's Plan). The original Director's Plan, as approved at
the 1996 Annual Meeting, granted 10,000 options to new directors elected to the
Board at the 1996 Annual Meeting and for subsequent Annual Meetings which vested
one year after the grant date. The Director's Plan was amended in 1997 to grant
10,000 options to directors elected at the 1997 annual meeting who were first
elected prior to the 1996 Annual Meeting which vested immediately. The
Director's Plan was amended again in 1998 to grant 2,500 options to each
director re-elected to the Board at the annual meeting. These options vest
immediately. The Director's Plan provides for the purchase of shares of the
Company's Common Stock at a price of not less than 100% of its fair value at the
date of grant.
A summary of changes in options issued under the Company's two stock option
plans follows:
1999 1998 1997
----------------------------------------------------------- ------------- ------------- -------------
Options outstanding at the beginning of the year 376,550 318,750 301,500
Options granted 174,000 67,950 66,000
Options canceled (79,225) (1,650) (9,375)
Options exercised - (8,500) (39,375)
----------------------------------------------------------- ------------- ------------- -------------
Options outstanding at the end of the year 471,325 376,550 318,750
=========================================================== ============= ============= =============
Options exercisable at the end of the year 340,694 292,563 245,000
=========================================================== ============= ============= =============
Options available for future grants at the end of the year 70,800 165,575 51,875
=========================================================== ============= ============= =============
Average price of options granted $2.12 $4.62 $5.81
Average price of options canceled $1.88 $4.17 $4.52
Average price of options exercised - $3.96 $3.99
Average price of options outstanding $3.65 $4.31 $4.23
Average price of options exercisable $3.95 $4.14 $3.93
A summary of options outstanding at December 31, 1999 follows:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Remaining Weighted-Average Weighted-Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Price
------------------------- --------------- ---------------- ---------------- --------------- --------------
$1.75 to $2.49 143,875 9 2.16 45,594 2.13
$2.50 to $3.65 100,450 5 3.50 92,850 3.56
$3.66 to $5.00 123,500 6 3.86 120,000 3.83
$5.01 to $7.25 103,500 8 5.62 82,250 5.56
=============== ===============
471,325 340,694
=============== ===============
The weighted average remaining contractual life of outstanding stock options is
7 years.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations to recognize compensation expense under
its stock option plans. As such, no expense is recognized if, at the date of
grant, the exercise price of the option is at least equal to the fair market
value of the Company's Common Stock. No compensation expense related to the
Company's stock option plans was required to be recognized for its plans in
1999, 1998 and 1997.
If compensation expense for the Company's stock option plans had been determined
using the fair value method under SFAS No. 123, Accounting for Stock Based
Compensation, the Company would have reported net income of $2,056,538 ($.61 a
share) for 1999, a net loss of $1,814,064 ($.54 a share) for 1998 and net income
of $89,541 ($.03 a share) for 1997.
The weighted average fair value at date of grant for options granted during
1999, 1998 and 1997 is $.75, $1.83, and $2.52 per option, respectively.
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
1999 1998 1997
--------------------------------- ------------- ------------- -------------
Expected Life in Years 5 5 5
Interest Rate 5.67% 5.69% 6.65%
Volatility 27.3% 37.2% 36.4%
Dividend Yield 0% 0% 0%
13. Earnings Per Share
The denominators used in the earnings (loss) per share computations consist of
the weighted average shares of Common Stock outstanding of 3,390,977 in 1999,
3,371,099 in 1998, and 3,353,581 in 1997. The effects of the weighted average
number of stock options outstanding were antidilutive in 1998 and have been
excluded from the per share calculations. Further, because the Company had a
loss from continuing operations in 1999 and 1997 the weighted average number of
stock options outstanding were also excluded from the per share calculations.
14. Financial Instruments
The carrying values of financial instruments (cash and cash equivalents,
accounts receivable, accounts payable, and debt) as of December 31, 1999 and
1998 approximate fair value. Fair value was based on expected cash flows and
current market conditions.
15. Purchase of Inventory from Rotex Division of Esselte Canada
On December 8, 1997, the Company purchased the majority of the inventory of the
Rotex Division of Esselte Canada. This inventory was purchased for $967,000 with
a debt financing of $564,800, and assumed liabilities of $402,200. This
represents an expansion of the Company's office products business in Canada
where the Company distributes a broad range of office products to most of the
major distributors and retail chains.
16. Restructuring and Other Charges
In 1997 the Company abandoned certain property and plant resulting in a $530,000
charge to operations. Also in 1997 the Company recorded a $144,000 change in
estimate relating to a restructuring charge recorded in 1996.
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Stockholders of Acme United Corporation:
We have audited the accompanying consolidated balance sheets of Acme United
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income (loss), changes
in stockholders' equity, and cash flows for the years then ended. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Acme United
Corporation and Subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Hartford, Connecticut
March 9, 2000
Report of PricewaterhouseCoopers LLP, Independent Accountants
To the Board of Directors and Stockholders of Acme United Corporation:
We have audited the accompanying consolidated statements of operations and
comprehensive income (loss), changes in stockholders' equity and cash flows of
Acme United Corporation for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of Acme United Corporation's
operations and their cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
March 19, 1998, except as to the information presented in Note 2, for which the
date is March 26, 1999
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements with accountants related to accounting and
financial disclosures in 1999.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information with respect to the directors
and executive officers of the Company. All directors of the Company hold office
until the next annual meeting of the shareholders or until their successors have
been elected and qualified. Executive officers are elected to the Board of
Directors to hold office until their successors are elected and qualified.
Name Age Position Held with Company
- -------------------------- ------------ ----------------------------------------
Walter C. Johnsen 49 President, Chief Executive Officer
and Director
Gary D. Penisten 68 Chairman of the Board and Director
Brian S. Olschan 43 Executive Vice President and
Chief Operating Officer
Ronald P. Davanzo 37 Vice President and Chief Financial
Officer, Secretary and Treasurer
David W. Clark, Jr. 62 Director
George R. Dunbar 76 Director
Richmond Y. Holden, Jr. 46 Director
Wayne R. Moore 69 Director
Walter C. Johnsen has served as director since 1995 and as President and Chief
Executive Officer since November 30, 1995. Prior to that he was Executive Vice
President since January 24, 1995. He also was Chief Financial Officer from March
26, 1996 until June 30, 1996. Before joining the Company he was Vice Chairman
and a principal of Marshall Products, Inc., a medical supply distributor.
Gary D. Penisten has served as director since 1994 and Chairman of the Board
since February 27, 1996. He is a Director of D. E. Foster & Partners L.P., an
executive search firm. From 1977 to 1988, he was Senior Vice President of
Finance, Chief Financial Officer and a Director of Sterling Drug Inc. in New
York City.
Brian S. Olschan served as Senior Vice President-Sales and Marketing from
September 10, 1996 until February 22, 1999. From 1991 to 1996, he was employed
by General Cable Corporation in various executive positions including Vice
President and General Manager of the Cordset and Assembly Business from 1994 to
1996. Effective January 23, 1999, he was promoted to Executive Vice President
and Chief Operating Officer.
Ronald P. Davanzo has served as Vice President and Chief Financial Officer,
Secretary and Treasurer since March 18, 1999. Prior to that he was Vice
President-International since April 27, 1998 and continues to serve in that
capacity. Mr. Davanzo joined Acme on May 19, 1997. From 1985 to 1997 he served
in several increasingly responsible positions in Sterling Drug, Inc., Eastman
Kodak, and Sanofi S.A. In his final position before joining Acme he was Director
of Finance for Sanofi's Oscar de la Renta fragrance business.
David W. Clark, Jr. has served as director since 1980. He is Managing Director
of Pryor & Clark Company, an investment company. From July 1988 to June 1992,
Mr. Clark was President of Corcap, Inc. which was spun out of Lydall, Inc. in
July 1988. Mr. Clark joined Lydall in 1972 as Vice President-Treasurer and
Director. He became Executive Vice President in 1977 and President in 1986.
Until July of 1992, Mr. Clark was also Chairman of the Board of CompuDyne
Corporation of which he remains a Director. He is also a Director of Checkpoint
Systems, Inc., Thorofare, NJ and SSC Technologies, Bloomfield, Connecticut.
George R. Dunbar has served as director since 1977. He is President of Dunbar
Associates, a municipal management consulting firm. He is a Former Chief
Administrative Officer for the City of Bridgeport and served as President
(1972-1987) of the Bryant Electric Division of Westinghouse Electric
Corporation, manufacturer of electrical distribution and utilization products,
Bridgeport, Connecticut.
Richmond Y. Holden, Jr. has served as director since 1998. He has served as
President and Chief Executive Officer of J.L. Hammett Co. since 1992; Executive
Vice President from 1989 to 1992. J.L. Hammett Co. is a distributor and retailer
of educational products throughout the United States, and is one of the largest
distributors to the K-12 educational marketplace.
Wayne R. Moore has served as director since 1976. He is presently a Director and
Chairman Emeritus of The Producto Machine Company, manufacturer of machine
tools, special machines, and tool die and mold components. He was Chairman of
the Board of The Producto Machine Company and of Moore Tool Company,
manufacturer of machine tools, measuring machines and metrology products. Mr.
Moore was Chairman of the Association for Manufacturing Technology/U.S. Machine
Tool Builders (1985-1986) and Committee Member of U.S. Eximbank (1984). He is a
Trustee of the American Precision Museum and on the Board of advisors of the
Fairfield University School of Engineering.
Item 11. Executive Compensation
(Refer to Proxy Statement pages 6-10)
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Refer to Proxy Statement pages 1-2)
Item 13. Certain Relationships and Related Transactions
(None)
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements
Page(s)
Consolidated Balance Sheets 12
Consolidated Statements of Operations and Comprehensive
Income(Loss) 10
Consolidated Statements of Changes in Stockholders' Equity 11
Consolidated Statements of Cash Flows 13
Notes to Consolidated Financial Statements 14
Report of Ernst & Young LLP, Independent Auditors 23
Report of PricewaterhouseCoopers LLP, Independent Accountants 24
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts 28
Schedules other than those listed above have been omitted because the required
information is contained in the financial statements and notes thereto, or
because such schedules are not required or applicable.
3. Exhibits
Exhibit 21 - Parents and Subsidiaries 29
Exhibit 23 - Consent of Ernst & Young LLP, Independent Auditors 29
- Consent of PricewaterhouseCoopers LLP, Independent 29
Accountants
The following basic documents are contained in S-1 Registration Statement No.
230682 filed with the Commission on November 7, 1968 and amended by Substantive
Amendment No. 1 on December 31, 1968 and by No. 2 on January 31, 1969:
Certificate of Organization of Registrant
Amendment to Certificate of Incorporation of Registrant dated
September 24, 1968
Proof of Common Stock Certificates
The following basic documents were filed with Form 10-K for 1971:
Amendment to Certificate of Incorporation of Registrant dated
April 27, 1971
Amendment to Certificate of Incorporation dated June 29, 1971
Proof of Common Stock Certificate
Proof of Preferred Stock Certificate
(b) No Form 8-K was filed by the Company during the quarter ended
December 31,1999.
SCHEDULE II
Acme United Corporation and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1999, 1998 and 1997
Balance at Charged to Deductions and
Beginning of Costs and Other Adjustments Balance at End
Period Expenses of Period
---------------- ----------------- ------------------ -----------------
1999
Allowance for doubtful accounts $195,325 $ 64,944 $134,107 $125,862
1998
Restructuring liability 27,688 - 27,688 -
Allowance for doubtful accounts 252,079 35,889 92,643 195,325
1997
Restructuring liability (A) 755,440 385,636 1,113,388 (A) 27,688
Allowance for doubtful accounts 197,755 155,622 101,298 252,079
(A) Reflects the write-down of abandoned property and plant of $530,000.
EXHIBIT 21
PARENTS AND SUBSIDIARIES
The Company was organized as a partnership in 1867 and incorporated in 1882
under the laws of the State of Connecticut as The Acme Shear Company. The
corporate name was changed to Acme United Corporation in 1971.
There is no parent of the registrant.
Registrant has the following subsidiaries, all of which are totally held:
Name State or Country of Incorporation
- ---- ---------------------------------
Acme United Limited Canada
Acme United, Ltd. England
Emil Schlemper GmbH Germany
Westcott Ruler Company, Inc. New York
The Acme Shear Company Connecticut
Only Acme United Limited (Canada), Acme United, Ltd. (England) and Emil
Schlemper GmbH are active and included in the consolidated financial statements.
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-84499, 33-98918 and 333-26737) pertaining to the Acme United
Corporation Amended and Restated Stock Option Plan, the Registration Statements
(Form S-8 Nos. 333-84505 and 333-26739) pertaining to the Acme United
Corporation Non-Salaried Director Stock Option Plan and the Registration
Statement (Form S-8 No. 333-84509) pertaining to the Acme United Corporation
Deferred Compensation Plan for Directors and Acme United Corporation Deferred
Compensation Plan for Walter C. Johnsen of our report dated March 9, 2000, with
respect to the consolidated financial statements and schedule of Acme United
Corporation and subsidiaries included in this Annual Report (Form 10-K) for the
year ended December 31, 1999.
/s/ Ernst & Young LLP
Hartford, Connecticut
March 27, 2000
Consent of PricewaterhouseCoopers LLP, Independent Accountants
We hereby consent to the incorporation by reference in the registration
statements of Acme United Corporation and Subsidiaries on Forms S-8 (File No.
33-98918, File No. 333-26737, and File No. 333-26739) of our report dated March
19, 1998, except as to the information presented in Note 2, for which the date
is March 26, 1999 relating to the consolidated financial statements and
financial statement schedule of Acme United Corporation and Subsidiaries for the
year ended December 31, 1997, which is included in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
March 28, 2000
Pursuant to the requirements of Section 13 or 15(d) 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, on March 27,2000.
ACME UNITED CORPORATION
(Registrant)
Signatures Titles
s/ Walter C. Johnsen
- -----------------------------
Walter C. Johnsen Chief Executive Officer and Director
s/ Gary D. Penisten
- -----------------------------
Gary D. Penisten Chairman of the Board and Director
s/ Ronald P. Davanzo
- -----------------------------
Ronald P. Davanzo Vice President and Chief Financial
Officer, Secretary and Treasurer
s/ David W. Clark, Jr.
- -----------------------------
David W. Clark, Jr. Director
s/ George R. Dunbar
- -----------------------------
George R. Dunbar Director
s/ Richmond Y. Holden, Jr.
- -----------------------------
Richmond Y. Holden, Jr. Director
s/ Wayne R. Moore
- -----------------------------
Wayne R. Moore Director