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Item 7. Management’s Discussion and Analysis

2025-05-30 compared with 2024-05-29 · 160 added, 170 removed, 445 unchanged (43% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, Part I, Item 1, “Business” and Item 8, “Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results, or cause actual results to differ materially from any forward-looking statements, see “General,” and Part I, Item 1A, “Risk Factors.”

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, Item 1, “Business” and Item 8, “Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results, or cause actual results to differ materially from any forward-looking statements, see Item 1A, “Risk Factors.”

Universal Corporation is a global business-to-business agriproducts company with over 100 years of experience supplying products and innovative solutions to meet our customers’ evolving needs.

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Tobacco Operations and Ingredients Operations.

• Our Tobacco Operations maintained its position as the leading global leaf tobacco supplier, and primarily focuses on procuring and processing flue-cured, burley, dark air-cured, and oriental leaf tobacco for consumer product manufacturers.

• Our Ingredients Operations specializes in sourcing and processing vegetable and fruit ingredients, flavorings, and botanical extracts for consumer packaged goods manufacturers, retailers, and food and beverage companies.

In fiscal year 2024, we continued our investments in our platform, including in our commercial sales team, research and development function, and ongoing construction of our Lancaster, Pennsylvania facility expansion project.

• Our Tobacco Operations segment delivered very strong results in fiscal year 2025 and maintained its position as the leading global leaf tobacco supplier.

This segment primarily focuses on procuring and processing flue-cured, burley, dark air-cured, and oriental leaf tobacco for consumer product manufacturers.

• Our Ingredients Operations segment specializes in sourcing and processing vegetable and fruit ingredients, flavorings, and botanical extracts for consumer packaged goods manufacturers, retailers, and food and beverage companies.

In fiscal year 2025, this segment continued to increase its capabilities through the growth of its sales, marketing, and product development teams and the completion of a major expansion project that furthers our ability to deliver innovative, custom products to our customers.

RESULTS OF OPERATIONS

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These measures are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for operating income (loss), net income (loss) attributable to Universal Corporation, diluted earnings (loss) per share, cash from operating activities or any other operating or financial performance measure calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies.

A reconciliation of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below.

In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 17.

"Operating Segments" to the consolidated financial statements in Item 8.

Reconciliations of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below.

In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 16 to the consolidated financial statements in Item 8.

Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits.

We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, provide investors with important information that is useful in understanding our business results and trends.

References to net debt, net capitalization, and net debt to net capitalization ratio are also references to non-GAAP financial measures.

These measures are not financial measures calculated in accordance with GAAP and should not be considered substitutes for total debt, total capitalization, total debt to total capitalization ratio, or any other operating or financial performance measures calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies.

Reconciliations of net debt to total debt and net capitalization to total capitalization are provided in Other Items below.

We believe these non-GAAP measures are meaningful indicators of our liquidity and financial position.

Fiscal Year Ended March 31, 2025, Compared to the Fiscal Year Ended March 31, 2024

Executive Summary

Universal Corporation had a positive finish to a strong fiscal year 2024 with notable financial and operational performance in the fiscal year ended March 31, 2024.

Fiscal year 2024 was an exceptional year for our tobacco business, as a favorable product mix, strong customer demand, and the sale of larger crops in Africa, compared to fiscal year 2023, drove our strong operating results.

Fiscal year 2024 was also a significant building year for our ingredients business.

We made important progress with our state-of-the-art expansion project, and we continued to invest in Universal Ingredients’ commercial sales team and research and development function.

We also made advances in fiscal year 2024 towards our sustainability goals by entering agreements that move us closer to our operational emissions targets and by making continued progress towards our social supply chain targets.

Turning to current tobacco market conditions, while we expect leaf tobacco supply and demand to return to a more balanced position over time, we are currently seeing very tight tobacco supply and elevated green tobacco prices.

We continue to leverage our diverse global footprint and financial flexibility to manage these conditions and to execute our tobacco strategies.

For example, during the fourth quarter of fiscal year 2024 and into the first quarter of fiscal year 2025, we accelerated buying in Brazil to ensure access to the tobacco we need for our customers.

This accelerated buying, combined with higher green tobacco

prices, resulted in increased use of working capital and higher debt levels at March 31, 2024.

We expect most of the net impact on working capital from our accelerated buying strategy to naturally unwind over the next two years.

In addition, we remain committed to supporting our tobacco business while efficiently managing working capital and reducing leverage levels.

In our ingredients business, the expansion project at our Lancaster manufacturing facility is progressing as expected, and we anticipate the facility to be fully operational in the second half of fiscal year 2025.

We are excited about this unique project as it will significantly expand our processing capabilities, including aseptic packaging, and enable us to considerably grow our product portfolio and supply existing and new customers with additional products.

This project is expected to contribute meaningfully to the results of our Ingredients Operations segment in fiscal year 2026.

Our vision for our ingredients business is to be a provider of a complete, innovative suite of solutions and value-add products.

We believe our investments in our Universal Ingredients platform’s commercial sales team and research and development function support our vision and will deliver value over time.

During fiscal year 2024, we entered several new partnerships to supply innovative products that capitalize on our newly developed capabilities and portfolio across our three ingredients companies.

Those new customer relationships and new product sales benefited our ingredients business by helping offset lower revenues from sales in fiscal year 2024 due to inventory recalibrations by existing customers and lower sales prices due to lower raw material prices.

Earnings in fiscal year 2024, however, were below expectations due to higher costs related to our infrastructure investments, lower new crop raw material prices, inventory write-downs, and customer inventory recalibrations.

We expect our new product sales to increase and contribute to our future earnings.

Going into fiscal year 2025, we remain steadfast in executing our strategy of maximizing tobacco opportunities while growing the ingredients business.

We believe our leading market position, global footprint, and proven sustainability practices will continue to enable us to generate stable cash flow from our tobacco business.

Universal Ingredients is also well positioned with its fully built platform to deliver high-quality, innovative products that drive top line growth, margin expansion, and earnings stability.

Fiscal year 2025 was an exceptional year for Universal.

Revenues and operating income increased by 7% and 5%, respectively, in fiscal year 2025, compared to a very strong fiscal year 2024.

We executed against our business plan and increased revenue and operating income on a consolidated basis and for both of our operating segments.

The improved results for our Tobacco Operations segment were driven by continued strong demand from our customers, successful global tobacco marketing and procurement efforts, as well as improved volumes and quality of burley crops in Africa.

Our Ingredients Operations segment benefited from higher sales volumes, including increases in sales of value-added products, supported by increased capabilities from the growth in our sales, marketing, and product development teams, and the completion of the expansion project at our

Lancaster, Pennsylvania facility.

We are very encouraged by the interest we are seeing from customers in our newly produced and developed value-added ingredient products.

As we move into fiscal year 2026, we foresee continued strong demand for tobacco and larger tobacco crops shifting global markets to more balanced tobacco supply positions.

We are also continuing our progress with Universal Ingredients and supporting existing and new customers with our platform resources and our expanded and enhanced ingredients facility.

We are excited about the prospects for the year ahead as we seek to further maximize and optimize our tobacco business, grow our ingredients business, and strengthen our company to drive increasing value for all Universal stakeholders.

FINANCIAL HIGHLIGHTS

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*See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below.

Net income for the fiscal year ended March 31, 2024, was $119.6 million, or $4.78 per diluted share, compared with $124.1 million, or $4.97 per diluted share, for the fiscal year ended March 31, 2023.

Excluding certain non-recurring items, as detailed in Other Items below, adjusted net income increased by $33.0 million and adjusted diluted earnings per share increased by $1.31 for the fiscal year ended March 31, 2024, compared to the fiscal year ended March 31, 2023.

Operating income for fiscal year 2024 was $222.0 million, an increase of $40.9 million, compared to operating income of $181.1 million for fiscal year 2023.

Adjusted operating income, detailed in Other Items below, was $230.3 million, an increase of $49.2 million for fiscal year 2024, as compared to fiscal year 2023.

Consolidated revenues increased by $178.7 million to $2.7 billion for fiscal year 2024, compared to fiscal year 2023.

The increase was largely due to higher tobacco sales prices, which more than offset lower tobacco sales volumes, as well as an improved product mix in the Tobacco Operations segment.

Tobacco Operations

Revenues for the Tobacco Operations segment were $2.4 billion for fiscal year 2024, up $180.5 million compared to fiscal year 2023, on higher tobacco sales prices and a favorable product mix, partially offset by lower tobacco sales volumes.

Operating income for the Tobacco Operations segment increased by $49.5 million to $222.4 million for fiscal year 2024, compared with fiscal year 2023.

Tobacco Operations segment operating income was up largely on higher tobacco sales prices and a more favorable product mix, partially offset by lower tobacco sales volumes.

In fiscal year 2023, a large amount of lower margin carryover tobacco crops was shipped.

Larger African crops positively impacted the results for the Tobacco Operations segment in fiscal year 2024.

Carryover crop shipments from South America were significantly lower in fiscal year 2024, compared to fiscal year 2023.

In fiscal year 2024, our operations in Asia saw an improved product mix, compared to fiscal year 2023.

Selling, general, and administrative expenses for the Tobacco Operations segment were higher in fiscal year 2024, compared to fiscal year 2023, primarily due to higher incentive compensation and benefit costs, as well as unfavorable foreign currency comparisons and costs related to a value-added tax settlement program in Brazil.

Ingredients Operations

Revenues for the Ingredients Operations segment of $309.8 million for fiscal year 2024 were down $1.8 million, compared to fiscal year 2023, as the sales of new products partially offset lower sales prices and volumes on core products.

Operating income for the Ingredients Operations segment was $4.0 million for fiscal year 2024 compared to $10.6 million for fiscal year 2023.

Results for the Ingredients Operations segment for fiscal year 2024 were negatively impacted by higher costs related to infrastructure investments in the ingredients platform, lower new crop raw material prices, and inventory write-downs, partially offset by margins from the sale of new products.

Customer inventory recalibrations mainly in the first half of the fiscal year 2024 also negatively impacted fiscal year 2024.

In the fiscal year ended March 31, 2024, selling, general, and administrative expenses were higher, compared to the same periods in fiscal year 2023, due to higher compensation and other costs largely related to our investment in expanding commercial and research and development capabilities.

Cost of goods sold in the fiscal year ended March 31, 2024, increased by 5% to $2.2 billion, compared with the fiscal year ended March 31, 2023, largely due to higher green tobacco costs.

Selling, general, and administrative costs for fiscal year 2024 increased by $33.4 million to $310.6 million, compared to fiscal year 2023, primarily due to higher incentive compensation costs as well as unfavorable foreign currency comparisons and costs related to a value-added tax settlement program in Brazil.

Interest expense for fiscal year 2024 increased by $17.0 million to $66.3 million, compared to fiscal year 2023, primarily on higher interest rates.

For the fiscal year ended March 31, 2024, our effective tax rate on pre-tax income was 19.0%.

For the fiscal year ended March 31, 2023, our effective tax rate on pre-tax income was 8.3%.

In fiscal year 2023, one of our subsidiaries in Brazil received a favorable final judgement from the Brazilian Superior Court of Justice.

The lawsuit asserted certain tax credits on exported goods should be excluded from taxable income.

The Brazilian revenue authority asserted certain tax credits generated on purchased goods and services that were ultimately exported from Brazil should be included in the calculation of taxable income.

The Brazilian Superior Court of Justice affirmed the tax credits are non-taxable in accordance with the historical and existing tax legislation in Brazil.

The ruling resulted in recognition of $26.6 million of Brazilian tax credits due to the recalculation of federal income taxes in Brazil for years 2015 through 2022.

The net income tax benefit was partially offset by a $2.4 million income tax provision for U.S.

federal income taxes.

The ruling resulted in a net income tax benefit of $24.2 million for the fiscal year ended March 31, 2023.

The affirmative ruling also resulted in recognition of $5.0 million of interest income for the fiscal year ended March 31, 2023.

In the fiscal year ended March 31, 2023, we sold our idled Tanzania operations and recognized $1.1 million of income taxes.

Without this item and the favorable judgement in Brazil discussed above, the consolidated effective income tax rate for the fiscal year ended March 31, 2023, would have been approximately 25.5%.

Additionally, the sale of our idled Tanzania operations resulted in a $1.8 million reduction to consolidated interest expense related to an uncertain tax position.

Consolidated Results

Revenues and operating income for fiscal year 2025, increased by 7%, or $198.7 million, and by 5%, or $10.8 million, respectively, compared to fiscal year 2024, driven by improved performance in both the Tobacco Operations and Ingredients Operations segments.

Selling, general, and administrative expenses were down by 2%, or $5.3 million, on $12.2 million of higher recoveries of farmer advances, the absence of $4.8 million in costs related to the settlement of a value-added tax settlement program in fiscal year 2024, and $3.5 million of lower compensation costs, offset in part by $8.2 million of higher legal and professional fees and $7.2 million of higher sales commissions.

Adjusted operating income was up by 6%, or $13.1 million, in fiscal year 2025, compared to fiscal year 2024, largely on strong performance in the Tobacco Operations and Ingredients Operations segments.

Adjusted net income attributable to Universal Corporation was down by 9%, or $10.8 million, for fiscal year 2025, compared to fiscal year 2024, primarily on a $14.1 million pension settlement change and a $13.4 million increase in interest expense on higher average debt balances, offset in part by $8.3 million in increased equity in pretax earnings from unconsolidated affiliates.

Tobacco Operations Segment

Revenues for the Tobacco Operations segment increased by 7%, or $169.9 million, and operating income for the segment increased by 8%, or $17.8 million, in fiscal year 2025, compared to fiscal year 2024.

Customer demand continued to be strong in fiscal year 2025, and tobacco procurement and marketing efforts were successful.

Tobacco average sales prices increased 12%, and tobacco sales volumes decreased slightly, about 4%, in fiscal year 2025, compared to fiscal year 2024.

Tobacco Operations segment results reflected larger, higher quality, better yielding crops from Africa;

higher sales of carryover crops;

weather-reduced crop sizes in Brazil and the United States in fiscal year 2025;

and $13.4 million of higher tobacco inventory write-downs, compared to fiscal year 2024.

Selling, general, and administrative expenses were $0.2 million lower in fiscal year 2025, compared to fiscal year 2024, largely on $12.2 million of higher net recoveries of farmer advances and the absence of $4.8 million in costs related to the settlement of a value-added tax settlement program in fiscal year 2024, offset in part by $7.2 million of higher sales commissions and $7.2 million of higher legal and professional fees.

Ingredients Operations Segment

Revenues and operating income for the Ingredients Operations segment increased by 9%, or $28.8 million, and 212%, or $8.4 million, respectively, in fiscal year 2025, compared to fiscal year 2024.

Results for fiscal year 2025 for the Ingredients Operations segment reflected increased sales of new products, higher sales in the fourth fiscal quarter due to anticipated tariffs, as well as lower inventory write-downs of $2.8 million, compared to fiscal year 2024.

We also continued to see a high level of interest in our value-added products and increased sales volumes for certain new products, particularly in the beverage category in fiscal year 2025, compared to fiscal year 2024, reflecting the effectiveness of platform investments.

Additional Items

Cost of goods sold increased by 8%, or $186.2 million, in fiscal year 2025, compared to fiscal year 2024, largely on higher tobacco prices and a $10.5 million increase in inventory write-downs.

Restructuring and impairment costs of $10.6 million in fiscal year 2025 were related to the previously announced consolidation of the Company’s European tobacco sheet operations.

In March 2025, we completed a pension de-risking transaction or “pension lift-out” to transfer approximately $47 million of our Company-sponsored defined benefit pension plan obligations and assets to a third-party insurer through the purchase of a non-participating annuity.

The obligations transferred to the third-party insurer covered the respective benefit obligations for a subset of retirees currently receiving benefit payments.

The transaction triggered settlement accounting that required us to immediately recognize a portion of the accumulated comprehensive losses associated with the defined benefit pension plan.

The non-cash pension settlement charge of $14.1 million was recognized in our consolidated statements of income for the fiscal year ended March 31, 2025.

The consolidated effective tax rate for fiscal year 2025 was 26.6%.

The consolidated effective tax rate for fiscal year 2024 was 19%.

The consolidated effective tax rate for fiscal year 2025 was higher than the consolidated tax rate for fiscal year 2024 due to various factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes coupled with an minimal income tax benefit associated with the restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.

Sustainability

In fiscal year 2024, Universal continued making progress towards our sustainability goals.

We made progress towards our operational emissions targets.

We also entered into a virtual power purchase agreement, which will generate renewable electricity equal to our North American footprint beginning in 2026, and entered into an emission reduction agreement expected to provide benefits to tobacco growing areas in the Philippines, which will offset a portion of our emissions in Asia beginning in 2025.

We continued monitoring our social supply chain targets, and for the second year in a row, substantially met our personal protective equipment distribution, farm labor accommodation, child labor elimination, and farm labor payment goals for our contracted tobacco growers.

Universal released its 2024 Sustainability Report in December 2024, highlighting our efforts in advancing energy efficiency, strengthening supply chain resiliency and continuing to be a strong partner for its farming communities.

Universal’s business strategy integrates responsible business practices, and we believe our commitment to sustainability is a competitive advantage in the global marketplace.

As disclosed in our 2024 Sustainability Report, we continue to support our supply chain sustainability goals and have substantially met our existing targets of zero child labor, appropriate labor accommodations, farm worker minimum wage payments, and personal protective equipment access.

Universal’s leaf technicians made over 1.8 million visits to more than 175,000 contracted farmers to maintain our visibility and traceability in our supply chain.

We also continue to enhance transparency and collaboration with our stakeholders by reporting to the Sustainable Tobacco Program.

Universal has trained over 175,000 farmers on Good Agricultural Practices and Agricultural Labor Practices to advance environmental and human rights best practices throughout our contracted farmer base.

Reconciliation of Certain Non-GAAP Financial Measures

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Restructuring and impairment costs (2)

Pension settlement charge (3)

Interest expense for value-added tax settlement (1)

Interest income related to final income tax ruling at a foreign subsidiary (3)

Interest expense reversal on uncertain tax position from sale of operations in Tanzania — (1,816)

Total of Non-GAAP adjustments to income before income taxes 24,674 8,522

Income tax benefit on final tax ruling at a foreign subsidiary (3)(4)

Income tax expense from sale of operations in Tanzania — 1,132

Income tax benefit from Non-GAAP adjustments to income before income taxes (4)

Income tax benefit from value-added tax settlement (1)(4)

Income tax benefit from restructuring and impairment costs (2)(4)

Income tax benefit from pension settlement charge (3)(4)

Total of income tax impacts for Non-GAAP adjustments to income before income taxes and Non-GAAP adjustment to income taxes (4)

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See Note 3 for additional information.

(3) The Company recognized an income tax benefit ($24.2 million) and associated interest income ($5.0 million) in the fourth quarter of fiscal year 2023 related to a favorable final judgement for one of the Company's operating subsidiaries in Brazil.

The lawsuit related to the treatment of certain tax credits on exported goods in the calculation of taxable income.

(3) In March 2025, the Company completed a pension de-risking transaction or “ pension lift-out ” to transfer approximately $47 million of its qualified domestic pension plan obligations and assets to a third-party insurer through the purchase of a non-participating annuity.

The obligations transferred to the third-party insurer covered the respective benefit obligations for a subset of retirees currently receiving benefit payments.

The transaction triggered settlement accounting that required the Company to immediately recognize a portion of the accumulated comprehensive losses associated with the defined benefit pension plan.

(4) The income tax effect of Non-GAAP adjustments was determined based on the timing and nature of the specific Non-GAAP adjustments and their relevant jurisdictional income tax rates (foreign, state, and local) and the applicable U.S.

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The Company considers current and deferred income tax rates to calculate the impact to income taxes for the Non-GAAP adjustments.

The following table reconciles total debt to net debt and net capitalization:

Net Debt and Net Capitalization Reconciliation

March 31, March 31,

(in thousands) 2025 2024

Notes payable and overdrafts $ 455,039 $ 417,217

Long-term obligations 617,918 617,364

Current portion of long-term obligations — —

Total Debt 1,072,957 1,034,581

Customer advances and deposits 3,763 17,179

Cash and cash equivalents 260,115 55,593

Net Debt (Non-GAAP) $ 816,605 $ 996,167

Total Universal Corporation shareholders’ equity

1,458,556 1,437,207

Net Capitalization (Non-GAAP) $ 2,275,161 $ 2,433,374

Net Debt/Net Capitalization (Non-GAAP) 36 % 41 %

Fiscal Year Ended March 31, 2024, Compared to the Fiscal Year Ended March 31, 2023

For a comparison of our performance and financial metrics for the fiscal years ended March 31, 2023 and March 31, 2022, see “Part II, Item 7.

For a comparison of our performance and financial metrics for the fiscal years ended March 31, 2024 and March 31, 2023, see Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the SEC on May 29, 2024.

Accounting Pronouncements

See "Accounting Pronouncements" in Note 1 to the consolidated financial statements in Item 8 of this Annual Report for a discussion of recent accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") that will become effective and be adopted by the Company in future reporting periods.

See “Accounting Pronouncements” in Note 1 to the consolidated financial statements in Item 8 of this Annual Report for a discussion of recent accounting pronouncements issued by the Financial Accounting Standards Board that will become effective and be adopted by the Company in future reporting periods.

LIQUIDITY AND CAPITAL RESOURCES

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We continued our financial policies and disciplines and returned funds to shareholders.

Accelerated tobacco purchases due to market conditions in Brazil in the last quarter of fiscal year 2024 increased our fiscal year 2024 working capital usage.

Most of the tobacco purchased during the fourth quarter of fiscal year 2024 will be sold during our fiscal year 2025.

Our working capital requirements in fiscal year 2024 were also higher than those in fiscal year 2023 due to increased cash outlays, including higher leaf tobacco costs.

Due to market conditions in Brazil, we made the strategic decision in the quarter ended March 31, 2024, to accelerate tobacco purchases there.

Therefore, some of our working capital investments for the Brazil crop that typically would have been made in our fiscal year 2025, were made in our fiscal year 2024, reducing required working capital in fiscal year 2025.

Our liquidity and capital resource requirements are predominately short-term in nature and primarily relate to working capital for tobacco crop purchases, and our primary sources of liquidity are net cash flows provided by operating activities and our committed revolving credit facility.

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We also periodically may have large cash balances that we utilize to meet our working capital requirements.

We believe that our financial resources are adequate to support our capital and liquidity needs for at least the next twelve months.

Our seasonal borrowing requirements primarily relate to purchasing tobacco crops in South America and Africa and can increase during the buying season for those crops by close to $400 million.

We believe that our financial resources are adequate to support our anticipated capital and liquidity needs for the upcoming next 12 months and beyond.

Our seasonal borrowing requirements primarily relate to purchasing tobacco crops in South America and Africa and can increase during the buying season for those crops by up to $400 million.

The funding required can vary significantly depending upon such factors as crop sizes, the price of leaf, the relative strength of the U.S.

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We deal with this uncertainty by maintaining substantial credit lines and cash balances.

In addition to our operating requirements for working capital, we expect to spend around $55 to $65 million during fiscal year 2025 for capital expenditures to maintain our facilities and invest in opportunities to grow and improve our businesses, including completing the project to expand Universal Ingredients' manufacturing capabilities at our Lancaster facility.

We have no long-term debt maturing until fiscal year 2028.

Our operations used about $74.6 million in operating cash flows in fiscal year 2024.

That amount was about $70.1 million higher than the $4.6 million we used in fiscal year 2023, largely due to accelerated tobacco purchasing in Brazil which led to higher working capital requirements in fiscal year 2024.

During the fiscal year ended March 31, 2024, we spent $66.0 million on capital projects, and we returned $83.1 million to shareholders in the form of dividends and share repurchases.

In addition to our operating requirements for working capital, we make capital expenditures to maintain our facilities and invest in opportunities to grow and improve our businesses.

Our operations generated about $327.0 million in operating cash flows in fiscal year 2025.

That amount was about $401.6 million higher than the $74.6 million we used in fiscal year 2024, primarily on lower working capital requirements in fiscal year 2025, due to accelerated tobacco purchasing in Brazil in fiscal year 2024.

During the fiscal year ended March 31, 2025, we spent $62.6 million on capital projects, and we returned $79.7 million to shareholders in the form of dividends.

At March 31, 2025, cash balances totaled $260.1 million.

Working Capital

Working capital at March 31, 2024, was about $1.4 billion, up about $30.3 million from last fiscal year's level, largely on higher working capital requirements due to accelerated tobacco purchases in Brazil and other higher cash outlays, including higher green tobacco costs.

Tobacco inventories of $1.1 billion at March 31, 2024, were up $236.7 million compared to inventory levels at the end of the prior fiscal year, in large part due to accelerated tobacco purchases and higher green leaf tobacco prices.

Advances to suppliers were down $31.8 million at March 31, 2024, from prior year levels largely on lower crop input costs and accelerated tobacco purchases.

Working capital at March 31, 2025, was about $1.4 billion, up about $14.8 million from last fiscal year’s level, as higher cash and account receivable balances largely offset lower tobacco inventory levels.

Tobacco inventories of $806.3 million at March 31, 2025, were down $264.2 million compared to inventory levels at the end of the prior fiscal year, due to accelerated tobacco purchases in fiscal year 2024.

Advances to suppliers were up $30.3 million at March 31, 2025, from prior year levels largely on higher crop costs in fiscal year 2025.

We generally do not purchase material quantities of leaf tobacco on a speculative basis.

However, when we contract directly with tobacco farmers, we are obligated to buy all stalk positions, which may contain less marketable leaf styles.

Our uncommitted tobacco inventories increased by approximately $90.1 million to $181.1 million, or about 17% of tobacco inventory, at March 31, 2024, compared to March 31, 2023 levels, largely on the accelerated tobacco purchases in Brazil.

Our uncommitted tobacco inventories decreased by approximately $17.2 million to $164.0 million, or about 20% of tobacco inventory, at March 31, 2025, compared to March 31, 2024 levels.

Uncommitted inventories at March 31, 2024, were $181.1 million, which represented 17% of tobacco inventory.

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• Increasing our strong dividend;

• Exploring growth opportunities for our plant-based ingredients platform;

• Exploring growth opportunities for our plant-based ingredients business;

• Returning excess capital through share repurchases.

We have been positioning our company for the future by investing in and growing our Universal Ingredients platform, while leveraging our position as the leading global leaf tobacco supplier to maximize opportunities in the leaf tobacco business.

We will continue to make disciplined investments to take advantage of growth opportunities in tobacco and in our ingredients business.

We intend to continue to make disciplined investments to take advantage of growth opportunities in tobacco and in our

ingredients business.

Through these actions, we believe we will be able to deliver enhanced shareholder value through earnings growth and the generation of free cash flow despite operating in a mature tobacco industry.

As we look ahead, we will continually evaluate opportunities to return capital to shareholders.

As we look ahead, we intend to continue to evaluate opportunities to return capital to shareholders.

Share Activity

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Repurchases of shares under the repurchase program may vary based on management discretion, as well as changes in cash flow generation and availability.

During fiscal year 2024, we purchased 100,000 shares of common stock at an aggregate cost of $4.7 million (average price per share $47.44).

We did not repurchase any shares of common stock in fiscal year 2025.

At March 31, 2025, our available authorization under our current share repurchase program was $100 million, and approximately 24.7 million common shares were outstanding.

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During fiscal years 2025 and 2024, we invested $66.6 million and $66.0 million, respectively, in our property, plant, and equipment.

Capital expenditures in fiscal year 2024 included investments to expand Universal Ingredients' manufacturing capabilities in Lancaster.

Capital expenditures in fiscal years 2025 and 2024 included investments to expand Universal Ingredients’ manufacturing capabilities in Lancaster, Pennsylvania.

Depreciation expense was approximately $48.7 million and $47.1 million, respectively, in fiscal years 2025 and 2024.

Typically, our capital expenditures for maintenance projects are less than $30 million per fiscal year.

We currently plan to spend approximately $55 to $65 million in fiscal year 2025 on capital projects for maintenance of our facilities and other investments to grow and improve our businesses, including the completion of the Universal Ingredients expansion project.

We currently plan to spend approximately $45 to $55 million in fiscal year 2026 on capital projects for maintenance of our facilities and other investments to grow and improve our businesses.

Outstanding Debt and Other Financing Arrangements

At March 31, 2025, we had $1.1 billion in total debt outstanding, an increase of $38.4 million, compared to March 31, 2024 levels.

We consider the sum of notes payable and overdrafts, long-term debt (including any current portion), and customer advances and deposits, less cash, cash equivalents, and short-term investments on our balance sheet to be our net debt.

We also consider our net debt plus shareholders’ equity to be our net capitalization.

Net debt increased by $245.4 million to $996.2 million during the fiscal year ended March 31, 2024.

The increase reflects higher working capital requirements.

Net debt as a percentage of net capitalization was approximately 41% at March 31, 2024, up from 35% at March 31, 2023.

Net debt decreased by $179.6 million to $816.6 million during the fiscal year ended March 31, 2025.

The decrease in net debt reflects lower working capital requirements.

Net debt as a percentage of net capitalization was 36% at March 31, 2025, down from 41% at March 31, 2024.

As of March 31, 2025, we had $270 million available under the committed revolving credit facility that will mature in December 2027, and we, together with our consolidated affiliates, had approximately $466 million in uncommitted lines of credit, of which approximately $271 million were unused and available to support seasonal working capital needs.

The financial covenants under our committed revolving credit facility require us to maintain certain levels of tangible net worth and observe restrictions on debt levels.

As of March 31, 2024, we were in compliance with all covenants of our debt agreements.

We also have an effective, undenominated universal shelf registration filed with the SEC in November 2023 that provides for future issuance of additional debt or equity securities.

Based on our March 31, 2025 financial statements, we were in compliance with all financial covenants of our debt agreements as of March 31, 2025.

We have no long-term debt maturing until fiscal year 2028.

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We generally account for our hedges of forecasted tobacco purchases as cash flow hedges.

At March 31, 2024, the fair value of those open contracts was a net asset of approximately $0.1 million.

We also had other forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net asset of approximately $0.2 million at March 31, 2024.

At March 31, 2025, the fair value of those open contracts was a net liability of approximately $5.2 million.

We also had other forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net liability of approximately $1.1 million at March 31, 2025.

For additional information, see Note 10 to the consolidated financial statements in Item 8.

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defined benefit pension plan at March 31, 2025, were approximately $160 million.

The accumulated benefit obligation (“ABO”) and PBO were both approximately $200 million and $205 million,

respectively as of March 31, 2024.

The accumulated benefit obligation (“ABO”) and PBO were approximately $140 million and $150 million, respectively, as of March 31, 2025.

The ABO and PBO are calculated on the basis of certain assumptions that are outlined in Note 12 to the consolidated financial statements in Item 8.

We expect to make no contributions to our ERISA-regulated pension plan during the next year.

We expect to make no contributions to our ERISA-regulated pension plan

during the next fiscal year.

It is our policy to regularly monitor the performance of the funds and to review the adequacy of our funding and plan contributions.

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At each reporting period, we must make estimates and assumptions in determining the valuation allowance for advances to farmers.

At March 31, 2024, the gross

balance of advances to tobacco suppliers totaled approximately $162 million, and the related valuation allowance totaled approximately $20 million.

At March 31, 2025, the gross balance of advances to tobacco suppliers totaled approximately $189 million, and the related valuation allowance totaled approximately $18 million.

Recoverable Value-Added Tax Credits

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If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.

A majority of our consolidated goodwill balance relates to our reporting unit in Brazil and the acquisitions of FruitSmart, Silva, and Shank's.We review the carrying value of goodwill for potential impairment on an annual basis and at any time that events or business conditions indicate that it may be impaired.

As permitted under Accounting Standards Codification Topic 350 (“ASC 350”), at March 31, 2024, we utilized a quantitative assessment to evaluate goodwill for impairment.

A majority of our consolidated goodwill balance relates to our reporting unit in Brazil and the acquisitions of FruitSmart, Silva, and Universal Ingredients–Shank’s.

We review the carrying value of goodwill for potential impairment on an annual basis and at any time that events or business conditions indicate that it may be impaired.

Accounting Standards Codification Topic 350 (“ASC 350”) permits companies to base initial assessments of potential goodwill impairment on qualitative factors, and the Company elected to use that approach at March 31, 2025.

Those factors did not indicate that it was more likely than not that the fair value of any of the reporting units was less than their respective carrying value, therefore no potential impairment of the Company’s recorded goodwill was noted at March 31, 2025.

ASC 350 also allows companies to bypass the qualitative assessment and perform a quantitative assessment.

The quantitative goodwill assessment consists of comparing the fair value of each reporting unit to the carrying value of that reporting unit.

In the event that the carrying value of the reporting unit exceeds its fair value, an impairment of the reporting unit’s goodwill is recognized, up to the amount of goodwill allocated to that reporting unit.

Fair value was assessed using a discounted cash flow model, comprised of estimates of future cash flows and discount rates (Level 3 of the fair value hierarchy under GAAP).

The calculations in the discounted cash flow models are not based on observable market data from independent sources and therefore require significant management judgment with respect to operating earnings growth rates and the selection of an appropriate discount rate.

The Company elected to bypass the qualitative assessment and perform a quantitative assessment of goodwill impairment at March 31, 2024.

The quantitative goodwill assessment consists of comparing the fair value of each reporting unit to the carrying value of that reporting unit.

Fair value was assessed using a discounted cash flow model, comprised of

estimates of future cash flows and discount rates.

Based on this quantitative assessment, the Company determined there was no impairment of goodwill for any of its reporting units as of March 31, 2024.

In fiscal year 2023, as permitted under ASC 350, we elected to base our initial assessment of potential impairment on qualitative factors.

Those factors did not indicate any impairment of our recorded goodwill in fiscal year 2023.

Under the qualitative assessment, if any indicators of impairment had been determined we would then use discounted cash flow models to measure any expected impairment indicated by a quantitative assessment.

Significant adverse changes in our operations or our estimates of future cash flows for a reporting unit with recorded goodwill, such as those caused by unforeseen events or changes in market conditions, could result in an impairment charge.

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We incorporate credit risk in determining the fair values of our financial assets and financial liabilities, but that risk did not materially affect the fair values of any of those assets or liabilities at March 31, 2025.

We estimate the fair value of acquisition-related contingent consideration obligations by applying an income approach model that utilizes probability-weighted discounted cash flows.

Each period we evaluate the fair value of the acquisition-related contingent consideration obligations.

Significant judgment is applied to this model and therefore acquisition-related contingent consideration obligation is classified within Level 3 of the fair value hierarchy.

In fiscal year 2022, the evaluation of the contingent consideration for the FruitSmart acquisition resulted in the reduction of the remaining $2.5 million of contingent consideration of the original $6.7 million liability recorded in fiscal year 2020.

Our consolidated effective income tax rate is based on our expected taxable income, tax laws and statutory tax rates, prevailing foreign currency exchange rates, and tax planning opportunities in the various jurisdictions in which we operate.

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Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred or income taxes related to expenses that have not yet been recognized in the financial statements, but have been deducted in our tax return.

Deferred tax assets generally represent items that can be used as

a tax deduction or credit in future tax returns for which we have already recorded the tax benefit in our financial statements.

Deferred tax assets generally represent items that can be used as a tax deduction or credit in future tax returns for which we have already recorded the tax benefit in our financial statements.

We record valuation allowances for deferred tax assets when the amount of estimated future taxable income is not likely to support the use of the deduction or credit.

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For example, we have expanded our leaf purchasing, processing, value-added services, and grower support services in multiple origins in response to customer demand.

We have increased our product offerings to meet demand for natural wrappers and related services in the United States and Europe.

Focus on Cost Management

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These services include such things as buying station optimization, processing and blending to specific customer specifications or needs, storage of green or packed leaf tobacco, and logistical services.

There has been an increase in the level of direct purchasing, sorting, processing, and other value-added services that we provide our customers, notably in the United States,

Mexico, Brazil, Poland, Guatemala, the Dominican Republic, and the Philippines.

There has been an increase in the level of direct purchasing, sorting, processing, and other value-added services that we provide our customers, notably in the United States, Mexico, Brazil, Poland, Guatemala, the Dominican Republic, and the Philippines.

We believe this increase acknowledges the efficiencies and services that we bring to the entire supply chain.

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Flue-cured tobacco is produced in about 65 countries around the world, and burley tobacco is grown in about 45 countries.

However, over 80% of both the flue-cured tobacco grown outside of China and the worldwide burley tobacco production is sourced from the top ten growing areas for each type of tobacco.

However, over 80% of both the flue-cured tobacco grown outside of China and the worldwide burley tobacco production is sourced from the top 10 growing areas for each type of tobacco.

We believe that these moves to reduce sourcing areas and concentrate on major tobacco export markets are another way for the industry to increase efficiency and to reduce costs.

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Leaf Tobacco Supply

Flue-cured tobacco crops grown outside of China increased in fiscal year 2024 by about 20% to 1.7 billion kilos compared to fiscal year 2023, when production levels were below historical averages.

Global burley tobacco production at about 430 million kilos in fiscal year 2024, also increased compared to the burley crops grown in our fiscal year 2023.

Flue-cured tobacco production grown outside of China is projected to decrease by about 5%, and the global burley tobacco crop is projected to increase by about 3% in fiscal year 2025.

We estimate that as of March 31, 2024, industry uncommitted flue-cured and burley inventories, excluding China are at very low levels.

At this time, we believe that both flue-cured tobacco and burley tobacco supply remain in undersupply positions.

We also forecast that oriental tobacco production will decrease by about 6% and dark air-cured tobacco production will increase by about 16% in fiscal year 2025.

We believe both oriental tobaccos and dark air-cured tobaccos are in undersupply positions.

Flue-cured tobacco crops grown outside of China decreased in fiscal year 2025 by about 5% to 1.8 billion kilos, compared to fiscal year 2024.

Global burley tobacco production at about 469 million kilos in fiscal year 2025, increased by about 6% compared to the burley crops grown in our fiscal year 2024.

We estimate that as of March 31, 2025, industry uncommitted flue-cured and burley inventories, excluding China, continued to be at low levels, and flue-cured and burley tobaccos were in undersupply positions.

Flue-cured tobacco production grown outside of China is projected to increase by about 20%, and the global burley tobacco crop is projected to increase by about 35% in fiscal year 2026.

If these anticipated increases in flue-cured and burley crop production are realized, we believe that both flue-cured and burley tobaccos will move to a balanced, or possibly slight oversupply position.

We also forecast that oriental tobacco production will increase by about 9% and dark air-cured tobacco production will increase by about 6% in fiscal year 2026.

As of the date of the Annual Report, we believe oriental tobaccos are currently in an undersupply position but moving towards a more balanced position, and dark air-cured tobaccos are in a slight oversupply position.

Over the long term, we believe that global tobacco production will continue to move in line with slowly declining total demand.

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Leaf Tobacco Demand

Industry data from the TMA shows that over the five years ended in 2022, world consumption of cigarettes outside of China was relatively flat, growing at a compound annual growth rate of just under 1%, and consumption of American-blend cigarettes has been declining at a compound annual growth rate of 1.8%.

Industry data from the Nicotine Resource Consortium shows that over the five years ended in 2023, world consumption of cigarettes outside of China declined at a compound annual rate of just over 1%, and consumption of American-blend cigarettes

declined at a compound annual rate of about 2%.

We expect that near term global demand for leaf tobacco will slowly decline in line with global cigarette consumption.

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On a year-to-year basis, we are also susceptible to fluctuations in leaf supply due to crop sizes and leaf demand as manufacturers adjust inventories or respond to changes in cigarette markets.

We currently believe that the supply of flue-cured tobaccos and burley tobaccos are in an undersupply relative to anticipated demand.

We currently believe that the supply of flue-cured tobaccos and burley tobaccos are in an undersupply position relative to anticipated demand.

However, inventories held by our customers may affect their near-term demand for leaf tobacco.

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Diminishing social acceptance of tobacco use and increasing pressure from anti-smoking groups have cultivated a political environment that accepts greater regulations on tobacco products, particularly in the United States and the European Union.

While the impact of this cultural trend on our business is uncertain, the global acceptance of stringent regulations could reduce demand for tobacco products and have a material adverse effect on our results of operation.

While the impact of this cultural trend on our business is uncertain, the global acceptance of stringent regulations could reduce demand for tobacco products, which could have a material adverse effect on our business and results of operations.

Strengthened Global Cooperation in the Regulation on Tobacco Products

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Since its inception, the FCTC has continued to strengthen international cooperation and collaboration in tobacco control by advancing the implementation of the treaty’s 38 articles and increasing global participation.

At the tenth Conference of the Parties held in February 2024, the FCTC worked diligently to consider amendments to the agreement and track progress in the treaty’s implementation, particularly as it relates to environmental impacts and novel/emerging products.

While we cannot predict the extent or speed at which the efforts of the FCTC will reduce tobacco consumption, a proliferation of national laws and regulations spurred by the recommendations of the FCTC would likely reduce demand for both tobacco products and leaf.

At the tenth Conference of the Parties held in February 2024, the FCTC considered amendments to the agreement and track progress in the treaty’s implementation, particularly as it relates to environmental impacts and novel/emerging products.

The eleventh Conference of the Parties is scheduled for November 2025.

United States FDA’s Continued Enforcement of the Tobacco Control Act

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The Tobacco Act additionally prohibited characterizing flavors with the exception of menthol in cigarettes, restricted youth access to tobacco products, banned advertising claims regarding certain tobacco products, and established the Center for Tobacco Products.

Over the past decade, the FDA has focused on establishing the scientific foundation and regulatory framework for regulating tobacco products in the United States.

On May 10, 2016, the FDA released “deeming” regulations to extend FDA oversight over all tobacco products, including electronic nicotine delivery systems, cigars, hookah tobacco, pipe tobacco, dissolvables, and “novel and future products.” Additionally, Congress extended FDA’s authority to include regulation of tobacco products using synthetically manufactured nicotine in addition to naturally derived nicotine in March 2022.

Since the enactment of the Tobacco Act, the FDA has focused on establishing the scientific foundation and regulatory framework for regulating tobacco products in the United States.

Congress extended the FDA’s authority to include regulation of tobacco products using synthetically manufactured nicotine in addition to naturally derived nicotine in March 2022.

The regulations require tobacco product manufacturers to register tobacco products that were on the market on February 15, 2007, and to seek FDA authorization to sell any products modified or introduced after such date.

All submissions require manufacturers to list ingredients in their products.

In April 2022, the FDA released two proposed rules to advance product standards intended to ban menthol in cigarettes and characterizing flavors in cigars.

These proposed rules remain pending.

The flavored tobacco product category accounts for a significant percentage of the U.S.

market, and these product standards would likely impact future leaf demand if adopted.

It is also expected that if these bans are adopted, they will be challenged in the legal system so it is not possible at this time to predict when and if these bans will become effective.

In January 2025, the FDA released a proposed rule to lower nicotine levels in cigarettes and certain combusted tobacco products to minimally or nonaddictive levels.

This tobacco product standard would likely impact future leaf demand if adopted.

It is also expected that should this ban be adopted, it would be challenged in the legal system making it difficult to predict when and if this proposed rule would become effective.

Although less than 5% of cigarettes manufactured worldwide are consumed in the United States, the FDA is widely considered a global leader in the “science-driven” regulation of tobacco products.

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As novel tobacco products, such as e-cigarettes and heat-not-burn devices, emerge in the global market, governments are tasked with developing the appropriate, science-driven approach to regulation.

In 2017, then Commissioner of the FDA, Scott Gottlieb, announced a new regulatory approach for the regulation of tobacco products that embraced the placement of each product somewhere along a “continuum of risk”.

In 2017, the FDA announced a new regulatory approach for the regulation of tobacco products that embraced the placement of each product somewhere along a “continuum of risk”.

This comprehensive plan on nicotine use sought to facilitate an adult tobacco consumer’s switch from combustible cigarettes to less risky products found lower on the continuum.

As part of this regulatory scheme, the FDA approved the first “heat-not-burn” and “very-low nicotine” premarket tobacco applications to permit the sale of these products within the United States.

Furthermore, the FDA approved their first modified risk tobacco products applications to permit certain products in the heat-not-burn and smokeless categories to make modified exposure or risk claims.

As part of this regulatory scheme, the FDA approved the first “heat-not-burn”, “very-low nicotine cigarette”, “electronic nicotine delivery system”, and “nicotine pouch” premarket tobacco applications to permit the sale of these products within the United States.

Furthermore, the FDA approved modified risk tobacco products applications to permit certain products in the heat-not-burn and smokeless categories to make modified exposure or risk claims.

Although the WHO FCTC has not embraced the harm-reduction language in the treaty, a growing number of countries have established tobacco control strategies incorporating a continuum of risk concept.

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Further legislation proposing new or increased taxes on tobacco products is likely to continue.

In some cases, proposed legislation seeks to significantly increase existing taxes on tobacco products or impose new taxes on products that have not been subject to tax (e.g.

ENDS products and liquid nicotine).

Increases in product taxation may reduce the affordability of, and demand for, tobacco products, which will affect requirements for leaf tobacco by tobacco product manufacturers.

In some cases, proposed legislation seeks to significantly increase existing taxes on tobacco products or impose new taxes on products that have not been subject to tax (e.g., ENDS products and liquid nicotine).

Increases in product taxation could reduce the affordability of, and demand for, tobacco products, which will affect requirements for leaf tobacco by tobacco product manufacturers.

Changes in tax laws or the interpretation of tax laws can also affect our earnings.

For example, numerous foreign jurisdictions in which the Company operates have enacted or are in the process of enacting legislation related to the OECD’s Pillar Two model rules.

We continually monitor potential and enacted tax changes, including the implementation of Pillar Two legislation, in the countries in which we operate.

The impact of these potential new rules, as well as any other changes in domestic and international tax rules and regulations, could have a material effect on our effective tax rate.

For example, many countries in which the Company operates have enacted or are in the process of enacting legislation related to the OECD’s guidance.

We continually monitor potential and enacted tax law changes in the countries in which we operate.

Illicit Trade

Illicit trade is another factor which influences demand for legally and sustainably produced leaf tobacco.

The WHO estimates that one in every ten cigarettes consumed globally is illicit.

Illicit trade is another factor that influences demand for legally and sustainably produced leaf tobacco.

The WHO estimates that one in every 10 cigarettes consumed globally is illicit.

Individual governments like the United States, European Union, and Brazil have initiated substantial steps in combating illicit trade.

In 2012, the WHO FCTC adopted an illicit trade protocol which has been so far ratified by only 68 parties.

In 2012, the WHO FCTC adopted an illicit trade protocol that, to date, has been ratified by only 68 parties.

We continue to support both governmental and industry efforts to eradicate illicit trade.

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We have made significant strategic investments in Universal Ingredients.

We acquired FruitSmart in January 2020, Silva in October 2020, and Shank's in October 2021.

We acquired FruitSmart in January 2020, Silva in October 2020, and Universal Ingredients–Shank’s in October 2021.

Additionally, we made additional investments to enhance operational synergies among the businesses and drive revenue and margin expansion by growing the platform offerings, including by investing in key sales and product research and development personnel to promote and expand the full range of our capabilities across Universal Ingredients.

We have also invested in Universal Ingredients' infrastructure with the expansion of our Lancaster, Pennsylvania facility which we expect to be fully operational in the second half of fiscal year 2025.

This expansion will further enhance our product offerings and production capabilities.

We have also invested in Universal Ingredients’ infrastructure with the expansion of our Lancaster, Pennsylvania facility which we completed in fiscal year 2025.

This expansion further enhances our product offerings and production capabilities.

We have been achieving operational synergies across Universal Ingredients among our businesses and have also made considerable progress on our vision for the segment, providing a total solution-based approach for our customers that utilizes our broad spectrum of capabilities in fruits, vegetables and botanical extracts and flavorings.

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In essence, product development is not just about creating new products;

it's about sustaining a brand's relevance and growth in an ever-changing industry.

it is also about sustaining a brand’s relevance and growth in an ever-changing industry.

We have invested in research and development staff at our Lancaster, Pennsylvania facility and are able to offer solutions for our customers’ dynamic product needs.

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We believe that consumers will value human-grade ingredients and healthy and gourmet offerings for their pets.

Our platform is well positioned to take advantage of increasing demand in the pet food end market as well as for other natural and clean-label products across the end markets it serves.

We believe that our platform is well positioned to take advantage of increasing demand in the pet food end market as well as for other natural and clean-label products across the end markets it serves.

The beverage category for Universal Ingredients will remain a strategic initiative moving forward within the retail and food service space.

With our heavy investments in the new capabilities at our Lancaster location, we will be able to serve a broader audience of customers looking for new trends within the beverage sector.

With our significant investments in the new capabilities at our Lancaster, Pennsylvania location, we will be able to serve a broader audience of customers looking for new trends within the beverage sector.

The beverage market can be segmented into several smaller subcategories, including alcoholic beverages, non-alcoholic beverages, coffees, and juices.

Our investments in our research and development function and in our Lancaster facility expansion are intended to provide us with the capabilities to service the entire beverage market whether it is enhancing flavors, providing juice concentrates, or developing future innovations.

Our investments in our research and development function and in our Lancaster, Pennsylvania facility expansion are intended to provide us with the capabilities to service the entire beverage market whether it is enhancing flavors, providing juice concentrates, or developing future innovations.

In addition to our product development team working with our customers, we also evaluate the market to understand what might be happening to the future of food and beverage.

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Vertical Integration

As we continue to grow Universal Ingredients, we will explore and develop targeted opportunities to vertically integrate certain plant-based ingredients from our tobacco growing areas to capitalize on our strengths and capabilities there.

As we continue to grow Universal Ingredients, we intend to explore and develop targeted opportunities to vertically integrate certain plant-based ingredients from our tobacco growing areas to capitalize on our strengths and capabilities there.

We have established grower networks and agricultural support infrastructure in origins where we source tobacco, and we also have strong, mature sustainability programs in those origins.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis