To my fellow shareholders:
Acme United generated strong results in 2003. Net sales were $35.0 million, an
increase of 13% over 2002. Pretax income increased by $2.2 million. Net income
was $1.2 million, an increase of 85%. Total debt less cash declined 22% to $3.5
million despite the repurchase of 3% of the Company's outstanding common stock
and internal financing of our growth.
Our sales increased due to successful new product introductions and market share
gains. Innovation is reinforced relentlessly and is part of our culture.
Products introduced during the past 36 months accounted for 23% of domestic
sales in 2003, and there is a 3-year pipeline of planned introductions.
Acme's patented titanium scissor line continues to make inroads in the market.
Our proprietary titanium steel blades increase the hardness of the cutting edge,
and provide durable sharp edges far beyond traditional scissors. The technology
is being applied to our new titanium paper trimmers, and a range of future new
introductions.
We successfully introduced a new line of patented measuring and math products
during 2003. Acme's commercial customers have enthusiastically purchased our new
line of professional grade aluminum rulers. Our back to school customers
endorsed our recently designed rulers, compasses, and protractors.
Acme expanded its line of safety products, and has become the primary
consolidator of these items in the commercial office market. Our line of
hearing, eye, and head protection continues to grow, and benefits from increased
priority in the workplace. We also introduced new first aid and disaster kits
late in the year, which have now been placed in broad distribution.
Gross margins increased to 38% in 2003 compared to 34% in the prior year. We
achieved operating efficiencies from increased volumes, productivity
enhancements, and new products.
Acme increased spending to improve the support of our customers. We upgraded our
forecasting software, expanded our electronic order entry capabilities, and
instituted weekly sales reviews at the store and warehouse levels for a number
of our customers. We increased our commitment to their advertising and
promotional programs. We built inventory levels to respond to surges in demand
and unanticipated sales. These investments will continue to increase as we
strive to become the best supplier globally of our products.
We opened our new subsidiary Acme United (Asia Pacific), Ltd. in Hong Kong in
November 2003. This is an important strategic step. The new office facilitates
global sales directly from Hong Kong, provides the platform for sales into
China, and enhances our direct import program to customers in the U.S. and
Canada. We expect to improve our product consolidation capabilities and
strengthen our logistics reach. The new subsidiary will also expand our
engineering and quality assurance activities in Asia.
I would like to thank our customers for their support during 2003, and commit
that we will work to become their best supplier of cutting, measuring, and
safety products.
Our employees made the objectives set forth last year happen. They worked with
great intensity and I thank them with enthusiasm.
We have an aggressive plan in 2004 and are committed to delivering another year
of performance and accomplishment.
Thank you for your support.
Sincerely,
Walter C. Johnsen
President and CEO
(1)
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, 2003
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.)
1931 Black Rock Turnpike
Fairfield, Connecticut 06825
------------------------ -----
(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 3,340,551 shares outstanding as of March 4, 2004 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 4, 2004 was approximately
$18,439,842.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [ ] NO [ X ]
Documents Incorporated By Reference
(1) Proxy Statement for the annual meeting scheduled for April 26, 2004 is
incorporated into 2003 10-K, Part III.
(2)
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. During the year ended December 31, 2002, the Company
restructured its European operations, closing its facility in England and moving
those operations to Germany. The Company's continuing operations are in the
United States, Canada, Germany and Hong Kong. Financial information concerning
net sales and long-lived assets by geographic area appears in Note 10 of the
notes to consolidated financial statements.
The Company manufactures and sells cutting devices, measuring instruments and
safety products for school, office and home use in the United States, Canada and
Europe. In addition to local competitors in each country, the Company competes
with imported products from Asia.
Independent manufacturer representatives are primarily used to sell its line of
consumer products to wholesale, contract and retail stationery distributors,
office supply super stores, school supply distributors, and mass market
retailers. The Company had three customers with sales of 10% or more of total
sales.
(3)
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 90 people, most of whom are
full time and none of whom 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 1931 Black Rock Turnpike, Fairfield,
Connecticut in 5,700 square feet of leased space. The Company owns and leases
manufacturing and warehousing facilities in the United States totaling 80,000
square feet and leases 44,000 square feet of warehousing space in Canada.
Distribution for Europe is presently being conducted at a 48,000 square foot
owned facility 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 five years.
Item 3. Legal Proceedings
The Company has been involved in certain environmental and other matters. Based
on information currently 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.
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 year ended December 31, 2003.
(4)
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, 2003
- ------------------------------------------- ---------------- ----------------
Fourth Quarter $5.51 $5.09
- ------------------------------------------- ---------------- ----------------
Third Quarter 5.59 4.60
- ------------------------------------------- ---------------- ----------------
Second Quarter 4.03 3.50
- ------------------------------------------- ---------------- ----------------
First Quarter 3.40 3.03
- ------------------------------------------- ---------------- ----------------
- ------------------------------------------- ---------------- ----------------
Year Ended December 31, 2002
- ------------------------------------------- ---------------- ----------------
Fourth Quarter $3.76 $3.09
- ------------------------------------------- ---------------- ----------------
Third Quarter 3.89 3.50
- ------------------------------------------- ---------------- ----------------
Second Quarter 4.70 3.70
- ------------------------------------------- ---------------- ----------------
First Quarter 4.10 3.51
- ------------------------------------------- ---------------- ----------------
As of March 4, 2004 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 2003 and 2002.
Item 6. Selected Financial Data
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(All figures in thousands except per share data)
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------
Net Sales (A) $ 34,975 $ 30,884 $ 33,082 $ 31,921 $ 34,597
- ------------------------------------------------------------------------------------------------------------------
Income/(Loss) from Continuing Operations $ 1,222 $ 660 $ 1,280 $ 1,061 $ (156)
- ------------------------------------------------------------------------------------------------------------------
Total Assets $ 20,023 $ 17,614 $ 20,173 $ 21,118 $ 20,767
- ------------------------------------------------------------------------------------------------------------------
Long Term Debt, Less Current Portion $ 2,752 $ 2,032 $ 2,875 $ 4,925 $ 5,013
- ------------------------------------------------------------------------------------------------------------------
Income/(Loss) from Continuing Operations
Per Share (Diluted) $ 0.34 $ 0.19 $ 0.36 $ 0.30 $ (0.05)
(A) Restated to reflect the implementation of EITF 00-25 in 2002.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating results may be effected by certain accounting estimates and critical
accounting policies. The most sensitive and significant accounting estimates
and/or critical accounting policies in the financial statements relate to
revenue recognition, customer rebates, asset valuation allowances for deferred
income tax assets, obsolete inventories, potentially uncollectible accounts
receivable, and accruals for income taxes. Accruals for customer rebates are
based on executed contracts and anticipated sales levels, which are monitored
monthly. Management critically evaluates the potential realization of deferred
income tax benefits as well as the likely usefulness of inventories and the
collectablity of accounts receivable. Accruals for income taxes or benefits
often require interpretations of complex tax rules and regulations, which may be
subsequently challenged. There have been no significant changes in estimates for
any period presented by the accompanying financial statements nor have there
been any changes in accounting principles or practices, which materially affect
them. Changes in accounting practices have been limited to the adoption of
required new standards; the impact of which has also been insignificant to
reported net income and financial position.
(5)
Results of Operations 2003 Compared with 2002
Net sales increased $4,091,090, or 13% in 2003 to $34,974,660 compared to
$30,883,570 in 2002. Excluding the favorable effect of currency gains in Canada
and Europe net sales increased 10%. The sales increase was mainly driven by
growth in the U.S. due to the success of new products, market share gains and
new customers. International sales were down 9% in local currency principally
due to discontinuing certain product lines in the UK business and a generally
weak economy in Germany.
As of January 1, 2002, the Company adopted the Emerging Issues Task Force
consensus No. 00-25, Vendor Income Statement Characterization of Consideration
Paid to a Reseller of a Vendor's Products. In connection with this adoption,
expense related to payments made to customers is classified as a reduction of
sales for all years presented.
Gross profit was 38% of net sales in 2003 compared to 34% of net sales in 2002.
The introduction of new products coupled with improved product mix 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.
Selling, general and administrative expenses were $10,646,395 in 2003 compared
with $9,528,080 in 2002, an increase of $1,118,315 or 12%. SG&A expenses were
30% of net sales compared to 31% in 2002. Major contributors to the increase
were market research, new product development and the addition of sales
executives in Canada and Europe.
Interest expense for 2003 was $235,265 compared with $605,344 for 2002, a
$370,079 decrease. This is attributable to the decline in average debt and lower
interest rates.
Net other income was $91,172 in 2003 compared to net other income of $146,614 in
2002. The change from 2002 primarily relates to the settlement of a $175,000
lawsuit in Germany in March of 2003 partially offset by gains on the sale of
fixed assets.
Income before income taxes was $2,342,271 in 2003 compared with $97,276 in 2002,
an increase of $2,244,995. Pretax income for the U.S. business was $3,142,489
compared to $942,776 in 2002. Pretax income for the Canadian business increased
from $50,000 in 2002 to $298,000 in 2003. The European operations lost
$1,100,000 in 2003 compare to a loss of $500,000, excluding restructuring
charges, in 2002. The higher loss was principally due to lower sales, a one-time
expense of $175,000 for settlement of a lawsuit in Germany and the adverse
effect of a weaker dollar on translated results.
Income tax expense for 2003 was $1,120,440 compared to an income tax benefit of
$562,218 in 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 income taxes includes losses of foreign
subsidiaries with no income tax benefit, resulting in a high effective income
tax rate.
Results of Operations 2002 Compared with 2001
Net sales decreased $2,198,033, or 7% in 2002 to $30,883,570 compared to
$33,081,603 in 2001. Net sales in the United States decreased $655,000 or 3% due
to weak economic conditions. International net sales decreased $1,543,000 or
16%. This was primarily due to discontinuing certain product lines in the UK
business in an effort to focus more on the Company's core products.
Gross profit was 33.8% of net sales in 2002 compared to 32.5% of net sales in
2001. Excluding the inventory write-down associated with the Acme United Limited
(UK) liquidation, gross profit was 34.5% of net sales in 2002. The introduction
of new products and productivity gains on existing products were the main
reasons for the improved gross margins.
Selling, general and administrative expenses ("SG&A") were $9,528,080 in 2002
compared with $8,284,751 in 2001, an increase of $1,243,329 or 15%. SG&A
expenses were 31% of net sales compared to 25% in 2001. Planned investments in
new product development and the addition of key management positions in Canada
and Europe were the main reasons for the increase.
(6)
Operating income in 2002 was $556,006 compared with $2,469,589 in 2001.
Excluding restructuring charges, operating income was $1,111,351 in 2002, a
decrease of $1,358,238. The decrease was mainly due to the increased spending in
SG&A and lower sales in the UK, which was partially offset by improved
productivity in cost of sales.
Interest expense for 2002 was $605,344, compared with $790,910 for 2001, a
$185,566 decrease mainly attributable to the decline in debt and lower interest
rates. Total debt less available cash declined to $4.5 million at December 31,
2002 compared to $5.5 million at December 31, 2001.
Net other income was $146,614 in 2002 compared to net other income of $33,547 in
2001. The change from 2001 is principally due to non-recurring foreign exchange
transaction losses associated with a cross border loan in 2001.
In 2002, the Company recognized a significant one-time income tax benefit
associated with liquidating Acme United Limited (UK). The benefit recognized was
substantially in excess of income taxes computed at the statutory rate.
Liquidity and Capital Resources
The Company's working capital, current ratio and long term debt to equity ratio
follow:
2003 2002
- ---------------------------------------------------------------------
Working Capital $10,777,397 $8,515,910
Current Ratio 2.68 2.33
Long - Term Debt to Equity Ratio 27.0% 24.0%
The increase in working capital and increase in the current ratio in 2003 is
attributable to a 10% increase in accounts receivables and inventories.
Inventory in constant currency increased by 15% due to sales growth and
increased safety stock. Days Sales Outstanding (DSO) decreased from 69 in 2002
to 63 in 2003 due to improved collection efforts. Operating activities generated
net cash of approximately $1.75 million in 2003 compared with $1.6 million in
2002.
On August 2, 2002, the Company entered into a new revolving loan agreement (the
Agreement). The Agreement 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 inventories. All outstanding borrowings are due on July 31, 2005.
At December 31, 2003 $4,109,612 is outstanding and $2,524,346 is available under
the Agreement based on this formula. Throughout 2004, the Company expects to
have a minimum of approximately $2,500,000 outstanding under the Agreement. As
such, amounts borrowed in excess of that amount are classified as part of the
current portion of long-term debt. Amounts outstanding under the Agreement bear
interest at the LIBOR rate plus 1.75 percent (2.87% at December 31, 2003).
On August 22, 2000 the Company borrowed $700,000 under a loan agreement to
refinance a mortgage. The loan is payable in monthly installments of $6,928,
including interest at the Federal Home Loan Bank of Seattle fixed advanced rate,
plus 3.0%, adjusting every five years, through August 1, 2020 and a final
installment of $500,800, plus interest, due on August 1, 2020. During the year
ended December 31, 2003, the company made prepayments on the loan amounting to
$279,999, which will reduce the final installment due on August 1, 2020. At
December 31, 2003 and 2002, the loan balance was $364,117 and $671,873, and the
interest rate was 9.78%, respectively. In order to reduce interest costs, it is
management's intension to payoff the loan in 2004.
The Company, among other things, is restricted with respect to additional
borrowings, investments, mergers and property and equipment purchases. Further,
the Company is required to maintain specific amounts of tangible net worth, and
a specified debt service coverage ratio, and a fixed charge coverage ratio, all
as defined by the agreement. The Company was in compliance with all covenants as
of or through December 31, 2003 and believes these financial covenants will
continue to be met for the remainder of the term of the debt.
(7)
Capital expenditures during 2003 were $424,537, which were, in part, financed
with debt. Capital expenditures in 2004 are not expected to differ materially
from recent years.
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 2004.
Item 7A. Qualitative and Quantitative Disclosure about Market Risk
The Company's debt portfolio and associated interest rates follows:
(dollars in thousands)
2004 2005 2006 2007 2008 Thereafter Total Fair Value
Current Liabilities:
- --------------------
Notes payable $141,113 $141,113 $141,113
Average interest rate 4.2% 4.2% 4.2%
Long-term Debt:
- ---------------
Amount at fixed rate $71,620 $79,715 $87,809 $96,908 $105,716 $215,929 $657,697 $657,697
Average interest rate 8.8% 8.8% 8.9% 8.9% 8.9% 8.4% 8.7%
Amount at variable rate $1,963,729 $2,165,883 $0 $0 $0 $0 $4,129,612 $4,129,612
Average interest rate 5.0% 5.0% 0.0% 0.0% 0.0% 0.0% 5.0%
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. In
2000, the Company entered into an interest rate swap agreement with a bank to
minimize exposure to interest rate changes for $3.5 million of debt. The swap
agreement expired on January 19, 2003.
Foreign Currency Risk:
The Company manufactures products in the United States. Further, the Company
engages in intracompany sales which are denominated in currencies other than
those of the operating entity making the sale. As such, these transactions give
rise to foreign currency risk. The Company's currency exposures vary, but are
concentrated in the Canadian dollar, British pound, and Euro.
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. Forward foreign exchange contracts for such
transactions were not material at December 31, 2003 and 2002. 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. In 2001, the
Company entered into a forward foreign exchange contract and currency option
agreement to hedge its U.S. denominated intercompany loan of $2.0 million to its
Canadian subsidiary.
(8)
Inflation
Inflation had a negligible effect on the Company's operations during 2003 and
2002. 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.
(9)
Item 8. Financial Statements and Supplementary Data
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2003, 2002 and 2001
2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Net Sales $ 34,974,660 $ 30,883,570 $ 33,081,603
Costs and Expenses:
Cost of Goods Sold:
Before inventory write-off related to restructuring 21,841,901 20,244,139 22,327,263
Inventory write-off related to restructuring - 206,133 -
- -------------------------------------------------------------------------------------------------------------------
21,841,901 20,450,272 22,327,263
Selling, General and Administrative Expenses 10,646,395 9,528,080 8,284,751
Restructuring charges - 349,212 -
- -------------------------------------------------------------------------------------------------------------------
Income before Non Operating Items 2,486,364 556,006 2,469,589
Non Operating Items:
Interest Expense 235,265 605,344 790,910
Other Income (Expense)-Net 91,172 146,614 33,547
- -------------------------------------------------------------------------------------------------------------------
Income before Income Taxes 2,342,271 97,276 1,712,226
Income Taxes (Benefit) 1,120,440 (562,218) 431,822
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 1,221,831 $ 659,494 $ 1,280,404
===================================================================================================================
Earnings Per Share:
Basic $ 0.37 $ 0.19 $ 0.37
Diluted $ 0.34 $ 0.19 $ 0.36
See accompanying notes.
(10)
Acme United Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
2003 2002
- ----------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,390,641 $ 597,670
Accounts receivable, less allowance 7,075,099 6,410,210
Inventories 8,179,081 6,674,654
Deferred income taxes 286,213 733,193
Prepaid expenses and other current assets 259,972 516,626
- ----------------------------------------------------------------------------------------------
Total current assets 17,191,006 14,932,353
Plant, Property and Equipment:
Land 234,866 197,968
Buildings 2,643,608 2,301,553
Machinery and equipment 5,772,432 5,801,022
- ----------------------------------------------------------------------------------------------
Total plant, property and equipment 8,650,906 8,300,543
Less accumulated depreciation 6,266,115 6,019,095
- ----------------------------------------------------------------------------------------------
Net plant, property and equipment 2,384,791 2,281,448
Deferred income taxes - 35,528
Goodwill 88,828 88,828
Intangible assets, less accumulated amortization 252,960 161,751
Intangible pension asset 105,312 114,088
- ----------------------------------------------------------------------------------------------
Total Assets $ 20,022,897 $ 17,613,996
==============================================================================================
LIABILITIES
Current Liabilities:
Notes payable $ 141,113 $ 362,210
Accounts payable 1,742,655 1,295,974
Other accrued liabilities 2,494,492 2,027,282
Current portion of long-term debt 2,035,349 2,730,977
- ----------------------------------------------------------------------------------------------
Total current liabilities 6,413,609 6,416,443
Deferred income taxes 155,829 -
Long-term debt, less current portion 2,751,960 2,032,486
Other 522,875 685,262
- ----------------------------------------------------------------------------------------------
Total Liabilities 9,844,273 9,134,191
STOCKHOLDERS' EQUITY
Common Stock, par value $2.50: authorized 8,000,000
shares; issued - 3,652,812 shares in 2003 and 3,652,312
shares in 2002, including Treasury Stock 9,132,030 9,130,780
Treasury Stock, at cost, 387,261 shares in 2003
and 269,061 shares in 2002 (1,621,813) (1,151,709)
Additional paid-in capital 2,028,574 2,029,105
Accumulated other comprehensive loss (1,370,441) (2,316,814)
Retained earnings 2,010,274 788,443
- ----------------------------------------------------------------------------------------------
Total Stockholders' Equity 10,178,624 8,479,805
- ----------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 20,022,897 $ 17,613,996
==============================================================================================
See accompanying notes.
(11)
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 2003, 2002 and 2001
Accumulated
Outstanding Additional Other Retained
Shares of Common Treasury Paid-In Comprehensive Earnings
Common Stock Stock Stock Capital Loss (Deficit) Total
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2000 3,508,305 $ 9,033,280 $ (648,000) $ 2,037,823 $ (1,379,028) $(1,151,455) $ 7,892,620
Net Income 1,280,404 1,280,404
Translation Adjustment (91,321) (91,321)
Cumulative Effect of a
Change in Accounting for
Derivative Financial
Instruments (104,207) (104,207)
Change in Fair Value of
Derivative Financial
Instruments (86,502) (86,502)
Income Taxes Relating
to Derivative Financial
Instruments 69,901 69,901
Unrealized Gains on
Available-for-Sale
Securities 474,551 474,551
Gains Reclassified to
Comprehensive income (474,551) (474,551)
-----------
Comprehensive Income 1,068,275
Purchase of Treasury Stock (98,254) (288,996) (288,996)
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2001 3,410,051 $ 9,033,280 $ (936,996) $ 2,037,823 $ (1,591,157) $ 128,949 $ 8,671,899
Net Income 659,494 659,494
Translation Adjustment 119,864 119,864
Change in Fair Value of
Derivative Financial
Instruments 163,735 163,735
Income Taxes Relating
to Derivative Financial
Instruments (60,500) (60,500)
Change in
Minimum Pension
Liability (1,509,574) (1,509,574)
Income Taxes Relating
to Minimum Pension
Liability 560,818 560,818
-----------
Comprehensive Loss (66,163)
Issuance of Common Stock 39,000 97,500 (8,718) 88,782
Purchase of Treasury Stock (65,800) (214,713) (214,713)
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2002 3,383,251 $ 9,130,780 $ (1,151,709) $ 2,029,105 $ (2,316,814) $ 788,443 $ 8,479,805
Net Income 1,221,831 1,221,831
Translation Adjustment 670,941 670,941
Change in Fair Value of
Derivative Financial
Instruments 26,974 26,974
Income Taxes Relating
to Derivative Financial
Instruments (9,401) (9,401)
Change in
Minimum Pension
Liability 412,912 412,912
Income Taxes Relating
to Minimum Pension
Liability (155,053) (155,053)
-----------
Comprehensive Loss 2,168,204
Issuance of Common Stock 500 1,250 (531) 719
Purchase of Treasury Stock (118,200) (470,104) (470,104)
- -------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2003 3,265,551 $ 9,132,030 $ (1,621,813) $ 2,028,574 $ (1,370,441) $ 2,010,274 $10,178,624
See accompanying notes.
(12)
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
Years ended December 31, 2003, 2002 and 2001
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 1,221,831 $ 659,494 $ 1,280,404
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 433,645 482,880 566,438
Amortization 24,406 79,607 157,568
Deferred income taxes 540,600 (548,467) 349,965
(Gain) Loss on disposal of plant, property and
equipment (174,528) 25,464 333,906
Gain on sale of marketable equity securities - - (474,551)
Non-cash restructuring charges - 293,153 -
Changes in operating assets and liabilities
Accounts receivable (342,197) 133,698 (465,627)
Inventories (1,017,075) 2,103,118 1,219,659
Prepaid expenses and other current assets 286,147 75,120 (374,117)
Other assets - (33,738) 93,269
Accounts payable 311,798 (786,147) (221,195)
Other accrued liabilities 468,000 (841,939) (416,329)
- --------------------------------------------------------------------------------------------------------------------------------
Total adjustments 530,796 982,748 768,986
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,752,627 1,642,242 2,049,390
- --------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of plant, property and equipment (424,537) (484,088) (308,062)
Purchase of patents and trademarks (115,615) (114,216) -
Proceeds from sales of plant, property and equipment 250,196 58,597 139,987
Proceeds from sale of marketable equity securities - - 474,551
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (289,956) (539,707) 306,476
- --------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Net (repayments) borrowings on notes payable and
revolving credit facilities 108,297 (554,495) (1,721,293)
Payments of long term debt (305,548) (13,254) (77,013)
Debt issuance costs - 11,209 (27,217)
Purchase of 118,200 common shares in 2003 and 65,000 common
shares in 2002 for treasury (470,247) (214,713) (288,996)
Issuance of Common Stock 862 88,782 -
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (666,636) (682,471) (2,114,519)
Effect of exchange rate changes (3,064) 6,069 (91,321)
- --------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 792,971 426,134 150,026
Cash and cash equivalents at beginning of year 597,670 171,536 21,510
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,390,641 $ 597,670 $ 171,536
================================================================================================================================
See accompanying notes.
(13)
Acme United Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
The operations of Acme United Corporation (the Company) consist of a single
reportable segment, which operates in the United States, Canada, Germany and
Hong Kong. Principal 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.
2. Accounting Policies
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 and transactions 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. Resulting translation
adjustments are made directly to accumulated other comprehensive loss. Foreign
currency transaction gains and losses are recognized in operations. Foreign
currency transaction gains (losses) which are included in other income (expense)
were $105,984 in 2003, $57,000 in 2002, and $(153,000) in 2001.
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 $199,101 in 2003 and $205,213 in 2002.
Inventories - Inventories are stated at the lower of 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 which range from 3 to 30 years.
Asset Impairments - The Company evaluates the propriety of the carrying amounts
of its long-lived assets, including goodwill, at least annually, or 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.
Intangible Assets - Intangible assets with a finite useful life are recorded at
cost upon acquisition and amortized over the term of the related contract.
Intangible assets held by the Company with a finite useful life include deferred
financing costs, patents, and trademarks. Deferred financing costs are amortized
over the term of the related debt. Patents and trademarks are amortized over
their estimated useful life. The weighted average amortization period of
intangible assets at December 31, 2003 is 12 years.
Goodwill - As of January 1, 2002, the Company adopted Financial Accounting
Standards Board Statement No. 142, Goodwill and Other Intangible Assets (FAS
142) and as such no longer amortizes goodwill but rather tests it annually for
impairment. There was no impairment of goodwill at January 1, 2003. Had
Statement No. 142 been in effect as of the beginning of 2001, amortization
expense for the year ended December 31, 2001 would have been reduced by $28,000,
increasing net income by the same amount with no effect on earnings per share.
(14)
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.
Accounting for Stock-Based Compensation - At December 31, 2003, the Company has
one stock-based employee compensation plan, which is described more fully in
Note 11. 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 if the company had applied the
fair value method under SFAS No. 123, Accounting for Stock Based Compensation,
to stock based employee compensation.
2003 2002 2001
==============================================================================================
Net income, as reported $ 1,221,831 $ 659,494 $ 1,280,404
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (84,985) (88,646) (231,390)
- ----------------------------------------------------------------------------------------------
Pro forma net income $ 1,136,846 $ 570,848 $ 1,049,014
==============================================================================================
Basic-as reported $ 0.37 $ 0.19 $ 0.37
Basic-pro forma $ 0.34 $ 0.17 $ 0.29
Diluted-as reported $ 0.34 $ 0.19 $ 0.36
Diluted-pro forma $ 0.32 $ 0.16 $ 0.29
Revenue Recognition - The Company recognizes revenue from sales of its products
when ownership transfers to the customers. Ownership transfers from the Company
to its customer upon shipment of the Company's products. When right of return
exists, the Company recognizes revenue in accordance with SFAS 48, Revenue
Recognition When Right of Return Exists.
Research and Development - Research and development costs ($347,130 in 2003,
$385,066 in 2002 and $147,115 in 2001) are charged to operations as incurred.
Shipping Costs - Shipping costs ($1,439,615 in 2003, $1,272,115 in 2002, and
$1,189,930 in 2001) are included in selling, general and administrative
expenses.
Advertising Costs - The Company expenses the production costs of advertising the
first time the advertising takes place. Advertising costs ($669,065 in 2003,
$766,058 in 2002, and $506,557 in 2001) are included in selling, general and
administrative expenses.
Concentrations - The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. Allowances for credit
losses are provided and have been within management's expectations. Net sales to
the Company's three major customers, Staples, Inc., Boise, and United
Stationers, Inc., represented approximately 41% of net sales in 2003, 44% in
2002, and 43% in 2001.
Consideration paid to a reseller - As of January 1, 2002, the Company also
adopted the Emerging Issues Task Force consensus No. 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller of a Vendor's
Products (EITF 00-25). As such, the Company recognizes consideration paid to a
reseller of its product as a reduction of the selling price of its products and,
therefore, reduces revenue in the Company's statement of operations. The
adoption of EITF 00-25 had no effect on net income or earnings per share.
Selling, general and administrative expenses for the year ended December 31,
2001 have been reclassified to conform to the new classification resulting in a
$3,083,000 decrease of selling, general and administrative expenses and net
sales for that period.
(15)
Derivatives - As of January 1, 2001, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities (Statement 133) which was issued in June, 1998 and its
amendments Statements 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, and 138,
Accounting for Derivative Instruments and Certain Hedging Activities, issued in
June, 1999 and June 2000, respectively (collectively referred to as Statement
133).
As a result of adoption of Statement 133, the Company recognizes all derivative
financial instruments, such as interest rate swap contracts, foreign exchange
contracts, and foreign currency option contracts, in the consolidated financial
statements at fair value regardless of the purpose or intent for holding the
instrument. Changes in the fair value of derivative financial instruments are
either recognized periodically in operations or in stockholders' equity as a
component of accumulated other comprehensive income (loss) depending on whether
the derivative financial instrument qualifies for hedge accounting, and if so,
whether it qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in operations along with the portions of the changes in the fair values
of the hedged items that relate to the hedged risk(s). Changes in fair values of
derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in other comprehensive(loss) income net of deferred
income taxes. Changes in fair value of derivatives used as hedges of the net
investment in foreign operations are reported in other comprehensive
income(loss) as part of the cumulative translation adjustment. Changes in fair
values of derivatives not qualifying as hedges are reported in operations.
The adoption of Statement 133 resulted in a cumulative effect of an accounting
change of $104,207 decrease to other comprehensive income.
Prior to January 1, 2001, the Company also used interest rate swap contracts and
foreign exchange contracts for hedging purposes. For interest rate swaps, the
net amounts paid or received and net amounts accrued through the end of the
accounting period were included in interest expense. Unrealized gains or losses
on interest rate swap contracts were not recognized in operations. For foreign
currency forward contracts hedging firm commitments, the effects of movements in
currency exchange rates on those instruments were recognized when the related
operating revenue was recognized. Realized gains and losses were included in
other assets and liabilities and recognized in operations when the future
transaction occurred or at the time the transaction was no longer expected to
occur.
Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation.
3. Inventories
Inventories consist of:
2003 2002
- ------------------------------------------------------------------------
Finished goods $ 7,252,114 $ 5,306,846
Work in process 119,796 373,860
Materials and supplies 807,171 993,948
- ------------------------------------------------------------------------
$ 8,179,081 $ 6,674,654
========================================================================
Inventories are stated net of valuation allowances for obsolescence of $374,665
in 2003 and $407,881 in 2002.
(16)
4. Intangible Assets
Intangible assets consist of:
2003 2002
- --------------------------------------------------------------
Deferred financing costs $ 70,577 $ 70,577
Patents 216,869 109,151
Trademarks 12,962 5,065
- --------------------------------------------------------------
300,408 184,793
Accumulated amortization 47,448 23,042
- --------------------------------------------------------------
$ 252,960 $ 161,751
==============================================================
During the year ended December 31, 2002, the Company refinanced its revolving
loan and wrote-off unamortized deferred financing costs of $53,380. The Company
capitalized additional financing costs of $48,773 on the new loan. Amortization
expense for deferred financing costs for the years ended December 31, 2003,
2002, and 2001, was $21,262, $139,589, and $123,229, respectively. Amortization
expense for patents and trademarks for the year ended December 31, 2003 was
$3,144. There was no amortization expense in 2002 or 2001 on patents and
trademarks. The estimated aggregate amortization expense for each of the next
five succeeding years are as follows: 2004 - $29,929; 2005 - $23,014; 2006 -
$13,335 - 2007 - $13,335 and 2008 - $13,335.
5. Other Accrued Liabilities
Other accrued liabilities consist of:
2003 2002
- --------------------------------------------------------------------------
Vendor rebates $ 2,036,860 $ 1,438,154
Other 980,507 1,274,390
- --------------------------------------------------------------------------
$ 3,017,367 $ 2,712,544
==========================================================================
6. 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. The
Company uses a December 31 measurement date for the pension plan.
The plan asset weighted average allocation at December 31, by asset category,
are as follows:
Asset Category 2003 2002
- -------------------------------------------------------------------
Equity 67% 65%
Fixed Income 28% 31%
Other 5% 4%
- -------------------------------------------------------------------
Total 100% 100%
===================================================================
The Company's investment policy is to minimize risk by balancing investments
between equity and fixed income, utilizing a weighted average approach of 65%
equity securities, 30% fixed income funds, and 5% cash investments. Plan funds
are invested in long term obligations with a history of moderate to low risk.
At December 31, 2003 and 2002, equity securities include 30,000 shares of the
Company's Common Stock having a market value of $162,000 and $112,800 at those
dates, respectively.
(17)
Other disclosures related to the pension plan follow:
2003 2002
---------------------------------
Assumptions used to determine benefit obligation:
Discount rate 6.00% 6.50%
Changes in benefit obligation:
Benefit obligation at beginning of year $ (3,710,070) $ (3,647,962)
Interest cost (221,265) (253,046)
Service cost (35,000) (35,000)
Actuarial loss 22,957 (230,337)
Benefits and plan expenses paid 415,786 456,275
- ----------------------------------------------------------------------------------------------
Benefit obligation at end of year (3,527,592) (3,710,070)
- ----------------------------------------------------------------------------------------------
Changes in plan assets:
Fair value of plan assets at beginning of year 3,278,460 4,212,515
Actual return on plan assets 555,392 (477,780)
Benefits and plan expenses paid (415,786) (456,275)
- ----------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 3,418,066 3,278,460
- ----------------------------------------------------------------------------------------------
Funded status (109,526) (431,610)
Unrecognized actuarial loss 1,096,662 1,509,574
Unrecognized prior service costs 105,312 114,088
Minimum pension liability, including intangible
pension asset of $105,312 in 2003 and $114,088 in 2002 (1,201,974) (1,623,662)
- ----------------------------------------------------------------------------------------------
Accrued benefit costs $ (109,526) $ (431,610)
==============================================================================================
Accrued benefits costs are included in other accrued liabilities.
2003 2002 2001
=============================================================================================================
Assumptions used to determine net periodic benefit cost:
Discount rate 6.50% 6.50% 7.25%
Expected return on plan assets 8.00% 8.50% 8.50%
- -------------------------------------------------------------------------------------------------------------
Components of net benefit income:
Interest cost $ 221,265 $ 253,046 $ 319,163
Service cost 35,000 35,000 35,000
Expected return on plan assets (246,124) (339,765) (487,315)
Amortization of prior service costs 8,776 8,776 8,776
Amortization of actuarial gain 80,687 9,205 -
Settlement loss - - 102,386
- -------------------------------------------------------------------------------------------------------------
$ 99,604 $ (33,738) $ (21,990)
=============================================================================================================
In 2001, the pension plan made settlement distributions of $793,165 to certain
plan beneficiaries. Such payments resulted in a $102,386 settlement loss.
Acme United Corporation employs a building block approach in determining the
long-term rate of return for plan assets. Historical markets are studied and
long-term historical relationships between equities and fixed income are
preserved congruent with the widely-accepted capital market principle that
assets with higher volatility generate return over the long run. Current market
factors such as inflation and interest rates are evaluated before long-term
capital market assumptions are determined. The long-term portfolio return is
established via a building block approach and proper consideration of
diversification and rebalancing. Peer data and historical returns are reviewed
to check for reasonability and appropriateness.
(18)
The following table discloses the change in other comprehensive income:
2003 2002
------------------------------
Decrease (increase) in minimum liability
included in other comprehensive income $ 412,912 $ (1,509,574)
Contributions and Estimated Future Benefit Payments:
The following benefits, which reflect expected future service, as appropriate,
are expected to be paid:
2004 $ 400,500
2005 386,547
2006 371,647
2007 357,950
2008 358,701
Years 2009 - 2013 1,555,491
Acme United expects to contribute approximately $29,000 to its pension plan in
2004.
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. Through December 31, 2001,
contributions amounted to 2% of eligible employee earnings and a 50% match up to
the first 2% of employee contributions. For the years ended December 31, 2003
and 2002, contributions amounted to a 50% match up to the first 6% of employee
contributions. Total contribution expense under this plan approximated $61,000,
$57,000, $51,000 for 2003, 2002 and 2001, respectively.
7. Income Taxes
The amounts of income taxes (benefit) reflected in operations follow:
2003 2002 2001
- ---------------------------------------------------------------------------
Current:
Federal $ 513,057 $ (31,751) $ 31,708
State 66,783 18,000 50,213
Foreign - - (64)
- ---------------------------------------------------------------------------
579,840 (13,751) 81,857
- ---------------------------------------------------------------------------
Deferred:
Federal 557,886 (437,330) 300,887
State 2,813 (116,519) 49,078
Foreign (20,099) 5,382 -
- ---------------------------------------------------------------------------
540,600 (548,467) 349,965
- --------------------------------------------------------------------------
$1,120,440 $(562,218) $ 431,822
===========================================================================
The current state tax provision is comprised of taxes on income, the minimum
capital tax and other franchise taxes related to the jurisdictions in which the
Company's facilities are located.
A summary of United States and foreign income (loss) before income taxes
follows:
2003 2002 2001
- ---------------------------------------------------------------------------
United States $ 3,142,489 $ 942,776 $ 2,269,128
Foreign (800,218) (845,500) (556,902)
- ---------------------------------------------------------------------------
$ 2,342,271 $ 97,276 $ 1,712,226
===========================================================================
(19)
The following schedule reconciles the amounts of income taxes (benefit) computed
at the United States statutory rate to the actual amounts reported in
operations.
2003 2002 2001
- ---------------------------------------------------------------------------
Federal income
taxes at
34% statutory rate $ 796,372 $ 33,074 $ 582,157
State and local
taxes, net of
federal income
tax effect 80,199 (29,123) 70,528
Permanent items (25,710) (2,709) 16,373
Write-off
intercompany
investment - (567,438) -
On Recognition
(realization) of foreign
operations tax loss
carryforwards (net) 269,579 3,978 (237,236)
- ---------------------------------------------------------------------------
Provision (benefit)
for income taxes $1,120,440 $(562,218) $ 431,822
===========================================================================
Income taxes paid, net of refunds received, were $850,600 in 2003, $24,501 in
2002, and $11,341 in 2001.
2003 2002
- -------------------------------------------------------------
Deferred income tax liabilities:
Plant, property and equipment $ 174,939 $ 213,868
Other 26,440 47,800
- -------------------------------------------------------------
201,379 261,668
Deferred income tax assets:
Asset valuations 188,979 307,410
Financial instruments - 9,401
Operating loss
carryforwards and credits 1,278,341 1,676,130
Pension 1,545 116,382
Other 2,773 51,843
- -------------------------------------------------------------
1,471,638 2,161,166
- -------------------------------------------------------------
Net deferred income tax asset
before valuation allowance 1,270,259 1,899,498
Valuation allowance (1,139,875) (1,130,777)
- -------------------------------------------------------------
Net deferred income tax asset $ 130,384 $ 768,721
=============================================================
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 $1,666,000 and
$1,287,000 are considered permanently reinvested as of December 31, 2003 and
2002, respectively, and the amount of deferred income taxes thereon cannot be
reasonably determined.
(20)
Due to the uncertain nature of the realization of the Company's deferred income
tax assets based on past performance and carry forward 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. For the year ended December 31, 2003, the valuation allowance on the
Canadian net operating loss was reversed creating an income tax benefit in the
current period of $157,753.
At December 31, 2003, the Company has tax operating loss carry forwards
aggregating $4,024,000. The portion applicable to Germany of $3,884,000 can be
carried forward indefinitely. Carry forwards applicable to Canada of $57,000
expire from 2005 - 2007.
8. Debt
Long term debt consists of:
2003 2002
- -----------------------------------------------------------------------------
Notes payable:
North American arrangements $ 4,493,729 $ 4,486,485
Other 293,580 276,978
- -----------------------------------------------------------------------------
4,787,309 4,763,463
Less current portion 2,035,349 2,730,977
- -----------------------------------------------------------------------------
$ 2,751,960 $ 2,032,486
=============================================================================
On August 2, 2002, the Company entered into a new revolving loan agreement (the
Agreement). The Agreement 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 inventories. All outstanding borrowings are due July 31, 2005. At
December 31, 2003, $4,109,612 is outstanding and $2,524,346 is available under
the Agreement based on this formula. Throughout 2004, the Company expects to
have a minimum of $2,530,000 outstanding under the Agreement. As such, amounts
borrowed in excess of $2,530,000 are classified as part of the current portion
of long-term debt. Amounts outstanding under the Agreement bear interest at the
LIBOR rate plus 1.75 percent (2.87% at December 31, 2003).
The Company also transferred its interest rate swap agreement, which fixes the
effective interest rate at 7.18 percent for $3,500,000 of debt under the
Agreement. The swap agreement expired January 19, 2003.
On August 22, 2000 the Company borrowed $700,000 under a loan agreement with
another bank to refinance a mortgage. The loan is payable in monthly
installments of $6,928, including interest at the Federal Home Loan Bank of
Seattle fixed advanced rate, plus 3.0%, adjusting every five years, through
August 1, 2020 and a final installment of $500,800, plus interest, due on August
1, 2020. During the year ended December 31, 2003, the Company made prepayments
on the loan amounting to $279,999, which will reduce the final installment due
on August 1, 2020. At December 31, 2003 and 2002, the interest rate was 9.78%.
The loan is collateralized by a First Trust Deed and Assignment of Rents on the
property located 701 South Wilson Street in Fremont, North Carolina.
The Company, among other things, is restricted with respect to additional
borrowings, investments, mergers, and property and equipment acquisitions.
Further, the Company is required to maintain specific amounts of tangible net
worth, a specified debt service coverage ratio, and a fixed charge coverage
ratio, all as defined. The Company believes these financial covenants will
continue to be met.
..
Maturities of long-term debt for the next five years follow: 2004 - $2,035,349;
2005- $2,245,598; 2006 - $87,809 - 2007 - $96,908 and 2008 $105,716.
Interest paid was $235,265 in 2003, $605,344 in 2002, and $790,910 in 2001.
(21)
9. Commitments and Contingencies
The Company leases certain office, manufacturing and warehouse facilities and
various equipment under non-cancelable operating leases. Total rent expense was
$252,294 in 2003, $165,854 in 2002, and $170,111 in 2001. Minimum annual rental
commitments under non-cancelable leases with initial or remaining terms of one
year or more as of December 31, 2003 to their expiration follow:
2004 - $237,329; 2005 - $194,426; 2006 - $34,363; 2007 - $32,047;
and 2008 - $975.
The Company has been involved in certain environmental and other matters. 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
these matters, either individually or in aggregate.
10. Geographic Data
Net sales of the Company's continuing operations by geographic area follow
(000's omitted):
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
United States $ 26,482 $ 22,773 $ 23,428
Canada 5,611 5,098 5,511
England - 758 1,986
Germany 2,882 2,255 2,157
Hong Kong - - -
- --------------------------------------------------------------------------------------------------------------
$ 34,975 $ 30,884 $ 33,082
==============================================================================================================
Long-lived assets by geographic area follow (000's omitted):
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
United States $ 1,300 $ 1,326 $ 1,446
Canada 156 157 67
England - - 6
Germany 854 798 740
Hong Kong 75 - -
- --------------------------------------------------------------------------------------------------------------
$ 2,385 $ 2,281 $ 2,259
==============================================================================================================
11. Stock Option Plans
The Company's amended and restated stock option plan, which provides incentive
and nonqualified stock options for up to 790,000 shares of the Company's Common
Stock to officers and key employees (the Employee's Plan) terminated on February
24, 2002. Options previously granted under the Employee's Plan continue to vest
and to be exercisable in accordance with their terms, however, no new options
may be granted under the Employee's Plan. The Employee's Plan provided 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.
Effective February 26, 2002, the Company adopted a new officers and key
employee's stock option plan which provides incentive and nonqualified stock
options for up to 150,000 shares of the Company's Common Stock to officers and
key employees (the New Employee's Plan). The New Employee's Plan provided 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. 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 160,000 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, 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.
(22)
During 2003 and 2002, an additional 2,500 options were granted to each director.
Also during 2003, 10,000 options were issued to one new director. 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:
2003 2002 2001
- ----------------------------------------------------------------------------------------------
Options outstanding at the
beginning of the year 766,850 830,350 640,850
Options granted 102,500 30,500 232,000
Options cancelled (1,700) (55,000) (42,500)
Options exercised (500) (39,000) 0
- ----------------------------------------------------------------------------------------------
Options outstanding at
the end of the year 867,150 766,850 830,350
==============================================================================================
Options exercisable at the
end of the year 747,940 635,000 535,650
==============================================================================================
Common stock available for future grants at
the end of the year 64,500 167,000 21,025
==============================================================================================
Weighted average price of options:
granted $ 3.89 $ 3.94 $ 2.97
cancelled 2.67 3.35 4.09
exercised 2.53 2.28 -
outstanding 3.31 3.23 3.16
exercisable 3.26 3.29 3.41
A summary of options outstanding at December 31, 2003 follows:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------------------- ----------------------------
Weighted-
Average Weighted-
Remaining Weighted- Average
Number Contractual Average Number Exercise
Range of Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------------------
$1.25 to $2.49 218,100 6 $ 2.13 218,100 $ 2.13
$2.50 to $3.65 362,550 7 3.17 307,840 3.19
$3.66 to $5.00 207,000 5 3.91 148,500 3.89
$5.01 to $7.25 79,500 4 5.66 73,500 5.68
- ---------------------------------------------------------------------------------------------- ----------------------------
867,150 747,940
================ ===============
The weighted average remaining contractual life of outstanding
stock options is 6 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 2003, 2002 and 2001.
The weighted average fair value at the date of grant for options granted during
2003, 2002, and 2001 is $1.79, $1.82, $1.57 per option, respectively.
(23)
The fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
2003 2002 2001
-------------------------------------------------
Expected Life in Years 5 5 5
Interest Rate 3.00% 3.00% 3.00%
Volatility 0.480 0.491 0.585
Dividend Yield 0% 0% 0%
12. Earnings Per Share
The calculation of earnings per share follows:
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Numerator:
Net income $ 1,221,831 $ 659,494 $ 1,280,404
- ------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share
Weighted average shares outstanding 3,317,231 3,400,151 3,487,658
Effect of dilutive employee stock options 240,663 155,575 107,952
- ------------------------------------------------------------------------------------------------------------------
Denominator for dilutive earnings per share 3,557,894 3,555,726 3,595,610
- ------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.37 $ 0.19 $ 0.37
- ------------------------------------------------------------------------------------------------------------------
Dilutive earnings per share $ 0.34 $ 0.19 $ 0.36
- ------------------------------------------------------------------------------------------------------------------
For 2003, 2002, and 2001, 629,245, 610,775, and 721,898 stock options,
respectively, were excluded from diluted earnings per share calculations because
they would have been anti-dilutive.
(24)
13. Accumulated Other Comprehensive Loss
The components of the accumulated other comprehensive loss follow:
Derivative Minimum
Translation Financial Pension
Adjustment Instruments Liability Total
- ----------------------------------------------------------------------------------------------------------------
Balances, January 1, 2002 $ (1,470,349) $ (120,808) $ - $ (1,591,157)
Change in Fair Value of
Derivative Financial
Instruments 163,735 163,735
Income Taxes Relating
to Derivative Financial
Instruments (60,500) (60,500)
Change in Fair Value of
Minimum Pension
Liability (1,509,574) (1,509,574)
Income Taxes Relating
to Minimum Pension
Liability 560,818 560,818
Translation Adjustment 119,864 119,864
- ----------------------------------------------------------------------------------------------------------------
Balances, December 31, 2002 (1,350,485) (17,573) (948,756) (2,316,814)
Change in Fair Value of
Derivative Financial
Instruments 26,974 26,974
Income Taxes Relating
to Derivative Financial
Instruments (9,401) (9,401)
Change in Fair Value of
Minimum Pension
Liability 412,912 412,912
Income Taxes Relating
to Minimum Pension
Liability (155,053) (155,053)
Translation Adjustment 670,941 670,941
- ----------------------------------------------------------------------------------------------------------------
Balances, December 31, 2003 $ (679,544) $ 0 $ (690,897) $ (1,370,441)
================================================================================================================
14. Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates fair value.
Accounts receivable and accounts payable: The carrying amounts reported in the
balance sheet for accounts receivable and accounts payable approximate fair
value.
Long-and short-term debt: The carrying amounts of the Company's borrowings under
its short-term notes payable and revolving credit arrangements approximate their
fair value. The fair values of the Company's long-term debt are estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Foreign exchange contracts and interest rate swaps: The fair values of the
Company's foreign currency contracts and interest rate swaps are estimated based
on dealer quotes.
(25)
The carrying amounts and fair values of the Company's financial instruments
follow (000's omitted):
2003 2002
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------------------------
Cash and cash equivalent $ 1,391 $ 1,391 $ 598 $ 598
Accounts receivable 7,075 7,075 6,410 6,410
Accounts payable (1,743) (1,743) (1,296) (1,296)
Short term notes payable (141) (141) (362) (362)
Long term debt (4,787) (4,787) (4,763) (4,763)
Interest rate swap obligation - - (27) (27)
Derivative Financial Instruments
At December 31, 2002, derivative financial instruments consist of interest rate
swaps. The Company uses such derivatives for fair value or cash flow hedging
purposes as part of its risk management strategy. Following is a summary of the
Company's risk management strategies and the effect of them on the Company's
consolidated financial statements. The Company's interest rate swap agreement
expired in January, 2003.
Fair Value Hedging Strategy
At times, the Company utilizes forward foreign exchange contracts to hedge
certain firm commitments 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. There were no forward foreign exchange contracts
held at December 31, 2003 or 2002.
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.
Ineffective portions of fair value hedges were not material in 2003.
Cash Flow Hedging Strategy
In 2000, the Company entered into interest-rate swap agreement that effectively
converted a portion of its floating-rate debt to a fixed-rate basis through
January 19, 2003, the agreement maturity date, thus reducing the impact of
interest-rate changes on future income.
During 2003, 2002 and 2001, the Company recognized expense of $26,874, $174,122
and $95,471 respectively, related to the net amounts paid and accrued on
interest rate swaps, which are included in interest expense in each year's
respective consolidated statements of income. For the year ended December 31,
2003, interest rate swap was judged to be effective.
15. Restructuring Charges
In 2002, restructuring charges of approximately $555,000 were recorded as a
result of certain strategic and operating changes initiated by the Company's
management related to liquidating Acme United Limited (AUL), a United Kingdom
subsidiary. The restructuring charges consisted of a write-down of inventories
of $206,000, accounting and legal costs of $95,000, lease cancellation costs of
$90,000, a write-off of goodwill of $69,000, severance costs of $55,000, other
closing costs of $22,000, a write-off of uncollectible accounts receivable of
$9,000 and write-offs of equipment of $9,000. As of December 31, 2002, the
restructuring was substantially complete and approximately $36,000 remained in
accrued restructuring charges, primarily related to accounting and legal costs.
The Company terminated five employees as part of the restructuring. There will
be no further terminations and all severance costs related to the restructuring
have been paid. The Company expects to continue to retain the majority of AUL's
customers and sell products to them through its German subsidiary. As of
December 31, 2003, approximately $1,000 remained in accrued restructuring
charges.
(26)
16. Quarterly Dated (unaudited)
Quarters ($000's omitted, except per share data)
2003 First Second Third Fourth Total
- --------------------------------------------------------------------------------------------------------
Net Sales $ 7,189 $ 10,142 $ 9,538 $ 8,106 $ 34,975
- --------------------------------------------------------------------------------------------------------
Cost of Goods Sold 4,307 6,221 6,367 4,946 21,842
- --------------------------------------------------------------------------------------------------------
Net Income 78 615 302 227 1,222
- --------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.02 $ 0.18 $ 0.09 $ 0.07 $ 0.37
Diluted Earnings Per Share $ 0.02 $ 0.17 $ 0.08 $ 0.06 $ 0.34
2002 First Second Third Fourth Total
- --------------------------------------------------------------------------------------------------------
Net Sales $ 6,754 $ 9,398 $ 7,867 $ 6,865 $ 30,884
- --------------------------------------------------------------------------------------------------------
Cost of Goods Sold 4,612 6,233 5,204 4,401 20,450
- --------------------------------------------------------------------------------------------------------
Net Income 122 227 270 40 659
- --------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.03 $ 0.07 $ 0.08 $ 0.01 $ 0.19
Diluted Earnings Per Share $ 0.03 $ 0.06 $ 0.08 $ 0.01 $ 0.19
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
necessarily equal the total for the year.
(27)
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, 2003 and 2002, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2003. Our
audits also included the financial statement schedule listed in the Index at
Item 15(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, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003 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
February 13, 2004
(28)
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 2003.
Item 9A. 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.
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 53 President, Chief Executive Officer and Director
Gary D. Penisten 72 Chairman of the Board and Director
Brian S. Olschan 46 Executive Vice President, Chief Operating Officer
and Director
Paul G. Driscoll 43 Vice President, Chief Financial Officer, Secretary
and Treasurer
George R. Dunbar 80 Director
Richmond Y. Holden, Jr. 50 Director
Wayne R. Moore 72 Director
Stevenson E. Ward III 59 Director
Susan H. Murphy 52 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. 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. From 1974 to 1977 he served as Assistant Secretary of the United
States Navy. Prior to that he was employed by General Electric for twenty-one
years.
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.
(29)
Paul G. Driscoll has served as Vice President and Chief Financial Officer,
Secretary and Treasurer since October 2, 2002. Mr. Driscoll joined Acme as
Director International Finance on March 19, 2001. From 1997 to 2001 he was
employed by Ernest and Julio Gallo Winery including two years in Japan as
Director of Finance and Operations. Prior to Gallo he served in several
increasingly responsible positions in Sterling Winthrop Inc. and Sanofi S.A.
George R. Dunbar has served as director since 1977. He is currently President of
The U.S. Baird Corporation and 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 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 the Moore Special Tool Company, manufacturer of
machine tools, measuring machines and metrology products. Mr. Moore was Chairman
of the U.S. Machine Tool Builders/ Association for Manufacturing Technology
(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.
Stevenson E. Ward III has served as director since 2001. He is presently Vice
President and Chief Financial Officer of Triton Thalassic Technologies, Inc.
From 1999 through 2000, Mr. Ward served as Senior Vice President -
Administration of Sanofi-Synthelabo, Inc. He also served as Executive Vice
President (1996 - 1999) and Chief Financial Officer (1994 - 1995) of Sanofi,
Inc. and Vice President, Pharmaceutical Group, Sterling Winthrop, Inc. (1992 -
1994). Prior to joining Sterling he was employed by General Electric.
Susan H. Murphy has served as director since 2003. She is presently Vice
President for Student and Academic Services at Cornell University. From 1985
through 1994, Ms. Murphy served as Dean of Admissions and Financial Aid. Ms.
Murphy has been employed at Cornell since 1978.
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)
Item 14. Principal Accountant Fees and Services
(Refer to Proxy Statement pages 14-15)
(30)
PART IV
Item 15. 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
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
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
Exhibit 23 - Consent of Ernst & Young LLP, Independent Auditors
Exhibit 99.1 - Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002-
Walter C. Johnsen
Exhibit 99.2 - Certification Pursuant To 18 U.S.C. Section 1350,
As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002-
Paul G. Driscoll
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,
2003.
(31)
SCHEDULE II
Acme United Corporation and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2003, 2002 and 2001
Balance at Charged to Deductions Balance at
Beginning of Costs and and Other End of
Period Expenses Adjustments Period
- --------------------------------------------------------------------------------------------------------------------
2003
Allowance for doubtful accounts $ 205,213 $ 61,924 $ 68,035 $ 199,102
Allowance for inventory obsolescence 407,881 273,447 306,663 374,665
Deferred income tax asset valuation allowance 1,130,777 9,098 - 1,139,875
- --------------------------------------------------------------------------------------------------------------------
2002
Allowance for doubtful accounts 209,508 71,998 76,293 205,213
Allowance for inventory obsolescence 273,260 216,512 81,891 407,881
Deferred income tax asset valuation allowance 1,552,666 - 421,889 1,130,777
- --------------------------------------------------------------------------------------------------------------------
2001
Allowance for doubtful accounts 178,227 106,557 75,276 209,508
Allowance for inventory obsolescence 439,790 - 166,530 273,260
Deferred income tax asset valuation allowance 1,965,940 - 413,274 1,552,666
- --------------------------------------------------------------------------------------------------------------------
(32)
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 Country of Incorporation
- ---- ------------------------
Acme United Limited Canada
Emil Schlemper GmbH Germany
Acme United (Asia Pacific) Limited Hong Kong
All subsidiaries 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, 333-26737, and 333-70346) pertaining to the
Acme United Corporation Amended and Restated Stock Option Plan, the Registration
Statements (Form S-8 Nos. 333-84505, 333-26739, and 333-70348) 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 February
13, 2004, with respect to the consolidated financial statements and schedule of
Acme United Corporation and subsidiaries included in the Annual Report (Form
10-K) for the year ended December 31, 2003.
/s/ Ernst & Young LLP
Hartford, Connecticut
March 4, 2004
(33)
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 annual report on Form 10-K for the
annual period ended December 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: March 4, 2004
(34)
Exhibit 99.2
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 annual report on Form 10-K for the
annual period ended December 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/ PAUL G. DRISCOLL
------------------------------
Paul G. Driscoll
Vice President and
Chief Financial Officer
Dated: March 4, 2004
(35)
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 6, 2004.
ACME UNITED CORPORATION
(Registrant)
Signatures Titles
s/ Walter C. Johnsen
- --------------------------------
Walter C. Johnsen President, Chief Executive Officer
and Director
s/ Gary D. Penisten
- --------------------------------
Gary D. Penisten Chairman of the Board and Director
s/ Brian S. Olschan
- --------------------------------
Brian S. Olschan Executive Vice President, Chief Operating
Officer and Director
s/ Paul G. Driscoll
- --------------------------------
Paul G. Driscoll Vice President, Chief Financial Officer,
Secretary and Treasurer
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
s/ Stevenson E. Ward III
- --------------------------------
Stevenson E. Ward III Director
s/ Susan H. Murphy
- --------------------------------
Susan H. Murphy Director
(36)
OFFICERS
Walter C. Johnsen Brian S. Olschan James A. Benkovic
President and Chief Executive Executive Vice President and Chief Vice President-Consumer Sales
Officer Operating Officer
Gary D. Penisten Paul G. Driscoll Larry H. Buchtmann
Chairman of the Board Vice President and Chief Financial Vice President-Manufacturing
Officer, Secretary and Treasurer
INTERNATIONAL KEY MANAGEMENT
Harry G. Wanless Dennis Liang Anthony G. Poole
General Manager General Manager General Manager
Acme United Limited Acme United (Asia Pacific) Limited Acme United Europe
(Canada) (Hong Kong) (Germany)
DIRECTORS
George R. Dunbar Walter C. Johnsen Gary D. Penisten
President President and Chief Executive Chairman of the Board
Dunbar Associates Officer Acme United Corporation
Monroe, Connecticut Acme United Corporation
President (1972-1987)
Bryant Electric Division Wayne R. Moore Stevenson E. Ward III
Westinghouse Electric Corporation Director and Chairman Emeritus Vice President and
The Producto Machine Company Chief Financial Officer
Triton Thalassic Technologies, Inc.
Richmond Y. Holden, Jr. Brian S. Olschan Susan H. Murphy
President and Chief Executive Executive Vice President and Vice President for Student
Officer Chief Operating Officer And Academic Services
J.L. Hammett Co. Acme United Corporation Cornell University
CORPORATE OFFICES
Acme United Corporation STOCK LISTING AUDITORS
1931 Black Rock Turnpike The stock of Acme United Ernst & Young LLP
Fairfield, Connecticut 06432 Corporation is traded on the Hartford, Connecticut
(203) 332-7330 American Stock Exchange under
the symbol ACU.
TRANSFER AGENTS COUNSEL ANNUAL MEETING
American Stock Transfer Company Brody, Wilkinson and Ober, P.C. will be held at 11 a.m., Monday,
40 Wall Street Southport, Connecticut April 26, 2004 at The American
New York, NY 10005 Stock Exchange
86 Trinity Place
New York, NY 10006
(37)
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 annual report on Form 10-K of Acme United
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report December 31, 2003; and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of December 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 annual 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: March 4, 2004
(38)
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 annual report on Form 10-K of Acme United
Corporation;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report December 31, 2003; and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of December 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 annual 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: March 4, 2004
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