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Item 2. Management’s Discussion and Analysis

2026-08-05 compared with 2026-02-09 · 86 added, 109 removed, 139 unchanged (58% of the section changed)

27 unchanged sentences

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;

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Amounts described as net income (loss) and earnings (loss) per diluted share in the following discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries.

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.

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 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.

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Results of Operations

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.

We are starting fiscal year 2027 with confidence in the long-term strategic direction of our company.

We are focused on creating sustainable value through disciplined execution across our businesses.

In tobacco, we believe that our long-standing market expertise and measured approach position us well to navigate current oversupply conditions, make prudent buying decisions, and be a trusted, full-service partner to our customers.

In ingredients, we are leveraging our platform growth investments and focusing on improving commercial execution, facility utilization, and financial and operational efficiencies.

We expect certain of our improvement efforts to continue through fiscal year 2028.

Our results for the quarter ended June 30, 2026, reflected the expected timing and market dynamics in our tobacco business, in comparison to our first quarter fiscal year 2026 results, which we believe were exceptional.

Purchasing activity was slower as we and our customers evaluated green tobacco price trends amid oversupply conditions in flue-cured and burley markets and monitored potential weather impacts on next season’s crops.

We are pleased with our current customer indications and commitments, and we expect customer demand to remain consistent with our fiscal year 2027 sales plan.

In our ingredients business, in the quarter ended June 30, 2026, revenue was down slightly, in comparison to the quarter ended June 30, 2025, and results continued to be negatively affected by persistent consumer market headwinds, high fixed costs at our expanded Lancaster facility, and longer-than-anticipated product development cycles.

We continued to implement our initiatives to strengthen the ingredients platform for long-term success, which include enhancements to leadership, systems, operational capabilities, and commercial execution.

During the fiscal quarter ended June 30, 2026, our liquidity position remained strong, and our debt levels were down, compared to the quarter ended June 30, 2025, due to reduced working capital usage, driven by tobacco crop purchase timing and lower green tobacco prices.

FINANCIAL HIGHLIGHTS

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

Three Months Ended June 30, Change

(in millions of dollars, except per share data) 2026 2025 %

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Cost of goods sold $ 440.7 $ 479.6 (8) %

Gross profit margin percentage 18.5 % 20.7 % -220 bps 18.7 % 19.3 % -60 bps

Gross profit margin percentage 15.9 % 19.2 % -330 bps

Selling, general and administrative expenses $ 80.8 $ 79.2 2 %

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Adjusted operating income (non-GAAP)* $ 2.3 $ 34.9 (93) %

Net income attributable to Universal Corporation $ 33.2 $ 59.6 (44) % $ 75.9 $ 85.7 (11) %

Adjusted net income attributable to Universal Corporation (non-GAAP)* $ 34.0 $ 59.6 (43) % $ 77.7 $ 96.2 (19) %

Net income (loss) attributable to Universal Corporation $ (5.0) $ 8.5 (159) %

Adjusted net income (loss) attributable to Universal Corporation (non-GAAP)* $ (5.0) $ 9.6 (152) %

Diluted earnings (loss) per share $ (0.20) $ 0.34 (159) %

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

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

Consolidated Results

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 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 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 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

Quarter Ended June 30, 2026, compared to Quarter Ended June 30, 2025

Consolidated Results

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.

Revenue decreased by 12%, or $70.0 million, in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, primarily driven by lower tobacco sales volumes, down 9%, and tobacco sales prices, down 6%.

Operating income decreased by 93%, or $31.5 million, in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, on a less favorable product mix and lower sales volumes in the Tobacco Operations segment and continued market headwinds and high fixed costs in the Ingredients Operations segment.

Selling, general, and administrative expenses were up by 2%, or $1.6 million, primarily due to unfavorable foreign currency comparisons of $4.8 million and lower recoveries on advances to suppliers of $1.7 million, partially offset by lower compensation costs of $3.0 million and lower legal and professional fees of $1.2 million in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025.

Adjusted operating income was down by $32.6 million and adjusted net income attributable to Universal Corporation was down by $14.6 million in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, largely on on a less favorable product mix and lower sales volumes in the Tobacco Operations segment and continued market headwinds and high fixed costs in the Ingredients Operations segment.

Tobacco Operations Segment

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.

Our first fiscal quarter is historically a slow quarter for our tobacco business.

Revenue decreased by 13%, or $67.6 million, for the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, primarily on a 9% decrease in tobacco sales volumes due to lower sales of carryover crop tobacco and a 6% decrease in tobacco sales prices due to product mix and lower green tobacco prices.

Operating income for the Tobacco Operations segment decreased by 90%, or $32.2 million, for the first quarter of fiscal year 2027, compared to the first quarter of fiscal year 2026, on a less favorable product mix in Asia and lower sales of carryover crop tobacco.

Selling, general, and administrative expenses were higher by $1.3 million for the segment mainly due to unfavorable foreign currency comparisons of $4.4 million and lower recoveries on advances to suppliers of $1.7 million, partially offset by lower legal and professional fees of $2.3 million in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025.

Corporate overhead costs allocated to the segment were $2.2 million higher in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, due to a higher percentage allocation of the actual corporate overhead costs to the segment.

The allocation of corporate overhead costs is based on projected annual financial and operational performance.

Ingredients Operations Segment

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.

Revenue for the Ingredients Operations segment decreased by 3%, or $2.4 million, for the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, as sales of certain products were negatively impacted by market headwinds.

Operating income for the segment decreased by 139%, or $2.4 million, on product mix and high fixed costs as well as inventory write-downs of $1.4 million.

Market headwinds included persistent weakness in the consumer-packaged-goods industry, supply restraints, particularly tight apple markets in the Pacific Northwest, inflationary pressures, and tariff volatility.

Selling, general, and administrative expenses were lower by $1.5 million for the segment mainly due to lower compensation costs of $0.8 million and lower intangibles amortization expense of $0.6 million in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025.

Corporate overhead costs allocated to the segment were $0.4 million lower in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, due to a lower percentage allocation of the actual corporate overhead costs to the segment.

The allocation of corporate overhead costs is based on projected annual financial and operational performance.

Additional Items

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.

Cost of goods sold decreased by 8%, or $38.9 million, in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, largely on lower tobacco sales volumes and green tobacco prices.

Interest expense was down by 7%, or $1.3 million, in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, on lower debt balances.

Restructuring and impairment costs of $1.1 million in the quarter ended June 30, 2025.

The consolidated effective tax rate for the three months ended June 30, 2026, was 35%.

The consolidated tax rate for the three months ended June 30, 2025, was 27%.

The consolidated effective tax rate for the three months ended June 30, 2026, was higher than the consolidated tax rate for the three months ended June 30, 2025, due to various factors, including the mix and timing of domestic and foreign earnings, discrete items including increased withholding taxes on undistributed earnings in Brazil, and the tax deductibility of certain items.

Sustainability

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.

Universal continues to strengthen the foundation of its business through investments in environmental, health, and safety capabilities that support long-term sustainability and operational resilience.

Recent initiatives include the implementation of an enhanced global safety management software platform and a comprehensive Global EHS Management System.

The new systems improve visibility across operations, support greater consistency and accountability, and strengthen the Company's approach to risk management across its global footprint.

By reinforcing a culture of safety, transparency, and continuous improvement, these investments help position Universal for long-term success.

Reconciliation of Certain Non-GAAP Financial Measures:

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:

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 (loss) attributable to Universal Corporation to net income (loss) attributable to Universal Corporation:

Adjusted Operating Income Reconciliation

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

Three Months Ended June 30,

(in thousands) 2026 2025

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Restructuring and impairment costs (1)

711 — 1,833 10,573

As Adjusted operating income (non-GAAP) $ 2,296 $ 34,935

Adjusted Net Income Attributable to Universal Corporation and Adjusted Diluted Earnings Per Share Reconciliation

Adjusted Net Income (Loss) Attributable to Universal Corporation and Adjusted Diluted Earnings (Loss) Per Share Reconciliation

(in thousands except for per share amounts)

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

2025 2024 2025 2024

Net income attributable to Universal Corporation $ 33,249 $ 59,639 $ 75,915 $ 85,709

Three Months Ended June 30,

Net income (loss) attributable to Universal Corporation $ (5,016) $ 8,497

Restructuring and impairment costs (1)

711 — 1,833 10,573

Total of non-GAAP adjustments to income before income taxes 711 — 1,833 10,573

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

Non-GAAP adjustments to income taxes

Income tax benefit from restructuring and impairment costs (1)(2)

— — (35) (132)

Total of income tax impacts for non-GAAP adjustments to income before income taxes — — (35) (132)

Net income attributable to Universal Corporation (non-GAAP) $ 33,960 $ 59,639 $ 77,713 $ 96,150

Diluted earnings per share $ 1.32 $ 2.37 $ 3.02 $ 3.41

Diluted earnings per share (non-GAAP) $ 1.35 $ 2.37 $ 3.09 $ 3.83

(1) Restructuring and impairment costs are included in Consolidated operating income in the consolidated statements of income, but excluded for purposes of Adjusted operating income, Adjusted net income available to Universal Corporation, and Adjusted diluted earnings per share.

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

Net income (loss) attributable to Universal Corporation (non-GAAP) $ (5,016) $ 9,584

Diluted earnings (loss) per share $ (0.20) $ 0.34

Diluted earnings (loss) per share (non-GAAP) $ (0.20) $ 0.38

(1) Restructuring and impairment costs are included in Consolidated operating income in the consolidated statements of income, but excluded for purposes of Adjusted operating income, Adjusted net income (loss) available to Universal Corporation, and Adjusted diluted earnings (loss) per share.

(2) 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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Net Debt and Net Capitalization Reconciliation

December 31, December 31, March 31,

June 30, June 30, March 31,

(in thousands) 2026 2025 2026

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

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.

Our first fiscal quarter is typically a period of significant working capital investment in Africa and South America as farmers deliver tobacco crops.

For the quarter ended June 30, 2026, working capital investment remained significant, but was lower than in the quarter ended June 30, 2025, primarily due to an oversupply of tobacco, particularly flue-cured and burley tobacco, in the global market.

As a result of these market conditions, green tobacco purchases were slower and green tobacco prices were lower than in the prior-year quarter, reducing our working capital requirements.

We funded these requirements through a combination of cash on hand, short-term borrowings, customer advances, accounts receivable factoring, and operating cash flows.

Operating Activities

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.

Net cash used by our operations was $117.1 million during the quarter ended June 30, 2026.

That amount was $88.0 million lower than during the same period in fiscal year 2026, primarily on lower working capital requirements.

Tobacco inventory levels at June 30, 2026, were down $54.2 million, compared to June 30, 2025 levels, on slower green tobacco purchases and lower green tobacco prices.

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 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.

As of June 30, 2026, our uncommitted tobacco inventories were $275.1 million, or about 24% of total tobacco inventory, compared to $222.3 million, or about 27% of our tobacco inventory as of March 31, 2026, and $134.7 million, or about 11% of our tobacco inventory as of June 30, 2025.

Uncommitted tobacco levels as a percentage of total tobacco inventory came down from March 31, 2026 levels in the quarter ended June 30, 2026, but remained elevated due to delayed customer purchase commitments.

We expect our uncommitted tobacco inventory levels to be within our range of 20% or less of total tobacco inventory during fiscal year 2027.

Our balance sheet accounts reflected seasonal patterns in the quarter ended June 30, 2026, on deliveries of tobacco crops by farmers in Africa and South America.

Accounts receivable decreased by $215.8 million from March 31, 2026 levels on collections on receivables, partially offset by tobacco crop shipments.

Advances to suppliers were $102.9 million at June 30, 2026, a reduction of $74.3 million from March 31, 2026, as tobacco crops were delivered in payment on some of those balances, net of new balances for upcoming tobacco crops.

Accounts receivable--unconsolidated affiliates increased by $92.2 million from March 31, 2026 levels, on tobacco crop purchases.

Notes payable and overdrafts were up $279.4 million from March 31, 2026 levels on seasonal working capital needs.

Accounts receivable were $76.1 million lower in the quarter ended June 30, 2026, compared to the quarter ended June 30, 2025, on lower sales of carryover crop tobacco.

Advances to suppliers were $23.7 million higher and accounts payable were $28.8 million lower at June 30, 2026, compared to June 30, 2025, largely on slower purchases of green tobacco.

Accounts receivable--unconsolidated affiliates were $23.2 million lower as of June 30, 2026, compared to the same period in the prior fiscal year, on the timing of tobacco shipments.

Notes payable and overdrafts were down $54.3 million as of June 30, 2026, compared to June 30, 2025, due to lower working capital requirements.

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 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.

During the quarters ended June 30, 2026 and 2025, we invested approximately $15.9 million and $12.1 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $11.0 million for each of the quarters ended June 30, 2026 and 2025.

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 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.

During the three months ended June 30, 2026, we purchased 51,741 shares of common stock at an aggregate cost of $2.7 million (average price per share $53.06).

As of June 30, 2026, our available authorization under our current share repurchase program was $97.3 million.

Financing Activities

At December 31, 2025, we had $1.1 billion in total debt outstanding, a decrease of $77.5 million compared to December 31, 2024.

At June 30, 2026, we had $1.2 billion in total debt outstanding, a decrease of $55.5 million compared to June 30, 2025.

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 $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.

Net debt decreased by $51.6 million to $1.0 billion at June 30, 2026, compared to June 30, 2025.

Net debt as a percentage of net capitalization was 42% at June 30, 2026, flat with 42% at June 30, 2025, and up from 37% at March 31, 2026.

As of June 30, 2026, we had $174 million in cash and cash equivalents, $635 million available under our committed revolving credit facility that will mature in December 2030, and we, together with our consolidated affiliates, had approximately $279 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 December

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

Based on our June 30, 2026 financial statements, we were in compliance with all financial covenants of our debt agreements as of June 30, 2026.

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 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.

At June 30, 2026, the fair value of our outstanding interest rate swap agreements was an asset of about $5.0 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 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.

As of June 30, 2026, the fair value of our open hedges for forecasted tobacco purchases and crop inputs was a net liability of approximately $3.0 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 $1.1 million as of June 30, 2026.

Critical Accounting Estimates

2 unchanged sentences

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