Acme United Corp (ACU) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to Acme United's third-quarter 2010 earnings call. As a reminder this call is being recorded.

At this time I would like to turn the call over to Mr. Walter Johnson, Chairman and CEO. Please go ahead, sir.

Good morning. Welcome to the third-quarter 2010 conference call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor statement. Paul?

Forward-looking statements in this conference call, 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. One, the Company's plans, strategies, objectives, expectations, and intentions are subject to change at any time at the discretion of the Company. Two, the Company's plans and results of operations will be affected by the Company's ability to manage its growth. And, three, other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission.

I'll turn the call back to Walter.

Thank you, Paul. Acme United had a solid quarter of sales and earnings. Net sales increased 5% to $16.3 million, and net income was $612,000 compared to $728,000. After adjusting for accrual reversals and tax benefits of the Bridgeport properties that we sold and donated, net income in the quarter increased from $440,000 to $510,000.

Our back-to-school business was strong, with the major mass-market retailers recording double-digit growth. The iPoint pencil sharpener line performed particularly well at all accounts where it was carried. Sales to the office channel were ahead of last year.

The Canadian and European sales in total in the third quarter of 2010 were approximately the same as last year in US dollars. For the first nine months of 2010, Canada has grown 9% and Europe 22% in US currency. We are adding to the sales organizations in both subsidiaries to continue to drive their growth.

Gross margins were 35% in the third quarter of 2010, compared to 36% in 2009. This was mostly due to product mix, with a higher concentration of lower margin back-to-school items.

US Treasury policy of devaluing the US currency is increasing our costs. The commodities such as steel and plastic that we use in our products are becoming more expensive. Transportation is up. Labor costs in most international markets have increased, and the weak dollar buys fewer goods.

We have announced price increases to all our customers effective January 1, 2011. There is pushback, and you would expect it.

But there is also realism. Our customers need products to sell. We are one of the largest suppliers in the industry. And they themselves source enough items to know reality.

The Company is proactively using its strong balance sheet. We are adding inventory to anticipate continued labor shortages in China, particularly during the peak production period following Chinese New Year in February.

By bringing in items and layering higher stock levels now, we anticipate reducing expedited shipping costs next year. With increased inventories, we also anticipate that our product costs will be managed in line with the price increases going into effect in 2011.

We are freeing capacity in our factories for new business that we are planning for 2011. For example, we are adding customers and expanding the breadth of our iPoint pencil sharpener line. We are leveraging our proprietary nonstick coatings across many of our cutting tools and expanding their geographic reach.

We are gaining steady acceptance of our line of AirShoc garden products and also getting strong international responses. The Clauss and Camillus product families continue to make inroads.

We are also adding capacity from new factories and creating many sets of new tooling. There are a number of product sets in our global markets that are going well. We need to be positioned to deliver if and when these new lines roll out through distribution.

We also have a number of initiatives to increase productivity which we hope will continue to enable Acme United to deliver the lowest total cost of many of our products to the global market.

In the third quarter of 2009, we completed remediating a substantial portion of our former Bridgeport facility under budget. That allowed us to reverse $458,000 of the accrual into pretax earnings in 2009. Approximately $450,000 remains in the accrual, which at this stage appears to be more than adequate to complete the project during the next several years.

As you may remember, we provided to the purchaser a $2 million mortgage which is due one year after remediation has been completed. In the meantime, we are earning 6% interest.

I will now turn the call to Paul Driscoll. Paul?

Acme's net sales for the third quarter were $16.1 million compared to $15.3 million in 2009, an increase of 5%, or 6% in local currency. Sales for the nine months ended September 30, 2010, were $49.8 million compared to $45.7 million in the same period in 2009, an increase of 9%, or 8% in local currency.

The biggest contributors to the year-to-date sales increase were iPoint pencil sharpeners and the new nonstick titanium scissors.

Net sales in the US segment increased 10% in the third quarter and 7% for the nine months ended September 30. Net sales in the third quarter for Canada were (technical difficulty) in US dollars and declined 5% in local currency.

For the nine months, sales in Canada increased by 9% in US dollars and declined 2% in local currency. Canadian sales have been impacted by softness and the commercial business.

Net sales in the third quarter for Europe decreased by 10% in US dollars and 1% in local currency. Third-quarter 2010 sales were affected by timing of mass-market promotional sales which took place in the prior quarter. Sales in the second quarter were up 75% in local currency.

For the nine months, sales in Europe increased 22% in US dollars and 29% in local currency. The higher sales were mainly due to market share gains in the mass market and office channels.

Gross margins was 35% in the third quarter to 2010 versus 36% in the comparable period last year. In the first nine months of 2010 gross margins were 37%, compared to 37% in 2009.

SG&A expenses for the third quarter of 2010 were $5 million, compared with $4.9 million for the same period of 2009. SG&A expenses for the first nine months of 2010 were $15.4 million, compared with $14.2 million or 31% of sales for both periods. The increase was due to higher personnel-related costs and higher sales commissions and freight costs associated with increased sales.

Operating profit was $657,000 in the third quarter of 2010 compared with $635,000 in the third quarter of 2009, an increase of 4%. Operating profit for the nine months ended September 30, 2010, was $2.9 million compared to $2.7 million in the same period of 2009, an increase of 6%.

During the third-quarter 2009, the Company completed a major portion of the environmental remediation on the Bridgeport property which was sold in December 2008. The cost of the work completed was below original estimates, resulting in $458,000 of other income.

In the first quarter of 2010, the Company received a $360,000 Connecticut state tax credit for the donation of land to the City of Bridgeport, which took place in December of 2009. The Company recorded $300,000 in the nine months ended September 30, 2010, of which approximately $100,000 was recorded in the third quarter.

Net income for the third quarter of 2010 was $612,000 or $0.19 per diluted share, compared to a net income of $728,000 or $0.22 per diluted share for the same period of 2009.

After adjusting for the tax credits in 2010 and the reversal of the remediation accrual, net income was $510,000 compared to $440,000 last year, an increase of 16%.

Net income for the nine months ended September 30, 2010, was $2,391,000 or $0.74 per diluted share compared to $2,111,000 or $0.63 per diluted share in the comparable period last year, an increase of 13% of net income and 17% in earnings-per-share.

The effective tax rate for the nine-month period ended September 30, 2010, was 13% compared to 34% in the same period of 2009. The decrease in the effective tax rate was mainly the result of the $300,000 of tax credits related to the donation of the land.

The Company's bank debt less cash on September 30, 2010, was $8.2 million compared to $2.8 million on September 30, 2009.

During the 12-month period, Acme purchased 250,000 shares of its common stock for approximately $2.4 million and paid $630,000 in dividends. 85,000 shares were purchased in the third quarter.

Accounts receivables increased by $3 million compared to September 30, 2009, due to higher sales and timing of shipments. The Company increased inventory by $2.1 million in preparation for sales in 2011.

Thank you, Paul. We will now open the call to questions.

[Andrew Keller, Mirage Capital].

Yes, thanks a lot, guys. Nice job, quarter. A couple of questions. Over the last couple of months, actually about two months ago, in the Wall Street Journal there was an article talking about how in 2011 companies are trying to drive more revenue online and improve their e-commerce sales.

Can you provide some color today on the call as to what is your e-commerce vision going forward and how do you plan to get there?

Well, hedge this a little bit, Andrew. Every one of our competitors listens to this call, so I am not really excited about sharing too much of that strategy. But I will tell you that we have a major revamp of our websites coming onstream in the next two months, and that we have been working for the better part of a year on the launch of those.

I will also tell you that we are tying in much more aggressively with some of our major customers and working with them to drive sales. We have also dedicated a team who are working on this effort. But the specifics of the strategy -- I just don't want to give that playbook out.

Are you guys doing anything in the social media space? Or are you developing an iPhone app, anything mobile? So as to allow your customers to be able -- actually order more effectively? Or how are you driving people to your website? And what -- doing better search engine optimization and what have you? How do you -- in other words, improving revenue?

Right. As far as an iPhone app, I think our competitors should put that on all their phones and have direct orders to their warehouse. One at a time, (technical difficulty) ruler at a time. That will keep them busy.

We are doing a number of social networking applications, but they tend to be more with clusters of uses -- in the craft, in the school area, in some of the sporting goods area. Less so in the office channel, but that is all part of what we are working on.

Because I guess what I mean is I am actually a shareholder of your stock. Been a shareholder for a while and just want to know -- obviously things are going well. But how (technical difficulty) get that stock price up.

Once we have revamped the site in a couple months, how are we going to get more people to the site? It's great we are revamping some, but if no one knows about it or we are not driving people to our site, then it is kind of useless.

So how are we going to get more people to our revamped site in a couple months so they can have a much more simplistic buying experience than when they walk away saying (multiple speakers)?

I think your goals, Andrew, are exactly the same as ours, but I am not going to share that. Again, you have no (technical difficulty) these calls.

Are you worried about a competitor threat (technical difficulty)?

Absolutely.

Okay. And (technical difficulty).

Believe me, that is exactly what is on the radar and we're (multiple speakers)

You know, a lot of those, I mean anything -- you have not -- nothing like it is real [customized]. It's all pretty much standard, you know.

Companies are doing better search engine optimization, pay-per-click, inter-ad, things like that. None of it is rocket science.

We just kind of want to know as shareholders what your idea is. From a standpoint -- and you could take it from what you wish, but a lot of times when people don't (technical difficulty) it is either they don't have an idea and they don't want to say it; or they are worried about certain threats or whatever.

But a lot of stuff is very generic. You know, right? Facebook, whether they are doing pay-per-click advertising, banner ads, things like that, to drive more people to the site. Because as shareholders we want to know obviously if we're going to increase our revenue.

Okay. Well the answer is, just (technical difficulty) those things, because you will see them.

All right. Final question. What would you say your -- what would you like to tell us shareholders on the call today is your top goal?

Well, single top goal is driving growth. Everything else follows from that.

You know, it is kind of a sloppy market. Where we are seeing growth in our international businesses, in Europe is coming around, because frankly their economy is coming around and people are spending.

In Canada it is a little bit slower but it is still not the same kinds of issues that you have in the US. In our Asian markets, which are not specifically broken out, we are pushing a major effort right now for global sales.

Domestically the garden launch is meaningful and you will be seeing more of that as the year goes by. And our nonstick coatings again are broadening the applications they are on. It is proprietary; nothing better that we are aware of on them. And it's getting good reception.

The number-one priority is growth.

Okay. And real quick, I thought going back to like e-commerce, do you guys break out how much you are getting off your website? Obviously that shouldn't be really confidential.

You break out all your numbers. Do you break out how much revenue is being driven online currently, and maybe where you would like to be?

You know, that is a really tough question because if you look at the major sales of office products, Staples.com, OfficeDepot.com are among the biggest in the country. And these are customers of ours, so we support those.

Right. No, but I mean I guess like from your site if you could give a percentage from the Acme United, when you are going to relaunch in a couple months, if you go look at total sales what percentage would you like to be able to drive from your site?

If you could (multiple speakers). You may not hit it, but what are your goals to have being driven from the new revamped site, like a percentage of total sales?

I am not answering that, but I appreciate the call. I think we should move on with others in the conference call.

William Jones, Singular Research.

Hi. Thank you. I wanted to ask -- you had mentioned that the garden launch you expect to be significant. I understand that [deuter] is perhaps some other market (technical difficulty) with Clauss and utility knife. I was wondering.

I understand for competitive purposes, I don't know how much you could say about that, but maybe you can give us a little bit more color on those items.

Okay, well first on the garden launch, we have been in the garden business in a peripheral way with the Clauss business for many, many years. We have got about 80% to 90% of the professional wholesale florist market using our tools.

So it's a very big number, very entrenched. It is a very professional market.

We have taken that base and taken the learning we have done, particularly on the cutting and how the products are used, and moved them into a series of products for individual end-users as opposed to commercial users.

That line is called the AirShoc line. The handles are very ergonomic. They flex a little bit when they are used.

The blades are high-performance nonstick so the saps and tars don't stick to them. The styling is outstanding, and you are able to replace the blades. So that if they get dull you can replace them.

Those products are in production right now. We will begin to see shipments at the end of this year and beginning of next.

And we are getting a lot of interest. I can see some chains lining up now. So that is an exciting launch for us.

Regarding the Clauss utility knife, that is pretty much where we wanted it to be in distribution, whether that is a Fastenal or Granger or McMaster-Carr, a Lowe's or Home Depot. And it is now beginning to be sold in some quantities in Europe. In fact, in the second quarter we sold a remarkable number of them to some of the mass-market guys in Germany. So it is doing quite well.

We are also taking the SpeedPak Utility Knife and adding other functions with the blades that begin to make the tool more useful. So instead of just a straight razor, a pack of straight razors, there's some now that are serrated, some that are dovepoint. And others will be coming out so that it broadens its applications. So we are happy with that.

Okay. Very well. I wanted to ask on the tax credit, you mentioned you used approximately $300,000 for the year and $100,000 in the Q3, if I am understanding correctly. Can you give us some guidance for the full year on the tax rate or how much of those benefits are left?

The total benefit is $360,000, so there is only $60,000 left. And we will end the year at approximately an effective tax rate of 13%.

Okay. Fair enough. Then I think you said 85,000 shares were repurchased in Q3.

Yes.

Do you know the amount, the average price, or --?

It was $812,000.

Okay. Thank you, and I think that answers my questions.

Jeff Matthews, RAM Partners.

Hi, guys. There may be some background noise here. But first of all, I think -- I like your answer to the question about online sales, of encouraging your competitors to sell their products one by one. I can't fathom how you'd make money selling scissors any better online than Office Depot or Amazon or eBay or Staples does. But that is just my two cents.

My question is about the balance sheet and how confident you are that you will take these inventory and receivables levels down.

Paul?

Well, we will definitely take the receivables level down in the fourth quarter. We are not expected to take the inventory levels down.

In fact, we will probably increase the inventory by $1 million in preparation for the back-to-school purchases that need to take place in early 2011. Given the constraints we had with production and expedited freight costs, we are adding some extra inventory to avoid that.

Okay, so net-net at the end of the year, what would your net debt -- or net cash look like, do you think?

I think the net debt will be between $6 million and $6.5 million.

Okay, thank you.

Howard Lu, First Wilshire.

Actually this is Dimitriy. Most of my questions have been answered, but maybe could you talk a little bit about Europe and your outlook for that, for the rest of this year and 2011?

Sure. Europe is growing, and growing nicely. The fourth quarter has a number of promotions that we didn't have last year, so that is good. That is all mass-market sales.

We're adding a couple of people in Europe to help with the sales effort. One of them in particular will be working on mass-market accounts in the non-German-speaking countries. Some of those are French, some of them are Scandinavian. But we are doing that because we are finding very, very good success with the mass-market accounts.

With the office channel, it is interesting to us that not only is it growing within Europe, but we are getting export sales out of the European business in places like South America that we didn't expect. But in fact it is happening.

So it is making pretty good progress, Dimitriy, and we are working to bolster its sales team.

Okay, great. Thanks very much, guys.

Richard Dearnley, Longport Partners.

Good morning. Do -- how much -- was there any carryover in the labor problems from the second quarter to the third, or was that pretty much solved?

If you are relating that to expedited freight --?

Yes, shipping.

There was carryover. It wasn't the same kinds of levels we had in the second quarter, but things that were expedited to ship in the beginning of back-to-school, which would have been second quarter, continued to be expedited into the third quarter. So there was a carryover.

I see.

Part of the reason we are bringing in more inventory is so that we are so far in advance that we shouldn't have that problem again.

A side benefit, of course, is that the currency now is weakening, and so we should be building up something of a cushion in the inventory.

Right, I see. And my phone blanked out; what were you estimating the year-end tax rate to be?

The 13%, pretty much the same as it was at the end of September.

Right, okay. Then as you introduce nonstick to more product lines, do you just -- is the plan to just add to the SKUs? Or do you kill off some other lines and upgrade essentially the mix?

They are connected in a broader sense, but they are not connected individually. I am looking at some items right now that will probably be sold into the sporting goods market, and those are new SKUs, new customers.

On the other hand, there is a group of products that are being eliminated. But they are not connected, Richard. In other words, I am not saying take five new ones here and cut five from the older lines. But we are dropping some of the older lines.

I see. Is it a safe guess you are adding more than you are dropping?

Well, we are growing; and we are growing markets; so I think that is fair.

Right. Then as you were talking about the business tone in the US, it sounds as though that has certainly picked up less than Europe and Asia. Could you give that a little more color?

Yes. Our back-to-school, which was mostly the retail back-to-school, was double-digit growth. So that was good. And it was with customers like Walmarts and Targets and so forth.

On the other hand, the office channel wasn't as robust. We had good growth at Staples but Office Depot was kind of sloppy. They are kind of all over the place.

The office channel in general is weaker than we would like, but still showing net growth. Our biggest business is in the office channel, not in the back-to-school. So if that is slow-ish it pulls us back.

Where we are gaining is new products. For example, we have got a line of paper trimmers that are called -- I forgot what they are called. But there is a new line of paper trimmers that are now being placed in some of the major distributors and retail customers. Well, that will add growth, because it is a new category with some existing customers.

Others like the nonstick scissors are gaining placement, and there you are getting growth in both dollars per unit sale as well as new placement with customers. But the actual business is kind of slow in the office channel, and I think it is in part because hiring is a little sluggish.

Finally, in the school market where you are actually selling into school districts -- and we do some of that indirectly through companies like School Specialty or through Office Depot if they are selling into LA County school district, as an example. That business is slow because the schools just are strapped for funds.

Ain't got no money, honey. Understood.

Yes, it's tough.

I see. Your discussion about adding new factories and new tooling, is that for new lines or replacing old existing production into new -- existing products, rather, into new factories?

Well, let's just take it in a broad sense. If we sell 100 million scissors this year, and we need to make 125 million next year, the way you do that is you allow some of your factories to run more consistently a number of product lines, so there is less changeover. You need tooling to get your other factories who maybe are quick-change factories to do more of that.

Second, you probably are going to add some production capability because you don't want to be running any of your factories at the point where you're at the -- near their maximum capacities.

So adding factories, adding tooling, help us to become more flexible and to meet what maybe is some pretty good demand.

Are you guessing that that demand is broad-based enough to include the US?

Oh, sure. Particularly if it's in some of the Clauss lines where it is the industrial hardware products. There is a pickup in the industrial market a little bit right now, and our Clauss business is up about 60%. So it seems to be kind of bubbling through.

But the big opportunities there are in some of the Lowe's, Home Depot kind of places where maybe we can get some more traction.

Good. Thank you very much.

Chris Doucet, Doucet Asset Management.

Hey, afternoon, guys. This is actually David Ratliff. Congratulation on another good quarter.

Question about your stock repurchase program. You said you repurchased -- I believe Paul said 85,000 shares this quarter. Does that exhaust your authorization? Or do you have -- or have you more room to continue to repurchase shares?

I think from time to time we will continue to purchase shares. Our next Board meeting probably in the next month or so, we will look at another repurchase program. But we pretty much filled what we said we would do for the existing one.

Okay. You talked a little bit about new products, which are exciting. Have you ever -- or do you break out the percentage of revenue that comes from your cutting products, like your scissors and your Camillus knives and products like that?

I will turn this to Paul.

Well, it is roughly 60% is the cutting products. That would be mostly scissors and some knives.

Right. But the Camillus knives, that is still a pretty small percentage?

Yes, it is at this point.

All right. I know you don't want to give out a lot of competitive information. But with some of these new product launches and initiatives you are talking about, do you have a target of -- for 2011 you expect new products to contribute 10% of revenues or some number like that?

Well, we actually track that number.

Okay, good.

We tend to define -- we define a new product as something that has been introduced within the past 36 months. So some things like our titanium scissors are not new products.

But that number has been running about 30% of revenues domestically in the US. So it is a fairly high number.

Yes. One of the earlier callers asked about Europe, and all that was very good information. Can you give us an idea of how close we are to breakeven in Europe? Or have we passed that point?

Well, in the second quarter when we had some timing which really boosted the sales, it was very close to breakeven. In the third quarter it would not have broken even because it was about the same as last year.

It is making steady progress and the growth to date of 22% is the kind of progress that get you over that hurdle. But for the year, unless something that I am not aware of happens in the fourth quarter, it will lose a little money.

Okay, so for the year, we're looking at it still being a drag on profits?

Yes.

Okay. Most of my other questions were answered. Only got two things and I don't know how much more you can say about them.

But the inventory growth -- I don't think I have seen you have $2 million-plus of inventory growth in a quarter previously. And then you are saying you are going to add another $1 million.

I guess my question is, with the pushback in price increases that you are getting right now, I imagine you don't expect a slowdown in sales because of price increases or a significant pushback if you are going to be carrying that much more inventory.

Oh, no. There are pushbacks on price increases because everybody pushes back anytime prices are increased. And I do it personally as well.

But the reality is we passed on some pretty substantial price increases, iOne of the biggest suppliers at least of the cutting items that we sell in the world. And we know what the numbers are, and people follow us.

The ability to build that inventory, though, probably looked pretty smart six months from now because we have locked these prices in at numbers prior to and during some of the early stages of the RMB revaluation. Remember we borrow at 22% interest.

So we are pulling in the production early. We are getting ourselves ready so we don't have expedited freight. We are very, very conscious.

And the nice thing is it gives us flexibility at to back end of the back-to-school. If we land some new and bigger contracts, we can make it.

It's better to plan ahead. I would agree. Last question. October is almost over. Without giving specific guidance, can you give any color on how October has progressed compared to maybe last year, or compared to September, or compared to anything you want to throw out?

Our total business has shown growth over last year's October. We have been telling people we are expecting to grow, and that is what is happening.

But I would also tell you we are not hitting 20% growth, which is what I would like to be doing.

Right. Which I would like you to be doing, too. Okay. Well thanks for the information and good luck in the fourth quarter.

Tom Spiro, Spiro Capital.

Tom Spiro, Spiro Capitol. Good afternoon. So, Walter, would you like to give us a brief status report on the measuring and safety lines? Anything of note there?

Yes. On the safety -- the measuring line really gets lumped into the back-to-school and it has done kind of well. It is not just rulers, but it is math kits and protractors and compasses, all of which amazingly people tend to buy year after year after year.

We have revamped some of the products in that measuring category, for example, with new textures and new materials. They contributed to what was a very good back-to-school at a retail business.

In the case of the safety business, that has been slowish, and in particular now compared to a year ago. We were selling some swine flu kits and some precautionary safety items in preparation for quite a big flu season last year.

And that never really materialized, so people still are stocked with what we had. That piece of the business is slowish.

On the other hand, our first aid kits themselves continue to be valuable parts of our product family. If you look at our customers in the office channel, whether that is United Stationers or SP Richards or Staples or OfficeMax, Office Depot, they are looking at the Jan/San area, which is including the first aid, as their fastest-growing segment of their business. And we are the dominant supplier of those, so we are getting a nice boost from that.

We have also recently introduced some drug testing kits -- for example, alcohol, cocaine, marijuana -- that are sold to employers through companies like United Stationers. It has been very well received.

No, that's helpful. Separately, Walter, do we have any salespeople who are dedicated to Asian sales?

We are -- yes, we do. We have got a person who is running our Chinese business right now out of Beijing. And we are in the process of boosting the sales out of Hong Kong with some restructuring that, when it happens, will be very, very exciting. It is all promotions and movement for supporting our customers in Asia.

So, not only do we have people there, but we are in the process right now of taking some good steps to grow that business.

That's great. I would assume that our Asian sales now are negligible, but have opportunities to grow.

Actually, they are not negligible, but they are currently not broken out separately. I would guess that eventually we will do that, because it will become -- it is becoming more important.

Well, that's great. Good luck.

Thank you.

Rick Fetterman, Fetterman Investments.

Good morning. Walter, you had, in response to an earlier question about the percentage of revenues from new products, you said it had been generally around 30%. Was that the case actually in the third quarter also?

I am not aware that we calculated it for that, but it's where it has been running. Paul, do we --?

It has been running at about 30% for the year, so presumably it would be similar for the third quarter.

Okay. Did you mention specifically what the loss in Europe was in the third quarter?

I don't know.

No, we didn't talk about that.

Could you? You have mentioned it in past quarters. That is the only reason I was asking.

Right. The loss in the third quarter was approximately $100,000.

Okay. On the last call, you had said there was a slight move towards higher priced items in the office market. Of course as you said earlier, that has been a little on the weak side. Has the product sales to them or has there sellthrough been reverted back more to the lower end products?

No, no. The things like our titanium scissors and our nonstick scissors continue to be gaining both market share within the office channel and they are selling quite well.

On the other hand, you have got the value scissors which are our low-end office scissors, also doing very, very well. It is the midrange that is a little bit softer.

Okay. All of my other questions have been answered. Thank you very much.

Richard Dearnley, Longport Partners.

Back again. You said you have one salesman in Asia. You had one in Europe. Did you add another in Europe?

Well, I think we have to be careful because there are more people than one in these places.

Right.

And there are people doing multiple jobs. For example, if you are running the Asia-Pacific office in Hong Kong, you are meeting customers all the time.

Sure.

But we have a dedicated person in China who is based in Beijing, and that person has been onboard during the past 12 months. But what we are doing in Asia is we are formalizing the sales function around a key executive who will be directing the thrust outside of China. That is in places like Thailand and Indonesia and Malaysia. And those are businesses that are doing okay for us.

Right. Was there any bonus accrual in the third quarter? Do you expect any in the fourth?

There was no bonus accrual and we don't expect one.

Okay. Thank you.

And at this time, there are no other questions in queue.

Okay. If there are no further questions, this call is complete. Thank you for listening. Goodbye.