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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-04-21 · 106 added, 130 removed, 116 unchanged (67% of the section changed)

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Such risks and uncertainties include, but are not limited to:

success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results;

product purchased not meeting quality and quantity requirements;

our reliance on a few large customers;

our ability to maintain effective information systems and safeguard confidential information;

reliance on a few large customers;

anticipated levels of demand for and supply of our products and services;

costs incurred in providing these products and services, including increased transportation costs and delays attributed to global supply chain challenges;

timing of shipments to customers;

higher inflation rates;

changes in market structure;

government regulation and other stakeholder expectations;

economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts;

product taxation;

industry consolidation and evolution;

changes in exchange rates and interest rates;

impacts of regulation and litigation on our customers;

tobacco growing conditions and customer requirements;

major shifts in customer requirements for leaf tobacco;

higher inflation rates, tariffs and other pressures on costs;

weather and other conditions;

exposure to certain legal, regulatory and financial risks related to climate change;

industry-specific risks related to our plant-based ingredients businesses;

exposure to certain regulatory and financial risks related to climate change;

changes in estimates and assumptions underlying our critical accounting policies;

the promulgation and adoption of new accounting standards;

new government regulations and interpretation of existing standards and regulations;

general economic, political, market, and weather conditions;

and our failure to maintain effective internal control over financial reporting.

For a further description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as amended by Amendment No.1 thereto ("2024 Form 10-K"), and Item 1A, "Risk Factors" of this Form 10-Q.

We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made, and we undertake no obligation to update any forward-looking statements made in this report.

disruption of our supply chain for our plant-based ingredients;

success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results;

our ability to maintain effective information technology systems and safeguard confidential information;

our inability to attract, develop, retain, motivate, and maintain good relationships with our workforce;

our dependence on a seasonal workforce;

epidemics, pandemics or similar widespread public health concerns;

government efforts to regulate the production and consumption of tobacco products;

government actions on the sourcing of leaf tobacco;

economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts;

sustainability considerations from governments and other stakeholders;

changes in tax laws in the countries where we do business;

material weaknesses in our internal control over financial reporting;

our inability to use a Form S-3 registration statement;

failure of our customers or suppliers to repay extensions of credit;

changes in exchange rates;

changes in interest rates;

and low investment performance by our defined benefit pension plan assets and changes in pension plan valuation assumptions.

This Form 10-Q should be read in conjunction with our 2025 Form 10-K.

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Any references to adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, and the total for segment operating income (loss) are references to non-GAAP financial measures.

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 to the extent these non-GAAP financial measures are referenced.

These measures are not financial measures calculated in accordance with generally accepted accounting principles ("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.

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 to the extent these non-GAAP financial measures are referenced.

In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 12.

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

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

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.

A reconciliation of net debt to total debt and net capitalization to total capitalization are provided

in Other Items below to the extent these non-GAAP financial measures are referenced.

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 liquidity and financial position.

Results of Operations

Universal Corporation had a strong second quarter and first half of fiscal year 2025.

Revenues and operating income increased by 11% and 24%, respectively, for the quarter, and by 13% and 30%, respectively, for the six months ended September 30, 2024, compared to the same periods in the prior fiscal year.

These increases were driven by strong tobacco sales volumes and prices.

Higher results for our Tobacco Operations segment in both the quarter and six months ended September 30, 2024, compared to the same periods in fiscal year 2024, were primarily driven by strong customer demand and larger, higher quality, and better yielding crops in Africa.

Accelerated shipment timing requested by certain customers and sales of carryover crop tobacco also contributed to the improved results for the Tobacco Operations segment in the quarter and six months ended September 30, 2024.

We also continued to grow our Universal Ingredients’ market presence in the quarter and six months ended September 30, 2024, and saw increased interest from new and existing customers, despite higher food costs creating pricing pressures.

We expect our newly expanded ingredients facility to support increases in production and meaningfully contribute to our fiscal year 2026 results.

Universal Corporation is off to a good start for fiscal year 2026.

During our seasonally smaller first fiscal quarter ended June 30, 2025, consolidated revenues decreased slightly, by $3.3 million, and operating income increased by $16.6 million, compared to the same period in fiscal year 2025.

Improved operating income for our Tobacco Operations segment, up 147%, or $21.2 million, was driven by a favorable product mix, despite lower carryover crop sales.

The reduction in carryover crop sales in the quarter ended June 30, 2025, resulted from significant shipment volumes completed earlier in fiscal year 2025.

Current flue-cured and burley tobacco crop sizes have increased significantly, and we are seeing more typical buying patterns with green tobacco purchases largely completed in Brazil and Africa.

Customer demand remains firm, following several years of short tobacco supply, and our uncommitted tobacco inventory levels were low, at about 11%, as of June 30, 2025.

Revenues for our Ingredients Operations segment were up 5%, or $4.0 million, on increased sales volumes in the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024.

Segment results for the quarter ended June 30, 2025, were impacted by a less favorable product mix, some curtailed demand due to tariff uncertainty, and higher fixed costs as we work to fill our recently expanded production facility.

We are continuing to see interest in our new value-added products and capabilities.

Supported by a foundational customer for our expanded Universal Ingredients facility, we are diligently working on converting customer interest from existing and new customers into increased volumes for that facility.

Our focus for a successful fiscal year 2026 is growing Universal Ingredients organically, while also maximizing and optimizing our tobacco business and strengthening our organization.

FINANCIAL HIGHLIGHTS

Three Months Ended September 30, Change Six Months Ended September 30, Change

Three Months Ended June 30,

(in millions of dollars, except per share data) 2025 2024

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Cost of goods sold $ 479.6 $ 501.1

Gross profit margin percentage 20.1 % 20.6 % -50 bps 18.3 % 18.9 % -60 bps

Gross profit margin percentage 19.2 % 16.1 %

Selling, general and administrative expenses $ 79.2 $ 78.7

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

Quarter Ended September 30, 2024, compared to Quarter Ended September 30, 2023

Consolidated Results

Revenues and operating income increased by 11%, or $72.3 million, and 24%, or $13.4 million, respectively, in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, driven by improved performance in the Tobacco Operations segment.

Selling, general, and administrative expenses decreased by 14%, or $10.0 million, largely on approximately $7.3 million of lower net provisions for farmer advances in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023.

Adjusted operating income was up 37%, or $21.4 million, and adjusted net income attributable to Universal Corporation was up 20%, or $6.1 million, in the second quarter of fiscal year 2025, compared to the same period in the prior fiscal year, on strong performance in the Tobacco Operations segment.

Tobacco Operations Segment

Revenues and operating income for the Tobacco Operations segment increased by 14%, or $75.6 million, and 48%, or $24.9 million, respectively, for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023.

Tobacco Operations segment results reflect continued strong customer demand;

an approximately 17% increase in the tobacco average sales price;

larger, higher quality, better yielding crops from Africa;

and accelerated shipment timing per certain customers’ requests.

Uncommitted tobacco inventory levels remained low at about 10% at September 30, 2024.

Ingredients Operations Segment

Revenues and operating income for the Ingredients Operations segment decreased by 4%, or $3.3 million, and 72%, or $3.5 million, respectively, for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, on unfavorable comparisons to last fiscal year's strong second fiscal quarter results.

Sales volumes for some of the products in the Ingredients Operations segment were higher in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023.

However, customer pressure due to the inflationary environment impacted demand and pricing for certain products in the Ingredients Operations segment in the quarter ended September 30, 2024.

Additional Items

Cost of goods sold increased 12%, or $60.9 million, in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, largely on higher tobacco sales prices, reflecting strong customer demand, and larger, higher quality, and better yielding African crops.

Interest expense was up $4 million in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, on higher notes payable and overdrafts of approximately $278 million.

Restructuring and impairment costs of $10.6 million in the quarter ended September 30, 2024, related to the previously announced consolidation of our European sheet operations.

The consolidated effective tax rate for the three months ended September 30, 2024, was 29%.

The consolidated tax for the three months ended September 30, 2023 was 22%.

The consolidated effective tax rate for the quarter ended September 30, 2024, was higher than the consolidated tax rate for the quarter ended September 30, 2023, 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 a minimal income tax benefit of $0.1 million associated with the $10.6 million of restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.

Six Months Ended September 30, 2024, compared to Six Months Ended September 30, 2023

Quarter Ended June 30, 2025, compared to Quarter Ended June 30, 2024

Consolidated Results

Revenues and operating income for the first half of fiscal year 2025 increased 13%, or $151.6 million, and 30%, or $19.6 million, respectively, compared to the first half of fiscal year 2024, driven primarily by improved performance in the Tobacco Operations segment.

Selling, general, and administrative expenses decreased by 5%, or $6.8 million, largely on $9.4 million of lower net provisions for farmer advances, but partially offset by higher sales commissions of $3.3 million in the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Adjusted operating income increased by 40%, or $27.6 million, and adjusted net income attributable to Universal Corporation increased by 29%, or $8.3 million, for the six months ended September 30, 2024, compared to the six months ended September 30, 2023, largely on strong performance in the Tobacco Operations segment.

Revenues decreased by 1%, or $3.3 million, and operating income increased by 96%, or $16.6 million, in the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024, primarily driven by performance in our Tobacco Operations segment.

Selling, general, and administrative expenses were up by 1%, or $0.5 million, primarily due to higher compensation costs of $5.5 million and legal and professional fees of $3.7 million, which were largely offset by favorable foreign currency

comparisons of $7.3 million and lower tobacco sales commissions of $2.8 million in the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024.

Adjusted operating income was up by $17.7 million, and adjusted net income attributable to Universal Corporation was up by $9.5 million, in the first quarter of fiscal year 2026, compared to the same period in the prior fiscal year, on a favorable product mix in the Tobacco Operations segment.

Tobacco Operations Segment

Revenues for the Tobacco Operations segment increased by 14%, or $143.6 million, and operating income for the segment increased by 50%, or $30.5 million, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Tobacco Operations segment results reflected continued strong customer demand;

an approximately 13% increase in the tobacco average sales price;

an approximately 2% increase in total tobacco sales volumes;

larger, higher quality, better yielding crops from Africa;

and accelerated shipment timing per certain customers’ requests.

In addition, our tobacco procurement and marketing efforts have been successful in the six months ended September 30, 2024, despite negative impacts from adverse weather on certain tobacco crops, mainly in South America and North America this fiscal year.

Revenues decreased by 1%, or $7.3 million, for the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024, primarily on an 8% decline in tobacco sales volumes, largely due to lower sales of carryover crop tobacco.

Less carryover tobacco was available for sale in the first quarter of fiscal year 2026, due to significant shipment volumes earlier in fiscal year 2025.

Operating income for the Tobacco Operations segment increased by 147%, or $21.2 million, for the first quarter of fiscal year 2026, compared to first quarter of fiscal year 2025, on a favorable product mix in Asia.

Selling, general, and administrative expenses were lower by approximately $1.8 million for the segment mainly due to favorable foreign currency comparisons of $7.2 million, partially offset by higher compensation costs of $2.3 million and higher legal and professional fees of $2.5 million in the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024.

Uncommitted tobacco inventory levels remained low at about 11% of total tobacco inventory as of June 30, 2025.

Ingredients Operations Segment

Revenues and operating income for the Ingredients Operations segment increased by 5%, or $8.0 million, and 52%, or $1.4 million, respectively, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Results for the Ingredients Operations segment reflected increased sales volumes for some products, including some sales of new products, as well as lower inventory write-downs of approximately $1.8 million compared to the six months ended September 30, 2023.

However, customer pressure due to the inflationary environment impacted demand and pricing for certain products in the Ingredients Operations segment in the six months ended September 30, 2024.

Revenues for the Ingredients Operations segment increased by 5%, or $4.0 million, for the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024, on higher sales volumes.

Operating income for the segment decreased by 42%, or $1.2 million, due to a less favorable product mix, some curtailed demand due to tariff uncertainty, and higher fixed costs, including depreciation, from our recently expanded Universal Ingredients production facility.

Additional Items

Cost of goods sold increased 14%, or $130.8 million, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023, largely on higher tobacco sales volumes and prices, reflecting strong customer demand and larger, higher quality, and better quality crops in Africa.

Restructuring and impairment costs of $10.6 million in the six months ended September 30, 2024, related to the previously announced consolidation of the Company’s European tobacco sheet operations.

The consolidated effective tax rate for the six months ended September 30, 2024, was 32%.

The consolidated effective tax rate for the six months ended September 30, 2023, was 22%.

The consolidated effective tax rate for the six months ended September 30, 2024, was higher than the consolidated tax rate for the six months ended September 30, 2023, 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 a minimal income tax benefit of $0.1 million associated with the $10.6 million of restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.

Cost of goods sold decreased by 4%, or $21.5 million, in the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024, largely on lower sales volumes and product mix in the Tobacco Operations segment.

Interest expense was down by 14%, or $3.0 million, in the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024, primarily on lower interest rates.

Restructuring and impairment costs of $1.1 million in the quarter ended June 30, 2025, were primarily related to the previously announced consolidation of the Company’s European tobacco sheet operations.

The consolidated effective tax rate for the three months ended June 30, 2025, was 27.1%.

The consolidated tax rate for the three months ended June 30, 2024, was 34.7%.

The consolidated effective tax rate for the three months ended June 30, 2024, was higher than the consolidated tax rate for the three months ended June 30, 2025, due to limitation of deductibility of certain compensation amounts.

Sustainability

Universal continually looks to set new standards for social and environmental performance.

The Company completed a thorough assessment of its sustainability practices and performance through EcoVadis, a leading global third-party platform for business sustainability ratings.

As a result of the assessment, EcoVadis ranked Universal in the 91st percentile of the companies rated globally in the prior 12 months.

The assessment included 21 sustainability criteria across four core themes:

Environment, Labor & Human Rights, Ethics, and Sustainable Procurement.

As part of its broader renewable energy strategy, Universal recently completed its annual third-party assessment and verification of Scope 1, 2, and relevant Scope 3 emissions data.

This important assessment ensures alignment with established standards and provides transparency into Universal's emission reduction efforts.

A demonstration of how the Company is aligning operations with global sustainability standards is the recently commissioned biomass boiler in Zimbabwe.

The new boiler, once operational, will reduce coal use over time and contribute to long-term emissions reduction.

Reconciliation of Certain Non-GAAP Financial Measures:

The following table sets forth certain non-recurring items included in reported results to reconcile adjusted net income to net income attributable to Universal Corporation:

The following tables set forth certain non-recurring items included in reported results to reconcile adjusted operating income to consolidated operating income and adjusted net income to net income attributable to Universal Corporation:

Adjusted Operating Income Reconciliation

Three Months Ended September 30, Six Months Ended September 30,

Three Months Ended June 30,

(in thousands) 2025 2024

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Restructuring and impairment costs (1)

10,573 2,599 10,573 2,599

As Adjusted operating income (non-GAAP) $ 34,935 $ 17,225

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(in thousands except for per share amounts)

Three Months Ended September 30, Six Months Ended September 30,

2024 2023 2024 2023

Three Months Ended June 30,

Net income attributable to Universal Corporation $ 8,497 $ 130

Restructuring and impairment costs (1)

10,573 2,599 10,573 2,599

Total of non-GAAP adjustments to income before income taxes 1,122 —

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Income tax benefit from restructuring and impairment costs (2)

(132) (465) (132) (465)

Total of income tax impacts for non-GAAP adjustments to income before income taxes (35) —

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Net Debt and Net Capitalization Reconciliation

September 30, September 30, March 31,

June 30, June 30, March 31,

(in thousands) 2025 2024 2025

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Liquidity and Capital Resources

The first half of our fiscal year is usually a period of significant working capital investment in Africa, South America, and the United States as tobacco crops are delivered by farmers.

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 investments in the six months ended September 30, 2024.

We funded our working capital needs in the six months ended September 30, 2024, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows.

Tobacco sales are expected to be more heavily weighted to the second half of fiscal year 2025.

Our liquidity and operating capital resource requirements are predominantly short term in nature and primarily relate to working capital for tobacco crop purchases.

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

Our first fiscal quarter is usually a period of significant working capital investment in both Africa and South America as tobacco crops are delivered by farmers.

Our working capital needs followed this pattern in the quarter ended June 30, 2025, and we funded these working capital needs using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows.

In contrast, in the quarter ended June 30, 2024, certain tobacco purchases that would have typically been made in that fiscal quarter had been made earlier due to market conditions, which reduced required working capital investments in quarter ended June 30, 2024.

Operating Activities

Net cash used by our operations was $47.4 million during the six months ended September 30, 2024.

The net use of cash was $57.9 million more than during the same period in fiscal year 2024, primarily on lower customer advances and deposits largely offset by lower working capital requirements in the six months ended September 30, 2024, due to accelerated tobacco purchases in Brazil in our fiscal year 2024.

Customer advances and deposits were lower in the six months ended September 30, 2024, compared to the same period in the prior fiscal year, primarily due to a customer arrangement providing for a higher amount of advances on tobacco crop purchases in fiscal year 2024 that was not repeated in fiscal year 2025.

Tobacco inventory levels were $1.1 billion at September 30, 2024.

Tobacco inventory levels were $15.6 million below September 30, 2023 levels, primarily on the timing of tobacco crop purchases and shipments.

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

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

As of September 30, 2024, our uncommitted tobacco inventories were $108.0 million, or about 10% of total tobacco inventory, compared to $181.1 million, or about 17% of our tobacco inventory as of March 31, 2024, and $130.2 million, or about 12% of our tobacco inventory as of September 30, 2023.

While we target committed

inventory levels of 80% or more of total tobacco inventory, the level of these uncommitted inventory percentages is influenced by timing of farmer deliveries of new crops, as well as the receipt of customer orders.

Our balance sheet accounts reflected seasonal patterns in the six months ended September 30, 2024, on deliveries of tobacco crops by farmers in Africa, South America, and the United States.

Accounts receivable increased by $12.3 million from March 31, 2024 levels, on tobacco crop shipments offset in part by collections on receivables.

Accounts receivable—unconsolidated affiliates were up $61.3 million from March 31, 2024 levels, on the timing of tobacco crop purchases and shipments.

Net cash used by our operations was $205.1 million during the quarter ended June 30, 2025.

That amount was $142.7 million higher than during the same period in fiscal year 2025, primarily on lower working capital requirements in the quarter ended June 30, 2024.

Tobacco inventory levels increased by $413.4 million from March 31, 2025 levels to $1.2 billion at June 30, 2025, on seasonal leaf tobacco purchases.

Tobacco inventory levels at June 30, 2025, were relatively flat, up $17.4 million, compared to June 30, 2024 levels.

We generally do not purchase material quantities of tobacco on a speculative basis, and we target committed inventory levels of 80% or more of total tobacco inventory.

Our level of committed inventory percentages is influenced by timing of farmer deliveries of new crops, as well as the receipt of customer orders.

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

As of June 30, 2025, our uncommitted tobacco inventories were $134.7 million, or about 11% of total tobacco inventory, compared to $164.0 million, or about 20% of our tobacco inventory as of March 31, 2025, and $154.8 million, or about 13% of our tobacco inventory as of June 30, 2024.

Our balance sheet accounts reflected seasonal patterns in the quarter ended June 30, 2025, on deliveries of tobacco crops by farmers in both Africa and South America.

Accounts receivable decreased by $201.7 million from March 31, 2025 levels, on tobacco crop shipments offset in part by collections on receivables.

Advances to suppliers were $79.2 million at June 30, 2025, a reduction of $90.2 million from March 31, 2025, as tobacco crops were delivered in payment on some of those balances, net of

new balances for upcoming tobacco crops.

Accounts receivable--unconsolidated affiliates were $120.6 million higher as of June 30, 2025, compared to March 31, 2025, on tobacco crop purchases.

Notes payable and overdrafts were up $166.2 million from March 31, 2025 levels, on seasonal working capital needs.

Accounts receivable were up $168.7 million at September 30, 2024, compared to the same period in the prior fiscal year, on higher sales of carryover crop tobacco as well as the timing of tobacco crop shipments.

Advances to suppliers at September 30, 2024 were $34.1 million higher, compared to the same period in the prior fiscal year, on larger tobacco volumes in certain regions.

Notes payable and overdrafts were up $277.8 million compared to September 30, 2023 levels, in part due to lower customer advances available to fund working capital needs.

Customer advances and deposits were $159.7 million lower at September 30, 2024, compared to September 30, 2023, primarily due to a customer arrangement providing for a higher amount of advances on tobacco crop purchases in fiscal year 2024 that was not repeated in the first quarter of fiscal year 2025.

Accounts receivable--unconsolidated affiliates were $66.7 million higher as of June 30, 2025, compared to the same period in the prior fiscal year, on larger tobacco crop sizes.

Accounts payable were $119.8 million at June 30, 2025, up $40.1 million, compared to June 30, 2024, largely on the timing of tobacco crop purchases.

Notes payable and overdrafts and cash and cash equivalents were up $40.2 million and $76.7 million, respectively, as of June 30, 2025, compared to June 30, 2024, largely due to a lower use of cash and cash equivalents to fund working capital needs.

Investing Activities

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Our capital expenditures are generally limited to those that add value, replace or maintain equipment, increase efficiency, or position us for future growth.

During the six months ended September 30, 2024 and 2023, we invested about $38.8 million and $32.6 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $23.8 million and $23.4 million for the six months ended September 30, 2024 and 2023, respectively.

During the quarters ended June 30, 2025 and 2024, we invested about $12.1 million and $22.7 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $11.0 million and $11.7 million for the quarters ended June 30, 2025 and 2024, respectively.

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

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We currently expect to spend approximately $45 to $55 million over the next twelve months on capital projects for maintenance of our facilities and other investments to grow and improve our businesses.

On November 7, 2024, we announced that our Board of Directors had approved a new share repurchase program, which replaced the share repurchase program expiring November 15, 2024, for the purchase of up to $100 million of our common stock through November 15, 2026.

Under the new program, we may purchase shares from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates.

Our Board of Directors approved our current share repurchase program in November 2024.

The program authorizes the purchase of up to $100 million of our common stock through November 15, 2026.

Under the current authorization, we may purchase shares from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates.

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

During the three months ended September 30, 2024, we did not purchase any shares of common stock.

As of September 30, 2024, approximately 24.7 million shares of our common stock were outstanding.

During the three months ended June 30, 2025, we did not purchase any shares of common stock.

As of June 30, 2025, our available authorization under our current share repurchase program was $100 million.

Financing Activities

At June 30, 2025, we had $1.2 billion in total debt outstanding, an increase of $40.7 million compared to June 30, 2024.

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 as a percentage of net capitalization was approximately 44% at September 30, 2024, up from the September 30, 2023 level of approximately 42%, and up from the March 31, 2024 level of approximately 41%.

As of September 30, 2024, we had $80.1 million in cash and cash equivalents, and our short-term debt totaled $579.1 million.

As discussed in Note 15.

"Subsequent Event" to the consolidated financial statements, we obtained lender consents for our committed revolving credit facility (the "Consents").

The Consents provided for, among other things, an extension to file until June 16, 2025, the second and third quarter financial statements with the SEC.

Based on our September 30, 2024 financial statements and our December 31, 2024 financial statements, we were in compliance with the financial covenants in the committed revolving credit facility as of the end of each of the second and third fiscal quarters.

As of September 30, 2024, we had $330 million available under the committed revolving credit facility that will mature in December 2027, and we had approximately $57 million in available, uncommitted credit lines.

Net debt decreased by $47.1 million to $1.1 billion at June 30, 2025, compared to June 30, 2024.

Net debt as a percentage of net capitalization was 42% at June 30, 2025, down from 44% at June 30, 2024, and up from 36% at March 31, 2025.

As of June 30, 2025, we had $178.4 million in cash and cash equivalents, $355 million available under our committed revolving credit facility that will mature in December 2027, and we, together with our consolidated affiliates, had approximately $86 million in available, uncommitted credit lines.

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.

Based on our June 30, 2025 financial statement, we were in compliance with all financial covenants of our debt agreements as of June 30, 2025.

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

Our seasonal working capital requirements for our tobacco business typically increase significantly between March and September and decline after mid-fiscal year.

Available capital resources from our cash balances, committed revolving credit facility, and uncommitted credit lines exceed our normal working capital needs and currently anticipated capital expenditure requirements over the next twelve months.

Available capital resources from our cash balances, committed revolving credit facility, and uncommitted credit lines are expected to exceed our normal working capital needs and currently anticipated capital expenditure requirements over the next twelve months and beyond.

From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates.

At September 30, 2024, the fair value of our outstanding interest rate swap agreements was a liability of about $2.6 million, and the notional amount swapped was $310 million.

We entered into these agreements to eliminate the variability of cash flows in the interest payments on a portion of our variable-rate term loans.

At June 30, 2025, the fair value of our outstanding interest rate swap agreements was a liability of about $0.6 million, and the notional amount swapped was $310 million.

We entered into these agreements to eliminate the variability of cash flows in the interest payments on

a portion of our variable-rate term loans.

Under the swap agreements we receive variable rate interest and pay fixed rate interest.

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

At September 30, 2024, the fair value of our open hedges for forecasted tobacco purchases was a net liability of approximately $3.6 million.

We had forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net liability of approximately $3.2 million at September 30, 2024.

As of June 30, 2025, the fair value of our open hedges for forecasted tobacco purchases was a net asset of approximately $0.5 million.

We had forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net liability of approximately $0.3 million as of June 30, 2025.

Critical Accounting Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis