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Item 2. Management’s Discussion and Analysis

2026-02-09 compared with 2025-11-05 · 88 added, 87 removed, 160 unchanged (52% of the section changed)

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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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Results of Operations

Revenue was up 3% and 6% and operating income was up 18% and down 2%, respectively, in the six months and quarter ended September 30, 2025, compared to the same periods in fiscal year 2025.

Our Tobacco Operations segment achieved solid results in the six months and quarter.

Customer demand has remained firm following several years of undersupply, despite significantly larger tobacco crops.

Tobacco buying has been completed in most key growing regions, and green tobacco prices have softened in certain regions compared to fiscal year 2025.

Shipments are progressing smoothly, and current crop tobacco is being shipped earlier than in fiscal year 2025.

Overall, we believe the segment has once again demonstrated effective management in navigating market dynamics.

Our Ingredients Operations segment maintained positive momentum, achieving higher sales and volume in both the quarter and six months ended September 30, 2025, as compared to the respective prior fiscal year periods.

Continued interest in new value-added products has translated into an active pipeline, supported by Universal Ingredients' enhanced production and operational capabilities.

Demand for our new products remains solid, while fixed costs, product mix, and market challenges, including weakness in the consumer-packaged goods industry and tariff uncertainty, had a negative impact on earnings.

The segment’s proactive approach to meeting customers’ strategic needs, focusing on organic growth, and converting customer interest into sales is helping to build scale and generate returns on our investments.

We believe the segment continues to be well-positioned to capitalize on its investments and drive future growth.

Universal delivered solid performance in the quarter and nine months ended December 31, 2025.

Revenue was down 2% and 8% and operating income was down 3% and 21%, respectively, in the nine months and quarter ended December 31, 2025, on challenging comparisons to very strong tobacco operations performance in the same periods in the prior fiscal year.

Our tobacco operations generated segment operating income of $185.0 million and $84.0 million, respectively, for the nine months and quarter ended December 31, 2025.

Tobacco shipments progressed smoothly, and customer demand remained firm in the nine months and quarter ended December 31, 2025, for most tobacco styles.

As tobacco market dynamics evolve toward oversupply, we believe our long track record in sourcing and local expertise in our operating regions position us well to navigate the environment effectively and optimize results under a range of conditions.

In our Universal Ingredients business, we maintained revenue growth for the nine months ended December 31, 2025, in the face of challenging market conditions with softer customer demand and tariff impacts.

Results for the quarter ended December 31, 2025, reflected market headwinds and higher fixed costs from the significant investments we have made.

We remain focused on converting customer interest into sales and advancing the growth of our solutions-based portfolio.

During the quarter ended December 31, 2025, we also refinanced, extended the maturity of, and upsized our credit facility by $250 million, enhancing liquidity and financial flexibility to advance our strategic priorities.

FINANCIAL HIGHLIGHTS

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

Three Months Ended December 31, Change Nine Months Ended December 31, Change

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

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

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

Quarter Ended December 31, 2025, compared to Quarter Ended December 31, 2024

Consolidated Results

Revenue increased by 6%, or $43.4 million, compared to the quarter ended September 30, 2024, primarily driven by higher tobacco and ingredients sales volumes.

Operating income decreased by 2%, or $1.1 million, in the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, due to higher inventory write-downs of $7.5 million, unfavorable foreign currency comparisons of

$5.1 million, and higher provisions for farmer advances of $2.0 million, but partially offset by a 3% increase in tobacco sales volumes coupled with lower sales commissions of $1.1 million.

Selling, general, and administrative expenses were up by 13%, or $8.3 million, primarily due to unfavorable foreign currency comparisons of $5.1 million and higher provisions for farmer advances of $2.0 million in the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024.

Adjusted operating income was down by $11.7 million and adjusted net income attributable to Universal Corporation was down by $2.2 million, in the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, largely on unfavorable foreign currency comparisons, higher inventory write-downs, and higher provisions for farmer advances.

Revenue decreased by 8%, or $75.9 million, compared to the quarter ended December 31, 2024, primarily driven by lower tobacco sales volumes and prices as well as ingredients product mix.

Operating income decreased by 21%, or $22.1 million, in the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024, on a 8% decrease in tobacco sales volumes and higher inventory write-downs, primarily with respect

to dark air-cured tobacco, of $6.2 million, partially offset by favorable foreign currency comparisons of $7.9 million and lower sales commissions of $2.7 million.

Selling, general, and administrative expenses were down by 14%, or $12.6 million, primarily due to favorable foreign currency comparisons of $7.9 million, lower sales commissions of $2.7 million, and lower compensation costs of $3.3 million in the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024.

Adjusted operating income was down by $21.4 million and adjusted net income attributable to Universal Corporation was down by $25.7 million in the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024, largely on lower tobacco sales volumes and higher inventory write-downs, partially offset by favorable foreign currency comparisons.

Tobacco Operations Segment

Revenue increased by 5%, or $29.2 million, for the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, primarily on a 3% increase in tobacco sales volumes.

Operating income for the Tobacco Operations segment decreased by 16%, or $12.1 million, for the second quarter of fiscal year 2026, compared to second quarter of fiscal year 2025, on unfavorable foreign currency comparisons of $5.1 million, higher tobacco inventory write-downs of $4.0 million, and higher provisions for farmer advances of $2.0 million.

Selling, general, and administrative expenses were higher by $6.4 million for the segment mainly due to unfavorable foreign currency comparisons of $5.1 million and higher provisions for farmer advances of $2.0 million in the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024.

Revenue decreased by 9%, or $73.9 million, for the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024, primarily on an 8% decrease in tobacco sales volumes due to lower sales of certain types of tobacco as well as the timing of tobacco shipments.

Operating income for the Tobacco Operations segment decreased by 18%, or $18.5 million, for the third quarter of fiscal year 2026, compared to third quarter of fiscal year 2025, on lower tobacco sales volumes and higher tobacco inventory write-downs, primarily dark air-cured tobacco, of $6.1 million.

Selling, general, and administrative expenses were lower by $9.6 million for the segment mainly due to favorable foreign currency comparisons of $7.8 million and lower sales commissions of $2.6 million in the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024.

Ingredients Operations Segment

Revenue for the Ingredients Operations segment increased by 18%, or $14.2 million, for the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, on higher sales volumes.

Operating income for the segment decreased by 112%, or $1.5 million, as higher sales volumes were offset by product mix, higher inventory write-downs of $3.5 million and higher fixed costs, including depreciation from our recently expanded Universal Ingredients production facility.

Weakness in the consumer-packaged good industry and tariff uncertainty also impacted results for the segment in the quarter ended September 30, 2025.

Revenue for the Ingredients Operations segment decreased by 2%, or $2.0 million, for the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024, on product mix and market headwinds, including weakness in the consumer-package-goods sector and tariff impacts.

Operating income for the segment decreased by 103%, or $3.8 million, on higher fixed costs, including depreciation from our expanded Universal Ingredients production facility, market headwinds, product mix, and higher inventory write-downs.

Additional Items

Cost of goods sold increased by 8%, or $46.7 million, in the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, largely on higher sales volumes and product mix.

Interest expense was down by 4%, or $0.8 million, in the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, on lower interest rates and debt balances.

Restructuring and impairment costs of $10.6 million in the quarter ended September 30, 2024, were primarily related to the consolidation of the Company’s European tobacco sheet operations.

The consolidated effective tax rate for the three months ended September 30, 2025, was 24.4%.

The consolidated tax rate for the three months ended September 30, 2024, was 28.6%.

Six Months Ended September 30, 2025, compared to Six Months Ended September 30, 2024

Cost of goods sold decreased by 6%, or $41.9 million, in the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024, largely on lower tobacco sales volumes and ingredients product mix.

Interest expense was down by 11%, or $2.0 million, in the quarter ended December 31, 2025, compared to the quarter ended December 31, 2024, on lower interest rates and debt balances.

Restructuring and impairment costs of $0.7 million in the quarter ended December 31, 2025.

The consolidated effective tax rate for the three months ended December 31, 2025, was 37.8%.

The consolidated tax rate for the three months ended December 31, 2024, was 23.0%.

The consolidated effective tax rate for the three months ended December 31, 2025, was higher than the consolidated tax rate for the three months ended December 31, 2024, due to the impact of certain withholding taxes on dividends from foreign subsidiaries and the mix of domestic and foreign earnings.

Nine Months Ended December 31, 2025, compared to Nine Months Ended December 31, 2024

Consolidated Results

Revenue increased by 3%, or $40.1 million, in the six months ended September 30, 2025, compared to the six months ended September 30, 2024, on higher third-party tobacco processing volumes and accelerated shipments in our Tobacco Operations segment and higher sales volumes in Ingredients Operations segment.

Operating income increased by 18%, or $15.5 million, in the six months ended September 30, 2025, compared to the six months ended September 30, 2024, primarily driven by a favorable product mix in our Tobacco Operations segment.

Selling, general, and administrative expenses were up by 6%, or $8.8 million, primarily due to higher compensation costs of $6.1 million, legal and professional fees of $5.0 million, and provisions for farmer advances of $2.8 million, which were

partially offset by lower tobacco sales commissions of $3.9 million and favorable foreign currency comparisons of $2.2 million in the six months ended September 30, 2025, compared to the six months ended September 30, 2024.

Adjusted operating income was up by $6.1 million and adjusted net income attributable to Universal Corporation was up by $7.2 million, in the first half of fiscal year 2026, compared to the same period in the prior fiscal year, on a favorable product mix in the Tobacco Operations segment.

Revenue decreased by 2%, or $35.8 million, in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, on lower tobacco sales volumes, partially offset by higher third-party tobacco processing volumes in our Tobacco Operations segment and a favorable product mix in our Ingredients Operations segment.

Operating income decreased by 3%, or $6.6 million, in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, on lower sales volumes in our Tobacco Operations segment and higher fixed costs and market headwinds, including broader softness in the consumer-packaged-goods sector, in our Ingredients Operations segment, partially offset by favorable foreign currency comparisons.

Selling, general, and administrative expenses were down 2%, or $3.7 million, primarily due to favorable foreign currency comparisons of $10.0 million and lower tobacco sales commissions of $6.6 million partially offset by higher compensation costs of $2.8 million, legal and professional fees of $4.1 million, and provisions for farmer advances of $2.2 million in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024.

Adjusted operating income and adjusted net income attributable to Universal Corporation were down by $15.4 million and $18.4 million, respectively, in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, on lower sales volumes in our Tobacco Operations segment and higher fixed costs and market headwinds, including broader softness in the consumer-packaged-goods sector, in our Ingredients Operations segment, partially offset by favorable foreign currency comparisons.

Tobacco Operations Segment

Revenue increased by 2%, or $22.0 million, for the six months ended September 30, 2025, compared to the six months ended September 30, 2024, as increased third-party tobacco processing revenue offset a 1% decline in tobacco sales volumes.

Higher sales and earlier shipments of current crop tobacco largely offset lower sales of carryover tobacco in the first half of fiscal year 2026, compared to the first half of fiscal year 2025.

Operating income for the Tobacco Operations segment increased by 10%, or $9.1 million, for the first half of fiscal year 2026, compared to first half of fiscal year 2025, on a favorable product mix.

Selling, general, and administrative expenses were higher by approximately $4.6 million for the segment mainly due to higher compensation costs of $4.3 million, legal and professional fees of $3.1 million, and provisions for farmer advances of $2.8 million, which were partially offset by lower tobacco sales commissions of $3.9 million and favorable foreign currency comparisons of $1.7 million in the six months ended September 30, 2025, compared to the six months ended September 30, 2024.

Uncommitted tobacco inventory levels remained low at about 13% of total tobacco inventory as of September 30, 2025.

Revenue decreased by 3%, or $52.0 million, for the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, on a 4% decline in tobacco sales volumes on lower sales of certain types of tobacco, partially offset by increased third-party tobacco processing revenue.

Operating income for the Tobacco Operations segment decreased by 5%, or $9.4 million, for the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, largely on lower tobacco sales volumes due to lower sales of certain types of tobacco.

Selling, general, and administrative expenses were lower by approximately $5.0 million for the segment mainly due to favorable foreign currency comparisons of $9.5 million and lower tobacco sales commissions of $6.5 million, which were partially offset by higher compensation costs of $4.3 million, legal and professional fees of $1.6 million, and provisions for farmer advances of $2.2 million in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024.

Uncommitted tobacco inventory levels remained in our target range at about 17% of total tobacco inventory as of December 31, 2025.

Ingredients Operations Segment

Revenue for the Ingredients Operations segment increased by 11%, or $18.2 million, for the six months ended September 30, 2025, compared to the six months ended September 30, 2024, on higher sales volumes.

Operating income for the segment decreased by 64%, or $2.7 million, as higher sales volumes were offset by product mix, higher fixed costs, including depreciation from our recently expanded Universal Ingredients production facility, and higher inventory write-downs of $3.8 million.

Weakness in the consumer-packaged good industry and tariff uncertainty also impacted the segment in the six months ended September 30, 2025.

Revenue for the Ingredients Operations segment increased by 7%, or $16.2 million, for the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, on increased sales driven by organic growth.

Operating income for the segment decreased by 82%, or $6.5 million, due to product mix and higher fixed costs, including depreciation from our expanded Universal Ingredients production facility, as well an increase in inventory write-downs of $3.9 million.

Market headwinds, including broader softness in the consumer-packaged-goods sector and tariff impacts, also impacted the segment in the nine months ended December 31, 2025.

Additional Items

Cost of goods sold increased by 2%, or $25.2 million, in the six months ended September 30, 2025, compared to the six months ended September 30, 2024, largely due to product mix in our Tobacco Operations segment.

Interest expense was down by 9%, or $3.8 million, in the six months ended September 30, 2025, compared to the six months ended September 30, 2024, on lower interest rates and debt balances.

Restructuring and impairment costs of $1.1 million in the six months ended September 30, 2025, and $10.6 million in the six months ended September 30, 2024, were primarily related to the consolidation of the Company’s European tobacco sheet operations.

The consolidated effective tax rate for the six months ended September 30, 2025, was 25.2%.

The consolidated tax rate for the six months ended September 30, 2024, was 31.5%.

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, 2025, due to limitation of deductibility of certain compensation amounts.

Cost of goods sold decreased by 1%, or $16.7 million, in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, largely due to lower sales volumes in our Tobacco Operations segment.

Interest expense was down by 10%, or $5.8 million, in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, on lower interest rates and debt balances.

Restructuring and impairment costs of $1.8 million in the nine months ended December 31, 2025, compared to $10.6 million in the nine months ended December 31, 2024, were primarily related to the consolidation of the Company’s European tobacco sheet operations.

The consolidated effective tax rate for the nine months ended December 31, 2025, was 31.6%.

The consolidated tax rate for the nine months ended December 31, 2024, was 25.9%.

The consolidated effective tax rate for the nine months ended December 31, 2025, was higher than the consolidated tax rate for the nine months ended December 31, 2024, due to the impact of certain withholding taxes on dividends from foreign subsidiaries and the mix of domestic and foreign earnings.

Sustainability

Universal Corporation continues to make meaningful progress in its transition to renewable and lower emission energy sources.

The Company has significantly expanded its use of clean electricity as an important element of its carbon transition plan.

Expanded solar capacity has played a central role in this progress.

On-site solar installations in Italy, the Dominican Republic, and the Philippines have further strengthened Universal’s clean energy footprint.

During the quarter ended December 31, 2025, Universal published its Fiscal Year 2025 Sustainability Report, highlighting progress across key environmental and supply chain priorities.

In fiscal year 2025, the Company increased renewable electricity consumption nearly sixfold year over year, with 17.7% of global electricity sourced from renewable energy, supporting its science-based emissions targets and commitment to achieve net-zero greenhouse gas emissions across the value chain by 2050.

The Company also continued to enhance supply chain transparency and farmer engagement through MobiLeaf TM , its digital farm data platform, and maintained direct relationships with more than 200,000 contracted farmers worldwide.

Reconciliation of Certain Non-GAAP Financial Measures:

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Adjusted Operating Income Reconciliation

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

Three Months Ended December 31, Nine Months Ended December 31,

(in thousands) 2025 2024 2025 2024

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(in thousands except for per share amounts)

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

Three Months Ended December 31, Nine Months Ended December 31,

2025 2024 2025 2024

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Net Debt and Net Capitalization Reconciliation

September 30, September 30, March 31,

December 31, December 31, March 31,

(in thousands) 2025 2024 2025

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

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.

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

In contrast, in the six months ended September 30, 2024, certain tobacco purchases that would have typically been made in the first half of fiscal year 2025 had been made earlier due to market conditions, which reduced required working capital investments in the six months ended September 30, 2024.

After significant seasonal working capital investment in our tobacco operations in the first half of our fiscal year, we generally see tobacco inventory levels and other working capital items decrease in the second half of the fiscal year as tobacco crops in Africa, South America, and the United States are being shipped.

Our working capital needs followed this pattern in the nine months ended December 31, 2025, and we funded these working capital needs using a combination of cash on hand, short-term borrowings, customer advances, account receivables factoring, and operating cash flows.

In contrast, in the nine months ended December 31, 2024, certain tobacco purchases that would have typically been made in fiscal year 2025 had been made in fiscal year 2024 due to market conditions, which reduced required working capital investments in the nine months ended December 31, 2024.

Operating Activities

Net cash used by our operations was $172.4 million during the six months ended September 30, 2025.

That amount was $124.9 million higher than during the same period in fiscal year 2025, primarily on lower working capital requirements in the six months ended September 30, 2024.

Tobacco inventory levels increased by $332.3 million from March 31, 2025 levels to $1.1 billion at September 30, 2025, on seasonal leaf tobacco purchases.

Tobacco inventory levels at September 30, 2025, were up $68.0 million, compared to September 30, 2024 levels, on larger crop sizes partially offset by some earlier tobacco shipments in fiscal year 2026.

Net cash used by our operations was $58.0 million during the nine months ended December 31, 2025.

That amount was $226.3 million higher than during the same period in fiscal year 2025, primarily on lower working capital requirements in the nine months ended December 31, 2024.

Tobacco inventory levels at December 31, 2025, were up $66.0 million, compared to December 31, 2024 levels, on larger crop sizes.

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.

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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 September 30, 2025, our uncommitted tobacco inventories were $144.2 million, or about 13% of total tobacco inventory, compared to $164.0 million, or about 20% of our tobacco inventory as of March 31, 2025, and $108.0 million, or about 10% of our tobacco inventory as of September 30, 2024.

Our balance sheet accounts reflected seasonal patterns in the six months ended September 30, 2025, on deliveries of tobacco crops by farmers in Africa, South America, and the United States.

Accounts receivable decreased by $180.6 million from March 31, 2025 levels, on collections on receivables offset in part by tobacco crop shipments.

Advances to suppliers were $121.6 million at September 30, 2025, a reduction of $47.8 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 $106.9 million higher as of September 30, 2025, compared to March 31, 2025, on larger tobacco crops.

Notes payable and overdrafts were up $84.5 million from March 31, 2025 levels, on seasonal working capital needs.

Accounts receivable were $92.3 million lower as of September 30, 2025, compared to September 30, 2024, on customer mix.

Accounts receivable--unconsolidated affiliates were $47.4 million higher as of September 30, 2025, compared to the same period in the prior fiscal year, on larger tobacco crop sizes.

Notes payable and overdrafts were down $39.5 million as of September 30, 2025, compared to September 30, 2024, due to earlier crop shipments, collections on accounts receivable, and accounts receivable factoring.

As of December 31, 2025, our uncommitted tobacco inventories were $165.9 million, or about 17% of total tobacco inventory, compared to $164.0 million, or about 20% of our tobacco inventory as of March 31, 2025, and $94.3 million, or about 10% of our tobacco inventory as of December 31, 2024.

Our balance sheet accounts reflected seasonal patterns in the nine months ended December 31, 2025, on deliveries of tobacco crops by farmers in Africa, South America, and the United States.

Cash and cash equivalents were down $174.9 million

from March 31, 2025 levels, on seasonal working capital needs.

Accounts receivable were down $54.4 million from March 31, 2025 levels largely on the timing of collections on receivables.

Accounts receivable--unconsolidated affiliates increased by $55.2 million from March 31, 2025 levels, on larger tobacco crop sizes.

Accounts receivable and notes payable and overdrafts were down $78.5 million and $76.3 million, respectively, as of December 31, 2025, compared to December 31, 2024, largely due to accounts receivable factoring.

Accounts receivable--unconsolidated affiliates were $61.8 million higher as of December 31, 2025, compared to the same period in the prior fiscal year, on larger tobacco crop sizes.

Cash and cash equivalents were down $129.9 million as of December 31, 2025, compared to December 31, 2024, due to a higher of use of cash and cash equivalents to fund working capital needs in fiscal year 2026.

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 ended September 30, 2025 and 2024, we invested approximately $21.1 million and $38.8 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $22.0 million and $23.8 million for the six months ended September 30, 2025 and 2024, respectively.

During the nine months ended December 31, 2025 and 2024, we invested approximately $40.3 million and $54.9 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $33.0 million and $36.1 million for the nine months ended December 31, 2025 and 2024, respectively.

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

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

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

During the three months ended December 31, 2025, we did not purchase any shares of common stock.

As of December 31, 2025, our available authorization under our current share repurchase program was $100 million.

Financing Activities

At September 30, 2025, we had $1.2 billion in total debt outstanding, a decrease of $39.0 million compared to September 30, 2024.

At December 31, 2025, we had $1.1 billion in total debt outstanding, a decrease of $77.5 million compared to December 31, 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 decreased by $51.6 million to $1.1 billion at September 30, 2025, compared to September 30, 2024.

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

As of September 30, 2025, we had $88.7 million in cash and cash equivalents, $340 million available under our committed revolving credit facility that will mature in December 2027, and we, together with our consolidated affiliates, had approximately $166 million in available, uncommitted credit lines.

Net debt increased by $50.7 million to $995.3 million at December 31, 2025, compared to December 31, 2024.

Net debt as a percentage of net capitalization was 40% at December 31, 2025, up from 39% at December 31, 2024, and up from 36% at March 31, 2025.

On December 9, 2025, we entered into a new bank credit agreement that replaced our then-existing bank credit agreement dated December 15, 2022.

The new unsecured bank credit agreement established a funded $275 million five-year term loan, a funded $345 million seven-year term loan, and a five-year committed revolving loan facility of $780 million.

Both term loans were fully funded at closing, require no amortization, and are prepayable without penalty prior to maturity.

A $275 million term five-year term loan and a $530 million revolving credit facility, both of which would have matured in December 2027, as well as a $375 million seven-year term loan, which would have matured in December 2029, were terminated and replaced in conjunction with the execution of the new bank credit agreement.

Our obligations under the new bank credit agreement are guaranteed by our subsidiary, Universal Ingredients, Inc.

The financial covenants under the new bank credit agreement require us to maintain certain levels of tangible net worth and observe restrictions on debt levels.

Under applicable accounting guidance, a significant portion of the replacement of the term loans was accounted for as a debt modification rather than a debt extinguishment.

As of December 31, 2025, we had $85.2 million in cash and cash equivalents, $595 million available under our committed revolving credit facility that will mature in December 2030, and we, together with our consolidated affiliates, had approximately $237 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 September 30, 2025 financial statements, we were in compliance with all financial covenants of our debt agreements as of September 30, 2025.

Based on our December

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

We have no long-term debt maturing until fiscal year 2031.

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

At September 30, 2025, the fair value of our outstanding interest rate swap agreements was a liability of about $1.0 million, and the notional amount swapped was $310 million.

At December 31, 2025, the fair value of our outstanding interest rate swap agreements was a liability of about $1.3 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.

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

As of September 30, 2025, the fair value of our open hedges for forecasted tobacco purchases and crop inputs was a net asset of approximately $0.2 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 $0.4 million as of September 30, 2025.

As of December 31, 2025, the fair value of our open hedges for forecasted tobacco purchases and crop inputs was a net asset of approximately $0.2 million.

We had forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net asset of approximately $0.8 million as of December 31, 2025.

Critical Accounting Estimates

A summary of our critical accounting policies is included in Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2025 Form 10-K.

A summary of our critical accounting policies is included in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2025 Form 10-K.

Our critical accounting policies have not changed from those reported in the 2025 Form 10-K.

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-Q

Item 2. Management’s Discussion and Analysis