Acme United Corp – ‘10-K’ for 12/31/06

On:  Thursday, 3/15/07, at 5:13pm ET   ·   For:  12/31/06   ·   Accession #:  1026608-7-40   ·   File #:  1-07698

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         44    256K 
 2: EX-21       Subsidiaries                                           1      5K 
 3: EX-23       Consent of Experts or Counsel                          1      7K 
 4: EX-31       Exhibit 31.1                                           1      7K 
 5: EX-31       Exhibit 31.2                                           1      7K 
 6: EX-32       Exhibit 32.1                                           2±     9K 
 7: EX-32       Exhibit 32.2                                           2±     9K 

10-K   —   Annual Report
Document Table of Contents

10-K
1st Page of 44
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 
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, 2006                 

OR                                                          

   ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934                                        

 Commission file number 01-07698
 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.)

60 Round Hill Road                                          
Fairfield, Connecticut                                     06824
(Address of principal executive offices)                         (Zip Code)     

 Registrant's telephone number, including area code (203) 254-6060

 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 is a well-known seasoned issuer,  
as defined in Rule 405 of the Securities Act. YES |_| NO |X|                    

Indicate by check mark if the registrant is not required to file reports        
pursuant to Section 13 or Section 15(d) of the Act. YES |_| NO |X|              

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.                                                                      
YES |X| NO |_|                                                                  

                                                                             (1)

10-K
2nd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 2nd
Indicate by check mark whether the registrant is a shell company as defined in  
Rule 12b-2 of the Exchange Act. YES |_| NO |X|                                  

Indicate by check mark whether the Registrant is a large accelerated filer, an  
accelerated filer, or a non-accelerated filer. See definition of "accelerated   
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (Check     
one).                                                                           
Large accelerated filer |_|   Accelerated filer |_|   Non-accelerated filer |X| 

The aggregate market value of the voting stock held by non-affiliates of the    
registrant as of the last business day of the registrant's most recently        
completed second fiscal quarter was $39,924,671. Registrant had 3,538,833 shares
outstanding as of March 1, 2007 of its $2.50 par value Common Stock.            

Documents Incorporated By Reference                                             

(1) Proxy Statement for the annual meeting scheduled for April 23, 2007 is      
incorporated into the Company's 2006 10-K, Part III.                            

                                                                             (2)

10-K
3rd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 3rd
                                                                          Page
                                                                          ----

Part I                                                                        

   Item 1.  Business                                                         4

   Item 1A. Risk Factors                                                     5

   Item 1B. Unresolved Staff Comments                                        7

   Item 2.  Properties                                                       7

   Item 3.  Legal Proceedings                                                8

   Item 4.  Submission of Matter to a Vote of Security Holders               8

Part II                                                                       

Item 5.  Market for the Company's Common Equity, Related Stockholder    
            Matters and Issuer Purchases of Equity Securities                9

   Item 6.  Selected Financial Data                                         10

Item 7.  Management's Discussion and Analysis of Financial Condition    
            and Results of Operations                                       11

   Item 7A. Quantitative and Qualitative Disclosures About Market Risk      16

   Item 8.  Financial Statements and Supplementary Data                     18

Item 9.  Changes in and Disagreements with Accountants on Accounting    
            and Financial Disclosure                                        38

   Item 9A. Controls and Procedures                                         38

   Item 9B. Other Information                                               38

Part III                                                                      

   Item 10. Directors, Executive Officers and Corporate Governance          38

   Item 11. Executive Compensation                                          39

Item 12. Security Ownership of Certain Beneficial Owners and            
            Management and Related Stockholder Matters                      40

Item 13. Certain Relationships and Related Transactions, and            
            Director Independence                                           40

   Item 14. Principal Accountant Fees and Services                          40

Part IV                                                                       

   Item 15. Exhibits and Financial Statement Schedules                      41

Schedule II - Valuation and Qualifying Accounts       

            Signatures                                                      44

                                                                             (3)

10-K
4th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 4th
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   
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, manufacturing, marketing, sales, administrative and        
distribution activities. The operation in Asia is involved in sourcing, quality 
control and sales activities. Net sales in 2006 were the following: United      
States - $44.3 million, Canada - $7.3 million, and Europe - $5.2 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. The Company sells    
cutting devices, measuring instruments and safety products for school, office,  
home and industrial use in the United States, Canada and Europe. The Company    
competes with many companies in each market and geographic area. 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. 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:            

o    a commitment to technological innovation achieved through consumer insight,
creativity and speed to market;                                       
o    a broad selection of products in both brand and private label;             
o    prompt response and same-day shipping;                                     
o    superior customer service; and                                             
o    value pricing.                                                             

The Company markets and sells under three main brands - Westcott(TM), Clauss(TM)
and PhysiciansCare(TM).                                                         

Principal Products                                                              

Principal products within the cutting device category are scissors, shears,     
guillotine paper trimmers, rotary paper trimmers, rotary cutters, hobby knives  
and blades, utility knives, manicure products, medical cutting instruments and  
pencil sharpeners. Products introduced in 2005 and 2006 included proprietary    
titanium bonded scissors and trimmers, mechanical-assisted scissors, a new line 
of Clauss(TM) hot forged scissors, and electric and manual iPoint pencil        
sharpeners. Other new Clauss(TM) products in 2006 included True Professional(TM)
sewing shears, utility knives, chef shears, hobby knives and craft implements.  
Principal products within the measuring instrument category are rulers, math    
tools and tape measures. Products introduced in 2006 included the iZone family  
of school tools - Twist-it(TM) rulers, erasers, tape measures, staple removers  
and math tools. Products introduced in 2005 included a new line of Westcott     
tearing rulers and professional grade aluminum rulers. Principal products within
the safety product category are first aid kits, personal protection products and
over-the-counter medication refills. New PhysiciansCare(TM) products included a 
one-stop relief station featuring pre-packaged two-packs of analgesics, stomach 
remedies, cough and cold, and allergy/sinus medications. Also introduced were an
innovative hand sanitizer and the soft-sided E-Z Care(TM) First Aid Kit.        
Products introduced in 2005 included new Physicians Care(TM) branded            
over-the-counter medications.                                                   

                                                                             (4)

10-K
5th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 5th
Product Distribution                                                            

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 and mass market retailers. The      
Company had two customers with sales of 10% or more of total sales in 2006 and  
three customers with sales of 10% or more of total sales in 2005 and 2004. Sales
to those major customers represented approximately 29% of total net sales in    
2006, 41% of total net sales in 2005 and 43% of total net sales in 2004.        

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.   

Other                                                                           
-----                                                                           
Environmental Rules and Regulations - The Company believes that it is in        
compliance with applicable environmental laws. The Company believes that there  
are no environmental matters that could have a significant financial impact. The
Company believes no major adverse financial impact is expected to result from   
compliance with current environmental rules and regulations.                    

Employment - As of December 31, 2006, the Company employed 120 people, all 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 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:                                                         

   o    achieving planned revenue and profit growth in each of the Company's
business segments;                                          

o    changes in customer requirements and in the volume of sales to   
principal customers;                                        

o    the timing of orders and shipments;                              

     o    emergence of new competitors or consolidation of existing competitors;

o    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 such      
prospective end-user demand can be difficult to measure. Low end-user demand,   
would negatively affect orders the Company receives from distributors and other 
principal customers and this would mean that the Company's revenues in any      
fiscal period could be adversely impacted. 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 will be adversely affected.           

A number of the Company's products are sold through distributors and large      
retailers. No assurances can be given that any or all such distributors or      
retailers will continue their relationship with the Company. Distributors and   
other significant retail customers cannot easily be replaced and the loss of    
revenues and the Company's inability to reduce expenses to compensate for the   
loss of revenues could adversely affect the Company's net revenues and profit   
margins.                                                                        

LOSS OF A MAJOR CUSTOMER COULD RESULT IN A DECREASE IN THE COMPANY'S FUTURE     
SALES AND EARNINGS.                                                             
Net sales to the Company's customers exceeding 10% of consolidated net sales    
amounted to approximately 29%, 41% and 43% of total net revenues for the years  
ended December 31, 2006, 2005 and 2004, respectively. The Company anticipates   
that a limited number of customers may account for a substantial portion of our 
total net revenues for the foreseeable future. The loss of a major customer or a
disruption in sales to such a customer could result in a decrease of our future 
sales and earnings.                                                             

                                                                             (5)

10-K
6th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 6th
RELIANCE ON FOREIGN SUPPLIERS COULD NEGATIVELY IMPACT OUR BUSINESS.             
The Company purchases the majority of its products from foreign manufacturing   
partners and, as a result, its business is exposed to increased risks due to:   
o    Increases in transportation costs;                               
o    New or increased import duties;                                  
o    Transportation delays;                                           
o    Work stoppages;                                                  
o    Capacity constraints;                                            
o    Poor quality;                                                    
 o    Exchange rate fluctuations that could increase the cost of foreign
manufactured goods.                                         

THE LOSS OF KEY MANAGEMENT COULD AFFECT THE COMPANY'S ABILITY TO RUN ITS        
BUSINESS.                                                                       
The Company's success depends to a large extent on the continued service of our 
executive management team, operating officers and other key personnel. The      
Company must therefore continue to recruit, retain and motivate management and  
operating personnel sufficient to maintain its current business and support its 
projected growth.                                                               

The Company's inability to meet its staffing requirements in the future could   
negatively impact its results of operations.                                    

FAILURE TO PROTECT THE COMPANY'S PROPRIETARY RIGHTS OR THE COSTS OF PROTECTING  
THESE RIGHTS COULD NEGATIVELY IMPACT ITS BUSINESS.                              
The Company's success depends in part on its ability to obtain patents and      
licenses and to preserve other intellectual property rights covering its        
products and processes. The Company obtained certain domestic and foreign       
patents, and intends to continue to seek patents on its inventions when         
appropriate. The process of seeking patent protection can be time consuming and 
expensive. There can be no assurance that pending patents related to any of the 
Company's products will be issued, in which case the Company may not be able to 
legally prevent others from producing compatible competing products. If other   
companies were to sell compatible products, the Company's results of operations 
could be adversely affected. Furthermore, there can be no assurance that the    
Company's efforts to protect its intellectual property will be successful. Any  
infringement of the Company's intellectual property or legal defense of such    
action could have a material adverse effect on the Company.                     

THE COMPANY MAY NEED TO RAISE ADDITIONAL CAPITAL TO FUND ITS OPERATIONS.        
The Company's management believes, under current conditions, that the Company's 
current cash and cash equivalents, cash generated by operations, together with  
the borrowing availability under its revolving loan agreement with Wachovia     
Bank, will be sufficient to fund planned operations for the next twelve months. 
However, if the Company is unable to generate sufficient cash from operations,  
it may be required to find additional funding sources. If adequate financing is 
unavailable or is unavailable on acceptable terms, the Company may be unable to 
maintain, develop or enhance its operations, products and services, take        
advantage of future opportunities or respond to competitive pressures.          

WE MAY NOT BE ABLE TO MAINTAIN OR TO RAISE PRICES IN RESPONSE TO INFLATION AND  
INCREASING COSTS.                                                               
Future market and competitive pressures may prohibit the Company from raising   
prices to offset increased product costs, freight costs and other inflationary  
items. The inability to pass these costs through to the Company's customers     
could have a negative impact on our results of operations.                      

THE COMPANY IS SUBJECT TO INTENSE COMPETITION IN THE OFFICE PRODUCTS            
MARKETPLACE.                                                                    
The Company's products are sold in highly competitive markets. 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. Competitive conditions may       
require the Company to match or better competitors' prices to retain business or
market share. The Company believes that its competitive position will depend on 
continued investment in innovation and product development, manufacturing and   
sourcing, quality standards, marketing and customer service and support. The    
Company's success will depend in part on its ability to anticipate and offer    
products that appeal to the changing needs and preferences of our customers in  
the various market categories in which it competes. The Company may not have    
sufficient resources to make the investments that may be necessary to anticipate
those changing needs and the Company may not anticipate, identify, develop and  
market products successfully or otherwise be successful in maintaining its      
competitive position. There are no significant barriers to entry into the       
markets for most of the Company's products.                                     

                                                                             (6)

10-K
7th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 7th
PRODUCT LIABILITY CLAIMS OR REGULATORY ACTIONS COULD ADVERSELY IMPACT THE       
COMPANY'S FINANCIAL RESULTS AND REPUTATION.                                     
Claims for losses or injuries purportedly caused by some of the Company's       
products arise in the ordinary course of its business. In addition to the risk  
of substantial monetary judgments, product liability claims or regulatory       
actions could result in negative publicity that could harm the Company's        
reputation in the marketplace or the value of its brands. The Company also could
be required to recall possible defective products, which could result in adverse
publicity and significant expenses. Although the Company maintains product      
liability insurance coverage, potential product liability claims are subject to 
a deductible or could be excluded under the terms of the policy.                

THE COMPANY'S BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH SEASONALITY WHICH    
COULD ADVERSELY IMPACT ITS CASH FLOW, FINANCIAL CONDITION, OR RESULTS OF        
OPERATIONS.                                                                     
The Company's business, as it concerns both historical sales and profit, has    
experienced higher sales volume in the second and third quarters of the calendar
year. Two principal factors have contributed to this seasonality: the office    
products industry's customers and the Company's product line. The Company is a  
major supplier of products related to the "back-to-school" season, which occurs 
principally during the months of June, July, August and September. If this      
typical seasonal increase in sales of certain portions of the Company's product 
line does not materialize, it could experience a material adverse effect on its 
business, financial condition and results of operations.                        

TO COMPETE SUCCESSFULLY, THE COMPANY MUST DEVELOP AND COMMERCIALIZE A CONTINUING
STREAM OF INNOVATIVE NEW PRODUCTS THAT CREATE CONSUMER DEMAND.                  
The Company's long-term success in this competitive environment depends on its  
ability to develop and commercialize a continuing stream of innovative new      
products that create consumer demand. The Company also faces the risk that its  
competitors will introduce innovative new products that compete with the        
Company's products. The Company's strategy includes increased investment in new 
product development and increased focus on innovation. There are, nevertheless, 
numerous uncertainties inherent in successfully developing and commercializing  
innovative new products on a continuing basis, and new product launches may not 
deliver expected growth results.                                                

THE COMPANY IS SUBJECT TO ENVIRONMENTAL REGULATION AND ENVIRONMENTAL RISKS.     
The Company is subject to national, state, provincial and/or local environmental
laws and regulations that impose limitations and prohibitions on the discharge  
and emission of, and establish standards for the use, disposal and management   
of, certain materials and waste. These environmental laws and regulations also  
impose liability for the costs of investigating and cleaning up sites, and      
certain damages resulting from present and past spills, disposals, or other     
releases of hazardous substances or materials. Environmental laws and           
regulations can be complex and may change often. Capital and operating expenses 
required to comply with environmental laws and regulations can be significant,  
and violations may result in substantial fines and penalties. In addition,      
environmental laws and regulations, such as the Comprehensive Environmental     
Response, Compensation and Liability Act, or CERCLA, in the United States impose
liability on several grounds for the investigation and cleanup of contaminated  
soil, ground water and buildings and for damages to natural resources at a wide 
range of properties. For example, contamination at properties formerly owned or 
operated by the Company, as well as at properties it will own and operate, and  
properties to which hazardous substances were sent by the Company, may result in
liability for the Company under environmental laws and regulations. The costs of
complying with environmental laws and regulations and any claims concerning     
noncompliance, or liability with respect to contamination in the future could,  
have a material adverse effect on the Company's financial condition or results  
of operations.                                                                  

Item 1b. Unresolved Staff Comments                                              

The Company had no unresolved Securities and Exchange Commission staff comments 
as of December 31, 2006.                                                        

Item 2.  Properties                                                             

Acme United Corporation is headquartered at 60 Round Hill Road, Fairfield,      
Connecticut in 7,500 square feet of leased space. The Company also leases 1,825 
square feet of office space in Bentonville, AR. The Company owns and leases     
manufacturing and warehousing facilities in the United States totaling 205,000  
square feet, and leases 44,000 square feet of warehousing space in Canada. The  
Company also leases approximately 2,000 square feet of office space in Canada.  
Distribution for Europe is presently being conducted at a 35,000 square foot    
owned facility in Solingen, Germany. The Company also leases 2,100 square feet  
of office space in Hong Kong, and 1,500 square feet in Guangzhou, China.        

                                                                             (7)

10-K
8th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 8th
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.                                                             

Item 3.  Legal Proceedings                                                      

The Company is involved, from time to time, in disputes and other litigation in 
the ordinary course of business and may encounter other contingencies, which may
include environmental and other matters. The Company presently believes that    
none of these matters, individually or in the aggregate, would be likely to have
a material adverse impact on its financial position, results of operations or   
liquidity.                                                                      

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, 2006.                                               

                                                                             (8)

10-K
9th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 9th
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:         

                                                               Dividends
Year Ended December 31, 2006         High           Low         Declared  
 ------------------------------- -------------- -------------- -------------
Fourth Quarter                      $15.25         $13.70        $ .03    
 ------------------------------- -------------- -------------- -------------
Third Quarter                        15.97          13.30          .03    
 ------------------------------- -------------- -------------- -------------
Second Quarter                       16.10          14.00          .03    
 ------------------------------- -------------- -------------- -------------
First Quarter                        14.35          12.14          .03    
 ------------------------------- -------------- -------------- -------------

 ------------------------------- -------------- -------------- -------------
Year Ended December 31, 2005                                              
 ------------------------------- -------------- -------------- -------------
Fourth Quarter                      $16.15         $13.01        $ .03    
 ------------------------------- -------------- -------------- -------------
Third Quarter                        20.90          12.75          .03    
 ------------------------------- -------------- -------------- -------------
Second Quarter                       21.00          13.30          .03    
 ------------------------------- -------------- -------------- -------------
First Quarter                        19.75          12.27          .02    
 ------------------------------- -------------- -------------- -------------

As of March 7, 2007 there were approximately 1,766 holders of record of the     
Company's Common Stock.                                                         

Performance Graph                                                               

The graph compares the yearly cumulative total shareholder return on the        
Company's Common Stock with the yearly cumulative total return of (a) the AMEX  
Market Index and (b) a peer group of companies that, like the Company, (i) are  
currently listed on the American Stock Exchange, and (ii) have a market         
capitalization of $45 million to $55 million.                                   

The Company does not believe it can reasonably identify a peer group of         
companies on an industry or line-of-business basis for the purpose of developing
a comparative performance index. While the Company is aware that some other     
publicly-traded companies market products in the Company's line-of-business,    
none of these other companies provide most or all of the products offered by the
Company, and many offer other products or services as well. Moreover, some of   
these other companies that engage in the Company's line-of-business do so       
through divisions or subsidiaries that are not publicly-traded. Furthermore,    
many of the other companies are substantially more highly capitalized than the  
Company. For these reasons, any such comparison would not, in the opinion of the
Company, provide a meaningful index of comparative performance.                 

The comparisons in the graph below are based on historical data and are not     
indicative of, or intended to forecast, the possible future performance of the  
Company's Common Stock.                                                         

                                                                             (9)

10-K
10th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 10th
 (Printer: Insert Graph)

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG ACME UNITED CORP.,
 AMEX MARKET NDEX AND PEER GROUP INDEX

--------------------------------FISCAL YEAR ENDING------------------------------

                        2001      2002      2003      2004      2005      2006

ACME UNITED CORP.      100.00     96.41    138.46    404.60    362.12    376.86 
PEER GROUP INDEX       100.00     82.68    112.59    119.61    109.86    103.67 
AMEX MARKET INDEX      100.00     96.01    130.68    149.65    165.03    184.77 

ASSUMES $100 INVESTED ON JAN. 1, 2001 
ASSUMES DIVIDEND REINVESTED 
FISCAL YEAR ENDING DEC. 31, 2006

Issuer Purchases of Equity Securities                                           

On October 4, 2005, the Company announced a stock repurchase program of 150,000 
shares. The program does not have an expiration date. The Company did not       
repurchase any of its shares during 2006. As of December 31, 2006, there were   
125,000 shares available for purchase under the announced repurchase program.   

Item 6.  Selected Financial Data                                                

                                                        [Enlarge/Download Table]
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA                                                                       
(All figures in thousands except per share data)                                                                   

                                                           2006         2005         2004         2003         2002
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
Net sales                                              $ 56,863     $ 49,947     $ 43,381     $ 34,975     $ 30,884
-------------------------------------------------------------------------------------------------------------------
Net income                                             $  3,886     $  2,937     $  3,238     $  1,222     $    660
-------------------------------------------------------------------------------------------------------------------
Total assets                                           $ 35,021     $ 28,194     $ 22,967     $ 19,743     $ 17,614
-------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion                   $ 10,221     $  5,577     $  1,434     $  2,752     $  2,032
-------------------------------------------------------------------------------------------------------------------
Net income                                                                                                         
   Per share (Basic)                                   $   1.11     $   0.84     $   0.96     $   0.37     $   0.19
   Per share (Diluted)                                 $   1.05     $   0.78     $   0.85     $   0.34     $   0.19
Dividends per share                                    $   0.12     $   0.11     $   0.06     $      -     $      -

                                                                            (10)

10-K
11th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 11th
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations                                                 

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.                                                                     

Critical Accounting Policies                                                    
----------------------------                                                    
The following discussion and analysis of financial condition and results of     
operations are based upon the Company's consolidated financial statements, which
have been prepared in conformity with accounting principles generally accepted  
in the United States of America. The Company's significant accounting policies  
are more fully described in Note 2 of Notes to Consolidated Financial           
Statements. However, certain accounting estimates are particularly important to 
the understanding of the Company's financial position and results of operations 
and require the application of significant judgment by the Company's management 
or can be materially affected by changes from period to period in economic      
factors or conditions that are outside the control of management. The Company's 
management uses their judgment to determine the appropriate assumptions to be   
used in the determination of certain estimates. Those estimates are based on    
historical operations, future business plans and projected financial results,   
the terms of existing contracts, the observance of trends in the industry,      
information provided by customers and information available from other outside  
sources, as appropriate. The following discusses the Company's critical         
accounting policies and estimates.                                              

Estimates. Operating results may be affected by certain accounting estimates.   
The most sensitive and significant accounting estimates in the financial        
statements relate to customer rebates, valuation allowances for deferred income 
tax assets, obsolete and slow moving 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 collectability of accounts receivable. Accruals for income taxes or benefits
often require interpretations of complex tax rules and regulations, which may be
subsequently challenged. Although the Company's management has used available   
information to make judgments on the appropriate estimates to record for the    
above matters, there can be no assurance that future events will not            
significantly affect the estimated amounts related to these areas where         
estimates are required.                                                         

Revenue Recognition. The Company recognizes revenue from sales of its products  
when ownership transfers to the customers. When right of return exists, the     
Company recognizes revenue in accordance with FASB Statement No. 48, Revenue    
Recognition When Right of Return Exists.                                        

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, 2006 is 14 years. The Company reviews the     
value recorded for intangible assets to assess recoverability from future       
operations using undiscounted cash flows. Impairments are recognized in         
operating results to the extent the carrying value exceeds fair value determined
based on the net present value of estimated future cash flows. The projection of
future cash flows requires the Company to make estimates about the amount of    
future revenues. The actual future results could differ significantly from these
estimates, and resulting changes in the estimates of future cash flows could be 
significant and could affect the recoverability of intangible assets. During    
2006, the net book value of the Company's intangible assets increased to        
$877,796 from $769,852.                                                         

                                                                            (11)

10-K
12th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 12th
Accounting for Stock-Based Compensation. In the first quarter of 2006, the      
Company began accounting for stock-based compensation in accordance with the    
fair value recognition provisions of Statement of Financial Accounting Standards
No. 123R. ("SFAS 123R") The Company uses the Black-Scholes option - pricing     
model, which requires the input of subjective assumptions. These assumptions    
include estimating the length of time employees will retain their vested stock  
options before exercising them ("expected term"), the estimated volatility of   
the Company's common stock price over the expected term ("volatility") and the  
number of options that will ultimately not complete their vesting requirements  
("forfeitures"). Changes in the subjective assumptions can materially affect    
estimates of fair value stock-based compensation, and the related amount        
recognized on the consolidated statements of operations. Refer to Note 11 "Stock
Option Plans" in the Notes to Consolidated Financial Statements in this report  
for a more detailed discussion of the effects of SFAS 123R on the Company's     
results of operations and financial condition.                                  

Results of Operations 2006 Compared with 2005                                   

Net Sales                                                                       
---------                                                                       
Net sales increased $6,916,618 or 14% (13% in constant currency) in 2006 to     
$56,862,992 compared to $49,946,374 in 2005. The U.S. segment sales increased by
$5,223,000 or 13%. Sales increased in Canada by $501,235 or 7% and constant in  
local currency. European sales increased by $1,183,024 or 29% and 28% in local  
currency.                                                                       

The increase in sales in the U.S. segment is principally the result of sales    
initiatives with several major retailers and superstores, entry into the pencil 
sharpener market and market share gains. The major driver in new product sales  
was the expansion of the Company's patented titanium bonded products including  
scissors, trimmers and knives and the introduction of the Clauss brand titanium 
Chef Shears. The other major new product introduction was the iPoint electric   
pencil sharpeners. Other new product sales included mechanical-assisted         
scissors, new Clauss(TM) True Professional(TM) sewing shears and the iZone      
family of school tools - Twist-it(TM) rulers, erasers, tape measures, staple    
removers and math tools.                                                        

The 29% sales increase in Europe was due to new sales to a large pan-European   
superstore and an expanded product line with a major European retailer.         

Gross Profit                                                                    
------------                                                                    
Gross profit was 43% of net sales in 2006 as compared to 45% 2005. The lower    
gross margin was principally due to higher sales of private label programs which
typically provide commodity items at very competitive prices, particularly in   
Europe. There were also a number of promotional and initial set up expenses for 
new business in Europe that reduced margins.                                    

Selling, General and Administrative                                             
-----------------------------------                                             
Selling, general and administrative expenses were $17,869,753 in 2006 compared  
with $15,512,488 in 2005, an increase of $2,357,265. SG&A expenses were 31% of  
net sales in both 2006 and 2005. Higher sales commission and freight costs      
associated with higher sales amounted to $370,000. Other major contributors to  
the increase in SG&A expenses were market research, new product development and 
the addition of sales, marketing and logistic personnel. SG&A expense includes  
stock compensation of $275,540 in 2006, resulting from the grant of stock option
to employees and directors.                                                     

Non-Recurring Charge                                                            
--------------------                                                            
In the quarter ended September 30, 2005, the Company accrued a charge of $1.5   
million related to the estimated costs to demolish the Company's former         
manufacturing facility located in Bridgeport, CT, and to remove certain         
environmentally hazardous material contained in the buildings to be demolished. 
The estimated costs were based on a third party contractor's estimate. Actual   
expenses were not materially different from original estimates. During the third
quarter 2006, demolition of the buildings was completed and all costs previously
accrued were paid by December 31, 2006. The Company is currently exploring its  
options to sell the property.                                                   

Operating Income                                                                
----------------                                                                
Operating income was $6,713,020 in 2006 compared with $5,342,201 in 2005, an    
increase of $1,370,819. The increase is primarily attributable to the $1,500,000
charge on the Bridgeport property in 2005 with no comparable charge in 2006.    
Operating income increased in Canada by $104,000 or 21%. The European operating 
loss increased by approximately $858,000. The results of the European operations
were negatively impacted by expedited freight costs and other costs associated  
with the launch of new customer programs.                                       

                                                                            (12)

10-K
13th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 13th
Interest Expense, Net                                                           
---------------------                                                           
Interest expense for 2006 was $615,500 compared with $234,868 for 2005, a       
$380,632 increase. The increase in interest expense was primarily the result of 
higher borrowings under the Company's bank revolving loan agreement.            

Other Income (Expense), Net                                                     
---------------------------                                                     
Net other income was $251,557 in 2006 compared to net other expense of          
($341,267) in 2005. The change from 2005 is primarily due to higher foreign     
exchange transaction gains and income from a license agreement in 2006.         

Income Tax                                                                      
----------                                                                      
The effective tax rate in 2006 was 39% compared to 38% in 2005. The effective   
tax rate was impacted by higher losses in Europe in 2006 compared to 2005 for   
which there is no recorded tax benefit because the losses in Europe cannot be   
utilized to offset earnings in other countries. This was partially offset by    
lower tax rates in a tax jurisdiction outside of the U.S.                       

Results of Operations 2005 Compared with 2004                                   

Net Sales                                                                       
---------                                                                       
Net sales increased $6,565,726 or 15% (14% in constant currency) in 2005 to     
$49,946,374 compared to $43,380,648 in 2004. U.S. and Hong Kong sales increased 
by $5,319,117 or 16%. Hong Kong sales were to global customers, primarily direct
imports to U.S. customers. Sales increased in Canada by $852,313 or 14% and 6%  
in local currency. European sales increased by $394,296 or 11% both in US       
dollars and local currency.                                                     

The 16% sales increase in the United States was mainly due to the success of new
products and a full year effect of the Clauss Cutlery business acquired in June 
of 2004. Clauss sales approximated $3,300,000 in 2005 and $1,700,000 for seven  
months in 2004. The major driver in new product sales was the expansion of the  
Company's patented titanium bonded scissors. The ability for the Company to     
expand its customer base with titanium products attributed to sales growth. The 
expansion into titanium sewing scissors also contributed to the growth. Other   
new product sales included hot forged sewing scissors, Critters scissors, Kids  
scissors, Craft scissors and the launch of several innovative rulers.           

The 6% sales increase in local currency in Canada was mainly the result of      
additional placement in one of the major superstores and a new major retailer.  

The 11% sales increase in Europe was due to the additional placement of manicure
scissors into a major retailer in Germany and new sales of paper trimmers into a
multinational superstore across Europe.                                         

Gross Profit                                                                    
------------                                                                    
Gross profit was 45% of net sales in both 2005 and 2004. Excluding the          
unfavorable impact of an unusually high amount of airfreight expense to meet new
product and new customer requirements, the comparison would have been 47% in    
2005 versus 46% in 2004. The increased percentage of new products with higher   
gross margins and sales of a more profitable product mix in Europe were         
partially offset by an unfavorable product mix, higher raw material costs and   
price pressure in the U.S. business.                                            

Selling, General and Administrative                                             
-----------------------------------                                             
Selling, general and administrative expenses were $15,512,488 in 2005 compared  
with $14,162,082 in 2004, an increase of $1,350,406. SG&A expenses were 31% of  
net sales in 2005 compared to 33% in 2004. Higher sales commission and freight  
costs associated with higher sales amounted to $682,000. Other major            
contributors to the increase in SG&A expenses were market research, new product 
development, an expansion of the sourcing and quality control office in Hong    
Kong and the addition of sales and marketing personnel in North America and     
Europe.                                                                         

                                                                            (13)

10-K
14th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 14th
Non-Recurring Charge                                                            
--------------------                                                            
The Company is the owner of certain commercial property located in Bridgeport,  
Connecticut. Buildings, totaling approximately 150,000 square feet, are located 
on this property. The Company ceased using the Bridgeport property as a         
manufacturing facility in September 1996 and operations were consolidated into  
Acme's North Carolina facility. For approximately the next two years, the       
Company continued to pay property taxes, insurance, maintenance and other       
operating costs which totaled approximately $107,000 annually and the Company   
leased a small part of the property for $32,000 resulting in a net cost of      
$75,000 annually. In October 1998, the Company leased the entire property to an 
unrelated commercial real estate company for a term of 24 years. The lease had  
provided for the payment of one dollar ($1.00) per year as base rent and        
required that the tenant pay all taxes, insurance and other expenses in         
connection with the property. At the time, Acme considered the cost savings from
leasing the property, for which Acme had no specific use, an appropriate basis  
for the arrangement.                                                            

The Company had written off the book value of the property by the end of 1998.  

Since October 1998, the tenant leased portions of buildings to subtenants,      
primarily for use as commercial warehouses. Approximately 30% of the total      
square footage is subject to subleases. The remainder has been empty since 1996.

On July 28, 2005, the Building Department of Bridgeport informed Acme United    
that pursuant to a call from the Bridgeport Fire Department, an inspection of   
the premises was made on July 21, 2005. The roof of a portion of a building had 
collapsed that day. The Company received notice that it must either repair      
certain portions of the damaged building and two others or demolish them because
of unsafe conditions. The Company was ordered to begin the necessary work to    
make the buildings safe within 30 days from receipt of the letter.              

The lessee filed an insurance claim on August 24, 2005. The insurance company   
investigated the facts and circumstances surrounding the claim and determined   
that the roof had collapsed due to wear, tear, deterioration, wet rot, dry rot  
and lack of maintenance of the premises. They stated in a letter dated October  
18, 2005 that the causes of the loss were not insured perils under the tenant's 
policy and denied coverage.                                                     

On July 29, 2005, the Company notified the tenant of the action by the building 
inspector and that under the terms of the lease the tenant had the entire       
responsibility for compliance with the order. The lessee subsequently refused to
assume responsibility for the repair or demolition. Acme considered legal action
under the terms of the lease to force the lessee to pay for the repair or       
demolition. However, the Company believed that the city would require action    
over a time period shorter than the time required to file a lawsuit and to bring
the action to a conclusion.                                                     

As a result of discussions between the Company and the tenant regarding the     
required repair or demolition, the Company and the tenant agreed to terminate   
the lease. Pursuant to a Termination of Lease agreement entered into by the     
Company and the tenant on September 16, 2005, the parties terminated this lease,
effective September 1, 2005. As part of the lease termination, the Company paid 
$400,000 to the tenant in exchange for rights to the rental income from the     
leases with current sub-tenants.                                                

The Company also decided to demolish all unoccupied structures on the property. 
The unoccupied structures are abandoned manufacturing buildings that had been   
constructed over one hundred years ago.                                         

Several subtenants continue to occupy portions of the property and are paying   
rent presently totaling approximately $190,000 per year to the Company. In      
addition, the principal subtenant pays a portion of the taxes and insurance     
expenses related to the property it leases.                                     

In the quarter ended September 30, 2005, the Company accrued a charge of        
approximately $1.5 million related to the estimated cost to demolish the        
structures and remove certain environmentally hazardous material included in the
buildings to be demolished.                                                     

The estimated costs were based on a third party contractor's estimate. Actual   
costs incurred in 2005 and 2006 approximated the original estimates recorded in 
the quarter ended September 30, 2005.                                           

                                                                            (14)

10-K
15th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 15th
Operating Income                                                                
----------------                                                                
Operating income was $5,342,201 in 2005 compared with $5,490,448 in 2004, a     
decrease of $148,247. The decrease is due to the $1,500,000 charge on the       
Bridgeport property. Operating income for the United States excluding the       
$1,500,000 charge increased by approximately $973,000 or 18%. Operating income  
increased in Canada by $21,000 or 5%. The European operating loss decreased by  
$505,000 or 76%. The results of the European operations are improving due to    
higher sales and a more profitable product mix. The higher sales are primarily  
due to increases in the sales force and increases in advertising.               

Interest Expense, Net                                                           
---------------------                                                           
Interest expense for 2005 was $234,868 compared with $157,335 for 2004, a       
$77,533 increase. The increase in interest expense was primarily the result of  
higher borrowings under the Company's bank revolving credit agreement.          

Other (Expense) Income, Net                                                     
---------------------------                                                     
Net other expense was ($341,267) in 2005 compared to net other income of $7,203 
in 2004. The change from 2004 is primarily due to higher foreign exchange       
transaction losses in 2005.                                                     

Income Tax                                                                      
----------                                                                      
The effective tax rate in 2005 was 38% compared to 39% in 2004. The lower       
effective tax rate is principally due to lower losses in Europe for which there 
is no recorded tax benefit because the losses in Europe cannot be utilized to   
offset earnings in other countries.                                             

Contractual Obligations                                                         
-----------------------                                                         
The following table summarizes the amounts of payments due during the periods   
specified under the Company's contractual obligations as of December 31, 2006:  

                                                        [Enlarge/Download Table]

                                                                             Payments Due by Period          
(dollars in thousands)                                             ------------------------------------------
Contractual                                                        Less than     2--3       4--5    More than
  Obligations                                                        1 Year     Years      Years     5 Years 
-------------                                                      ---------  ---------  ---------  ---------
                                                                                                             
Long-Term Debt Obligations........................................    $    9    $10,198     $   11     $    8

Operating Lease Obligations.......................................       466        621        264          -
                                                                   ---------  ---------  ---------  ---------
Total.............................................................    $  475    $10,819     $  275     $    8
                                                                   =========  =========  =========  =========

Off-Balance Sheet Transactions                                                  
------------------------------                                                  
The Company did not engage in any off-balance sheet transactions during 2006.   

Liquidity and Capital Resources                                                 
-------------------------------                                                 
The Company's working capital, current ratio and long-term debt to equity ratio 
follow:                                                                         
                                                      2006          2005
--------------------------------------------------------------------------------
Working Capital                                       $25,560,449   $16,325,098 
Current Ratio                                                5.31          3.17 
Long-Term Debt to Equity Ratio                              56.4%         39.7% 

The increase in working capital in 2006 is attributable to a 25% increase in    
inventory. Inventory turnover decreased from 2.6 in 2005 to 2.2 in 2006,        
calculated using a twelve month average inventory balance. The inventory buildup
was mainly in response to anticipated product demand and increased customer     
specific inventory. Additionally, given the lengthy lead times associated with  
product availability and our customer's requirements for complete and on-time   
deliveries, the Company's management decided to increase inventory levels.      

The average number of days sales outstanding in accounts receivable was 64 days 
in 2006 and 59 days in 2005. The increase is due to higher sales to customers   
receiving more favorable payment terms.                                         

                                                                            (15)

10-K
16th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 16th
Total debt in 2006 increased by $4,639,066 compared to total debt at December   
31, 2005, principally as a result of the buildup of inventory and receivables   
and payment for the demolition of the former manufacturing facility located in  
Bridgeport, CT.                                                                 

On March 6, 2006, the Company modified its revolving loan agreement with        
Wachovia Bank (the "Modified Loan Agreement"). The amendments include an        
increase in the maximum borrowing amount from $10 million to $15 million; an    
extension of the maturity date from September 30, 2007 to June 30, 2009; a      
decrease in the interest rate to LIBOR plus 1% from LIBOR plus 1.5%, as well as 
the relaxation of certain covenant restrictions. Funds borrowed under the       
Modified Loan Agreement will be used for working capital, general operating     
expenses and other purposes. As of December 31, 2006, $10,187,245 was           
outstanding and $4,812,755 was available for borrowing under the Modified Loan  
Agreement.                                                                      

Due to the provisions of the Modified Loan Agreement, 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, a specified debt service    
coverage ratio and a fixed charge coverage ratio. The Company was in compliance 
with all covenants under the Modified Loan Agreement as of and through December 
31, 2006 and believes these financial covenants will continue to be met for the 
remainder of the term of the facility.                                          

Capital expenditures during 2006 and 2005 were $564,887 and $1,430,530,         
respectively which were, in part, financed with debt. Included in the 2005      
capital expenditures was $455,000 associated with the capitalization of a lease 
termination and associated costs (Refer to Note 19 "Non-Recurring Charge" for   
additional information). Capital expenditures in 2007 are not expected to differ
materially from recent years.                                                   

The Company believes that cash generated from operating activities together with
funds available under the Modified Loan Agreement, is expected, under current   
conditions, to be sufficient to finance the Company's planned operations for the
next twelve months.                                                             

Recently Issued Accounting Standards                                            
------------------------------------                                            
In June 2006, the FASB issued Interpretation ("FIN") No. 48 "Accounting for     
Uncertainty in Income Taxes--an interpretation of FASB Statement 109". FIN 48   
establishes a single model to address accounting for uncertainty in tax         
positions. FIN 48 clarifies the accounting for income taxes by prescribing a    
minimum recognition threshold that a tax position is required to meet before    
being recognized in the financial statements. FIN 48 also provides guidance on  
derecognition, measurement, classification, interest and penalties, accounting  
in interim periods, disclosure and transition. FIN 48 is effective for fiscal   
years beginning after December 15, 2006. The Company is currently assessing the 
impact of FIN 48 on its consolidated financial position and results of          
operations.                                                                     

In September 2006, the FASB issued Statement No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans". SFAS No. 158 requires  
that employers recognize, on a prospective basis, the funded status of defined  
benefit pension and other postretirement benefit plans on their consolidated    
balance sheets and recognize, as a component of other comprehensive income      
(loss) net of tax, the gains or losses and prior service costs or credits that  
arise during the period but are not recognized as components of net periodic    
benefit cost. The Company adopted SFAS No. 158 as of December 31, 2006, and it  
did not have a material impact on its consolidated financial position and       
results of operations.                                                          

Item 7A.  Qualitative and Quantitative Disclosure about Market Risk             

The Company's debt portfolio and associated interest rates follow:              

                                                        [Enlarge/Download Table]

(dollars in thousands)                                                                                             
                                2007      2008       2009      2010      2011      Thereafter   Total    Fair Value
-------------------------------------------------------------------------------------------------------------------
                                                                                                                   
Long-term Debt (including current portion):                                                                        
  Amount at fixed rate            $9        $5         $5        $5        $5          $10        $39          $39 
  Average interest rate         6.5%      6.5%       6.5%      6.5%      6.5%         0.0%       6.5%              
  Amount at variable rate         $0        $0    $10,187        $0        $0           $0    $10,187      $10,187 
  Average interest rate         0.0%      0.0%       6.3%      0.0%      0.0%         0.0%       0.0%              

                                                                            (16)

10-K
17th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 17th
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.      

Foreign Currency Risk:                                                          
----------------------                                                          
The Company's currency exposures vary, but are concentrated in the Canadian     
dollar, British pound, and Euro. Purchases of inventory by the Hong Kong office 
are in U.S. dollars.                                                            

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 90 days to a    
year. Because the contracts are acquired for specific transactions, they are an 
effective hedge against fluctuations in the value of the foreign currency       
underlying such transaction. The Company's Canadian subsidiary previously       
entered into a forward foreign exchange contract to reduce the risk of inventory
purchases in a currency other than its functional currency, the Canadian dollar.
The Company hedged the risk of foreign currency fluctuations for approximately  
$1.5 million of inventory purchases in 2005 by the Canadian subsidiary. The     
foreign exchange contract expired at December 31, 2005. Adjustments to the fair 
value were reported as a component of accumulated other comprehensive loss in   
the statement of changes in stockholders' equity.                               

The Company does not 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.                 

Inflation                                                                       
---------                                                                       
Inflation had a negligible effect on the Company's operations during 2006 and   
2005. The Company estimates that any inflationary effects, in the aggregate,    
were generally recovered or offset through increased pricing or cost reductions 
in both years.                                                                  

                                                                            (17)

10-K
18th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 18th
Item 8.  Financial Statements and Supplementary Data                            

                                                        [Enlarge/Download Table]
Acme United Corporation and Subsidiaries                                                        
CONSOLIDATED STATEMENTS OF OPERATIONS                                                           


                                                        For the years ended December 31,        
                                                 -----------------------------------------------
                                                         2006           2005            2004    
                                                 -----------------------------------------------
                                                                                                
Net sales                                           $ 56,862,992   $ 49,946,374    $ 43,380,648 

Costs and expenses:                                                                             
   Cost of goods sold                                 32,280,219     27,591,685      23,728,118 
   Selling, general and administrative expenses       17,869,753     15,512,488      14,162,082 
   Provision for loss on property demolition                   -      1,500,000               - 
                                                 -----------------------------------------------
Operating income                                       6,713,020      5,342,201       5,490,448 

Non operating items:                                                                            
  Interest expense, net                                  615,500        234,868         157,335 
  Other income (expense), net                            251,557       (341,267)          7,203 
                                                 -----------------------------------------------
  Income before income taxes                           6,349,077      4,766,066       5,340,316 
  Income tax expense                                   2,463,415      1,828,756       2,101,911 
                                                 -----------------------------------------------
Net income                                          $  3,885,662   $  2,937,310    $  3,238,405 
                                                 ===============================================

Earnings per share:                                                                             
    Basic                                           $       1.11   $       0.84    $       0.96 
    Diluted                                         $       1.05   $       0.78    $       0.85 

See accompanying notes.                                                         

                                                                            (18)

10-K
19th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 19th
                                                        [Enlarge/Download Table]
Acme United Corporation and Subsidiaries                                                   
CONSOLIDATED BALANCE SHEETS                                                                

                                                              December 31,    December 31, 
                                                                  2006            2005     
                                                           --------------------------------
                                                                                           
ASSETS                                                                                     
Current assets:                                                                            
   Cash and cash equivalents                                  $  3,838,172    $  1,076,489 
   Accounts receivable, less allowance                          10,852,037       9,391,546 
   Inventories                                                  15,677,294      12,530,454 
   Deferred income taxes                                           273,919         324,919 
   Prepaid expenses and other current assets                       845,640         541,991 
                                                           --------------------------------
Total current assets                                            31,487,062      23,865,399 

Property, plant and equipment:                                                             
   Land                                                            158,902         152,363 
   Buildings                                                     2,777,599       2,953,515 
   Machinery and equipment                                       7,006,219       6,525,213 
                                                           --------------------------------
Total property, plant and equipment                              9,942,720       9,631,091 
Less: accumulated depreciation                                   7,402,675       6,845,051 
                                                           --------------------------------
Net property, plant and equipment                                2,540,045       2,786,040 
Goodwill                                                            88,828          88,828 
Intangible assets, less accumulated amortization                   877,796         769,852 
Intangible pension asset                                                 -          87,760 
Deferred income taxes                                               27,235         596,087 
                                                           --------------------------------
Total assets                                                  $ 35,020,966    $ 28,193,966 
                                                           ================================

LIABILITIES                                                                                
Current liabilities:                                                                       
   Accounts payable                                           $  2,357,715    $  2,174,051 
   Other accrued liabilities                                     3,660,252       3,859,100 
   Accrual for property demolition                                       -       1,497,150 
   Current portion of long-term debt                                 8,517          10,000 
                                                           --------------------------------
Total current liabilities                                        5,929,851       7,540,301 
Deferred income taxes                                                    -         140,774 
Long-term debt, less current portion                            10,217,931       5,577,382 
Other                                                              645,192         870,515 
                                                           --------------------------------
Total liabilities                                               16,889,607      14,128,972 

STOCKHOLDERS' EQUITY                                                                       
Common stock, par value $2.50: authorized 8,000,000                                        
  shares; issued - 4,192,824 shares in 2006 and 4,161,824                                  
  shares in 2005, including treasury stock                      10,482,060      10,404,560 

Treasury stock, at cost,  678,991 shares in 2006 and 2005       (5,438,776)     (5,438,776)
Additional paid-in capital                                       3,013,667       2,623,887 
Accumulated other comprehensive loss                              (941,042)     (1,071,236)
Retained earnings                                               11,015,450       7,546,559 
                                                           --------------------------------
Total stockholders' equity                                      18,131,359      14,064,994 
                                                           --------------------------------
Total liabilities and stockholders' equity                    $ 35,020,966    $ 28,193,966 
                                                           ================================

See accompanying notes.                                                         

                                                                            (19)

10-K
20th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 20th
                                                        [Enlarge/Download Table]
Acme United Corporation and Subsidiaries                                                                                        
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                                                                      

                                                                                       Accumulated                              
                              Outstanding                                Additional       Other                                 
                               Shares of       Common       Treasury       Paid-In    Comprehensive    Retained                 
                             Common Stock       Stock         Stock        Capital    Income (Loss)    Earnings       Total     
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                
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 
Net income                                                                                              2,937,310     2,937,310 
Translation Adjustment                                                                     328,028                      328,028 
Change in fair value of                                                                                                         
   derivative financial                                                                                                         
   instruments                                                                             (82,268)                     (82,268)
Change in                                                                                                                       
   minimum pension                                                                                                              
   liability                                                                               132,463                      132,463 
Income taxes relating                                                                                                           
   to minimum pension                                                                                                           
   liability                                                                               (39,369)                     (39,369)
                                                                                                                    ------------
      Comprehensive income                                                                                            3,276,164 
Distribution to shareholders                                                                             (214,800)     (214,800)
Issuance of common stock          196,700       491,750                     202,429                                     694,179 
Purchase of treasury stock        (48,830)                  (252,798)                                                  (252,798)
--------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2004     3,413,421   $ 9,623,780 $ (1,874,611)   $ 2,231,003   $ (1,031,587)   $ 5,033,879  $ 13,982,464 
Net Income                                                                                              2,937,310     2,937,310 
Translation adjustment                                                                     170,432                      170,432 
Change in fair value of                                                                                                         
   derivative financial                                                                                                         
   instruments                                                                              82,268                       82,268 
Change in                                                                                                                       
   minimum pension                                                                                                              
   liability                                                                              (471,532)                    (471,532)
Income taxes relating                                                                                                           
   to minimum pension                                                                                                           
   liability                                                                               179,183                      179,183 
                                                                                                                    ------------
      Comprehensive income                                                                                            2,897,661 
Tax benefit from exercise of                                                                                                    
   employee stock options                                                   326,713                                     326,713 
Distribution to shareholders                                                                             (424,630)     (424,630)
Issuance of common stock          312,312       780,780                      66,171                                     846,951 
Purchase of treasury stock       (242,900)                (3,564,165)                                                (3,564,165)
--------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2005     3,482,833   $10,404,560 $ (5,438,776)   $ 2,623,887   $ (1,071,236)   $ 7,546,559  $ 14,064,994 
Net Income                                                                                              3,885,662     3,885,662 
Translation adjustment                                                                      52,438                       52,438 
Change in                                                                                                                       
   minimum pension                                                                                                              
   liability                                                                               125,413                      125,413 
Income taxes relating                                                                                                           
   to minimum pension                                                                                                           
   liability                                                                               (47,657)                     (47,657)
                                                                                                                    ------------
      Comprehensive income                                                                                            4,015,856 
Stock compensation expense                                                  275,540                                     275,540 
Tax benefit from exercise of                                                                                                    
   employee stock options                                                    82,986                                      82,986 
Distribution to shareholders                                                                             (416,770)     (416,770)
Issuance of common stock           31,000        77,500                      31,255                                     108,755 
Purchase of treasury stock                                         -                                                          - 
--------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2006     3,513,833   $10,482,060 $ (5,438,776)   $ 3,013,672   $   (941,042)   $11,015,450  $ 18,131,359 

See accompanying notes.                                                         

                                                                            (20)

10-K
21st Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 21st
                                                        [Enlarge/Download Table]
Acme United Corporation and Subsidiaries                                                               
CONSOLIDATED STATEMENTS OF CASH FLOW                                                                   

                                                                  For the years ended December 31,     
                                                        -----------------------------------------------
                                                                2006           2005            2004    
                                                        -----------------------------------------------
                                                                                                       
Operating activities:                                                                                  
Net income                                                 $  3,885,662   $  2,937,310    $  3,238,405 
Adjustments to reconcile net income to net                                                             
  cash (used) provided by operating activities                                                         
     Depreciation                                               800,449        610,509         492,361 
     Amortization                                                34,679         42,263          29,986 
     Stock compensation expense                                 275,540              -               - 
     Deferred income taxes                                      442,033       (462,621)        (56,958)
     Loss on disposal of property, plant and equipment            4,378         64,254          59,156 
     Tax benefit on stock options                                82,986        326,713               - 
     Changes in operating assets and liabilities                                                       
        Accounts receivable                                  (1,546,848)      (297,236)     (1,974,964)
        Inventories                                          (2,940,755)    (4,248,853)        (64,949)
        Prepaid expenses and other current assets              (329,249)       (71,910)       (213,326)
        Accounts payable                                        146,571       (107,819)        540,792 
        Other accrued liabilities                            (1,678,844)       768,779       2,218,454 
                                                        -----------------------------------------------
Total adjustments                                            (4,709,060)    (3,375,921)      1,030,552 
                                                        -----------------------------------------------
Net cash (used) provided by operating activities               (823,393)      (438,611)      4,268,957 
                                                        -----------------------------------------------
Investing activities:                                                                                  
Purchase of property, plant and equipment                      (564,887)    (1,430,530)       (443,330)
Purchase of patents and trademarks                             (142,623)      (252,468)       (336,673)
Proceeds from sale of property, plant and equipment              12,854        160,045          51,583 
                                                        -----------------------------------------------
Net cash used by investing activities                          (694,657)    (1,522,953)       (728,420)
                                                        -----------------------------------------------
Financing activities:                                                                                  
Net borrowings (repayments) of long-term debt                 4,634,611      4,159,274      (3,467,595)
Distributions to shareholders                                  (428,934)      (380,978)       (143,007)
Purchase of treasury stock                                            -     (3,564,165)       (252,798)
Issuance of common stock                                        108,755        846,951         694,179 
                                                        -----------------------------------------------
Net cash provided (used) by financing activities              4,314,432      1,061,082      (3,169,221)
Effect of exchange rate changes                                 (34,699)        88,461         126,553 
                                                        -----------------------------------------------
Net change in cash and cash equivalents                       2,761,683       (812,021)        497,869 
Cash and cash equivalents at beginning of year                1,076,489      1,888,510       1,390,641 
                                                        -----------------------------------------------
Cash and cash equivalents at end of year                   $  3,838,172   $  1,076,489    $  1,888,510 
                                                        ===============================================

Supplemental cash flow information                                                                     
          Cash paid for income taxes                       $  2,180,324   $  1,716,028    $  1,390,967 
          Cash paid for interest                           $    617,645   $    234,523    $    157,335 

See accompanying notes.                                                         

                                                                            (21)

10-K
22nd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 22nd
Acme United Corporation and Subsidiaries                                        
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      

1.  OPERATIONS                                                                  
The operations of Acme United Corporation (the "Company") consist of three      
reportable segments. The operations of the Company are structured and evaluated 
based on geographic location. The three reportable segments operate in the      
United States (including Asian operations), Canada and Europe. Principal        
products across all segments 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. The most sensitive and significant        
accounting estimates relate to customer rebates, valuation allowances for       
deferred income tax assets, obsolete and slow-moving inventories, potentially   
uncollectible accounts receivable and accruals for income taxes. 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 by  
the Company. 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 operating results.      
Foreign currency transaction gains (losses), which are included in other        
(expense) income, net, were $149,791, in 2006, ($397,535) in 2005, and          
($110,519) in 2004.                                                             

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 $116,811 in 2006 and $136,050 in 2005.                     

Inventories - Inventories are stated at the lower of cost, determined by the    
first-in, first-out method, or market.                                          

Property, Plant and Equipment and Depreciation - Property, plant 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, 2006 is 14 years.                             

Goodwill - As of January 1, 2002, the Company adopted Financial Accounting      
Standards Board ("FASB") Statement No. 142, Goodwill and Other Intangible Assets
(SFAS 142) and therefore, no longer amortizes goodwill, but rather tests it     
annually for impairment. There was no impairment of goodwill at December 31,    
2006 and December 31, 2005.                                                     

                                                                            (22)

10-K
23rd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 23rd
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.                                        

Revenue Recognition - The Company recognizes revenue from sales of its products 
when ownership transfers to the customers. When right of return exists, the     
Company recognizes revenue in accordance with FASB Statement No. 48, Revenue    
Recognition When Right of Return Exists.                                        

Research and Development - Research and development costs ($306,422 in 2006,    
$244,904 in 2005, and $456,905 in 2004) are expensed as incurred.               

Shipping Costs - Shipping costs ($2,496,981 in 2006, $2,310,596 in 2005, and    
$1,684,448 in 2004) are included in selling, general and administrative         
expenses.                                                                       

Advertising Costs - The Company expenses the production costs of advertising the
first time that the related advertising takes place. Advertising costs          
($1,292,250 in 2006, $1,252,366 in 2005, and $1,109,217 in 2004) 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. In 2006 the 
Company had two customers with net sales exceeding 10% of consolidated net sales
and three customers in both 2005 and 2004. Net sales to these customers amounted
to approximately 19% and 10% in 2006, 18%, 12% and 11%, in 2005 and 18%, 14% and
11% in 2004.                                                                    

Derivatives - The Company accounts for derivative financial instruments         
consistent with the requirements of FASB Statement No. 133, Accounting for      
Derivative Instruments and Hedging Activities and its amendments, FASB Statement
137, Accounting for Derivative Instruments and Hedging Activities-Deferral of   
the Effective Date of FASB Statement No. 133, and FASB Statement No. 138,       
Accounting for Derivative Instruments and Certain Hedging Activities. The       
Company recognizes all derivative financial instruments, such as interest rate  
swap contracts, forward 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.                                

In June 2006, the FASB issued Interpretation ("FIN") No. 48 Accounting for      
Uncertainty in Income Taxes--an interpretation of FASB Statement 109. FIN 48    
establishes a single model to address accounting for uncertainty in tax         
positions. FIN 48 clarifies the accounting for income taxes by prescribing a    
minimum recognition threshold a tax position is required to meet before being   
recognized in the financial statements. FIN 48 also provides guidance on        
derecognition, measurement, classification, interest and penalties, accounting  
in interim periods, disclosure and transition. FIN 48 is effective for fiscal   
years beginning after December 15, 2006. The Company is currently assessing the 
impact of FIN 48 on its consolidated financial position and results of          
operations.                                                                     

                                                                            (23)

10-K
24th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 24th
In September 2006, the FASB issued Statement No. 158, Employers' Accounting for 
Defined Benefit Pension and Other Postretirement Plans (SFAS No. 158). SFAS No. 
158 requires that an employer recognize, on a prospective basis, the funded     
status of its defined benefit pension and other postretirement benefit plans on 
its consolidated balance sheets, and recognize, as a component of other         
comprehensive income (loss), net of tax, the gains or losses and prior service  
costs or credits that arise during the period but are not recognized as         
components of net periodic benefit cost. The Company adopted SFAS No. 158 as of 
December 31, 2006, and it did not have a material impact on the consolidated    
financial position and results of operations.                                   

Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation.                                               

3.  Inventories                                                                 

Inventories consist of:                          2006           2005            
------------------------------------------------------------------------        
Finished goods                              $ 14,709,418   $ 11,691,337         
Work in process                                   62,675        116,377         
Materials and supplies                           905,201        722,740         
------------------------------------------------------------------------        
                                   $ 15,677,294   $ 12,530,454
========================================================================        

Inventories are stated net of valuation allowances for obsolescence of $405,963 
in 2006 and $453,369 in 2005.                                                   

4.  Intangible Assets                                                           

Intangible assets consist of:                    2006           2005            
------------------------------------------------------------------------        
Deferred financing costs                    $     70,577   $     70,577         
Patents                                          569,359        457,086         
Trademarks                                       392,235        361,886         
------------------------------------------------------------------------        
                                      1,032,172        889,549
Accumulated amortization                         154,376        119,697         
------------------------------------------------------------------------        
                                   $    877,796   $    769,852
========================================================================        

Amortization expense for deferred financing costs for the years ended December  
31, 2006, 2005 and 2004 was $0, $12,658, and $13,615, respectively. Amortization
expense for patents and trademarks for the years ended December 31, 2006, 2005  
and 2004 was $34,679, $29,605, and $16,371, respectively. The estimated         
aggregate amortization expense for each of the next five succeeding years is as 
follows: 2007 - $36,615; 2008 - $36,615; 2009 - $36,615; 2010 - $36,615; and    
2011 - $35,956.                                                                 

5.  Other Accrued Liabilities                                                   

Other accrued liabilities consist of:            2006           2005            
------------------------------------------------------------------------        
Vendor rebates                              $  2,410,097   $  2,657,403         
Accrual for demolition cost                            -      1,497,150         
Other                                          1,895,348      2,072,212         
------------------------------------------------------------------------        
                                   $  4,305,445   $  6,226,765
========================================================================        

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.               

On December 31, 2006, the Company adopted the recognition and disclosure        
provisions of FASB Statement 158. Statement 158 required the Company to         
recognize the funded status of its pension plan in the December 31, 2006        
statement of financial position, with a corresponding adjustment to accumulated 
other comprehensive income, net of tax.                                         

                                                                            (24)

10-K
25th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 25th
The incremental effects of adopting the provision of Statement 158 were         
immaterial to the Company's statement of financial position at December 31,     
2006. The adoption of Statement 158 had no effect on the Company's consolidated 
statement of income for the year ended December 31, 2006 or for any prior period
presented, and it will not effect the Company's operating results in future     
periods.                                                                        

The plan asset weighted average allocation at December 31, 2006 and December 31,
2005, by asset category, is as follows:                                         

Asset Category                                   2006           2005            
------------------------------------------------------------------------        
Equity                                            68%            67%            
Fixed Income                                      29%            30%            
Other                                              3%             3%            
------------------------------------------------------------------------        
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.   

For years ending December 31, 2006 and 2005, equity securities include 10,000   
shares in each year, of the Company's Common Stock having a market value of     
$144,100 and $139,600 at those dates, respectively.                             

Other disclosures related to the pension plan follow:                           

                                                        [Enlarge/Download Table]

                                                                         2006             2005    
                                                                ----------------------------------
                                                                                                  
Assumptions used to determine benefit obligation:                                                 
  Discount rate                                                            5.75%            5.50% 
Changes in benefit obligation:                                                                    
Benefit obligation at beginning of year                             $ (3,616,356)    $ (3,481,433)
Interest cost                                                           (187,284)        (204,229)
Service cost                                                             (30,000)         (35,000)
Actuarial loss                                                            92,624         (326,375)
Benefits and plan expenses paid                                          413,286          430,681 
--------------------------------------------------------------------------------------------------
Benefit obligation at end of year                                     (3,327,730)      (3,616,356)
--------------------------------------------------------------------------------------------------

Changes in plan assets:                                                                           
Fair value of plan assets at beginning of year                         3,070,541        3,452,495 
Actual return on plan assets                                             253,229           48,727 
Benefits and plan expenses paid                                         (413,286)        (430,681)
--------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                               2,910,484        3,070,541 
--------------------------------------------------------------------------------------------------
Funded status                                                           (417,246)        (545,815)
==================================================================================================

Amounts recognized in Accumulated Other Comprehensive Income:                                     
Net (gain) / loss                                                      1,231,335        1,435,732 
Prior service cost / (credit)                                             78,984                - 
--------------------------------------------------------------------------------------------------
Total                                                                  1,310,319        1,435,732 
==================================================================================================

Accrued benefits costs are included in other accrued liabilities (non-current). 

                                                                            (25)

10-K
26th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 26th
                                                        [Enlarge/Download Table]

                                                                         2006             2005            2004    
==================================================================================================================
                                                                                                                  
Assumptions used to determine net periodic benefit cost:                                                          
  Discount rate                                                            5.50%            5.75%           6.00% 
  Expected return on plan assets                                           8.00%            8.00%           8.00% 
------------------------------------------------------------------------------------------------------------------
Components of net benefit expense:                                                                                
Interest cost                                                         $  187,284       $  204,229      $  204,229 
Service cost                                                              30,000           35,000          35,000 
Expected return on plan assets                                          (230,819)        (260,089)       (257,424)
Amortization of prior service costs                                        8,776            8,776           8,776 
Amortization of actuarial gain                                            89,363           66,204          67,972 
------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                                             $   84,604       $   54,120      $   58,553 
==================================================================================================================

The Company 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 equity securities and fixed income securities  
are preserved consistent 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 following table discloses the change in other comprehensive income:         

                                                        [Enlarge/Download Table]

                                                                         2006             2005            2004    
                                                                --------------------------------------------------
                                                                                                                  
 Decrease (increase) in minimum liability included in                                                             
  other comprehensive income, excluding                                                                           
  income tax effect                                                   $  204,397       $ (471,532)     $  132,463 
(Increase) / decrease in Accumulated Other Comprehensive Income                                                   
  to reflect the Adoption of FAS 158                                  $  (78,984)                                 

The following benefits, as appropriate, are expected to be paid:                

2007                                                            $   368,164     
2008                                                                375,095     
2009                                                                367,313     
2010                                                                350,056     
2011                                                                332,020     
Years 2012 - 2016                                                 1,415,486     

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. For the years ended December 31, 2006,
2005 and 2004, contributions amounted to a 50% match, up to the first 6% of     
employee contributions. Total contribution expense under this plan approximated 
$77,673 in 2006, $60,000 in 2005, and $63,000 in 2004.                          

                                                                            (26)

10-K
27th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 27th
7.  Income Taxes                                                                

The amounts of income taxes (benefit) reflected in operations follow:           
                                  2006          2005          2004
-----------------------------------------------------------------------------   
Current:                                                                        
Federal                            $ 1,341,284   $ 1,817,861   $ 1,714,456  
State                                  159,972       236,019       211,927  
Foreign                                540,103       237,497       232,486  
-----------------------------------------------------------------------------   
                                   2,041,359     2,291,377     2,158,869
-----------------------------------------------------------------------------   

Deferred:                                                                       
Federal                                401,738      (393,334)      (70,436) 
State                                   40,892       (69,287)        4,397  
Foreign                                (20,574)                      9,081  
-----------------------------------------------------------------------------   
                                      422,056      (462,621)      (56,958)
-----------------------------------------------------------------------------   
                                 $ 2,463,415   $ 1,828,756   $ 2,101,911
=============================================================================   

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:                                                                        

                                  2006          2005          2004
-----------------------------------------------------------------------------   
United States                        $ 5,150,322   $ 4,288,531   $ 4,927,741    
Foreign                                1,198,756       477,535       412,575    
-----------------------------------------------------------------------------   
                                 $ 6,349,078   $ 4,766,066   $ 5,340,316
=============================================================================   

The following schedule reconciles the amounts of income taxes computed at the   
United States statutory rate to the actual amounts reported in operations.      

                                  2006          2005          2004
-----------------------------------------------------------------------------   
Federal income                                                                  
taxes at                                                                    
34% statutory rate                 $ 2,158,687   $ 1,620,462   $ 1,815,707  
State and local                                                                 
taxes, net of                                                               
federal income                                                              
tax effect                             128,243       155,773       147,373  
Permanent items                           53,822        65,935       (31,907)   
Foreign tax rate difference             (217,158)      (92,908)                 
Non-recognition                                                                 
of foreign tax loss                                                         
carryforwards                          339,821        79,494       170,738  
-----------------------------------------------------------------------------   
Provision for income taxes       $ 2,463,415   $ 1,828,756   $ 2,101,911
=============================================================================   

Income taxes paid, net of refunds received, were $2,180,324 in 2006, $1,716,028 
in 2005 and $1,390,967 in 2004.                                                 

                                                                            (27)

10-K
28th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 28th
                    2006          2005
---------------------------------------------------------------                 
Deferred income tax liabilities:                                                
Plant, property                                                                 
and equipment                      $   119,806   $   140,774                
---------------------------------------------------------------                 
                       119,806       140,774

Deferred income tax assets:                                                     
Asset valuations                         273,919       255,131                  
Operating loss                                                                  
carryforwards and                                                           
credits                              1,755,222     1,482,907                
Pension                                  133,086       168,424                  
Other                                     13,981       429,945                  
---------------------------------------------------------------                 
                     2,176,208     2,336,407
---------------------------------------------------------------                 
Net deferred                                                                    
income tax asset before                                                     
valuation allowance                  2,056,402     2,195,633                
Valuation                                                                       
allowance                           (1,755,222)   (1,415,401)               
---------------------------------------------------------------                 
Net deferred                                                                    
income tax asset                    $   301,180   $   780,232                 
===============================================================                 

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 $4,097,768 and          
$2,300,000 are considered permanently reinvested as of December 31, 2006 and    
2005, respectively, and the amount of deferred income taxes thereon cannot be   
readily determined.                                                             

In December 2004, the FASB issued FSP No. FAS 109-2, Accounting and Disclosure  
Guidance for the Foreign Earnings Repatriation provision within the American    
Jobs Creation Act of 2004 ("AJCA"). The AJCA provides a one-time 85% dividends  
received deduction for certain foreign earnings that are repatriated under a    
plan for reinvestment in the United States, provided certain criteria are met.  
FSP No. 109-2 was effective immediately and provides accounting and disclosure  
guidance for the repatriation provision. FSP No. 109-2 allows companies         
additional time to evaluate the effects of the law on its unremitted earnings   
for the purpose of applying the "indefinite reversal criteria" under APB Opinion
No. 23, Accounting for Income Taxes - Special Areas, and requires explanatory   
disclosures from companies that have not yet completed the evaluation. Under the
provisions of the AJCA, the Company repatriated approximately $500,000 of       
qualifying dividends in the fourth quarter of 2005, which resulted in additional
income tax expense of approximately $28,000 for the year.                       

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.                                                                        

At December 31, 2006, the Company has tax operating loss carry forwards         
aggregating $5,850,740, all of which are applicable to Germany, and can be      
carried forward indefinitely.                                                   

                                                                            (28)

10-K
29th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 29th
8. Debt                                                                         

Long term debt consists of:                                                     

                                     2006           2005
------------------------------------------------------------------------        
Notes payable:                                                                  
North American arrangements               $ 10,187,245   $  5,544,500       
Other                                           39,203         42,882       
------------------------------------------------------------------------        
                                     10,226,448      5,587,382
Less current portion                               8,517         10,000         
------------------------------------------------------------------------        
                                   $ 10,217,931   $  5,577,382
========================================================================        

On March 6, 2006, the Company modified its Revolving Loan Agreement (the        
"Modified Loan Agreement") with Wachovia Bank. The amendments include an        
increase in the maximum borrowing amount from $10 million to $15 million, an    
extension of the maturity date from September 30, 2007 to June 30, 2009, a      
decrease in the interest rate to LIBOR plus 1% from LIBOR plus 1.5%, as well as 
the relaxation of certain covenant restrictions. Funds borrowed under the       
Modified Loan Agreement will be used for working capital, general operating     
expenses and other purposes. As of December 31, 2006, $10,187,245 was           
outstanding and $4,812,755 was available for borrowing under the Modified Loan  
Agreement.                                                                      

Under the Modified Loan Agreement, the Company is required to maintain specific 
amounts of tangible net worth, a specified debt service coverage ratio, and a   
fixed charge coverage ratio. The Company was in compliance with these financial 
covenants at December 31, 2006.                                                 

Maturities of long-term debt for the next five years follow: 2007- $8,517; 2008 
- $5,279; 2009 - $10,192,524; 2010 - $5,279; and 2011 - $5,279.                 

Interest paid was $617,645 in 2006, $234,523 in 2005 and $157,335 in 2004.      

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 
$527,208 in 2006, $332,644 in 2005 and $309,107 in 2004. Minimum annual rental  
commitments under non-cancelable leases remaining terms of one year or more as  
of December 31, 2006: 2007 - $465,624; 2008 - $320,972; 2009 - $300,270; 2010 - 
$261,881; and 2011 - $1,881.                                                    

The Company is involved, from time to time, in disputes and other litigation in 
the ordinary course of business, including certain environmental and other      
matters. The Company presently believes that none of these matters, individually
or in the aggregate, would be likely to have a material adverse impact on       
financial position, results of operations, or liquidity of the Company.         

10. Segment Information                                                         

The Company is reporting financial information based on the organization        
structure used by management for making operating and investment decisions and  
for assessing performance. The Company's reportable business segments include   
(1) United States; (2) Canada and (3) Europe. The financial results of the      
Company's Asian operations have been aggregated with the results of its United  
States operations to form one reportable segment. The determination of          
reportable segments is based on the guidance set forth in FASB Statement No.    
131, Disclosures about Segments of an Enterprise and Related Information. Each  
reportable segment derives its revenue from the sales of cutting devices,       
measuring instruments and safety products for school, office, home and          
industrial use.                                                                 

The Chief Operating Decision Maker evaluates the performance of each operating  
segment based on segment revenues and operating income. Segment revenues are    
defined as total revenues, including both external customer revenue and         
intersegment revenue. Segment operating earnings are defined as segment         
revenues, less cost of goods sold and operating expenses. Identifiable assets by
segment are those assets used in the respective reportable segment's operations.
Intersegment amounts are eliminated to arrive at consolidated financial results.

                                                                            (29)

10-K
30th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 30th
In 2006 the Company had two customers that individually exceeded 10% of         
consolidated net sales and three customers in both 2005 and 2004. Net sales to  
these customers amounted to approximately 19% and 10% in 2006, 18%, 12% and 11% 
in 2005 and 18%, 14% and 11% in 2004. Sales to no other customer exceeded 10% of
consolidated net sales.                                                         

                                                        [Enlarge/Download Table]

Financial data by segment:                                                                                      
(000's omitted)                                                                                                 

              2006                                                                                              
              ----                           United States      Canada      Europe    Elimination   Consolidated
                                                                                                                
Sales to unaffiliated customers                   $ 44,283     $ 7,344     $ 5,236                    $ 56,863  
InterCompany sales                                     195           -       1,111     $ (1,306)             -  
                                            ------------------------------------------------------------------- 
Net sales                                           44,478       7,344       6,347       (1,306)        56,863  

Operating income                                     7,262         588      (1,017)        (119)         6,713  
Assets                                              26,447       6,286       4,219       (1,932)        35,021  
Additions to property, plant and equipment             474          28          63            -            565  
Depreciation and amortization                          704          51          80            -            835  

              2005                                                                                              
              ----                                                                                              

Sales to unaffiliated customers                   $ 39,060     $ 6,838     $ 4,049                    $ 49,946  
InterCompany sales                                      75           5       1,115     $ (1,195)             -  
                                            ------------------------------------------------------------------- 
Net sales                                           39,135       6,843       5,164       (1,195)        49,946  

Operating income                                     5,010         484        (159)           7          5,342  
Assets                                              21,735       5,490       2,754       (1,784)        28,194  
Additions to property, plant and equipment           1,299          80          52            -          1,431  
Depreciation and amortization                          511          51          91            -            653  

              2004                                                                                              
              ----                                                                                              

Sales to unaffiliated customers                   $ 33,741     $ 5,986     $ 3,654                    $ 43,381  
InterCompany sales                                      84           3         656     $   (743)             -  
                                            ------------------------------------------------------------------- 
Net sales                                           33,825       5,989       4,310         (743)        43,381  

Operating income                                     5,537         463        (664)         154          5,490  
Assets                                              16,401       5,413       2,835       (1,682)        22,967  
Additions to property, plant and equipment             291          57          95            -            443  
Depreciation and amortization                          366          44         112            -            522  

11.  Stock Option Plans                                                         

The Company has two stock option plans: 1) the 2002 Employee Stock Option Plan, 
as amended (the "Employee's Plan") and 2) the 2005 Non-Salaried Director Stock  
Option Plan (the "Director Plan").                                              

The Employee's Plan provides for the issuance of incentive and nonqualified     
stock options at an exercise price equal to the fair market value of the common 
stock on the date the option is granted. The terms of the options granted are   
subject to the provisions of the Employee's Plan. As of December 31, 2006, the  
number of shares available for grant under the Employee's Plan was 27,688.      

                                                                            (30)

10-K
31st Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 31st
The Director Plan, approved by shareholders at the Annual Meeting of            
Shareholders on April 25, 2005, provides for the issuance of stock options for  
up to 50,000 shares of the Company's common stock to non-salaried directors.    
Directors elected on April 25, 2005 and at subsequent Annual Meetings who have  
not received any prior grant under this or previous plans shall receive an      
initial grant of an option to purchase 5,000 shares of Common Stock (the        
"Initial Option"). Each elected Director not receiving an Initial Option will   
receive a 2,500 share option (the "Annual Option"). The Initial Option vests 25%
on the date of grant and 25% in each of the next three years. The Annual Option 
becomes exercisable one day after the date of grant. The exercise price of all  
options granted shall equal the fair market value of the Common Stock on the    
date the option is granted and expires ten (10) years from the date of grant. As
of December 31, 2006, the number of shares available for grant under the        
Director Plan was 20,000.                                                       

A summary of changes in options issued under the Company's stock option plans   
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                        2006             2005          2004 
--------------------------------------------------------------------------------------------
                                                                                            
Options outstanding at the                                                                  
  beginning of the year                              471,450          673,200       867,150 
Options granted                                      113,500          111,500         6,500 
Options forfeited                                    (10,000)            (938)       (3,750)
Options exercised                                    (31,000)        (312,312)     (196,700)
--------------------------------------------------------------------------------------------
Options outstanding at                                                                      
  the end of the year                                543,950          471,450       673,200 
============================================================================================
Options exercisable at the                                                                  
  end of the year                                    407,888          368,700       622,263 
============================================================================================
Common stock available for future                                                           
  grants at the end of the year                       47,688          151,188        60,500 
============================================================================================
Weighted average price of options:                                                          
 Granted                                             $ 14.42          $ 15.64       $  5.50 
 Forfeited                                             14.24             4.00          4.33 
 Exercised                                              3.51             2.71          3.53 
 Outstanding                                            8.27             6.56          3.27 
 Exercisable                                            6.04             4.62          3.19 

A summary of options outstanding at December 31, 2006  follows:                 

                                                        [Enlarge/Download Table]

                                                             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                                        41,100          3           $ 2.04              41,100         $ 2.04  
$2.50 to $3.65                                       140,350          5             3.09             140,350           3.09  
$3.66 to $5.00                                        71,750          5             4.09              71,750           4.09  
$5.01 to $7.25                                        74,250          4             5.67              73,313           5.67  
$7.26 to $17.02                                      216,500          9            15.09              81,375          15.21  
                                                ----------------------------------------------  -----------------------------
                                                     543,950                                         407,888                 
                                                ================                                ================             

The weighted average remaining contractual life of outstanding stock options is 
5 years.                                                                        

                                                                            (31)

10-K
32nd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 32nd
Stock Based Compensation                                                        

Effective January 1, 2006, the Company adopted the provisions of, and accounted 
for stock-based compensation in accordance with, the Financial Accounting       
Standards Board's ("FASB") Statement of Financial Accounting Standards No.      
123(R) ("SFAS 123R"), Share-Based Payment which replaced Statement of Financial 
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based           
Compensation and supersedes APB Opinion No. 25 ("APB 25"), Accounting for Stock 
Issued to Employees. Under the fair value recognition provisions of SFAS 123R,  
stock-based compensation cost is measured at the grant date based on the fair   
value of the award and is recognized as expense over the requisite service      
period, which is generally the vesting period. The Company adopted SFAS 123R    
using the modified-prospective method, under which prior periods are not        
restated for comparative purposes. The valuation provisions of SFAS 123R apply  
to new grants and awards granted prior to, but not vested as of December 31,    
2005. Estimated compensation for awards granted prior to, but not vested as of  
December 31, 2005 will be recognized over the remaining service period using the
compensation cost estimated for pro forma disclosures under SFAS 123.           

The Company uses the Black-Scholes option pricing model to determine the fair   
value of employee and non-employee director stock options. The determination of 
the fair value of stock-based payment awards on the date of grant, using an     
option-pricing model, is affected by the Company's stock price as well as       
assumptions regarding a number of complex and subjective variables. These       
assumptions include estimating the length of time employees will retain their   
vested stock options before exercising them ("expected term"), the estimated    
volatility of the Company's common stock price over the expected term           
("volatility") and the number of options that will not fully vest in accordance 
with applicable vesting requirements ("forfeitures").                           

The Company estimates the expected term of options granted by evaluating various
factors, including the vesting period, historical employee information, as well 
as current and historical stock prices and market conditions. The Company       
estimates the volatility of its common stock by calculating historical          
volatility based on the closing stock price on the last day of each of the 48   
months leading up to the month the option was granted. The risk-free interest   
rate that the Company uses in the option valuation model is the interest rate on
U.S. Treasury zero-coupon issues with remaining terms similar to the expected   
term of the options granted. Historical information was the basis for           
calculating the dividend yield. The Company is required to estimate forfeitures 
at the time of grant and to revise those estimates in subsequent periods if     
actual forfeitures differ from those estimates. The Company used a mix of       
historical data and future assumptions to estimate pre-vesting option           
forfeitures and to record stock-based compensation expense only for those awards
that are expected to vest. All stock-based payment awards are amortized over the
requisite service periods of the awards, which are generally the vesting        
periods. In the third quarter of 2006, the Company modified its vesting schedule
for new grants. Grants issued after June 30, 2006 vest 25% one day after the    
first anniversary of the grant date and 25% one day after each of the next three
anniversaries. Options granted prior to July 1, 2006 vest 25% one day after the 
date of grant, and 25% on the day after the anniversary of the grant date in    
each of the next three years.                                                   

The assumptions used to value option grants for the twelve months ended December
31, 2006 and December 31, 2005 are as follows:                                  

                              ----------------------------------
                                        2006              2005
                              ----------------------------------
Expected life in years                    4-5                 5 
Interest rate                    4.32 - 4.91%      3.72 - 3.90% 
Volatility                          .33 - .34       0.35 - 0.39 
Dividend yield                   0.80 - 0.90%             0.70% 

                                                                            (32)

10-K
33rd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 33rd
Total stock-based compensation recognized in the Company's consolidated         
statement of operations for the year ended December 31, 2006 is $275,544. As of 
December 31, 2006, there was approximately $378,199 of unrecognized compensation
cost, adjusted for estimated forfeitures, related to non-vested stock-based     
payments granted to the Company's employees. As of December 31, 2006, the       
remaining unamortized expense is expected to be recognized over a weighted      
average period of 1.9 years.                                                    

Prior to January 1, 2006, the Company applied 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 was recognized if, at 
the date of grant, the exercise price of the option was 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 2005 and 2004, except as discussed in Note 2.                                

The pro forma effects of recognizing the estimated fair value of stock-based    
compensation for the twelve months ended December 31, 2005 and 2004 has been    
disclosed previously in the Company's financial statements under the provisions 
of SFAS 123. The previously-disclosed pro forma information, as adjusted to     
reflect a 36 month, instead of a 48 month option vesting schedule, is presented 
below.                                                                          

                                               2005             2004
==============================================================================  
Net income, as reported                          $ 2,937,310      $ 3,238,405   
Deduct: total stock-based employee                                              
compensation expense determined                                             
under fair value based method for all                                       
awards, net of related tax effects                (272,904)         (76,929)
------------------------------------------------------------------------------  
Pro forma net income                             $ 2,664,406      $ 3,161,476   
==============================================================================  

Basic-as reported                                $      0.84      $      0.96   
Basic-pro forma                                  $      0.76      $      0.94   

Diluted-as reported                              $      0.78      $      0.85   
Diluted-pro forma                                $      0.70      $      0.83   

The weighted average fair value at the date of grant for options granted during 
2006, 2005 and 2004 was $4.86, $7.42 and $2.59 per option, respectively.        

12.  Earnings Per Share                                                         

The calculation of earnings per share follows:                                  

                                                        [Enlarge/Download Table]

                                                                         2006             2005            2004    
------------------------------------------------------------------------------------------------------------------
                                                                                                                  
Numerator:                                                                                                        
   Net income                                                       $  3,885,662     $  2,937,310    $  3,238,405 
------------------------------------------------------------------------------------------------------------------
Denominator:                                                                                                      
   Denominator for basic earnings per share                                                                       
      Weighted average shares outstanding                              3,494,833        3,509,031       3,364,033 
   Effect of dilutive employee stock options                             217,217          279,913         442,995 
------------------------------------------------------------------------------------------------------------------
   Denominator for dilutive earnings per share                         3,712,050        3,788,944       3,807,028 
------------------------------------------------------------------------------------------------------------------
   Basic earnings per share                                         $       1.11     $       0.84    $       0.96 
------------------------------------------------------------------------------------------------------------------
   Dilutive earnings per share                                      $       1.05     $       0.78    $       0.85 
------------------------------------------------------------------------------------------------------------------

For 2006 and 2005, 190,000 and 9,500 stock options were excluded from diluted   
earnings per share calculations because they would have been anti-dilutive.     
There were no anti-dilutive stock options for 2004.                             

                                                                            (33)

10-K
34th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 34th
13.  Accumulated Other Comprehensive Loss                                       

The components of the accumulated other comprehensive loss follow:              

                                                        [Enlarge/Download Table]

                                                              Derivative             Minimum                     
                                          Translation          Financial             Pension                     
                                          Adjustment          Instruments           Liability           Total    
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
Balances, December 31, 2004              $ (351,516)          $ (82,268)        $ (597,803)         $ (1,031,587)
Change in fair value of                                                                                          
   derivative financial                                                                                          
   Instruments                                                   82,268                                   82,268 
Change in minimum pension liability                                               (471,532)             (471,532)
Income taxes relating                                                                                            
   to minimum pension                                                                                            
   liability                                                                       179,183               179,183 
Translation adjustment                      170,432                                                      170,432 
-----------------------------------------------------------------------------------------------------------------
Balances, December 31, 2005                (181,084)                  -           (890,152)           (1,071,236)
Change in minimum pension liability                                                125,413               125,413 
Income taxes relating                                                                                            
   to minimum pension                                                                                            
   liability                                                                       (47,657)              (47,657)
Translation adjustment                       52,438                                                       52,438 
-----------------------------------------------------------------------------------------------------------------
Balances, December 31, 2006              $ (128,646)          $       -         $ (812,396)         $   (941,042)
=================================================================================================================

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.                    

The carrying amounts and fair values of the Company's financial instruments     
follow (000's omitted):                                                         

                                                        [Enlarge/Download Table]

                                                   2006                            2005           
                                        --------------------------      --------------------------
                                            Carrying        Fair            Carrying        Fair  
                                             Amount        Value             Amount        Value  
--------------------------------------------------------------------------------------------------
                                                                                                  
Cash and cash equivalent                     $ 3,838      $ 3,838            $ 1,076      $ 1,076 
Accounts receivable                           10,852       10,852              9,392        9,392 
Accounts payable                              (2,358)      (2,358)            (2,174)      (2,174)
Long-term debt                               (10,226)     (10,226)            (5,587)      (5,587)

                                                                            (34)

10-K
35th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 35th
15.  Quarterly Data (unaudited)                                                 

                                                        [Enlarge/Download Table]

                                                                   Quarters (000's omitted, except per share data)         

2006                                                        First        Second        Third         Fourth         Total  
---------------------------------------------------------------------------------------------------------------------------
                                                                                                                           
Net sales                                                 $ 12,257      $ 16,984     $ 15,532       $ 12,090      $ 56,863 
---------------------------------------------------------------------------------------------------------------------------
Cost of goods sold                                           6,705         9,556        8,908          7,111        32,280 
---------------------------------------------------------------------------------------------------------------------------
Net income                                                     759         1,506        1,225            396         3,886 
---------------------------------------------------------------------------------------------------------------------------
Basic earnings per share                                  $   0.22      $   0.43     $   0.35       $   0.11      $   1.11 
Diluted earnings per share                                $   0.20      $   0.40     $   0.33       $   0.11      $   1.05 

2005                                                        First        Second        Third         Fourth         Total  
---------------------------------------------------------------------------------------------------------------------------
Net sales                                                 $ 10,583      $ 14,904     $ 13,400       $ 11,059      $ 49,946 
---------------------------------------------------------------------------------------------------------------------------
Cost of goods sold                                           5,722         8,173        7,234          6,463        27,592 
---------------------------------------------------------------------------------------------------------------------------
Net income                                                     650         1,314          200            773         2,937 
---------------------------------------------------------------------------------------------------------------------------
Basic earnings per share                                  $   0.19      $   0.37     $   0.06       $   0.22      $   0.84 
Diluted earnings per share                                $   0.17      $   0.34     $   0.05       $   0.21      $   0.78 

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.                                       

16.  Capital Structure                                                          

In 2006, the Company issued 31,000 shares of common stock with proceeds of      
$108,755 upon the exercise of outstanding stock options.                        

17.  Business Combination                                                       

On May 28, 2004, the Company purchased Clauss Cutlery, a division of Alco       
Industries, Inc. The purchase price was the aggregate value of inventory,       
trademarks and brand names totaling $446,754. Included in the purchase price was
a stand-by letter of credit the Company issued in the amount of $230,000 for a  
trademark from Alco Industries, Inc. that was renewed by the U.S. Patent and    
Trademark Office on July 13, 2004. The letter of credit was set-up to expire on 
May 28, 2005, if the trademark was not renewed. Since the trademark was renewed 
prior to the expiration date, Alco Industries, Inc. enforced the letter of      
credit and drew down the funds. Included in the accompanying Statement of       
Operations are the operations of the acquired business since the date of        
acquisition. Proforma operating information for the periods prior to the        
acquisition is not provided because of the immateriality of the transaction on a
proforma basis.                                                                 

18.  Impairment of Equipment                                                    

During the second quarter of 2004, the Company abandoned its ruler manufacturing
equipment. In accordance with FASB 144, Accounting for the Impairment or        
Disposal of Long-Lived Assets, the Company recorded an impairment loss of       
$84,820, or $0.02 a share, for the full amount of the assets at the time of     
abandonment. There was no such impairment charge recorded during the year ended 
December 31, 2006 or 2005.                                                      

19.  Non-Recurring Charge                                                       

The Company is the owner of certain commercial property located in Bridgeport,  
Connecticut. Buildings, totaling approximately 150,000 square feet, are located 
on this property. The Company ceased using the Bridgeport property as a         
manufacturing facility in September 1996 and operations were consolidated into  
Acme's North Carolina facility. For approximately the next two years, the       
Company continued to pay property taxes, insurance, maintenance and other       
operating costs which totaled approximately $107,000 annually and the Company   
leased a small part of the property for $32,000 resulting in a net cost of      
$75,000 annually. In October 1998, the Company leased the entire property to an 
unrelated commercial real estate company for a term of 24 years. The lease had  
provided for the payment of one dollar ($1.00) per year as base rent and        
required that the tenant pay all taxes, insurance and other expenses in         
connection with the property. At the time, Acme considered the cost savings from
leasing the property, for which Acme had no specific use, an appropriate basis  
for the arrangement.                                                            

The Company had written off the book value of the property by the end of 1998.  

                                                                            (35)

10-K
36th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 36th
Since October 1998, the tenant leased portions of the buildings to subtenants,  
primarily for use as commercial warehouses. Approximately 30% of the total      
square footage is subject to subleases. The remainder has been empty since 1996.

On July 28, 2005, the Building Department of Bridgeport informed Acme United    
that pursuant to a call from the Bridgeport Fire Department, an inspection of   
the premises was made on July 21, 2005. The roof of a portion of a building had 
collapsed that day. The Company received notice that it must either repair      
certain portions of the damaged building and two others or demolish them because
of unsafe conditions. The Company was ordered to begin the necessary work to    
make the buildings safe within 30 days from receipt of the letter.              

The lessee filed an insurance claim on August 24, 2005. The insurance company   
investigated the facts and circumstances surrounding the claim and determined   
that the roof had collapsed due to wear, tear, deterioration, wet rot, dry rot  
and lack of maintenance of the premises. They stated in a letter dated October  
18, 2005 that the causes of the loss were not insured perils under the tenant's 
policy and denied coverage.                                                     

On July 29, 2005, the Company notified the tenant of the action by the building 
inspector and that under the terms of the lease the tenant had the entire       
responsibility for compliance with the order. The lessee subsequently refused to
assume responsibility for the repair or demolition. Acme considered legal action
under the terms of the lease to force the lessee to pay for the repair or       
demolition. However, the Company believed that the city would require action    
over a time period shorter than the time required to file a lawsuit and to bring
the action to a conclusion.                                                     

As a result of discussions between the Company and the tenant regarding the     
required repair or demolition, the Company and the tenant agreed to terminate   
the lease. Pursuant to a Termination of Lease agreement entered into by the     
Company and the tenant on September 16, 2005, the parties terminated this lease,
effective September 1, 2005. As part of the lease termination, the Company paid 
$400,000 to the tenant in exchange for rights to the rental income from the     
leases with current sub-tenants. This cost has been deferred and is being       
amortized over the term of the subleases.                                       

The Company also decided to demolish all unoccupied structures on the property. 
The unoccupied structures are abandoned manufacturing buildings that had been   
constructed over one hundred years ago.                                         

Several subtenants continue to occupy portions of the property and are paying   
rent presently totaling approximately $190,000 per year to the Company. In      
addition, the principal subtenant pays a portion of the taxes and insurance     
expenses related to the property it leases.                                     

In the quarter ended September 30, 2005, the Company accrued a charge of        
approximately $1.5 million related to the estimated cost to demolish the        
structures and remove certain environmentally hazardous material included in the
buildings to be demolished. The estimated costs are based on a third party      
contractor's estimate. Actual expenses were not materially different from       
original estimates. During the third quarter 2006, demolition of the buildings  
was completed and all costs incurred were paid by December 31, 2006. The Company
is currently exploring its options to sell the property.                        

                                                                            (36)

10-K
37th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 37th
Report of Independent Registered Public Accounting Firm                         

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, 2006 and 2005, 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, 2006. 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 the standards of the Public Company  
Accounting Oversight Board (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. We were not engaged to perform an 
audit of the Company's internal control over financial reporting. Our audits    
included consideration of internal control over financial reporting as a basis  
for designing audit procedures that are appropriate in the circumstances, but   
not for the purpose of expressing an opinion on the effectiveness of the        
Company's internal control over financial reporting. Accordingly, we express no 
such opinion. An audit also includes examining on a test basis, evidence        
supporting the amounts and disclosures in the financial statements, assessing   
the accounting principles used and significant estimates made by management, and
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, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the three years in 
the period ended December 31, 2006, in conformity with U.S. generally accepted  
accounting principles. 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.                                                                        

As discussed in Note 11 to the consolidated financial statements effective      
January 1, 2006, the Company adopted the provisions of Statement of Financial   
Accounting Standards No. 123(R), Share-Based Payment.                           

/s/ Ernst & Young LLP                                                           

Hartford, Connecticut                                                           
March 9, 2007                                                                   

                                                                            (37)

10-K
38th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 38th
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 2006.                                                  

Item 9A.  Controls and Procedures                                               

(a)  Evaluation of Internal Controls and Procedures                             

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, as of December 31, 2006, our disclosure controls and procedures 
were 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 Control over Financial Reporting                       

During the quarter ended December 31, 2006, there were no changes in our        
internal control over financial reporting that materially affected, or was      
reasonably likely to materially affect, this control.                           

Item 9B.  Other Information                                                     

None                                                                            

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 by the Board of      
Directors to hold office until their successors are elected and qualified.      

Name                       Age   Position Held with Company                     
--------------------------------------------------------------------------------
Walter C. Johnsen          56    Chairman of the Board, Chief Executive Officer 
and Director  
Gary D. Penisten           75    Chairman Emeritus and Director                 
Brian S. Olschan           50    President, Chief Operating Officer and Director
Paul G. Driscoll           46    Vice President, Chief Financial Officer,       
         Secretary and Treasurer
Rex L. Davidson            57    Director                                       
George R. Dunbar           83    Director                                       
Richmond Y. Holden, Jr.    53    Director                                       
Susan H. Murphy            55    Director                                       
Stephen Spinelli, Jr.      52    Director                                       
Stevenson E. Ward III      61    Director                                       

Walter C. Johnsen has served as Chairman of the Board and Chief Executive       
Officer of the Company since January 1, 2007; President and Chief Executive     
Officer of the Company from November 30, 1995 to December 31, 2006. Formerly    
served as Vice Chairman and a principal of Marshall Products, Inc., a medical   
supply distributor.                                                             

Gary D. Penisten has served as Chairman Emeritus of the Board of the Company    
since January 1, 2007; Chairman of the Board of the Company from February 27,   
1996 to December 31, 2006. From 1977 to 1988, he was Senior Vice President of   
Finance, Chief Financial Officer and a Director of Sterling Drug Inc. From 1974 
to 1977 he served as Assistant Secretary (Financial Management) of the United   
States Navy. Prior to that, he was employed by General Electric Company.        

Brian S. Olschan has served as President and Chief Operating Officer of the     
Company since January 1, 2007; Executive Vice President and Chief Operating     
Officer of the Company from January 25, 1999 to December 31, 2006; Senior Vice  
President - Sales and Marketing of the Company from September 12, 1996 to       
January 24, 1999; formerly served as Vice President and General Manager of the  
Cordset and Assembly Business of General Cable Corporation, an electrical wire  
and cable manufacturer.                                                         

                                                                            (38)

10-K
39th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 39th
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 Director of Finance and     
Operations in Japan. Prior to Gallo he served in several increasingly           
responsible positions in Sterling Winthrop Inc. in New York City and Sanofi S.A.
in France.                                                                      

Rex L. Davidson has served as director since April, 2006. He is currently       
President and Chief Executive Officer of Goodwill Industries of Greater New York
and Northern New Jersey, Inc. and President of Goodwill Industries Housing      
Corporation since 1982. He was appointed by Mayor Bloomberg to the New York City
Workforce Investment Board in 2002. He serves on the Board of the Better        
Business Bureau Education and Research Foundation.                              

George R. Dunbar has served as director since 1977. He is the retired President 
of The U.S. Baird Corporation and is currently President of Dunbar Associates,  
LLC., 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. served as President and Chief Executive Officer of      
J.L. Hammett Co. from 1992 to 2006. J.L. Hammett Co. established in 1863, was a 
reseller of educational products through catalogs and retail stores; focusing on
the needs of educational institutions. From 1997-2006 he has also served as     
Chairman of the Board of Ten Corp, a computer upgrade, network services and     
computer services company.                                                      

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.                                 

Stephen Spinelli, Jr. has served as director since April, 2006. He is currently 
Vice Provost for Entrepreneurship and Global Management and a member of the     
Babson College faculty since 1993. He is the Founder and former Chairman of     
American Oil Change Corporation (DBA Jiffy Lube). He consults with a wide array 
of businesses globally.                                                         

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.           

The Company has adopted a Code of Conduct that is applicable to our employees,  
including the Chief Executive Officer, Chief Financial Officer and Controller.  
The Code of Conduct is available in the investor relations section on the       
Company's website at www.acmeunited.com                                         

If the Company makes any substantive amendments to the Code of Conduct which    
apply to our Chief Executive Officer, Chief Financial Officer or Controller or  
grant any waiver, including any implicit waiver, from a provision of the Code of
Conduct to the Company's executive officers, we will disclose the nature of the 
amendment or waiver on our website or in a report on Form 8-K.                  

Item 11.  Executive Compensation                                                

      Information with respect to executive compensation is incorporated
        herein by reference to the section entitled "Executive Compensation"
   contained in the Company's Proxy Statement to be filed with the
         Securities and Exchange Commission in connection with our 2007 Annual
Meeting of Shareholders.                                    

                                                                            (39)

10-K
40th Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 40th
Item 12.  Security Ownership of Certain Beneficial Owners and Management        

          Information regarding security ownership of certain beneficial owners,
        directors and executive officers is incorporated herein by reference
     to the information in the section entitled "Security Ownership of
        Directors and Officers" contained in our Proxy Statement to be filed
      with the Securities and Exchange Commission in connection with its
2007 Annual Meeting of Shareholders.                        

Item 13.  Certain Relationships and Related Transactions                        

(None)                                                      

Item 14.  Principal Accountant Fees and Services                                

   Information regarding principal accountant fees and services is
     incorporated herein by reference to the section entitled "Fees to
         Auditors" contained in the Company's Proxy Statement to be filed with
      the Securities and Exchange Commission in connection with its 2007
Annual Meeting of Shareholders.                             

                                                                            (40)

10-K
41st Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 41st
PART IV                                                                         

Item 15.  Exhibits and Financial Statement Schedules                            

(a)(1) Financial Statements.                                                    

o    Consolidated Balance Sheets                                      

o    Consolidated Statements of Operations                            

o    Consolidated Statements of Changes in Stockholders' Equity       

o    Consolidated Statements of Cash Flows                            

o    Notes to Consolidated Financial Statements                       

o    Report of Independent Registered Public Accounting Firm          

(a)(2) Financial Statement Schedules                                            

o    Schedule 2--Valuation and Qualifying Accounts                    

   o    Schedules other than those listed above have been omitted because of
          the absence of conditions under which they are required or because the
          required information is presented in the Financial Statements or Notes
thereto.                                                    

(a)(3) The exhibits listed under Item 15(b) are filed or incorporated by        
reference herein.                                                               

(b) Exhibits.                                                                   

The exhibits listed below are filed as part of this Annual Report on form 10-K. 
Certain of the exhibits, as indicated, have been previously filed and are       
incorporated herein by reference.                                               

------------ -------------------------------------------------------------------
Exhibit No.                     Identification of Exhibit                       
------------ -------------------------------------------------------------------
3(i)         Certificate of Organization of the Company (1)                     
------------ -------------------------------------------------------------------
      Amendment to Certificate of Organization of Registrant dated
September 24, 1968 (1)                                
------------ -------------------------------------------------------------------
        Amendment to Certificate of Incorporation of the Company dated
April 27, 1971 (2)                                    
------------ -------------------------------------------------------------------
        Amendment to Certificate of Incorporation of the Company dated
June 29, 1971 (2)                                     
------------ -------------------------------------------------------------------
3(ii)        Amendment to the Company's Bylaws (10)                             
------------ -------------------------------------------------------------------
4            Specimen of Common Stock certificate (2)                           
------------ -------------------------------------------------------------------
10.1         Non-Salaried Director Stock Option Plan dated April 22, 1996* (3)  
------------ -------------------------------------------------------------------
10.1(a)      Amendment No. 1 to the Non-Salaried Director Stock Option Plan *(4)
------------ -------------------------------------------------------------------

                                                                            (41)

10-K
42nd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 42nd
------------ -------------------------------------------------------------------
10.1(b)      Amendment No. 2 to the Non-Salaried Director Stock Option Plan *(5)
------------ -------------------------------------------------------------------
10.2         1992 Amended and Restated Stock Option Plan* (6)                   
------------ -------------------------------------------------------------------
10.2(a)      Amendment No. 1 to the Amended and Restated Stock Option Plan* (7) 
------------ -------------------------------------------------------------------
10.2(b)      Amendment No. 2 to the Amended and Restated Stock Option Plan* (8) 
------------ -------------------------------------------------------------------
10.2(c)      Amendment No. 3 to the Amended and Restated Stock Option Plan* (9) 
------------ -------------------------------------------------------------------
10.2(d)      Amendment No. 4 to the Amended and Restated Stock Option Plan* (9) 
------------ -------------------------------------------------------------------
10.3         Acme United Employee Stock Option Plan dated February 26, 2002* as 
amended (11)                                          
------------ -------------------------------------------------------------------
10.4         Severance Pay Plan dated September 28, 2004*                       
------------ -------------------------------------------------------------------
10.5         Salary Continuation Plan dated September 28, 2004*                 
------------ -------------------------------------------------------------------
10.6         2005 Non-Salaried Director Stock Option Plan (12)                  
------------ -------------------------------------------------------------------
21           Subsidiaries of the Registrant                                     
------------ -------------------------------------------------------------------
23           Consent of Ernst & Young, Independent Auditors                     
------------ -------------------------------------------------------------------
31.1         Certification  of Walter  Johnsen  pursuant to Rule  13a-14(a) and 
     15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
------------ -------------------------------------------------------------------
31.2         Certification  of Paul  Driscoll  pursuant to Rule  13a-14(a) and  
     15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
------------ -------------------------------------------------------------------
32.1         Certification of Walter Johnsen pursuant to Section 906 of the     
Sarbanes-Oxley Act of 2002                            
------------ -------------------------------------------------------------------
32.2         Certification of Paul Driscoll pursuant to Section 906 of the      
Sarbanes-Oxley Act of 2002                            
------------ -------------------------------------------------------------------

    *    Indicates a management contract or a compensatory plan or arrangement

   (1)  Previously filed in S-1 Registration Statement No. 230682 filed with
        the Commission on November 7, 1968 and amended by Amendment No. 1 on
 December 31, 1968 and by Amendment No. 2 on January 31, 1969.

 (2)  Previously filed as an exhibit to the Company's Form 10-K filed in
1971.                                                       

    (3)  Previously filed in the Company's Form S-8 Registration Statement No.
333-26739 filed with the Commission on May 9, 1997.         

    (4)  Previously filed in the Company's Form S-8 Registration Statement No.
333-84505 filed with the Commission on August 4, 1999.      

    (5)  Previously filed in the Company's Form S-8 Registration Statement No.
333-70348 filed with the Commission on September 21, 2000.  

    (6)  Previously filed as an exhibit to the Company's Proxy Statement filed
on March 29, 1996.                                          

                                                                            (42)

10-K
43rd Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 43rd
    (7)  Previously filed in the Company's Form S-8 Registration Statement No.
333-26737 filed with the Commission on May 9, 1997.         

    (8)  Previously filed in the Company's Form S-8 Registration Statement No.
333-84499 filed with the Commission on August 4, 1999.      

    (9)  Previously filed in the Company's Form S-8 Registration Statement No.
333-70346 filed with the Commission on September 27, 2001.  

     (10) Previously filed in the Company's form 8-K filed on February 28, 2006.

    (11) Previously filed in the Company's Proxy statement for the 2005 Annual
Meeting of Shareholders.                                    

    (12) Previously filed in the Company's Form S-8 Registration Statement No.
333-126478 filed with the Commission on July 8, 2005.       

                                                        [Enlarge/Download Table]
SCHEDULE II                                                                                                         
Acme United Corporation and Subsidiaries                                                                            
VALUATION AND QUALIFYING ACCOUNTS                                                                                   
For the years ended December 31, 2006, 2005 and 2004                                                                

                                                           Balance at     Charged to        Deductions    Balance at
                                                          Beginning of    Costs and          and Other      End of  
                                                             Period        Expenses         Adjustments     Period  
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
2006                                                                                                                
Allowance for doubtful accounts                           $   136,050     $  51,256         $  70,495   $   116,811 
Allowance for inventory obsolescence                          453,369        99,234           146,640       405,963 
Deferred income tax asset valuation allowance               1,415,401       339,821                 -     1,755,222 
--------------------------------------------------------------------------------------------------------------------
2005                                                                                                                
Allowance for doubtful accounts                           $   210,914     $ (60,971)        $  13,893   $   136,050 
Allowance for inventory obsolescence                          620,538       218,269           385,438       453,369 
Deferred income tax asset valuation allowance               1,335,907        79,494                 -     1,415,401 
--------------------------------------------------------------------------------------------------------------------
2004                                                                                                                
Allowance for doubtful accounts                           $   199,102     $ 123,809         $ 111,997   $   210,914 
Allowance for inventory obsolescence                          374,665       425,127           179,253       620,538 
Deferred income tax asset valuation allowance               1,139,875       196,032                 -     1,335,907 
--------------------------------------------------------------------------------------------------------------------

                                                                            (43)

10-K
Last Page of 44
TOC
1st
Previous
Next
↓Bottom
Just 44th
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 14, 2007.        

ACME UNITED CORPORATION                                                         
(Registrant)                                                                    

Signatures                             Titles                                   

/s/ Walter C. Johnsen                                                           
--------------------------                                                      
Walter C. Johnsen                      Chairman of the Board, Chief Executive   
                  Officer and Director

/s/ Gary D. Penisten                                                            
--------------------------                                                      
Gary D. Penisten                       Chairman Emeritus and Director           

/s/ Brian S. Olschan                                                            
--------------------------                                                      
Brian S. Olschan                       President, Chief Operating Officer and   
      Director

/s/ Paul G. Driscoll                                                            
--------------------------                                                      
Paul G. Driscoll                       Vice President, Chief Financial Officer, 
                     Secretary and Treasurer

/s/ Rex L. Davidson                                                             
--------------------------                                                      
Rex Davidson                           Director                                 

/s/ George R. Dunbar                                                            
--------------------------                                                      
George R. Dunbar                       Director                                 

/s/ Richmond Y. Holden, Jr.                                                     
--------------------------                                                      
Richmond Y. Holden, Jr.                Director                                 

/s/ Susan H. Murphy                                                             
--------------------------                                                      
Susan H. Murphy                        Director                                 

/s/ Stephen Spinelli                                                            
--------------------------                                                      
Stephen Spinelli                       Director                                 

/s/ Stevenson E. Ward III                                                       
--------------------------                                                      
Stevenson E. Ward III                  Director                                 

                                                                            (44)

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		6/30/09		16		29			10-Q
		9/30/07		16		29			10-Q
		4/23/07		2					4,  DEF 14A
Filed on:		3/15/07
		3/14/07		44
		3/9/07		37
		3/7/07		9
		3/1/07		2
		1/1/07		38
For Period End:		12/31/06		1		43
		12/15/06		16		23
		7/1/06		32
		6/30/06		32					10-Q
		3/6/06		16		29
		2/28/06		43
		1/1/06		32		37
		12/31/05		5		43			10-K,  5
		10/18/05		14		36
		10/4/05		10
		9/30/05		12		36			10-Q
		9/16/05		14		36
		9/1/05		14		36
		8/24/05		14		36
		7/29/05		14		36
		7/28/05		14		36			10-Q,  4,  8-K
		7/21/05		14		36			8-K
		7/8/05		43					8-K,  S-8
		5/28/05		35
		4/25/05		31					4,  DEF 14A
		12/31/04		5		43			10-K
		9/28/04		42					8-K
		7/13/04		35
		5/28/04		35
		10/2/02		39
		2/26/02		42
		1/1/02		22
		9/27/01		43					S-8
		3/19/01		39
		1/1/01		10
		9/21/00		42
		8/4/99		42		43			S-8
		1/25/99		38
		1/24/99		38
		5/9/97		42		43			S-8
		9/12/96		38
		4/22/96		41
		3/29/96		42					10-K,  DEF 14A
		2/27/96		38
		2/1/96		24
		11/30/95		38
		7/1/93		24
									List all Filings