Tootsie Roll Industries Inc: Form 10-Q for the period ended Jun 30, 2026

This financial review discusses the Company’s financial condition, results of operations, liquidity and capital resources and other matters. Dollars are presented in thousands, except per share amounts. This review should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related notes included in this Form 10-Q and with the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”).

Net product sales were $151,943 in second quarter 2026 compared to $153,190 in second quarter 2025, a decrease of $1,247 or 0.8%. First half 2026 net product sales were $301,431 compared to $299,711 in first half 2025, an increase of $1,720 or 0.6%. Domestic (U.S.) net product sales in second quarter decreased by 2.5% but increased by 0.3% in first half 2026 compared to the corresponding period in the prior year; and foreign net product sales, including exports to foreign markets and the effects of foreign translations, increased 25.1% and 3.4%, respectively, compared to the corresponding periods in the prior year. For the second quarter and first half 2026, domestic sales represented 92.2% and 92.4%, respectively, of total consolidated net product sales. Second quarter and first half 2026 sales were adversely impacted by the timing of sales, including seasonal sales, between second and third quarter 2026 when compared to the prior years’ corresponding quarterly periods. We are focused on the long term and have continued to support our brands with increased trade promotions, as well as advertising in the second quarter and first half 2026. Because trade promotions are accounted for as a reduction in reported net sales, these higher levels of trade promotions had some adverse effects on our reported net sales for second quarter and first half 2026.

Product cost of goods sold was $100,965 in second quarter 2026 compared to $98,127 in second quarter 2025, and $200,687 in first half 2026 compared to $193,627 in first half 2025. Product cost of goods sold includes $718 and $467 of certain deferred compensation expenses in second quarter 2026 and 2025, respectively, and $473 and $312 of certain deferred compensation expenses in first half 2026 and 2025, respectively. These deferred compensation expenses principally resulted from the changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Excluding the adjustment for deferred compensation expenses, product cost of goods sold increased from $97,660 in second quarter 2025 to $100,247 in second quarter 2026, an increase of $2,587 or 2.6%; and from $193,315 in first half 2025 to $200,214 in first half 2026, an increase of $6,899 or 3.6%. As a percentage of net product sales, adjusted product cost of goods sold was 66.0% and 63.8% in second quarter 2026 and 2025, respectively, an increase of 2.2 percentage points; and 66.4% and 64.5% in first half 2026 and 2025, respectively, an increase of 1.9 percentage points. In addition to the sales impact of timing between second and third quarter as discussed above, second quarter and first half 2026 cost of goods sold and gross profit margins were adversely affected by significantly higher cocoa and chocolate unit costs, when compared to the corresponding periods in 2025. Cocoa commodities markets have retreated from their extraordinarily high price levels in 2025 but still remain above historical levels. As these lower costs begin to be reflected in our supply chain costs, we should realize lower cocoa and chocolate costs in second half 2026 and into 2027. During second quarter and first half 2026, elevated energy costs also contributed to higher costs for resin-based packaging materials, as well as certain other materials and supplies.

The Company uses the Last-In-First-Out (LIFO) method of accounting for inventory and costs of goods sold which generally results in lower current net earnings during such periods of increasing costs and higher inflation. Under the LIFO method, the most current costs are charged to cost of goods sold thereby accelerating the realization of higher costs during such periods of rising costs. Although the Company continues to monitor its input costs, we are mindful of the effects and limits when passing on the above-discussed higher input costs to our customers as well as to the final consumers of our products.

Selling, marketing and administrative expenses were $54,247 in second quarter 2026 compared to $44,362 in second quarter 2025; and $82,328 in first half 2026 compared to $73,752 in first half 2025. Selling, marketing and administrative expenses include $15,233 and $10,403 of certain deferred compensation expenses in second quarter 2026 and 2025, respectively, and $10,043 and 6,944 of certain deferred compensation expenses in first half 2026 and 2025, respectively. As discussed above, these expenses principally result from changes in the market value of investments and investment income from trading securities relating to compensation deferred in previous years and are not reflective of current operating results. Excluding the adjustment for deferred compensation expenses, selling, marketing and administrative expenses increased from $33,959 in second quarter 2025 to $39,014 in second quarter 2026, an increase of $5,055 or 14.9%; and from $66,808 in first half 2025 to $72,285 in first half 2026, an increase of $5,477 or 8.2%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses increased from 22.2% in second quarter 2025 to 25.7% in second quarter 2026, an unfavorable change of 3.5 percentage points; and from 22.3% in first half 2025 to 24.0% in first half 2026, an unfavorable change of 1.7 percentage points.

Selling, marketing and administrative expenses include $15,424 and $13,047 for customer freight, delivery and warehousing expenses in second quarter 2026 and 2025, respectively, an increase of $2,377 or 18.2%; and $28,960 and $26,963 in first half 2026 and 2025, respectively, an increase of $1,997 or 7.4%. These expenses were 10.2% and 8.5% of net product sales in second quarter 2026 and 2025, respectively; and 9.6% and 9.0% of net product sales in first half 2026 and 2025, respectively. Customer freight and delivery unit costs, which reflect the cost per pound shipped, increased in second quarter 2026, and first half 2026, compared to the corresponding periods in 2025. Increases in fuel costs, principally freight fuel surcharges, were driven by elevated energy markets. In addition, higher marketing and advertising expenses, as well as increased professional fees, in second quarter and first half 2026, contributed to these higher selling, marketing and administrative expenses.

Earnings (losses) from operations were $(1,617) in second quarter 2026 compared to $12,121 in second quarter 2025; and were $21,596 in first half 2026 compared to $35,181 in first half 2025. Earnings from operations include $15,951 and $10,870 of certain deferred compensation expenses in second quarter 2026 and 2025, respectively; and include $10,516 and $7,256 of certain deferred compensation expenses in first half 2026 and 2025, respectively, which is discussed above. Adjusting for these deferred compensation expenses, adjusted earnings from operations were $14,334 and $22,991 in second quarter 2026 and 2025, respectively, a decrease of $8,657 or 37.7%; and $32,112 and $42,437 in first half 2026 and 2025, respectively, a decrease of $10,325 or 24.3%. As a percentage of net product sales, these adjusted operating earnings were 9.4% and 15.0% in second quarter 2026 and 2025, respectively, an unfavorable 5.6 percentage point change; and 10.7% and 14.2% in first half 2026 and 2025, respectively, an unfavorable 3.5 percentage point change. As discussed above, higher trade promotions and the timing of sales between second and third quarter 2026, as well as the higher costs and expenses noted above, contributed to the decrease in adjusted operating earnings in second quarter and first half 2026 when compared to the corresponding periods in the prior year. Declines in international operating income, including exports to foreign countries also contributed to the decline in adjusted operating earnings in second quarter and first half 2026.

Other income, net was $19,854 in second quarter 2026 compared to $14,072 in second quarter 2025; and $20,170 in first half 2026 compared to $14,021 in first half 2025. Other income, net includes net gains and investment income of $15,952 and $10,870 for second quarter 2026 and 2025, respectively, and $10,516 and $7,256 in first half 2026 and 2025, respectively, on trading securities which provide an economic hedge of the Company’s deferred compensation liabilities on trading securities. The changes in net investment activity on trading securities in second quarter and first half 2026 and 2025 primarily reflect the overall changes in the equity markets during these periods. These changes were substantially offset by a like amount of deferred compensation expense included in product cost of goods sold and selling, marketing, and administrative expenses in the respective periods as discussed above.

Management believes the comparisons presented in the preceding paragraphs, after adjusting for changes in deferred compensation, are useful to our investors and other users of our financial information in assessing the operations of the Company.

Other income, net includes investment income from available for sale securities and cash equivalents of $4,468 and $3,485 for second quarter 2026 and 2025, respectively; and $10,495 and $6,946 in first half 2026 and 2025, respectively. The increases in 2026 investment income reflects the higher average balances held in second quarter and first half 2026 compared to the corresponding period in the prior year. In addition, other income, net also includes pre-tax (loss) on foreign exchange of $(619) and $(843) in second quarter 2026 and 2025, respectively; and $(658) and $(1,387) in first half 2026 and 2025, respectively.

The Company’s effective income tax rates were 26.9% and 33.1% in second quarter 2026 and 2025, respectively, and 25.9% and 27.7% in first half 2026 and 2025, respectively. The changes in the effective tax rates in the comparative periods principally reflect the effects of changes in certain deferred compensation that will not be deductible for income taxes when paid in future periods. The Company is currently under audit for its federal income tax returns for 2022 to 2024 calendar years. The audit is in the early stages and the Company in not able to predict the outcome of this audit.

Net earnings attributable to Tootsie Roll Industries, Inc. were $13,347 (after $21 net loss attributed to non-controlling interests) in second quarter 2026 compared to $17,544 (after $14 net loss attributed to non-controlling interests) in second quarter 2025, and earnings per share were $0.18 and $0.23 in second quarter 2026 and 2025, respectively, a decrease of $0.05 per share, or 21.7%. First half 2026 net earnings attributable to Tootsie Roll Industries, Inc. were $31,008 (after $56 net loss attributed to non-controlling interests) compared to first half 2025 net earnings of $35,602 (after $31 net loss attributed to non-controlling interests), and net earnings per share were $0.41 and $0.47 in first half 2026 and first half 2025, respectively, a decrease of $0.06 per share or 12.8%. Average shares outstanding decreased from 75,060 at second quarter 2025 to 75,035 at second quarter 2026, and from 75,105 in first half 2025 to 75,046 in first half 2026.

Goodwill and intangibles, principally trademarks, are assessed annually as of December 31 or whenever events or circumstances indicate that the carrying values may not be recoverable from future cash flows. The Company has not identified any triggering events, as defined, or other adverse information that would indicate a material impairment of its goodwill or intangibles in second quarter or first half 2025. Although Management has not identified any triggering events at this time relating to its intangibles, factors outlined in the Company’s risk factors discussed on Form 10-K for the year ended December 31, 2025, could change this assessment in the future.

Beginning in 2012, the Company has received periodic notices from the Bakery and Confectionery Union and Industry International Pension Fund (Plan), a multi-employer defined benefit pension plan for certain Company union employees, that the Plan’s actuary certified the Plan to be in “critical status”, as defined by the Pension Protection Act (PPA) and the Pension Benefit Guaranty Corporation (PBGC); and that a plan of rehabilitation was adopted by the trustees of the Plan in 2012. Beginning in 2015, the Plan was reclassified to “critical and declining status”, as defined by the PPA and PBGC, for the plan year beginning January 1, 2015. A designation of “critical and declining status” implies that the Plan is expected to become insolvent in the next 20 years. In 2016, the Company received new notices that the Plan’s trustees adopted an updated Rehabilitation Plan effective January 1, 2016, and all annual notices through 2024, prior to receipt of Special Financial Assistance, have continued to classify the Plan in the “critical and declining status” category. In 2024 the Plan received Special Financial Assistance of $3.4 billion. As required by federal law, the Plan is certified to be in “critical status” for plan year 2026 and will likely remain in this status until the plan year ending in 2051 as a result of the Special Financial Assistance received.

Based on these updated notices, the Plan’s funded percentage (plan investment assets as a percentage of plan liabilities as reported), as defined, were 41.0%, 45.2%, and 47.0% as of January 1, 2025, 2024, and 2023, respectively (these valuation dates are as of the beginning of each Plan year and reflect the most recent information available). These funded percentages are based on actuarial values, as defined, and do not reflect the Special Financial Assistance or the actual market value of Plan investments as of these dates. If the market value of investments had been used as of January 1, 2025, including the Special Financial Assistance, the funded percentage would be 81.2% (not 41.0%).

The Company has been advised that its withdrawal liability would have been $102,800, $97,500 and $102,200 if it had withdrawn from the Plan during 2025, 2024 and 2023, respectively (most recent information provided by the Plan). The most recent increase in the withdrawal liability as advised by the Plan was primarily due to the full present value of vested benefits being valued at the PBGC interest rates, as required for plans that receive Special Financial Assistance, rather than a blended interest rate assumption used in previous years. After receiving the Special Financial Assistance, the Plan was required to use PBGC interest rates to value all, instead of a portion, of the present value of vested benefits to provide an estimate of the Company’s withdrawal liability. The net impact of the interest rate assumption change was a decrease in the effective interest rate, which resulted in a higher vested Plan benefit liability. In addition, for withdrawal liability purposes, PBGC regulations require the Special Financial Assistance to be phased-in over a period of time instead of fully recognized immediately.

Based on the Company’s most recent actuarial estimates using the information provided by the Plan with respect to its 2025 withdrawal liability (based on most recent information provided to the Company) and certain provisions in ERISA and laws relating to withdrawal liability payments, management believes that the Company’s liability had the Company withdrawn in 2025 would likely be limited to twenty annual payments of $2,706 which have a present value in the range of $32,904 to $35,413 depending on the interest rate used to discount these payments. While the Company’s actuarial consultant does not anticipate that the Plan will incur a future mass withdrawal (as defined) of participating employers, in the event of a mass withdrawal, the Company’s annual withdrawal payments would theoretically be payable in perpetuity. Based on the same actuarial estimates, had a mass withdrawal occurred in 2025, the present value of such perpetuities is in the range of $47,812 to $56,833 and would apply in the unlikely event that substantially all employers withdraw from the Plan. The aforementioned is based on a range of interest rates which the Company’s actuary has advised is provided under the statute. Should the Company actually withdraw from the Plan at a future date, a withdrawal liability, which could be higher than the above discussed amounts, could be payable to the Plan.

The Company’s pension expense for this Plan for first half 2026 and 2025 was $1,777 and $1,744, respectively. The aforementioned expense includes surcharges of $626 and $615 for first half 2026 and 2025, respectively, as required under the amended plan of rehabilitation. The Company’s twelve months pension expense for this Plan for 2025 and 2024 was $3,290 and $3,332 respectively, which includes surcharges of $1,160 and $1,174, respectively.

The Plan advised the Company that it was granted approximately $3.4 billion in Special Financial Assistance funds and received those funds in 2024. According to the Company’s actuary, it remains unclear if the Plan can remain solvent through the targeted date of 2051, although as a requirement of the American Rescue Plan Act of 2021, the Plan must remain in “critical status” through 2051 regardless of solvency. The regulations under the aforementioned PBGC financial assistance could result in a higher withdrawal liability even with PBGC financial assistance since those regulations require use of settlement interest rates to value all, instead of a portion, of the present value of vested benefits in determining the Company’s withdrawal liability. In addition, for withdrawal liability purposes, PBGC regulations require the Special Financial Assistance to be phased-in over a period of time instead of fully recognized immediately. While it is uncertain how the requirements imposed by the Special Financial Assistance will impact the Company’s withdrawal liability in the future, the Company’s actuary believes any withdrawal will likely continue to be limited to the twenty annual payments previously discussed and that those payments will not be affected by Special Financial Assistance regulation.

Under terms of the Company’s current union contract the Company is obligated to continue its participation in the Plan through expiration in September 2027. The Company is unable to determine the ultimate outcome of the above discussed multi-employer union pension matter and therefore is unable to determine the effects on its consolidated financial statements, but the ultimate outcome could have a material adverse effect on the Company’s consolidated results of operations or cash flows in one or more future periods. See also Note 7 of the Company’s Notes to Consolidated Financial Statements on Form 10-K for the year ended December 31, 2025.

Our operations and sales are principally in North America, and our cross border transactions with Canada and Mexico qualify under the USMCA free-trade agreement. Certain ingredients, including cocoa, chocolate and edible oils, as well as some packaging and other purchases, do have foreign origins outside of USMCA and the related higher tariffs on these purchases added to our costs in 2025 and early 2026. During fourth quarter 2025, tariffs on cocoa were rescinded and therefore we realized some additional tariff cost reductions on these purchases in 2026 as these lower costs begin to be reflected in our supply chain. In February 2026, the Supreme Court of the United States issued a ruling that stated the International Emergency Economic Powers Act (IEEPA) does not authorize the imposition of tariffs that were imposed by the President in 2025. Management estimates that the Company could recoup up to $1.3 million in tariffs previously paid directly by the Company. The Company intends to record any refund benefits when such funds are received.

The Company is focused on the longer term and therefore is continuing to make investments in plant manufacturing operations to meet new consumer and customer product demands, achieve product quality improvements, expand capacity in certain product lines, and increase operational efficiencies in order to provide genuine value to consumers.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows used in operating activities were $(10,879) and $(4,935) in first half 2026 and 2025, respectively, an unfavorable decrease of $5,944, primarily driven by the Company’s seasonal Halloween business whereby inventories are historically built in second quarter for planned Halloween sales primarily in third quarter. The decrease in cash flows from operating activities principally reflects lower net income and changes in working capital, primarily relating to the timing of income tax payments and prepaid expenses in the comparative periods.

Cash flows provided by (used in) investing activities were $(37,596) and $5,670 in first half 2026 and 2025, respectively, a decrease of $43,266, which principally reflects an increase in purchases of available for sale securities, and a corresponding decrease in cash and cash equivalents during the comparative periods. First half 2026 and 2025 investing activities also include capital expenditures of $20,614 and $10,363, respectively. The Company is currently undergoing a plant expansion at one of its manufacturing facilities in the USA, including additional and replacement of certain processing and packaging lines, to better meet the level of forecasted demand for certain products on a timelier and more cost-effective basis. The Company expects that this will take place over the next seven years, however, most of the actual expenditures, which related to the building construction, are expected to occur in 2026 and early 2027. We have incurred $18,200 of capital expenditures relating to this expansion to date. Company management believes that the total cost of this expansion, including new machinery and equipment, some of which is normal and recurring replacements over the next seven years, for food processing infrastructure and raw materials warehousing will approximate $75,000 to $85,000. All capital expenditures have been and are expected to be funded from the Company’s cash flow from operations and internal sources including investments in available for sale securities.

The Company’s condensed consolidated financial statements include short term bank borrowings of $8,333 and $1,018 at June 30, 2026 and 2025, respectively, of which $7,500 of the June 30, 2026 balance relates to the Company’s industrial development bond that matures and is payable in June of 2027. The remaining $833 of bank borrowings at June 30, 2026 and all of the bank borrowings as of June 30, 2025 relate to the Company’s Spanish subsidiary. The Company had no other outstanding bank borrowings at June 30, 2026 and 2025.

Financing activities include Company common stock purchases and retirements of $3,822 and $6,483 in first half 2026 and 2025, respectively. Cash dividends of $13,326 and $12,928 were paid in first half 2026 and 2025, respectively.

The Company’s current ratio (current assets divided by current liabilities) was 2.9 to 1 at June 30, 2026 compared to 3.3 to 1 at December 31, 2025 and 4.0 to 1 at June 30, 2025. Net working capital was $219,163 at June 30, 2026 compared to $223,016 and $273,269 at December 31, 2025 and June 30, 2025, respectively. Included in net working capital is cash and cash equivalents and short-term investments totaling $141,124 at June 30, 2026 compared to $176,633 and $170,531 at December 31, 2025 and June 30, 2025, respectively. In addition, long term investments, principally debt securities comprising corporate bonds, were $431,784 at June 30, 2026, as compared to $437,114 and $333,626 at December 31, 2025 and June 30, 2025, respectively. Aggregate cash and cash equivalents and short and long-term investments were $572,908, $613,747, and $504,157, at June 30, 2026, December 31, 2025 and June 30, 2025, respectively, including $130,723, $121,541, and $112,009 at June 30, 2026, December 31, 2025 and June 30, 2025, respectively, relating to trading securities which are used as an economic hedge for the Company’s deferred compensation liabilities.

Investments in available for sale securities, primarily high-quality corporate bonds, that matured during first half 2026 and 2025, were generally used in working capital, capital expenditures or were replaced with debt securities of similar maturities. The net unrealized gain (loss) on available for sale investments was approximately $(2,500) and $4,600 at June 30, 2026 and 2025, respectively. The Company expects to hold most of these securities to maturity and therefore does not expect to ultimately realize a substantial portion of any of unrealized gains or losses on individual investments (see also Item 3 below, QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK).

The Company periodically contributes to a Voluntary Employee Benefit Association (VEBA) trust, managed and controlled by the Company, to fund the estimated future costs of certain union employee health, welfare and other benefits. The Company funded $20,000 to the VEBA trust in 2023. No contribution was made during first half 2026 or 2025. The Company has and will continue to use these VEBA funds to pay the actual cost of such benefits through part or all of 2027. The VEBA trust held $7,484, $8,953 and $12,509 of aggregate cash and cash equivalents at June 30, 2026, December 31, 2025 and June 30, 2025, respectively. This asset value is included in prepaid expenses and long-term other assets in the Company’s Condensed Consolidated Statement of Financial Position. These assets primarily comprise cash and corporate bonds and are categorized as Level 1 and Level 2 within the fair value hierarchy.

ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Company’s Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See Note 1 of the Company’s Condensed Consolidated Financial Statements for more information related to our use of estimates in the preparation of financial statements as well as information related to material changes in our significant accounting policies that were included in our 2025 Form 10-K.

FORWARD-LOOKING STATEMENTS

This discussion and certain other sections contain forward-looking statements that are based largely on the Company’s current expectations and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words such as “anticipated,” “believe,” “expect,” “intend,” “estimate,” “project,” “plan” and other words of similar meaning in connection with a discussion of future operating or financial performance and are subject to certain factors, risks, trends and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. Such factors, risks, trends and uncertainties, which in some instances are beyond the Company’s control, include the effects of U.S. tariffs as well as retaliatory tariffs and other import fees and surcharges by other countries, the overall competitive environment in the Company’s industry, the ability to recover increases in input costs and tariffs through price increases, successful distribution and sell-through during Halloween and other seasons, the effects of future changes to natural colors, including related higher costs and availability of supply, and changes in assumptions, judgments and risk factors are discussed in our Annual Report on Form 10-K for the year ended December 31, 2025.

The risk factors referred to above are believed to be significant factors, but not necessarily all of the significant factors that could cause actual results to differ from those expressed in any forward-looking statement. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made only as of the date of this report. The Company undertakes no obligation to update such forward-looking statements.

The Company is exposed to various market risks, including fluctuations in and sufficient availability of sugar, corn syrup, edible oils, including palm oils, cocoa, chocolate, dextrose, milk and whey, gum-base input ingredients, packaging, and fuel costs principally relating to freight and delivery fuel surcharges. The Company generally enters into annual supply contracts and hedges certain commodities (primarily sugar) to control and plan for any cost changes. The Company generally enters into longer-term supply contracts to ensure supply and reduce the risk of price volatility for its ingredients and packaging materials.

The Company is exposed to exchange rate fluctuations in the Canadian dollar which is the currency used for a portion of the raw material and packaging material costs and all labor, benefits and local plant operating costs at its Canadian plants. The Company generally enters into Canadian dollar forward contracts to hedge the Canadian currency risk. The Company is exposed to exchange rate fluctuations in Mexico, Canada, and Spain where its subsidiaries sell products in their local currencies. The Company invests principally in corporate bonds (available for sale securities) with an average maturity of three to five years, to manage its interest rate risk. While the Company generally holds these investments to maturity, the Company would sell prior to maturity if it was considered beneficial to do so for tax-planning strategies, credit quality or if the Company required the funds to finance a significant reinvestment in the Company, including an acquisition.

The Company believes that the above discussed policies and programs limit the Company’s exposure to significant interest rate fluctuations. Other than the cocoa and chocolate market, energy costs, and tariffs as discussed above, there have been no material changes in the Company’s market risks that would significantly affect the disclosures made in the Form 10-K for the year ended December 31, 2025.

Under the supervision and with the participation of Management, the Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2026 and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2026 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The following update to our risk factors should be read in conjunction with the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2025 Annual Report on Form 10-K (the "2025 Form 10-K") filed with the SEC. Except as described herein, the Company is not aware of any material changes with respect to the risk factors disclosed in our 2025 Form 10-K.

Risk of the imposition of tariffs and other surcharges on our products and the ingredients, packaging and operating equipment and supplies used in our products.

Developments in economic and fiscal policy, most notably those related to tariffs that were being contemplated by regulatory authorities at the time we filed the 2025 Form 10-K with the SEC, have had a nominal impact on our Company through the first half of 2026. Our products are principally produced and sold in North America. Product shipped between the United States and our Canada and Mexico manufacturing operations qualify under the U.S.-Mexico-Canada Agreement (“USMCA”) and under the current regulation, continue to be tariff-free. If regulators decide to impose tariffs, or other surcharges are levied by Canada and Mexico, on products that previously qualified under USMCA or if there are changes to the USMCA, the impact of tariffs on our cross-border shipments could be significant. In addition, we procure certain ingredients, including edible oils, as well as some packaging and other operating equipment and supplies, from sources outside of the United States which are subject to tariffs. Imposing tariffs on goods we either import directly or purchase from suppliers who import certain products would have a negative impact on our business as well. We may be able to mitigate the impact by evaluating our sourcing strategies or working with our vendors but in most instances the inputs we need are only available from certain areas of the world outside of the USMCA. During fourth quarter 2025, tariffs on cocoa were rescinded and therefore we realized some additional cost reductions on these purchases in 2026 as these lower costs began to be reflected in our supply chain. In addition, following the recent U.S. Supreme Court decision issued in February 2026 that invalidated tariffs imposed pursuant to the International Emergency Economic Powers Act (“IEEPA”), the U.S. announced tariffs under different statutory authorities, including a 10% global tariff. The full impact of these governmental actions on macroeconomic conditions and on our business is uncertain, difficult to predict and depends on a number of factors, including the extent and duration of tariffs, changes in the amount and scope of tariffs, any reversal or temporary suspension of announced tariffs, the availability of refunds for tariffs paid under IEEPA, and the imposition of new tariffs and other measures that target countries may take in response to U.S. trade policies. Until such time that more clarity regarding tariffs, as well as possible retaliatory tariffs, is forthcoming, we are not able to ascertain the effects of tariffs on our business and have not recorded any adjustments to our financial statements related to potential IEEPA tariff refunds as these potential refunds will be recognized as received.

Risk of continued developments in food industry legislation and regulatory requirements at the federal and state level.

With recent activities at the U.S. Department of Health and Human Services and the U.S. Food and Drug Administration (“FDA”) and various state legislation, the food industry is subject to increasing laws and regulations, as well as changes in consumer expectations and behavior, which may impact the ingredients used in our products among other things. For example, in April 2025, it was announced that the FDA intends to phase out the approved use of certain synthetic dyes in food products, which the Company uses in many of its products. Many states, including West Virginia, have passed, or are in the process of passing, legislation that prohibits or restricts the sales of products with certain synthetic dyes within their respective states. As the Company pursues the goal of eliminating synthetic dyes and implementing natural colors, the Company believes that this will likely result in higher costs and that available supplies of such natural colors may not be adequate to meet the needs of this likely major change in the food industry. In addition to legislation regarding synthetic dyes in food products, the Company anticipates continued developments in food industry legislation and regulatory requirements at the federal and state level. The significance of the impact of these changes, including changing consumer expectations and behavior and the ability to pass on this anticipated cost increase to customers and our consumers, remains uncertain at this time.