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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. The Company is a leading worldwide supplier of innovative cutting, measuring and safety products to the school, home, office, hardware and industrial markets. The Company's operations are in the United States, Canada, Europe (located in Germany) and Asia (located in Hong Kong and China). The operations in the United States, Canada and Europe are primarily involved in product development, marketing, sales, administrative and distribution activities. The operations in Asia consist of sourcing, product development, production planning, quality control and sales activities. Net sales in 2011 were: United States (including direct import sales from Asia) - $56.7 million, Canada - $8.5 million, and Europe - $8.1 million.
The Company has grouped its operations into three reportable segments based on the Company’s geographical organization and structure: (1) United States (which includes its Asian operations); (2) Canada and (3) Europe. Refer to Note 10 of the Notes to Consolidated Financial Statements for additional segment information.
Business Strategy
The Company’s business strategy includes the following key elements:
· a commitment to technological innovation achieved through consumer insight, creativity and speed to market;
· a broad selection of products in both brand and private label;
· prompt response and same-day shipping;
· superior customer service; and
· value pricing.
Acquisitions
On February 28, 2011, the Company purchased substantially all of the assets of The Pac-Kit Safety Equipment Company, a leading manufacturer of first aid kits for the industrial, safety, transportation and marine markets. The Company purchased the accounts receivable, inventory, equipment and intangible assets of Pac-Kit for approximately $3.4 million, less liabilities assumed of $310,000, using funds borrowed under the Company’s revolving loan agreement with Wells Fargo.
The Company recorded $1.9 million for assets acquired including accounts receivable, inventory and fixed assets, as well as $1.5 million for intangible assets, consisting of customer relationships and the Pac-Kit trade name. During 2011, the Company incurred approximately $125,000, of integration and transaction costs associated with the acquisition. These costs were recorded in selling, general and administrative expenses.
Principal Products
The Company markets and sells under five main brands - Westcott®, Clauss®, Camillus®, PhysiciansCare® and Pac-Kit®.
Cutting
Principal products within the cutting device category are scissors, shears, guillotine paper trimmers, rotary paper trimmers, rotary cutters, knives, hobby knives and blades, utility knives, pruners, loppers, saws, manicure products, medical cutting instruments and pencil sharpeners. Products introduced in 2011 included an expanded line of heavy duty school and office iPoint® pencil sharpeners. Other recent product introductions included Westcott TrimAir® paper trimmers with patented titanium coating and a proprietary blade change system for rotary and personal trimmers, Westcott Ultra Soft Handle scissors with anti-microbial product protection, True Professional™ sewing shears as well as a line of iPoint® pencil sharpeners utilizing the Company’s proprietary non-stick coating. The Company also added to its KleenEarth® family of recycled products by modifying the production process to allow for multi-colored products as opposed to the traditional black.
Three years ago, the Company acquired the patents and intellectual property of Camillus Cutlery, the oldest knife company in the United States and in 2009, launched a new family of knives with proprietary designs and high performance titanium carbonitride coatings. In 2010, Camillus expanded the range of knives for tactical outdoor sporting use.
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In 2011 Clauss introduced the AirShoc® line of titanium coated non stick garden tools. In 2010 Clauss introduced high performance marine tools for saltwater fishing.
Measuring
Principal products within the measuring instrument category are rulers, and math tools. Recent product introductions included Westcott branded compasses, protractors, rulers and math kits with anti-microbial product protection.
Principal products within the safety product category are first aid kits, personal protection products and over-the-counter medication refills. The Company markets these products under the PhysiciansCare brand.
In February, 2011 the Company extended its PhysiciansCare line of first aid kits and refills by acquiring the Pac-Kit Safety Equipment Company, a leading manufacturer of first aid kits for the industrial, safety, transportation, and marine markets. Pac-Kit was one of the pioneers in industrial first aid products. Today it sells high quality, unitized kits to a broad range of companies and distributors. It is known for tailoring these items to meet user requirements, and for rapid turnaround.
Product Development
Our strong commitment to understanding our consumers and defining products that fulfill their needs through innovation drives our product development strategy, which we believe is and will be a key contributor to our success. The Company incurred research and development costs of $535,500 in 2011 and $486,778 in 2010.
Intellectual Property
The Company has many patents and trademarks that are important to its business. The Company’s success depends in part on its ability to maintain patent protection for its products, to preserve its proprietary technology and to operate without infringing upon the patents or proprietary rights of others. The Company generally files patent applications in the United States and foreign countries where patent protection for its technology is appropriate and available. The Company also considers its trademarks important to the success of its business. The more significant trademarks include Westcott, Clauss, Camillus, PhysiciansCare and Pac-Kit.
Product Distribution; Major Customers
Independent manufacturer representatives and direct sales are primarily used to sell the Company’s line of consumer products to wholesale, contract and retail stationery distributors, office supply super stores, school supply distributors, industrial distributors, wholesale florists, mass market retailers and hardware chains. In each of 2011 and 2010, the Company had one customer that individually exceeded 10% of consolidated net sales. Net sales to this customer amounted to approximately 20% of consolidated net sales in 2011 and 21% in 2010.
Competition
The Company competes with many companies in each market and geographic area. The Company believes that the principal points of competition in these markets are product innovation, quality, price, merchandising, design and engineering capabilities, product development, timeliness and completeness of delivery, conformity to customer specifications and post-sale support. The major competitor in the cutting category is Fiskars Corporation. The major competitor in the measuring category is Helix International Ltd. The major competitor in the safety category is Johnson and Johnson.
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Seasonality
Traditionally, the Company’s sales are stronger in the second and third quarters of the fiscal year due to the seasonal nature of the back-to-school business.
Compliance with Environmental Laws
The Company believes that it is in compliance with applicable environmental laws. The Company believes that there are no environmental matters that would have a material financial impact on the Company. The Company believes that no material adverse financial impact is expected to result from compliance with current environmental rules and regulations. In December 2008, the Company sold property it owned in Bridgeport, CT. Under the terms of the sales agreement, the Company is responsible for environmental remediation on the property in accordance with the Connecticut Transfer Act. See Note 16 of the Notes to Consolidated Financial Statements for additional information regarding the sale of the Bridgeport property.
Employees
As of December 31, 2011, the Company employed 157 people, all of whom are full time and none of whom is covered by union contracts. Employee relations are considered good and no foreseeable problems with the work force are evident.
Available Information
The Company files its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) of the Securities Exchange Act of 1934 with the SEC electronically. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
You may obtain a free copy of the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the Company’s website at http://www.acmeunited.com or by contacting the Investor Relations Department at the Company’s corporate offices by calling (203) 254-6060. Such reports and other information are made available as soon as reasonably practicable after such material is filed with or furnished to the SEC.
Item 1A. Risk Factors
The Company is subject to a number of significant risks that might cause the Company’s actual results to vary materially from its forecasts, targets or projections, including:
·
achieving planned revenue and profit growth in each of the Company's business segments;
changes in customer requirements and in the volume of sales to principal customers;
the timing of orders and shipments;
emergence of new competitors or consolidation of existing competitors; and
industry demand fluctuations.
The Company’s expectations for both short- and long-term future net revenues are based on the Company’s estimates of future demand. Orders from the Company’s principal customers are ultimately based on demand from end-users and end-user demand can be difficult to predict. Low end-user demand would negatively affect orders the Company receives from distributors and other principal customers which could, in turn adversely affect the Company’s revenues in any fiscal period. If the Company’s estimates of sales are not accurate and the Company experiences unforeseen variability in its revenues and operating results, the Company may be unable to adjust its expense levels accordingly and its profit margins could be adversely affected.