ACME UNITED CORP (ACU)

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.

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 that may impact the Company’s business, operations and financial results.

These risks and uncertainties include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of volatility in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) international trade policies of the United States or foreign governments and their impact on demand for our products and our competitive position, including the imposition of new tariffs, changes in existing tariff rates or the threat of any such action; (iv) the continuing adverse impact of inflation, including product costs, transportation costs and interest rates; (v) currency fluctuations; (vi) potential adverse effects on the Company, its customers, and suppliers resulting from the wars in Ukraine and the Middle East; (vii) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, including trucker shortages, port closures, port strikes or otherwise; (viii) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (ix) changes in client needs and consumer spending habits; (x) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (xi) the impact of competition; (xii) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xiii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.

For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Critical Accounting Estimates

There have been no material changes to the Company’s critical accounting estimates as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Results of Operations

Traditionally, the Company’s sales and profits are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the Westcott back-to-school market.

Net sales

Consolidated net sales for the three months ended June 30, 2026 were $62,716,000 compared to $53,996,000 in the same period in 2025, an increase of 16%. Consolidated net sales for the six months ended June 30, 2026 were $115,017,000 compared to $99,954,000 in the same period in 2025, an increase of 15%. Excluding the incremental sales resulting from the acquisition of the assets of My Medic on January 15, 2026, sales increased 8% and 7%, for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025.

Net sales in the U.S. for the three months ended June 30, 2026 increased 17% compared to the same period in 2025. Net sales in the U.S. for the six months ended June 30, 2026 increased 15% compared to the same period in 2025. The sales increases for the three and six months were due to strong sales across all product lines and contribution from the acquisition of the My Medic business.

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Net sales in Canada for the three months ended June 30, 2026 increased 1% in U.S. dollars and 3% in local currency compared to the same period in 2025. Net sales in Canada for the six months ended June 30, 2026 increased 7% in U.S. dollars and 6% in local currency compared to the same period in 2025. The increases in net sales for both periods were due to higher sales of first aid products.

European net sales for the three months ended June 30, 2026 increased 24% in U.S. dollars and 19% in local currency compared to the same period in 2025. European net sales for the six months ended June 30, 2026 increased 28% in U.S. dollars and 19% in local currency compared to the same period in 2025. The sales increases for the three and six months were due primarily to higher ecommerce sales and contribution from the line of cutting and sharpening products acquired in Germany on October 1, 2025.

Gross profit

Gross profit for the three months ended June 30, 2026 was $26,688,000 (42.6% of net sales) compared to $22,149,000 (41.0% of net sales) in the same period in 2025. Gross profit for the six months ended June 30, 2026 was $47,473,000 (41.3% of net sales) compared to $40,066,000 (40.1% of net sales) in the same period of 2025. The increases for the three and six months were primarily due to the inclusion of the new My Medic direct to consumer business.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2026 were $19,858,000 (31.7% of net sales) compared with $15,759,000 (29.2% of net sales) in the same period in 2025, an increase of $4,099,000. Selling, general and administrative ("SG&A") expenses for the six months ended June 30, 2026 were $38,899,000 (33.8% of net sales) compared with $31,250,000 (31.3% of net sales) in the same period in 2025, an increase of $7,649,000. The increases in SG&A expenses for the three and six months were primarily due to the acquisition of the assets of My Medic as well as higher personnel related expenses. The increase in SG&A expenses as a percentage of sales was due to the higher amount of advertising needed for the direct to consumer My Medic business.

Operating income

Operating income for the three months ended June 30, 2026 was $6,830,000 compared with $6,390,000 in the same period of 2025. Operating income for the six months ended June 30, 2026 was $8,574,000 compared with $8,816,000 in the same period of 2025. The decrease in operating income for the six months ended June 30, 2026 was primarily due to higher cost of sales. Tariff expenses were recognized during the first six months as the Company sold inventory that had been subject to the high tariff rates imposed in 2025.

Operating income in the U.S. segment decreased by $24,000 for the three months ended June 30, 2026 compared to the same period in 2025. Operating income in the U.S. segment decreased by $1,344,000 for the six months ended June 30, 2026 compared to the same period in 2025.

Operating income in the Canadian segment increased by $11,000 and $215,000 for the three and six months ended June 30, 2026, compared to the same periods in 2025. The increase in operating income for the three and six months ended June 30, 2026 was primarily due to higher sales of first aid products.

Operating income in the European segment increased by $453,000 for the three months ended June 30, 2026, compared to the same period in 2025. Operating income in the European segment increased by $887,000 for the six months ended June 30, 2026 compared to the same period in 2025. The increases in operating income for the three and six months ended June 30, 2026 were primarily due to higher sales.

Interest expense, net

Interest expense, net for the three months ended June 30, 2026 was $532,000 compared with $401,000 in the same period of 2025, a $131,000 increase. Interest expense, net for the six months ended June 30, 2026 was $1,018,000 compared with $798,000 in the same period of 2025, a $220,000 increase. The increase in interest expense for the three and six months ended June 30, 2026 resulted from higher average outstanding borrowings.

Other income (expense), net

Other income, net was $5,000 in the three months ended June 30, 2026 compared to $99,000 in the same period of 2025. Other expense, net was $11,000 in the six months ended June 30, 2026 compared to Other income, net of $188,000 in the same period of 2025.

Income taxes

The effective income tax rate for the three and six months ended June 30, 2026 was 20% compared to 22% in the same periods of 2025.

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Financial Condition

Liquidity and Capital Resources

During the first six months of 2026, working capital increased approximately $4.2 million. Inventory turnover, calculated using a twelve-month average inventory balance, was 1.9 at June 30, 2026 and 2.0 at December 31, 2025. Receivables increased approximately $9.6 million at June 30, 2026 compared to December 31, 2025. The average number of days sales outstanding in accounts receivable was 52 days at June 30, 2026 compared to 54 days at December 31, 2025. Accounts payable and other current liabilities increased by approximately $12.0 million at June 30, 2026 compared to December 31, 2025.

The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank USA, N.A. (“HSBC”) and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. Effective as of June 26, 2025, the Company entered into Amendment No. 11 to the Revolving Loan Agreement dated as of April 5, 2012, as amended (the ”Loan Agreement”), between the Company and HSBC. Amendment No. 11 extended the scheduled maturity of the $65 million secured revolving credit facility under the Loan Agreement to May 31, 2027. The terms of the Loan Agreement otherwise remain unchanged. The Loan Agreement provides for borrowings of up to $65 million at an interest rate of Secured Overnight Financing Rate (“SOFR”) plus a margin of +1.75%; interest is payable monthly. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for operating activities, growth, acquisitions, dividends, share repurchases and other business activities. Under the Loan Agreement, the Company is req

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