Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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").

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Net product sales were $149,488 in first quarter 2026 compared to $146,521 in first quarter 2025, an increase of $2,967 or 2.0%. Domestic (U.S.) net product sales in first quarter 2026 increased 3.4% compared to the corresponding period in the prior year and foreign net product sales, including exports to foreign markets, decreased 13.0% compared to the corresponding period in the prior year. For the first quarter 2026, domestic sales represented 92.7% of total consolidated net product sales. Successful marketing and sales programs, including trade promotions and other marketing support, contributed to higher domestic sales in first quarter 2026 compared to the prior year comparative period.

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Product cost of goods sold was $99,722 in first quarter 2026 compared to $95,500 in first quarter 2025. Product cost of goods sold includes $(245) and $(155) of certain deferred compensation (credits) expenses in first quarter 2026 and 2025, respectively. These deferred compensation (credits) 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 (credits), product cost of goods sold increased from $95,655 in first quarter 2025 to $99,967 in first quarter 2026, an increase of $4,312 or 4.5%. As a percentage of net product sales, adjusted product cost of goods sold was 66.9% and 65.3% in first quarter 2026 and 2025, respectively, an unfavorable increase of 1.6 percentage points. First quarter 2026 product cost of goods sold and gross profit margins were adversely affected by significantly higher unit costs for chocolate and cocoa. 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 late 2026 and into 2027. The Company has been advised by certain packaging suppliers that they will be increasing prices due to higher energy costs which have increased the cost of resins used in certain packaging materials. The Company is not able to determine the effects of these actions yet.

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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. As a result, the above-discussed higher cocoa and chocolate costs will have an increasingly adverse effect on our gross profit margins as this year progresses. 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.

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Selling, marketing and administrative expenses were $28,081 in first quarter 2026 compared to $29,390 in first quarter 2025. Selling, marketing and administrative expenses include $(5,190) and $(3,459) of certain deferred compensation (credits) expenses in first quarter 2026 and 2025, respectively. As discussed above, these (credits) 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 (credits) expenses, selling, marketing and administrative expenses increased from $32,849 in first quarter 2025 to $33,271 in first quarter 2026, an increase of $422 or 1.3%. As a percentage of net product sales, adjusted selling, marketing and administrative expenses decreased from 22.4% in first quarter 2025 to 22.3% in first quarter 2026, a favorable decrease of 0.1 percentage points.

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Selling, marketing and administrative expenses include $13,535 and $13,916 for customer freight, delivery and warehousing expenses in first quarter 2026 and 2025, respectively, a decrease of $381 or 2.7%. These expenses were 9.1% and 9.5% of net product sales in first quarter 2026 and 2025, respectively. Customer freight and delivery unit costs, including the cost per pound shipped, were more favorable in first quarter 2026 compared to the

corresponding period in 2025. However, energy costs have recently increased, and we expect to incur higher freight and delivery unit costs in the future due to higher diesel costs and resulting fuel surcharges from our freight carriers.

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Earnings from operations were $23,213 in first quarter 2026 compared to $23,060 in first quarter 2025. Earnings from operations include $(5,435) and $(3,614) of certain deferred compensation (credits) expenses in first quarter 2026 and 2025, respectively, which is discussed above. Adjusting for these deferred compensation (credits) expenses, earnings from operations were $17,778 and $19,446 in first quarter 2026 and 2025, respectively, a decrease of $1,668 or 8.6%. As a percentage of net product sales, these adjusted operating earnings were 11.9% and 13.3% in first quarter 2026 and 2025, respectively, an unfavorable decrease of 1.4 percentage points. Higher input costs, primarily chocolate and cocoa, as well as unfavorable international operations' results adversely affected first quarter 2026 gross profit margins and adjusted operating earnings.

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Other (loss) income, net was $316 in first quarter 2026 compared to $(51) in first quarter 2025. Other (loss) income, net for first quarter 2026 and 2025 includes net (losses) gains and investment income of $(5,435) and $(3,614), 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 first quarter 2026 and 2025 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.

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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.

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Other (loss) income, net for first quarter 2026 and 2025 includes investment income from available for sale securities and cash equivalents of $6,028 and $3,416 in 2026 and 2025, respectively. The aforementioned increase in 2026 investment income principally reflects higher average investment balances held in first quarter 2026 compared to the corresponding period in the prior year. Other (loss) income, net also includes an insurance recovery of $0.8 in first quarter 2025 and pre-tax losses on foreign exchange of $(40) and $(544) in first quarter 2026 and 2025, respectively.

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The Company's effective income tax rates were 25.1% and 21.6% in first quarter 2026 and 2025, respectively, and therefore the higher effective tax in first quarter 2026 adversely affected first quarter 2026 results when compared to first quarter 2025. The higher tax rate in first quarter 2026 principally reflects the adverse effect of certain deferred compensation that will not be deductible for income taxes when paid in future periods.

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Net earnings attributable to Tootsie Roll Industries, Inc. were $17,661 (after $35 net loss attributed to non-controlling interests) in first quarter 2026 compared to $18,058 (after $17 net loss attributed to non-controlling interests) in first quarter 2025, and earnings per share were $0.24 and $0.24 in first quarter 2026 and 2025, respectively. Average shares outstanding decreased from 75,138 at first quarter 2025 to 75,060 at first quarter 2026 adjusted for the 3% stock dividend distributed on April 3, 2026.

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The Company has foreign operating businesses in Mexico, Canada and Spain, and exports products to many foreign markets. The Company's Spanish subsidiary (97% owned by the Company) incurred an operating loss of $1.1 in first quarter 2026 compared to an operating loss of $0.6 in first quarter 2025. Company management expects the competitive and business challenges in Spain to continue, but is undertaking an in-depth evaluation of the business to ascertain the best course of action for the business. Management believes that operating losses at its Spanish subsidiary are expected to continue beyond 2026 and that these future losses, as well as some capital expenditures, will likely require additional cash financing.

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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 first quarter 2026. Although Management has not identified any trigging 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.

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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 July 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 2025 and will be until the plan year ending in 2051 as a result of the Special Financial Assistance received.

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Based on these updated notices, the Plan's funded percentage (plan investment assets as a percentage of plan liabilities), as defined, were 45.2%, 47.0%, and 49.3% as of January 1, 2024, 2023, and 2022, 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 actual market value of Plan investments as of these dates. If the market value of investments had been used as of January 1, 2024, the funded percentage would be 41.7% (not 45.2%). Note that these funded percentages do not include the Special Financial Assistance.

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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. As discussed below, the Plan was granted $3.4 billion in Special Financial Assistance in July 2024. 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.

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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.

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The Company's pension expense for this Plan for first quarter 2026 and 2025 was $749 and $698, respectively. This expense includes surcharges of $264 and $246 for first quarter 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.

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The Plan advised the Company that it was granted approximately $3.4 billion in Special Financial Assistance funds and received those funds in July 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. 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 continue to be limited to the twenty annual payments previously discussed and that those payments will not be affected by Special Financial Assistance regulation.

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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.

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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. During fourth quarter 2025, tariffs on cocoa were rescinded and therefore we should realize some additional cost reductions on these purchases in 2026. 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 if and when the appropriate authorities fully execute a process to do so. The Company intends to record any refund benefits when such funds are received.

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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.

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LIQUIDITY AND CAPITAL RESOURCES

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Net cash flows provided by operating activities were $11,494 and $3,602 in first quarter 2026 and 2025, respectively, a favorable increase of $7,892. The increase in cash flows from operating activities principally reflects changes in working capital primarily relating to the timing of income tax payments and prepaid expenses during the comparative periods. The change in income taxes payable reflects the timing of income taxes paid in the first quarter of 2025 compared to the second quarter of 2026.

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Cash flows used in investing activities reflect $19,906 and $13,110 of purchases of available for sale securities during first quarter 2026 and 2025, respectively, and $14,150 and $11,727 of sales and maturities of available for sale securities during first quarter 2026 and 2025, respectively. First quarter 2026 and 2025 investing activities also include capital expenditures of $8,204 and $2,852, 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 its higher 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. During the first quarter of 2026, we incurred $3,300 of capital expenditures relating to this expansion. 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, 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.

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The Company's condensed consolidated financial statements include bank borrowings of $951 and $975 at March 31, 2026 and 2025, respectively, all of which relate to its Spanish subsidiary. The Company had no other outstanding bank borrowings at March 31, 2026 and 2025.

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Financing activities include Company common stock purchases and retirements of $0 and $6,483 in first quarter 2026 and 2025, respectively. Cash dividends of $13,138 and $12,781 were paid in first quarter 2026 and 2025, respectively.

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The Company's current ratio (current assets divided by current liabilities) was 3.6 to 1 at March 31, 2026 compared to 3.3 to 1 at December 31, 2025 and 4.2 to 1 at March 31, 2025. Net working capital was $232,649 at March 31, 2026 compared to $223,016 and $250,938 at December 31, 2025 and March 31, 2025, respectively. Included in net working capital is cash and cash equivalents and short-term investments totaling $169,731 at March 31, 2026 compared to $176,633 and $176,607 at December 31, 2025 and March 31, 2025, respectively. In addition, long term investments, principally debt securities comprising corporate bonds, were $426,113 at March 31, 2026, as compared to $437,114 and $330,949 at December 31, 2025 and March 31, 2025, respectively. Aggregate cash and cash equivalents and short and long-term investments were $595,844, $613,747, and $507,556, at March 31, 2026, December 31, 2025 and March 31, 2025, respectively, including $114,546, $121,541, and $100,892 at March 31, 2026, December 31, 2025 and March 31, 2025, respectively, relating to trading securities which are used as an economic hedge for the Company's deferred compensation liabilities.

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Investments in available for sale securities, primarily high-quality corporate bonds that matured during first quarter 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 $(1,800) and $3,300 at March 31, 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 losses on individual investments (see also Item 3 below, QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK).

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The Company periodically contributes to a VEBA trust, managed and controlled by the Company, to fund the estimated future costs of certain employee health, welfare and other benefits. The Company funded $20,000 to the VEBA trust in 2023. No contribution was made during first quarter. 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 $7,411, $8,953 and $14,090 of aggregate cash and cash equivalents at March 31, 2026, December 31, 2025 and March 31, 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.

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ACCOUNTING PRONOUNCEMENTS

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

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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.

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FORWARD-LOOKING STATEMENTS

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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 ability to recover increases in input costs through price increases and restoring margins, the overall competitive environment in the Company's industry, successful distribution and sell-through during Halloween and other seasons, the availability of cocoa and chocolate at reasonable prices given that these markets are significantly elevated and volatile, and changes in assumptions, judgments and risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2025.

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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.

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