Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Schedule II - Valuation and Qualifying Accounts
Exhibit Index
Signatures
Forward-Looking Statements
This Annual Report on Form 10-K (“Annual Report”), contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Among other things, these statements relate to Universal Corporation’s financial condition, results of operations and future business plans, operations, opportunities, and prospects. In addition, Universal Corporation and its representatives may make written or oral forward-looking statements from time to time, including statements contained in other filings with the Securities and Exchange Commission (the “SEC”) and in reports to shareholders. These forward-looking statements are generally identified by the use of words such as we “expect,” “believe,” “anticipate,” “could,” “should,” “may,” “plan,” “will,” “predict,” “estimate,” and similar expressions or words of similar import. These forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: product purchased not meeting quality and quantity requirements; reliance on a few large customers; anticipated levels of demand for and supply of our products and services; 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; 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; 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. For a description of factors that could cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors.” 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 Annual Report. In addition, the discussion of the impact of current trends on our business in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other Information Regarding Trends and Management’s Actions” in Item 7 should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report.
General
This Annual Report uses the terms “Universal,” “the Company,” “we,” “us,” and “our” to refer to Universal Corporation and its subsidiaries when it is not necessary to distinguish among Universal Corporation and its various operating subsidiaries or when any distinction is clear from the context in which it is used.
See the “Results of Operations” section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 for a discussion of adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, segment operating income (loss), net debt, net capitalization, and net debt to net capitalization ratio, non-GAAP financial measures that we refer to in this Annual Report and consider useful in understanding our business results and trends.
PART I
Item 1. Business
A. The Company
Overview
Universal Corporation is a global business-to-business agriproducts company with over 100 years of experience supplying products and innovative solutions to meet our customers’ evolving needs. With operations in over 30 countries on five continents, we are uniquely positioned to leverage our worldwide network to access a diverse, reliable supply of plant-based materials. This presence, combined with our supply chain expertise, integrated processing capabilities, and commitment to sustainability, enables us to deliver high-quality, customizable, and traceable value-added agriproducts essential to our customers’ success.
We have two operating segments: Tobacco Operations and Ingredients Operations. Our Tobacco Operations segment involves procuring and processing flue-cured, burley, dark air-cured, and oriental leaf tobacco for manufacturers of consumer tobacco products and performing related services. We are the leading global leaf tobacco supplier. Through our Ingredients Operations segment, we procure raw materials globally and process the raw materials through a variety of value-added manufacturing processes to produce high-quality, innovative, specialty plant-based ingredients, including fruits, vegetables, botanical extracts, and flavorings for consumer-packaged goods manufacturers, retailers, and food and beverage companies. We do not sell any direct-to-consumer products. Rather, we support consumer product manufacturers by selling them transformed agriproducts and performing related services for them.
Our business strategy focuses on three pillars: maximizing and optimizing our Tobacco Operations segment, growing our Ingredients Operations segment, and strengthening our Company for the future. In our Tobacco Operations segment, we continue to look for opportunities to increase our sales volumes and market share, expand services across our customers’ supply chains, participate in the evolution of next generation products, and improve operating efficiency. In our Ingredients Operations segment, we seek opportunities to grow both organically and through disciplined acquisitions to provide customers with a solutions-based portfolio of value-added product offerings. Under our corporate pillar, we pursue strategies and initiatives intended to strengthen and support our Company for the future. These strategies and initiatives are expected to focus on efficient financial management, effective human capital management, optimal utilization of technology, including artificial intelligence ( “ AI”), and operational synergies between our business segments. Our goal is to drive excellence across the Company and position Universal for long-term and value creation.
We generated approximately $2.9 billion in consolidated revenues and earned $168.5 million in total operating income and $214.8 million in total segment operating income in fiscal year 2026. We are a holding company that operates through numerous directly and indirectly owned subsidiaries. Our primary subsidiaries are Universal Leaf Tobacco Company, Incorporated, which is associated with our Tobacco Operations segment, and Universal Ingredients, Inc. ( “ Universal Ingredients”)(formerly Universal Global Ventures, Incorporated), which is associated with our Ingredients Operations segment.
Additional Information
Our website address is www.universalcorp.com. We post regulatory filings on this website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These filings include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Section 16 reports on Forms 3, 4, and 5, and any amendments to those reports filed with or furnished to the SEC. Access to these filings on our website is available free of charge. Copies are also available, without charge, from Universal Corporation Investor Relations, 9201 Forest Hill Avenue, Richmond, VA 23235. Reports filed with the SEC may be viewed at www.sec.gov. We also post our press releases on our website. Information on our website is not deemed to be incorporated by reference into this Annual Report.
In addition, our Corporate Governance Guidelines, Code of Conduct, and charters for the Audit Committee, the Compensation and Human Resources Committee, the Executive Committee, the Finance and Pension Investment Committee, and the Nominating, Governance and Risk Committee are available free of charge to shareholders and the public through the “Investors-Governance” section of our website. Printed copies of the foregoing are available to any shareholder upon written request to our Treasurer at the address set forth on the cover of this Annual Report or may be requested through our website, www.universalcorp.com.
B. Description of Business
Tobacco Operations
Universal is a vital link between farmers and manufacturers of consumer tobacco products, sourcing the crop for our customers and processing it to meet their exact specifications. We are the leading global leaf tobacco supplier and have a presence in all major flue-cured, burley, dark air-cured, and oriental tobacco growing origins. Our Tobacco Operations procure, process, pack, store, and ship tobacco all over the world for use in international consumer tobacco brands. We also provide specialty services to our customers like custom blending, chemical and physical testing of tobacco, service cutting, reconstituted leaf tobacco manufacturing, and just-in-time product delivery. In addition to our leaf tobacco business, we are involved in other tobacco-related opportunities, including liquid nicotine for manufacturers of next generation tobacco products and recycled waste materials from tobacco production.
We contract directly with farmers and farmer organizations in most of the countries in which we operate. Partnering with Universal offers most growers the added benefit of access to crop input packages (including advances of seeds or seedlings and fertilizer) that may not otherwise be readily available. As we are dedicated to promoting a sustainable farmer base, Universal provides significant agronomic support throughout a growing season, including educational programs in such matters as good agricultural practices (“GAP”), the reduction of non-tobacco related materials, product traceability, environmental sustainability, agricultural labor standards, and social responsibility.
Before each growing season, we use customer indications of tobacco type, style, and volume requirements to help us determine our farmer contracting needs in each region. Discussions of a customer’s needs may begin as early as one to two years in advance of a particular crop purchase. Ultimately, sales agreements specifying quantity, quality, grade, and price are executed, leading to inventory allocations of purchased “green” and processed leaf as well as packed leaf that we have acquired. Revenues for our Tobacco Operations are generated from product sales of green and processed leaf as well as packed tobacco that we source; from processing fees for tobacco owned by third parties; and from fees for other services.
Timely processing is an essential service to our customers because “green” or unprocessed tobacco leaf is a perishable product. Processing leaf tobacco includes grading in the factories, blending, removing of non-tobacco material, separating of leaf from the stems, drying, packing to precise moisture targets for proper aging primarily in corrugated cardboard cases, as well as temporarily storing packed tobacco. Processing generally requires investments in factories and machinery in the geographic areas where tobacco is grown. Processed tobacco that has been properly packed can be stored by customers for several years prior to use, but most processed tobacco is used within two to three years.
We conduct our tobacco business in varying degrees in a number of countries, including Bangladesh, Brazil, Canada, the Dominican Republic, Ecuador, France, Germany, Guatemala, Hungary, India, Indonesia, Italy, Malawi, Mexico, Mozambique, the Netherlands, Paraguay, the People’s Republic of China, the Philippines, Poland, the Republic of South Africa, Singapore, Spain, Switzerland, the United Arab Emirates, the United States, and Zimbabwe. In addition, our oriental tobacco joint venture, Socotab, L.L.C., has operations in Bulgaria, Greece, the Republic of North Macedonia, and Türkiye. We also operate in major dark tobacco producing countries, including the United States, the Dominican Republic, Ecuador, Indonesia, Paraguay, the Philippines, and Brazil.
We are a major purchaser and processor in the primary exporting regions for flue-cured and burley tobacco throughout the world. Africa, Brazil, and the United States produce approximately two-thirds of the flue-cured and burley tobacco grown outside of the People's Republic of China. We estimate that over the last five years we have handled, through leaf sales or processing, on average between 20% and 30% of the annual production of such tobaccos in Africa, between 15% and 25% in Brazil, and between 35% and 45% in the United States. These percentages can change from year to year based on the size, price, and quality of the crops.
We believe that our leading position in the leaf tobacco industry is based on our volumes handled; our operating presence in all of the major sourcing areas; our ability to meet customer style, volume, and quality requirements; our experience in dealing with large numbers of farmers; our expertise in delivering a sustainable supply of compliant, traceable, competitively-priced leaf tobacco; and our long-standing relationships with customers. We believe that our ability to market most styles and grades of leaf to a diverse customer base, and the efficiencies we offer customers due to our operational expertise and established infrastructure, are also key to our success.
We believe our Tobacco Operations will continue to produce solid financial returns and enhance shareholder value through the following key operating principles:
• Strategic market position. By working closely with both our customers and our suppliers throughout the year, we seek to ensure the consistent delivery of a product that meets our customers' needs and to cultivate a strong, sustainable supplier base. We also aim to maximize supply chain efficiencies by balancing product purchases against indicated customer demand and maintaining global procurement and production operations.
• Strong local management . Empowered and experienced local management in our supply origins, coupled with global coordination, affords us the flexibility to quickly and successfully adapt to constantly shifting market conditions, while continuing to deliver high-quality, competitively-priced products and services.
• Compliant products . Customers expect a sustainable supply of compliant, traceable, competitively priced products, and we seek to meet this demand through our investment in GAP training for farmers which encompasses crop quality, environmental stewardship, and agricultural labor standards.
• Diversified sources. We operate in over 30 countries on five continents and maintain a presence in all major tobacco origin markets. This global presence allows us to meet our customers' diverse product requirements while minimizing the effects of adverse crop conditions and other localized supply disruptions.
• Financial strength. Financial strength is critical to our existing global operations and enables us to invest in suitable opportunities when they arise. We believe management of liquidity, borrowings, and capital costs provides us with a competitive advantage, affords us flexibility when responding to customer requirements and market changes, and allows us to enhance shareholder value.
Seasonality
Our tobacco operations are seasonal in nature. While the growing, marketing, and purchasing cycles differ from region to region, we typically operate each of our tobacco processing plants for seven to nine months of the year. During this period for each region, inventories of “green” or unprocessed tobacco, inventories of processed tobacco, and trade accounts receivable normally reach peak levels in succession. We normally finance this expansion of current assets with cash, short-term borrowings from banks, and customer advances, and these funding sources normally reach their peak usage in each region during its respective purchasing or processing period. Our financial performance is also impacted by the seasonality of our business. Due to global tobacco growing cycles, as well as customer shipment preferences, we typically ship a larger portion of our volumes in the second half of our fiscal year. Changes in customer shipment schedules or changes in crop timing in a season can shift recognition of revenue in a given fiscal year or between fiscal years.
Customers
A material part of our tobacco business is dependent upon a few customers. Sales to our top five customers, with whom we have long-standing relationships, have accounted for more than 50% of our consolidated revenues for each of the past three fiscal years. For the fiscal year ended March 31, 2026, each of Imperial Brands plc and Philip Morris International Inc., including their respective affiliates, accounted for 10% or more of our revenues.
Competition
Competition among leaf tobacco suppliers is based on the ability to meet customer specifications in the growing, buying, processing, and financing of tobacco, and on the prices charged for products and services. The number of competitors varies in each operating country, but there is competition in most areas to buy and sell the available tobacco. Our principal competitor is Pyxus International, Inc. (“Pyxus”), and we consider ourselves and Pyxus to be the only global leaf suppliers based on our worldwide scope of operations. However, Universal is the only global leaf tobacco supplier with operations in the Dominican Republic, Ecuador, Hungary, Italy, Mexico, Mozambique, Paraguay, the Philippines, and Poland and that participates meaningfully in the sale and production of dark air-cured tobaccos. Most of our major customers are partially vertically integrated, thus they also compete with us for the purchase of leaf tobacco in several of the major markets. However, each of our customers generally has specific preferences for certain styles of tobacco leaves and only utilizes certain stalk positions of the tobacco plant. In contrast, we have the ability to commercialize the entire tobacco plant and supply all major varieties of tobacco.
In most major leaf tobacco markets, smaller competitors are active and typically are opportunistic and have lower overhead requirements, but they generally provide less agronomic support to farmers. Due to their lower cost structures, they tend to offer a lower price, but among other things, our long-term presence, our investments in employees, facilities and communities, our GAP and Agricultural Labor Practices (“ALP”) programs, our sustainability efforts and supply chain monitoring as well as our quality controls add value for our customers in an increasingly regulated world. Our GAP training supports an approach to farming that is focused on sustainability, sound field production, and fair labor management practices that promote farmer profitability and reflect environmental sensitivity. We provide comprehensive training, technical support in the field, and crop analytics through ongoing research and development. Our major customers increasingly require these services, and we believe our programs increase the quality and value of the products and services we offer. In addition, our customers value the security of supply that we can provide due to our strong relationships with our farmer base and our global footprint.
Ingredients Operations
Similar to Universal’s Tobacco Operations, our Ingredients Operations source raw materials globally and utilize value-added manufacturing processes to provide customers with a consistent, high-quality, and reliable supply of plant-based ingredients. Through the Universal Ingredients platform, we produce and supply a broad portfolio of products, including fruit and vegetable juices and concentrates, purees, dehydrated products, botanical extracts, flavorings, colorings, and other customized, value-added ingredient solutions.
The Universal Ingredients platform has been built through strategic investments in established businesses with strong operating histories and complementary capabilities across fruits, vegetables, and flavorings. Our primary subsidiaries – FruitSmart, Inc. (“FruitSmart”), Silva International, Inc. (“Silva”), and Shank’s Extracts, LLC d/b/a Universal Ingredients–Shank's (“Universal Ingredients–Shank’s”) – operate in distinct but highly complementary categories. Collectively, these businesses enable the delivery of integrated, customized solutions that leverage sourcing, processing, and product development capabilities across the platform.
FruitSmart supplies a diversified portfolio of fruit- and vegetable-based ingredients to customers in the United States and international markets, including juices, concentrates, essences, purees, pomaces, fibers, seeds, and seed-based products. Core offerings include not-from-concentrate apple juice and a range of juice concentrates, including apple, blueberry, Concord grape, and raspberry. Headquartered in the Yakima Valley in Washington State, FruitSmart operates separate liquid and dry production facilities. The business focuses on operational efficiency, capacity utilization, and health and safety initiatives, while positioning its portfolio of products to benefit from increasing demand for premium, better-for-you, and functional ingredients.
Silva procures over 70 types of dehydrated vegetables, fruits, and herbs and spices from over 20 countries around the world and specializes in processing natural materials into dehydrated vegetable- and fruit-based ingredients tailored for a range of food applications. Silva’s product portfolio includes vegetable blends and individual ingredients such as peppers, spinach, carrots, and pumpkin. Headquartered in Momence, Illinois, Silva operates a large-scale manufacturing facility and maintains strong supplier relationships and quality control processes to support consistent, high-quality supply of ingredients. Silva has established a strong position in clean-label, natural, and specialty dehydrated ingredients, providing solutions for diverse applications in the human food industry as well as the pet food market.
Universal Ingredients–Shank’s provides a diversified portfolio of botanical extracts, distillates, natural and artificial flavors, and colors for industrial and private label customers worldwide, with particular expertise in vanilla. The business also offers custom formulation, bottling, and packaging services. The manufacturing campus in Lancaster, Pennsylvania includes extraction, blending, and aseptic processing and packaging capabilities, supported by refrigerated storage and expanded production capacity. Recent investments in this facility have enhanced the business’s ability to serve growth categories, including beverages, food service, and specialty applications, while enabling greater innovation and speed to market.
To support the continued growth of Universal Ingredients, we have made investments in centralized sales, marketing, and product development capabilities that operate across the platform. Our research and development team, including our product development lab in Lancaster, Pennsylvania, is staffed with food scientists and technical professionals who collaborate with customers to develop and commercialize new products. These capabilities support a wide range of applications, including ready-to-drink beverages, coffees, teas, carbonated beverages, nutritional products, and bakery items. Our teams work closely with our research and development professionals to provide integrated solutions and to leverage the full breadth of the platform’s capabilities in bringing products to market.
We believe our ability to combine global sourcing, value-added processing, and customer-focused innovation differentiates us in this highly-fragmented market. Over time, we intend to explore the enhancement of our product offerings and the promotion of operational efficiencies by leveraging our global supply chain, agronomic expertise, and long-standing relationships with growers and suppliers.
Customers
Our Ingredients Operations primarily serve the food and beverage industry, including multinational consumer packaged goods companies, food service providers, beverage manufacturers, and retailers, as well as regional and specialty brands. These customers operate across diverse end-markets and applications, spanning a wide range of distribution channels.
Many customers across these end-markets place value on research and development, application expertise, and collaborative product innovation. To support these needs and anticipated growth, our recent investments, particularly in the Lancaster, Pennsylvania facility, have expanded our research and development and application capabilities, as well as production capacity in beverage, food service, and related channels. These investments enhance the platform’s ability to support customized formulations, rapid product development, and reinforce readiness to meet evolving customer demand over time.
Competition
The plant-based ingredients market is large and highly fragmented, with thousands of participants ranging from small, privately-owned companies to large multinational suppliers. Many competitors focus on specific product categories or regional
markets and may have more limited capabilities in areas such as product development, integrated sourcing, or large-scale capital investment.
We compete by offering high-quality, customized ingredient solutions supported by global sourcing capabilities, value-added processing, and integrated platform-level sales, marketing, and product development. We believe our scale, breadth of capabilities, customer relationships, and continued investments in innovation and capacity position Universal Ingredients to compete effectively across its markets.
Sustainability
As a global agricultural company, we believe that the success of our business is linked to the health and resiliency of the environments in which we operate, and we have a fundamental responsibility to our stakeholders to set high standards of social and environmental performance to support a sustainable supply chain. We consistently disclose our operational activities and sustainable practices in a transparent manner through our annual Sustainability Report, which can be found on our website. Our Nominating, Governance and Risk Committee has primary oversight of our sustainability programs. We continue to further strengthen our approach to sustainability throughout the organization in alignment with recognized best practices, regulatory compliance, and shareholder interests.
We are a global agriproducts supplier operating in numerous countries around the world, and we primarily focus our sustainability efforts on our own operations and the farmers in our supply chain with whom we contract for raw materials. Sustainability efforts with respect to our facilities around the world involve the adoption and implementation of policies and procedures related to environmental impacts, workforce protections and programs such as those we address in “Human Capital Management” below, and other important considerations. Sustainability efforts in our supply chain emphasize important issues related to the countries and communities in which we operate and include and focus on the protection of tobacco farm worker rights through appropriate agricultural labor practices and monitoring the reduction of environmental impacts through compliance with industry-recognized GAP programs, as well as our own environmental programs and initiatives.
Agricultural Labor Practices
Throughout the world, we work side-by-side with our contracted farmers to produce a sustainable tobacco crop that adheres to GAP and appropriate ALP. As part of our ALP program, we train contracted farmers on the ALP Code principles and monitor their adherence through multiple in-person visits during the tobacco growing season. The significant investment of time and resources we commit each year to our ALP program evidences the importance of sustainable labor practices to our business. Our global ALP Code consists of seven principles that set forth human rights expectations for our contracted farmers to meet:
1. Progressive elimination of child labor.
2. Adherence to income and work hour requirements.
3. Fair treatment of workers.
4. Prohibition of forced labor.
5. Providing safe working environments.
6. Recognition and respect of workers’ rights to freedom of association and collective bargaining.
7. Compliance with local employment laws.
Environmental Impacts
Universal is committed to abiding by environmental laws and regulations, monitoring our supply chain activities, and cooperating with supply chain partners to implement strategies that mitigate and reduce environmental impacts that may be associated with our business. We recognize three primary environmental responsibilities throughout our global footprint: responsible consumption of water and natural resources; responsible forestry management; and minimizing greenhouse gas emissions.
Recent Initiatives
Universal released our 2025 Sustainability Report in January 2026, highlighting our efforts in reducing emissions, conserving resources, advancing fair labor practices, and improving farmer livelihoods. Responsible business practices are integrated into Universal’s business strategy.
As disclosed in our 2025 Sustainability Report, we continued to support our supply chain sustainability goals and achieve measurable results across key environmental and social priorities. Our leaf technicians made over 2 million visits to more than 200,000 contracted farmers to maintain our visibility and traceability in our supply chain. Our operations continue to enhance transparency and collaboration with our stakeholders by reporting to the Sustainable Tobacco Program and training over 200,000 farmers on GAP and ALP to advance environmental and human rights best practices throughout our contracted farmer base.
Universal’s climate transition plan includes reducing fossil fuel use, purchasing renewable forms of electricity, and enhancing operational efficiencies throughout our operations and value chain. To align our carbon reduction strategy with industry standards, we updated our emissions reduction goals and received approval of near-term, long-term and net zero
emissions targets from the Science Based Target Initiative (SBTI) during 2025. These actions support the Company’s goal of reaching net-zero greenhouse gas emissions across the value chain by 2050.
For a discussion of recent developments and trends in our businesses, along with factors that could have a material adverse effect on our businesses see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 1A, “Risk Factors.”
C. Human Capital Management
Workforce Overview
Our employees are among our most important resources, and we rely on them to execute our business plan with integrity and efficiency. We believe that investing in human capital is critical to our continued success. Our employees enable us to be a leading global supplier of leaf tobacco and other agriproducts. We strive to foster an inclusive workplace; attract, retain, and develop talented personnel; and keep our employees safe and healthy.
As of March 31, 2026, we employed more than 25,000 employees, operating in over 30 different countries across five continents. Approximately 55% of our employees are seasonal and approximately 45% are full-time employees. Almost 42% of our employees are female and more than 23% of our managers are female. Globally, Universal has 13 collective bargaining agreements in place, covering approximately 30% of our workforce. The sizeable seasonal nature of our global workforce makes these numbers fluctuate throughout the year.
We are a multinational and multicultural organization, with employees and operations located around the world, and we are committed to maintaining an inclusive workplace. Less than 5% of our employees are located in the United States. Almost all of our employees are from the same country in which our related operations are located. Our expatriate hires represent less than 0.3% of our workforce, and they are hired due to their essential professional knowledge necessary for the operation of our business.
Board of Directors’ Role in Human Capital Management
Our Board of Directors (“Board”) believes that human capital management is an important component of our continued growth and success and is essential to our ability to attract, retain, and develop talented and skilled employees. We pride ourselves on a culture that respects co-workers and values concern for others. The recent name change of the Compensation Committee to the Compensation and Human Resources Committee reflects the importance of human capital management to the Company.
Our Nominating, Governance and Risk Committee and our Compensation and Human Resources Committee both have important roles with respect to human capital management. The Nominating, Governance and Risk Committee oversees and reviews our sustainability programs, which include important policies and practices related to human rights, prohibitions against discrimination, employee health and safety, and other policies related to our workforce. The Compensation and Human Resources Committee oversees administration of the Company’s human resource programs, including with respect to talent management, succession planning, and performance management.
We are committed to protecting the human rights of our employees and have policies in place to support this effort, including those relating to whistleblowing, harassment, equal employment, and compliance with local labor laws. Our Board also adopted our Code of Conduct (the “Code”) and Anti-Corruption Compliance Manual (the “Manual”) to promote ethical behavior throughout the Company and address violations of ethical standards. The Code and Manual have been translated into 16 languages and apply directly to all officers, directors, and employees in the Universal family of companies. The Board also adopted our Human Rights Policy, which defines the high ethical and social standards we implement across our global operations. We support these rights and programs through compliance communications, face-to-face and online training, and an anonymous compliance line that we maintain globally. Our compliance line is available to all our employees and any other interested parties 24 hours a day, 7 days a week, by internet or phone. The Board oversees our global compliance program and receives reports from our Chief Compliance Officer at each quarterly Board meeting.
Employee Compensation and Benefits
We offer our employees competitive base salaries and wages, and we have a salary administration process where we regularly review and adjust our employees’ total compensation and benefits when warranted to ensure they are competitive in our industry and are aligned with our performance. In addition, we believe employee benefits are an essential component of our total compensation package. Each of our global operations provides benefits that are designed to attract and retain our employees. These benefits vary depending on the location, seniority, and employment status of our employees, and can include medical insurance, long-term disability insurance, retirement benefits, and similar programs.
In the United States, benefits to our employees include medical, dental, disability and life insurance, flexible spending accounts, and a 401(k) Retirement Plan with a 5% match and immediate vesting. We provide a health care advocacy service to assist our employees with various medical needs as they make these decisions, and we provide a mental health and financial counseling program for our employees and their families. We also offer other benefits which may vary by location, but which include performance, holiday, attendance and other bonus opportunities, a tuition assistance program (offering assistance up to 75%) as well as a 501(c)(3) matching gift program to benefit communities in which our employees work and reside.
We support our employees outside of work through a variety of initiatives and strongly believe that our success relies on the prosperity of the communities in which we operate. We fund various programs that enhance local communities, economies, and cultures. For example, in numerous locations we support projects designed to impact our employees and their families such as establishing health clinics and wellness programs to assist our employees, administering after school care for schoolchildren, or funding local cultural events. Ultimately, we recognize our impact extends beyond the workplace and are proud to engage as both active corporate citizens and leaders in our neighborhoods, communities, and countries. We publicly disclose additional information about our community support activities each year in our Sustainability Report.
Talent Development and Training
This fiscal year we created the role of Chief Human Resources Officer to further strengthen Universal’s organizational capabilities. Reporting directly to our Chief Executive Officer, the Chief Human Resources Officer provides strategic direction and oversight for our global human resources function and human capital management programs, supporting the development, engagement, and long-term success of our workforce.
Employee training and development of both technical and leadership skills are integral aspects of our human capital strategy. We provide employees with a range of development opportunities that vary by location and seniority of employees, such as online training and live classes. These programs often include safety and technical job skill training as well as programs focused on soft skills such as effective communication. Development of leadership skills is also a priority and is specialized for different levels of employees. For example, members of management in our global operations participate in our succession planning programs, which include the identification of employees who are offered development opportunities for career advancement. To further develop leadership skills, we also maintain some specific leadership programs for aspiring leaders and new supervisors, managers, and directors.
Health and Safety
The health and safety of our employees, contractors, and visitors is a core business priority and a fundamental component of Universal’s risk management framework. Universal is committed to preventing work-related injuries and illnesses through a structured health and safety management system that emphasizes leadership accountability, employee participation, and compliance with applicable laws and requirements. Health and safety expectations are embedded into operational decision-making and reinforced through governance, performance monitoring, and continual improvement processes.
Our health and safety management system is designed to strengthen organizational safety culture by establishing clear expectations for leadership behavior, empowering employees to identify and address hazards, and reinforcing accountability at all levels of the organization. Standardized reporting and performance tracking tools enable facilities to monitor local performance while providing corporate leadership with timely, comparable insights across operations. This approach supports the identification of emerging risks, prioritization of corrective actions, and effective allocation of resources to reduce exposure and prevent harm.
To support continuous improvement, key health and safety performance measures have been established across our tobacco processing and agronomy operations. We regularly evaluate historical performance, identify site-specific risk drivers, and implement measurable objectives. These measures are designed to support informed decision-making, strengthen prevention efforts, and promote accountability and long-term risk reduction. Performance is reviewed through established governance processes to ensure alignment with corporate expectations and to inform ongoing improvement planning.
Assurance and shared learning are reinforced through corporate audits and regional cross-auditing initiatives. Our “fresh eyes” approach brings together employees from different locations to participate in peer reviews, promoting consistency, collaboration, and the exchange of best practices. This approach complements formal audits, broadens organizational perspective, and reinforces shared responsibility for safety performance across the organization.
Legal compliance remains a foundational requirement of our health and safety program. Universal companies are expected to comply with applicable occupational health and safety laws and regulations and to cooperate with regulatory authorities in maintaining effective and compliant programs. As part of our broader commitment to a responsible and resilient supply chain, our policies require suppliers and business partners to provide healthy and safe working environments and to meet applicable legal and contractual health and safety requirements. Through governance, monitoring, and engagement, we seek to apply health and safety expectations consistently across our operations and supply chain, supporting sustained improvement and long-term value creation.
D. Research and Development
While we invest in research and development activities in both our Tobacco Operations and Ingredients Operations segments, these costs as a portion of global expenditures were not material during the fiscal years ended March 31, 2026, 2025, or 2024.
E. Intellectual Property
We hold no material patents, licenses, franchises, or concessions.
F. Government Regulation, Environmental Matters, and Other Matters
Our business is subject to general governmental regulation in the United States and in foreign jurisdictions where we conduct business. Such regulation includes, but is not limited to, matters relating to environmental protection. To date, governmental provisions regulating the discharge of material into the environment have not had a material effect upon our capital expenditures, earnings, or competitive position. See Item 1A, “Risk Factors” for a discussion of government regulations and other factors that could have a material adverse effect on our business.
G. Information About Our Executive Officers
See Item 10. “Directors, Executive Officers, and Corporate Governance” of this Annual Report.
Item 1A. Risk Factors
The risks and uncertainties described below are those that we currently believe could materially adversely affect us. Other risks and uncertainties that we do not presently consider to be material or of which we are not presently aware may become important factors that affect us in the future. If any of the risks discussed below actually occur, our business, financial condition, operating results, or cash flows could be materially adversely affected. Accordingly, you should carefully consider the following risk factors, as well as other information contained in or incorporated by reference in this Annual Report.
Operating Factors
In areas where we purchase leaf tobacco directly from farmers, we bear the risk that the tobacco we receive will not meet quality and quantity requirements.
When we contract directly with tobacco farmers or tobacco farmer cooperatives, which is the method we use to purchase tobacco in most countries, we bear the risk that the tobacco delivered may not meet customer quality and quantity requirements. If the tobacco does not meet such market requirements, we may not be able to fill all of our customers’ orders, and such failure could have a material adverse effect on our profitability and results of operations. In a contract market our obligation is to purchase the entire tobacco plant, which encompasses many leaf styles, therefore, we also have a risk that not all of that production will be readily marketable at prices that support acceptable margins. In addition, in many countries where we purchase tobacco directly from farmers, we provide them with financing for crop advances. Unless we receive marketable tobacco that meets the quality and quantity specifications of our customers, we bear the risk that we will not be able to fully recover our crop advances or recover them in a reasonable period of time.
The leaf tobacco industry is competitive, and we are heavily reliant on a few large customers.
We are one of two major independent global competitors in the leaf tobacco industry, both of whom are reliant upon a few large customers. The loss of one of our large customers or a significant decrease in their demand for our products or services could significantly decrease our sales of products or services, which could have a material adverse effect on our results of operations. The competition among leaf tobacco suppliers and dealers is based on the ability to meet customer requirements in the buying, processing, and financing of tobacco, and on the price charged for products and services. Since we rely upon a few significant customers, the consolidation or failure of any of these large customers, or a significant increase in their vertical integration, could contribute to a significant decrease in our sales of products and services.
We compete for both the purchase and sale of leaf with smaller leaf tobacco suppliers in some of the markets where we conduct business. Some of these smaller leaf tobacco suppliers operate in more than one country. Since they typically provide little or no support to farmers, these leaf tobacco suppliers typically have lower overhead requirements than we do. Due to their lower cost structures, they often offer prices on products and services that are lower than our prices. Some of our customers also directly source leaf tobacco from farmers to meet some of their raw material needs. Direct sourcing provides our customers with some qualities and quantities of leaf tobacco that they prefer not to use in their existing blends and that may be offered for sale. This competition for both the sale and purchase of leaf, both with smaller leaf tobacco suppliers and direct sourcing, could reduce the volume of the leaf we handle and could have a material adverse effect on our financial results.
Our financial results can be significantly affected by changes in the balance of supply and demand for leaf tobacco.
With respect to our leaf tobacco operations, our financial results can be significantly affected by changes in the overall balance of worldwide supply and demand for leaf tobacco. The demand for leaf tobacco, which is based upon customers’ expectations of their future requirements, can change from time to time depending upon factors affecting the demand for their products. Our customers’ expectations and their demand for leaf tobacco are influenced by a number of factors, including:
• trends in the global consumption of cigarettes,
• trends in consumption of cigars and other tobacco products,
• trends in consumption of alternative tobacco products, such as electronic nicotine delivery systems and non-combustible products,
• levels of competition among our customers,
• illicit trade in tobacco products, and
• regulatory and governmental factors.
The world supply of leaf tobacco at any given time is a function of current tobacco production, inventories held by manufacturers, and the stocks of leaf tobacco held by leaf tobacco suppliers. Production of tobacco in a given year may be significantly affected by such factors as:
• demographic shifts that change the number of farmers or the amount of land available to grow tobacco,
• decisions by farmers to grow crops other than leaf tobacco,
• volume of annual tobacco plantings and yields realized by farmers,
• availability of crop inputs,
• weather and natural disasters, including any adverse weather conditions that may result from climate change, and
• crop infestation and disease.
Any significant change in these factors could cause a material imbalance in the supply of and demand for tobacco, which could have a material adverse effect on our results of operations.
Our financial results will vary according to tobacco growing conditions, customer requirements, and other factors. These factors could also limit the ability to accurately forecast our future performance and increase the risk of an investment in our common stock or other securities.
Our financial results, particularly our year-over-year quarterly comparisons, may be significantly affected by variations in tobacco growing seasons and fluctuations in crop sizes. The timing of the cultivation and delivery of tobacco is dependent upon a number of factors, including weather and other natural events, and our processing schedules and our results of operations can be significantly altered by these factors. In addition, the potential impact of climate change is uncertain and may vary by geographic region. The possible effects of climate change could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, and changing temperature levels that could increase our costs and adversely impact our business operations and the supply and demand for leaf tobacco. Our operations also rely on dependable and efficient transportation services. A disruption in transportation services, as a result of climate change or otherwise, could also significantly impact our results of operations.
Further, the timing of customer orders and shipments may vary and could require us to keep tobacco in inventory for longer than we initially anticipated and also result in variations in quarterly and annual financial results. We base sales recognition on meeting our performance obligation under our contract with the customer, which generally occurs with the passage of ownership of the tobacco. Since individual shipments may represent significant amounts of revenue, our quarterly and annual financial results could vary significantly depending on the timing of needs and shipping instructions of our customers and the availability of transportation services. These fluctuations result in varying volumes and sales in given periods, which also reduce the comparability of our financial results.
Major shifts in customer requirements for leaf tobacco supply could significantly affect our operating results.
If our customers significantly alter their requirements for tobacco volumes from certain regions, we may have to alter our fixed asset base in certain regions. Permanent or long-term reduction in demand for tobacco from regions where we have operations may trigger restructuring and impairment charges. We may also need to make significant capital investments in other regions to develop the needed infrastructure to meet customer supply requirements.
We may not be able to increase prices to fully offset inflationary, tariff, and other pressures on costs, such as raw products, packing materials, labor, energy, and distribution costs.
As a supplier of leaf tobacco and plant-based ingredients, we source our raw materials globally and rely on labor, energy, packing materials, and distribution resources to produce and distribute our products. Many of these materials and inputs are subject to price fluctuations from a number of factors, including changes in crop sizes, crop qualities, crop disease, product scarcity, fertilizer costs, energy costs, labor costs, currency fluctuations, import and export requirements (including tariffs), adverse weather events, pandemic illness, political instability or military conflict, and other factors that may be beyond our control.
In 2025, the U.S. implemented significant new tariffs on imports from a wide range of countries, which prompted retaliatory tariffs by a number of countries and a cycle of retaliatory tariffs by both the United States and other countries. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other methods to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. Global trade policy continues to evolve and there remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business.
Additionally, the recent armed conflict involving Iran and related regional hostilities have contributed to heightened volatility and increases in logistical and supply chain costs, including fertilizer prices and fuel costs. While we try to mitigate some or all cost increases in the supply chain, we may not be successful in sufficiently mitigating the impacts of cost increases and may be required to absorb the cost increases. To the extent that price increases are not sufficient to offset the cost increases, or we experience reductions in sales volumes due to tariffs or other factors outside of our control, our business results and financial condition may be materially and adversely affected.
Weather and other conditions can affect the marketability of our products.
Tobacco and other agricultural crops are subject to vagaries of weather and the environment that can, in some cases, change the quality or size of the crops. Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change. If a weather event or other event is particularly severe, such as a volcanic eruption, major drought, hurricane, cyclone, typhoon, windstorm, or extreme temperatures or precipitation, the affected crop could be destroyed or damaged to an extent that it would be less desirable to our customers. Any reduction in our sales of a crop due to weather or other event could have a material adverse effect on our results of operations. If such an event is also widespread, it could affect our ability to acquire the quantity of tobacco or plant-based ingredients required by our customers or could prevent or impair our ability to process or ship products as planned. In addition, other factors could affect the marketability of our products, including, among other things, the presence of excess residues of crop protection agents or non-crop related materials. A significant event impacting the condition or quality of a large amount of any of the crops that we buy could make it for us to sell these products or to fill customers’ orders, which could have a material effect on our results of operations.
Legal, regulatory, or other market measures to address climate change could negatively affect our business operations.
The increasing concern over climate change may result in more regional, federal, foreign or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we and our suppliers are currently undertaking to monitor our emissions and improve energy and resource efficiency, we could experience significant increases in our material and production costs. Our suppliers would likely pass all or a portion of their increased costs along to us. We may not be able to pass all resulting cost increases to our customers. Furthermore, we may be required to make additional investments of capital to maintain compliance with new laws and regulations. As a result, climate change or increased concern over climate change could have a material adverse effect on our business or results of operations.
Our plant-based ingredients business is subject to industry-specific risks which could have a material adverse effect on our results of operations.
Our plant-based ingredients business is subject to risks applicable to the food and beverage industry such as those posed by food spoilage or food contamination; shifting consumer preferences; federal, state, and local food processing regulations; product tampering; and product liability claims. If one or more of these risks were to materialize, our results of operations could be materially and adversely affected, and our reputation could be damaged.
Disruption of our supply chain for our plant-based ingredients operations could have a material adverse effect on our business .
Damages or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, pandemics, governmental restrictions or mandates, strikes, import/export restrictions, tariffs, political instability or military conflict, or other factors could impair our ability to produce or sell our plant-based ingredients products. Many of our plant-based ingredients product lines are manufactured at a single location or require raw materials that are currently sourced from a limited number of regions. The failure of third parties on which we rely, including those third parties who supply our raw materials, packaging, capital equipment and other necessary operation materials, to meet their obligations to us, or significant disruptions in their ability to do so, could negatively impact our operations, as well as require us to use additional resources and incur additional expenses to restore our supply chain.
We may not be successful in pursuing strategic investments or acquisitions or realize the expected benefits of those transactions because of integration difficulties and other challenges.
While we may identify opportunities for acquisitions and investments to support our growth strategy, as well as divestiture opportunities, our due diligence examinations and positions that we may take with respect to appropriate valuations for acquisitions or divestitures and other transaction terms and conditions could hinder our ability to successfully complete business transactions to achieve our strategic goals. We compete with other acquisitive entities for suitable acquisition candidates. This competition could increase the price for acquisitions and reduce the number of acquisition candidates available to us. As a result, our ability to acquire businesses in the future, and to acquire such businesses on favorable terms, could be limited. In addition, our ability to realize the anticipated benefits from acquisitions will depend, in part, on successfully integrating each business with our Company as well as improving operating performance and profitability through our management efforts and capital investments. The risks to a integration and of operating performance and include to implement our business plan, issues in integrating operations with ours, changes in laws and regulations, regulatory, environmental and permitting issues, customer reactions, the effect on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002, and in fully identifying and evaluating potential liabilities, risks and operating issues. Additionally, in order to finance any future acquisitions, we may need to obtain additional funds either through public or private financings, including bank and other secured and unsecured borrowings and the issuance of debt or equity securities. There can be no assurance that such financings would be available to us on reasonable terms or that any future issuances of equity securities in connection with any future acquisitions will not be dilutive to our shareholders. The
occurrence of any of these events could adversely affect the expected benefits of any acquisitions and could have a material adverse effect on our financial condition, results of operations or cash flows.
We may be adversely impacted if our information technology systems fail to perform adequately, including with respect to cybersecurity issues.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems, some of which are managed by third parties, to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems (including those managed or provided to us by third parties) to perform as we anticipate could disrupt our business and have a material adverse effect on our results of operations.
In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, security breaches or intrusions (including theft of confidential data), and viruses. Cyber-attacks, data breaches or other breaches of our information security systems could cause equipment failures or disruptions to our operations. Our inability to operate our networks and security information systems as a result of such events, even for a short period of time, could result in significant expenses or operating disruptions. No cybersecurity incidents that we have experienced to date have resulted in, or are reasonably likely to result in, a material adverse effect on our financial condition, results of operations, or business strategy. However, technology is increasingly complex and cyber-attacks are increasingly sophisticated and frequent. For example, the rapid evolution and increased adoption of AI technologies may intensify cybersecurity risks for us and our service providers, key suppliers, and customers. actors use increasingly advanced methods, including AI- social engineering and deepfakes, automated credential‑stuffing, and other techniques, to attempt to compromise systems and to steal or personal information, confidential information and intellectual property. If we are to prevent physical and electronic -ins, cyber-attacks and other information security , we could financial and reputational , be subject to , or incur remediation costs or because of the disclosure of confidential information belonging to us or to our partners, customers, suppliers, or employees.
Additionally, outsourcing certain functions and implementing new technologies may increase exposure to risks such as data breaches or internal control failures. Our vendors and other third‑party partners may incorporate AI tools into their offerings with or without disclosing this use to us. The providers of these AI tools may not meet existing—or rapidly evolving—regulatory or industry standards concerning privacy, data protection, security and responsible AI, which could increase the risk of unauthorized disclosure or loss of confidential information or intellectual property, negatively affect the accuracy or availability of systems we use, or otherwise harm our reputation and the perceived effectiveness of our security measures.
We have invested and expect to continue to invest in technology security initiatives, information technology risk management, and disaster recovery plans. As we adopt and integrate emerging technologies, we invest in protective capabilities and monitoring to address the new risks those technologies may create and the ways they may change our threat landscape. The cost and operational consequences of implementing, maintaining, and enhancing further data or system protection measures could increase significantly to overcome increasingly frequent, complex, and sophisticated cyber threats. Our efforts to deter, identify, mitigate, or eliminate future cyber threats could require us to incur significant additional expense and may not be successful.
The inability for us to attract, develop, retain, motivate, and maintain good relationships with our workforce, including key personnel, could have a material adverse effect on our business and our profitability.
Our future success depends on our ability to attract, develop, retain, motivate, and maintain good relationships with qualified personnel, particularly those who have extensive expertise in leaf tobacco or plant-based ingredients operations and who may also have long service with our Company. We have such personnel in our senior executive leadership as well as in other key areas throughout our U.S. and international operations such as procurement, manufacturing, and sales.
Changes in labor markets and other socioeconomic and demographic changes have increased the competition for hiring and retaining talent. As a result of this competition, we may be unable to continue to attract, develop, retain, motivate, and maintain good relationships with suitably qualified individuals at acceptable compensation levels who have the managerial, operational, and technical knowledge and experience to meet our needs. Furthermore, the failure to execute on internal succession plans or to effectively transfer knowledge from exiting employees to others in the organization could have a material adverse effect on our business and results of operations. Even if we succeed in hiring new personnel to fill vacancies, lengthy training and orientation periods may be required before new employees are able to achieve necessary productivity levels. Any failure by us to attract, develop, retain, motivate, and maintain good relationships with qualified individuals could have a material adverse effect on our business and results of operations.
We are dependent on a seasonal workforce to meet our operational needs.
Our operations depend in part on our ability to attract, train, motivate, and retain qualified employees, many of whom are seasonal employees. We seek to manage seasonal wages and the timing of the hiring process to have the appropriate workforce in place for peak and low seasons. Many of our operations are located in rural communities that may not have sufficient labor pools.
If we are unable to hire sufficient personnel or successfully manage our seasonal workforce needs, we may not be able to meet our operational needs, which could have a material adverse effect on our financial results.
Epidemics, pandemics, or similar widespread public health concerns could have a material adverse effect on our business, financial condition, results of operations and demand for our products and services.
Epidemics, pandemics, or similar public health concerns could cause a widespread health crisis and significantly disrupt the U.S. and global economies, markets, and supply chains. The ultimate impact of any future pandemic or disease outbreak on our business, financial condition, results of operations, and the demand for our products and services in the future is uncertain, and it is impossible to predict whether any impacts we have experienced to date would continue or worsen in the future. The extent to which any pandemic or disease outbreak will impact our business, financial condition, results of operations, and demand for our products and services will depend on future developments including the geographic spread of the health crisis, the impact of disease mutations, the severity and duration of the health crisis, and the type and duration of actions that may be taken by various governmental authorities in response to the pandemic or disease outbreak and the impact on the U.S. and the global economies, markets, and supply chains. Adverse public health developments in countries and states where we operate, therefore, could have a material effect on our business, financial condition, results of operations, and the demand for our products and services. These effects could include a impact on the availability of our employees, temporary of our facilities or the facilities of our business partners, customers, suppliers, third-party service providers or other vendors, and the of domestic and global supply chains, distribution channels, liquidity, and capital markets. While we have business continuity plans and other safeguards in place to mitigate the results of public health developments in the countries where we operate, the business continuity plans and safeguards may not be to mitigate the results of epidemics, pandemics, or similar widespread health .
Regulatory and Governmental Factors
Government efforts to regulate the production and consumption of tobacco products could have a significant impact on the businesses of our leaf tobacco customers, which would, in turn, have a material adverse effect on our results of operations.
Governments continue their efforts to reduce the consumption of tobacco products globally by advancing regulations that, among other things, restrict or prohibit tobacco product use, advertising and promotion, increase taxes on tobacco products, limit nicotine levels in tobacco products, or eliminate the use of characterizing flavors.
A number of such measures are included in the World Health Organization (“WHO”) Framework Convention on Tobacco Control (“FCTC”), which entered into force on February 27, 2005, and currently has 183 Parties to the Convention. While the U.S. is a signatory of the FCTC, it is not currently a party to the agreement, as the agreement has not been submitted to, or ratified by, the U.S. Senate. The Conference of the Parties, which is the governing body of the WHO FCTC and is comprised of all Parties to the Convention, meets every two years to consider amendments to the agreement and track progress in the implementation of the treaty’s 38 articles. It is not possible to predict how the signatories to the FCTC may choose to fulfill their obligations or the manner or the pace with which they may implement the FCTC articles, and they may take actions that could restrict or prohibit tobacco usage that could materially affect our business and our results of operations.
We also cannot predict the extent or speed at which the efforts of governments or non-governmental agencies to reduce tobacco consumption might affect the business of our primary customers. However, a significant decrease in worldwide tobacco consumption brought about by existing or future laws and regulations would reduce demand for tobacco products, which could have a material adverse effect on our results of operations.
Government actions on the sourcing of leaf tobacco could result in increased barriers in meeting our customers’ requirements, which could have a material adverse effect on our performance and results of operations.
A variety of government actions may have a significant effect on the sourcing and production of leaf tobacco. For example, the WHO, through the FCTC, has specifically issued policy options and recommendations to promote crop diversification initiatives and alternatives to growing leaf tobacco in countries whose economies depend upon tobacco production. If certain countries were to follow these policy recommendations and seek to eliminate or significantly reduce leaf tobacco production, we could encounter difficulty in sourcing leaf tobacco from these regions to fill customer requirements, which could have a material adverse effect on our results of operations.
Certain recommendations by the WHO, through the FCTC, could also cause shifts in customer usage of certain styles of tobacco. The FCTC, national governments, and regional blocs, such as the European Union, have discussed formulating strategies to place limitations on the level of nicotine allowed in tobacco and tobacco smoke and eliminate certain ingredients from the manufacturing process for tobacco products. Such decisions could cause a change in requirements for certain styles of tobacco in particular countries. Shifts in customer demand from one type of tobacco to another could create sourcing challenges as requirements move from one origin to another.
Regulations impacting our customers that change the requirements for leaf tobacco or restrict their ability to sell their products would inherently impact our business. We have established programs that begin at the farm level to assist our customers’
collection of raw material information to support leaf traceability and customer testing requirements, including the identification of nicotine levels. Additionally, given our global presence, we also can source different types and styles of tobacco for our customers should their needs change due to regulation. Despite our programs, the extent to which governmental actions will impact our business, financial condition, results of operations, and demand for our products and services will depend on future developments, which are highly uncertain and cannot be predicted.
Changes in bilateral, multilateral, and international trade agreements also have the potential to disrupt or impact our operations. For example, some trade proposals have included provisions that could effectively allow governments to regulate tobacco products differently than other products. These carve outs could negatively impact the industry and impact requirements for leaf tobacco, which could have a material adverse effect on our business and our results of operations.
We conduct a significant portion of our operations internationally, so political and economic uncertainties in particular countries could have a material adverse effect on our business and results of operations.
Our international operations are subject to uncertainties and risks relating to the political stability of certain foreign governments, principally in developing countries and emerging markets, as well as to the effects of changes in the trade policies and economic regulations of foreign governments. These uncertainties and risks, which include undeveloped or antiquated commercial law, the expropriation, indigenization, or nationalization of assets, and the authority to revoke or refuse to renew business licenses and work permits, could adversely impact our ability to effectively manage our operations in those countries. We have substantial capital investments in South America and Africa, and the performance of our operations in those regions can materially affect our earnings.
Our customers’ operations are subject to similar uncertainties and risks relating to the political stability of the foreign governments in the countries in which their operations are located. Political or economic instability in those countries could impede or disrupt our ability to meet our customers’ needs in or our ability to source raw materials from those impacted countries.
If the political situation in any of the countries where we conduct business were to deteriorate significantly, our ability to recover assets located there could be impaired. To the extent that we do not replace any lost volumes of leaf tobacco with leaf tobacco from other sources, or we incur increased costs related to such replacement, our financial condition or results of operations, or both, could be materially and adversely affected. In addition, if we are unable to supply leaf tobacco to our customers’ locations or otherwise conduct business with our customers due to political stability or interference in their countries of operation, or if we incur increased costs related to such challenges, our performance and results of operations could be materially and adversely affected.
Increasing scrutiny and changing expectations from governments, as well as other stakeholders such as investors and customers, with respect to our sustainability considerations may impose additional costs on us or expose us to additional risks.
Governments, the non-governmental community, and industry increasingly understand the importance of implementing comprehensive environmental, labor, and governance practices. Our commitment to sustainability remains at the core of our business, and we continue to implement what we believe are responsible sustainability practices. Increased government regulations, however, could result in new or more stringent forms of sustainability oversight and disclosures. These may lead to increased expenditures for environmental controls, land use restrictions, reporting, and other conditions which could have a material adverse effect on our business and results of operations.
In addition, a number of governments are considering due diligence procedures to ensure strict compliance with environmental, labor, and government regulations. Due to general uncertainty regarding the timing, content, and extent of any such regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition, and results of operations.
Changes in tax laws in the countries where we do business could have a material adverse effect on our results of operations.
We operate globally and are subject to the tax laws of multiple jurisdictions in the United States and abroad. Changes in tax laws or the interpretation of tax laws can affect our earnings, as can the resolution of various pending and contested tax issues. For example, multiple countries in which we operate have enacted or are in the process of enacting legislation to adopt the Global Anti-Base Erosion Model Rules (“Pillar Two”) issued by the Organisation for Economic Co-operation and Development. Based on our current analysis, we anticipate some exposure to a global minimum tax under Pillar Two, with transitional safe-harbor provisions limiting the impact in certain jurisdictions. We will continue to monitor potential and enacted tax changes in the jurisdictions in which we operate. The impact of the changes in tax rules and regulations could have a material adverse effect on our effective tax rate.
Financial Factors
Failure of our customers or suppliers to repay extensions of credit could have a material adverse effect on our results of operations.
In our tobacco operations, we extend credit to both suppliers and customers. A significant bad debt provision related to amounts due could have a material adverse effect on our results of operations. In addition, crop advances to leaf tobacco farmers are generally secured by the farmers’ agreement to deliver green tobacco. In the event of crop failure, delivery failure, or permanent reductions in crop sizes, full recovery of advances may never be realized, or otherwise could be delayed until future crops are delivered.
Fluctuations in foreign currency exchange rates could have a material adverse effect on our results of operations.
We account for most of our tobacco operations and all of our ingredients companies using the U.S. dollar as the functional currency. The international tobacco trade generally is conducted in U.S. dollars, and we finance most of our tobacco operations in U.S. dollars. Although this generally limits foreign exchange risk to the economic risk that is related to leaf purchase and production costs, overhead, and income taxes in the source country, significant currency movements could materially impact our results of operations. Changes in exchange rates can make a particular leaf tobacco crop more or less expensive in U.S. dollar terms. If a particular crop is viewed as expensive in U.S. dollar terms, it may be less attractive in the world market. This could have a material adverse effect on the profitability of that crop and our results of operations. In tobacco markets that are primarily domestic, the local currency is the functional currency. In addition, the local currency is the functional currency in other leaf tobacco markets, such as Western Europe, where export sales have been denominated primarily in local currencies. In these markets, reported earnings are affected by the translation of the local currency into the U.S. dollar.
Our purchases of tobacco are generally made in local currency, and we also provide farmer advances that are denominated in the local currency. We account for currency remeasurement gains or losses on those advances as period costs, and they are usually accompanied by offsetting increases or decreases in the purchase cost of tobacco, which is priced in the local currency. The effect of differences in the cost of tobacco is generally not realized in our earnings until the tobacco is sold, which often occurs in a quarter or fiscal year subsequent to the recognition of the related remeasurement gains or losses. The difference in timing could affect our profitability in a given quarter or fiscal year.
We have used currency hedging strategies to reduce our foreign currency exchange rate risks in some markets. In addition, where we source tobacco in countries with illiquid or nonexistent forward foreign exchange markets, we often manage our foreign exchange risk by matching funding for tobacco inventory purchases with the currency of sale and by minimizing our net investment in these countries. To the extent that we have net monetary assets or liabilities in local currency, and those balances are not hedged, we may have currency remeasurement gains or losses that could materially affect our results of operations.
Changes in interest rates could have a material adverse effect on our results of operations.
We generally use both fixed and floating interest rate debt to finance our operations. Changes in market interest rates expose us to changes in cash flows for floating rate instruments and to changes in fair value for fixed rate instruments. We normally maintain a proportion of our debt in both variable and fixed interest rates to manage this exposure, and from time to time we may enter hedge agreements to swap the interest rates. In addition, our customers may pay market rates of interest for leaf tobacco inventory purchased on order, which could mitigate a portion of the floating interest rate exposure on short-term borrowings. To the extent we are unable to match these interest rates, a decrease in interest rates could increase our net financing costs. We also periodically have large cash balances and may receive deposits from tobacco customers, both of which we use to fund seasonal purchases of tobacco, reducing our financing needs. Decreases in short-term interest rates could reduce the income we derive from those investments.
Low investment performance by our defined benefit pension plan assets and changes in pension plan valuation assumptions could increase our pension expense and could require us to fund a larger portion of our pension obligations, thus diverting funds from other potential uses.
We sponsor domestic defined benefit pension plans that cover certain eligible employees. Our results of operations may be positively or negatively affected by the amount of expense we record for these plans. U.S. generally accepted accounting principles (“GAAP”) require that we calculate expense for the plans using actuarial valuations. These valuations reflect assumptions about financial market and other economic conditions that may change based on changes in key economic indicators. The most significant year-end assumptions we used to estimate pension expense for fiscal year 2026 were the discount rate, the expected long-term rate of return on plan assets, and the mortality rates. In addition, we are required to make an annual measurement of plan assets and liabilities, which may result in a significant change to shareholders’ equity through a reduction or increase to the “Pension and other postretirement benefit plans” component of Accumulated Other Comprehensive Loss. At the end of fiscal year 2026, the projected benefit obligation of our qualified U.S. pension plan was approximately $150 million and plan assets were approximately $160 million. Although GAAP expense and pension funding contributions are not directly related, key economic factors that affect GAAP expense can also affect the amount of cash we are required to contribute to our pension
plans under requirements of the Employee Retirement Income Security Act (“ERISA”). Failure to achieve expected returns on plan assets could also result in an increase in the amount of cash we would be required to contribute to our pension plans. In order to maintain or improve the funded status of our plans, we may also choose to contribute more cash to our plans than required by ERISA regulations.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
Cybersecurity risks are considered within our broader enterprise risk management framework as part of our overall risk assessment process. We maintain a comprehensive Information Security Program designed to identify, assess, manage, contain, and recover from material cybersecurity risks, including emerging threats, and to safeguard the Company, our assets, and customer and employee data. We regularly enhance our controls, monitoring capabilities, and governance practices to address evolving threats and changes in our business and technology environment, including the adoption of new technologies. We also assess cybersecurity risks that may arise from emerging technologies (including risks arising from AI and machine-learning technologies) and integrate those considerations into our risk management processes and control design. The Information Security Program addresses cybersecurity risks associated with third-party service providers through processes designed to assess and reduce the likelihood and impact of a cybersecurity incident involving a third-party. However, we rely on our third-party partners to implement information security programs commensurate with the risk associated with their relationships with us, and we cannot ensure in all circumstances that their efforts are successful. The Information Security Program aligns with the Center for Internet Security Controls, a cybersecurity framework acknowledged worldwide, and is designed to comply with applicable laws and guidelines.
We maintain a cybersecurity incident response and recovery plan that guides how we respond to incidents that may affect the function and security of the Company, our information technology assets, customer and employee data, information resources, and business operations. We maintain cyber and data security policies that address, among other matters, user access, incident response, third-party compliance , use of personal devices, and data privacy, and we review these policies annually. We also maintain insurance that covers certain costs that may be incurred in connection with cybersecurity incidents, should they occur.
Our Information Security Program is supported by regular employee education and awareness training. Training includes an annual assessment, focused on security, appropriate use, incident reporting, and social engineering, as well as multiple courses each year on global security trends and emerging risks. We also provide educational materials about emerging cybersecurity threats and communicate updates when our information security policies change.
We regularly evaluate our Information Security Program using software vendor assessments and reports, insurance underwriter evaluations, and internal and external audits, including customer audits, and refine our monitoring, detection, and response capabilities, including through the evaluation and adoption of emerging security technologies, while assessing the new risks these technologies may introduce. We also periodically engage third parties to review the effectiveness and maturity of our Information Security Program. To date, these engagements include third-party penetration testing, risk identification activities, and a fiscal year 2023 comprehensive evaluation of program maturity.
Management has determined that no cybersecurity incidents that we have experienced to date have resulted in, or are reasonably likely to result in, a material adverse effect on our financial condition, results of operations, or business strategy. For additional information on risks from cybersecurity threats and potential related impacts on the Company, please see Item 1A. “Risk Factors.”
Cybersecurity Governance
Board Oversight
The Board is ultimately responsible for oversight of our Information Security Program and delegates to the Audit Committee primary oversight responsibility for information security and technology (including cybersecurity) risk management. The Audit Committee periodically reviews the program and related information security, cybersecurity, and technology risks. As part of this oversight, the Audit Committee reviews management’s ongoing efforts to advance security governance and monitoring, including how the Company evaluates and manages risks and opportunities associated with emerging technologies. At least quarterly, the Audit Committee reviews and discusses with management and senior information security and technology leaders the Information Security Program, including its structure, operation, and enhancements made in response to third-party reviews or identified risks. The Audit Committee regularly briefs the Board on these discussions. In addition, our Incident Response Policy outlines procedures under which cybersecurity incidents or risks are escalated within the Company, and as applicable, are timely reported to the Audit Committee and the Board.
Management Oversight
Our Information Security Program is a comprehensive framework of policies, procedures, and guidelines designed to ensure the security, availability, and confidentiality of our systems. We regularly improve this framework and related governance to keep pace with evolving threats, changing business needs, and emerging technologies.
Our Chief Information Officer (CIO) and Corporate Director of Information Technology Security (CDIS) , in coordination with our Information Technology Department and other appropriate personnel, are responsible for assessing and managing our risks from cybersecurity threats. The CIO has over 25 years of experience in information technology and information security, served in this role for more than 10 years, and holds a B.S. degree in Computer Science. The CIO also holds industry certifications, including Microsoft Certified Professional (MCP) and Project Management Professional (PMP) certifications.
The program is led by our CDIS, who operates under the direction of the CIO. With over 30 years of experience in IT and cybersecurity, the CDIS heads our global Information Security team and the Security Steering team. This multidisciplinary team comprises experts from IT, Information Security, Legal, Audit, and Risk. The CDIS brings expertise across a diverse array of platforms, services, and technologies.
A third-party security operations center, which operates at all times, monitors logs, events, and alerts from our Endpoint Detection & Response platforms and cloud deployed services. This third party quarantines systems displaying suspicious behavior for automatic or approved remediation. Our Information Technology Department maintains oversight of this third party’s actions by monitoring alerts displayed on the threat management dashboard to identify and respond to irregularities that could be associated with threats. Significant threats are promptly reported to our Information Security Steering Team, which assesses the threat, consults external advisers as necessary, and initiates a plan to address it. The Information Security Steering Team advises the General Counsel and the Audit Committee of significant threats as well as third parties or authorities that are required to be notified under applicable law or contract.
Item 2. Properties
We own the following significant properties:
Location
Principal Use
Building Area
(Square Feet)
Tobacco Operations:
United States
Nash County, North Carolina
Factory and storages
Lancaster, Pennsylvania
Factory and storages
Brazil
Santa Cruz do Sul
Factory and storages
Malawi
Lilongwe
Factory and storages
Mozambique
Tete
Factory and storages
Philippines
Agoo, La Union
Factory and storages
Reina Mercedes, Isabela
Factory and storages
Zimbabwe
Harare (1)
Factory and storages
Ingredients Operations:
United States
Momence, Illinois
Factory and storages
Grandview, Washington
Factory and storages
Prosser, Washington
Factory and storages
Lancaster, Pennsylvania
Factory and storages
(1) Owned by an unconsolidated subsidiary.
We lease headquarters office space of about 50,000 square feet at 9201 Forest Hill Avenue in Richmond, Virginia, which we believe is adequate for our current needs.
Tobacco Operations
Our tobacco business involves, among other things, storing and processing green tobacco and storing processed tobacco. We operate processing facilities in major tobacco growing areas. In addition, we require tobacco storage facilities that are in close proximity to the processing facilities. We own most of the tobacco storage facilities, but we lease additional space as needs arise. We believe that the properties currently utilized in our tobacco operations are maintained in good operating condition and are suitable and adequate for our purposes at our current volumes.
In addition to our significant properties listed above, we own other processing facilities in the following countries: Guatemala, Italy, the Netherlands, Poland, and the United States. In addition, we have an ownership interest in a processing plant in Mexico and have access to processing facilities in other areas, such as India, the People’s Republic of China, and the Republic of South Africa. Socotab L.L.C., an oriental tobacco joint venture in which we own a noncontrolling interest, owns tobacco processing plants in Bulgaria, the Republic of North Macedonia, and Türkiye.
Except for the Lancaster, Pennsylvania facility, the tobacco facilities described above are engaged primarily in processing tobaccos used by manufacturers in the production of cigarettes. The Lancaster, Pennsylvania facility, as well as facilities in Brazil, the Dominican Republic, Indonesia, and Paraguay, process tobaccos used in making cigar, pipe, and smokeless products, as well as components of certain “roll-your-own” products.
Ingredients Operations
Our ingredients business involves, among other things, storing and processing both fresh and dehydrated plant-based ingredients and storing processed finished goods. We operate processing facilities in three U.S. locations. We believe that the properties currently utilized in our ingredients operations are maintained in good operating condition and are suitable and adequate for our current level of business.
Item 3. Legal Proceedings
Some of our subsidiaries are involved in litigation or legal matters incidental to their business activities. While the outcome of these matters cannot be predicted with certainty, we are vigorously defending the matters and do not currently expect that any of them will have a material adverse effect on our business or financial position. However, should one or more of these matters be resolved in a manner adverse to our current expectation, the effect on our results of operations for a particular fiscal reporting period could be material. For additional information regarding litigation and other legal matters to which we are a party, see Note 15 to the consolidated financial statements in Item 8. “Financial Statements and Supplementary Data” (“Item 8”), which is incorporated by reference into this Item.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Equity
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “UVV.”
Our current dividend policy anticipates the payment of quarterly dividends in the future. However, the declaration and payment of dividends to holders of common stock is at the discretion of the Board and will be dependent upon our future earnings, financial condition, and capital requirements. Under certain of our credit facilities, we must meet financial covenants relating to minimum tangible net worth and maximum levels of debt. If we were not in compliance with them, these financial covenants could restrict our ability to pay dividends. Based on our March 31, 2026 financial statements, we were in compliance with all of these financial covenants at March 31, 2026. At May 28, 2026, there were 742 holders of record of our common stock. See Notes 8 and 13 to the consolidated financial statements in Item 8 for more information on debt covenants and equity securities.
Purchases of Equity Securities
As indicated in the following table, we did not repurchase shares of our common stock during the three-month period ended March 31, 2026.
Common Stock
Period (1)
Total Number of Shares Repurchased
Average
Price Paid
Per Share (2)
Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs (3)
Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3)
January 1-31, 2026
February 1-28, 2026
March 1-31, 2026
Total
(1) Repurchases are based on the date the shares were traded. This presentation differs from the consolidated statement of cash flows, where the cost of share repurchases is based on the date the transactions were settled.
(2) Amounts listed for average price paid per share include broker commissions paid in the transactions.
(3) A stock repurchase plan, which was authorized by our Board, became effective and was publicly announced on November 7, 2024. This stock repurchase plan authorizes the purchase of up to $100 million in common stock in open market or privately negotiated transactions through November 15, 2026, subject to market conditions and other factors.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, Item 1, “Business” and Item 8, “Financial Statements and Supplementary Data.” For information on risks and uncertainties related to our business that may make past performance not indicative of future results, or cause actual results to differ materially from any forward-looking statements, see Item 1A, “Risk Factors.”
OVERVIEW
Universal Corporation is a global business-to-business agriproducts company with over 100 years of experience supplying products and innovative solutions to meet our customers’ evolving needs. With operations in over 30 countries on five continents, we believe we are uniquely positioned to leverage our worldwide network to access a diverse, reliable supply of plant-based materials. This presence, combined with our supply chain expertise, integrated processing capabilities, and commitment to sustainability, enables us to deliver high-quality, customizable, and traceable value-added agriproducts essential to our customers’ success. We operate in two segments: Tobacco Operations and Ingredients Operations. Our Tobacco Operations segment primarily focuses on procuring and processing flue-cured, burley, dark air-cured, and oriental leaf tobacco for consumer product manufacturers. Our Ingredients Operations segment, through the Universal Ingredients platform, produces and supplies a broad portfolio of products, including fruit and vegetable juices and concentrates, purees, dehydrated products, botanical extracts, flavorings, colorings, and other customized, value-added ingredient solutions to the food and beverage industry.
RESULTS OF OPERATIONS
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. 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) referred to in this discussion are 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. Reconciliations of adjusted operating income (loss) to consolidated operating (income), adjusted net income () attributable to Universal Corporation to consolidated net income () attributable to Universal Corporation and adjusted diluted earnings () per share to diluted earnings () per share are provided in Other Items below. In addition, we have provided a reconciliation of the total for segment operating income () to consolidated operating income () in Note 16 to the consolidated financial statements in Item 8. Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits. We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, provide investors with important information that is useful in understanding our business results and trends.
References to net debt, net capitalization, and net debt to net capitalization ratio are also references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered substitutes for total debt, total capitalization, total debt to total capitalization ratio, or any other operating or financial performance measures calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. Reconciliations of net debt to total debt and net capitalization to total capitalization are provided in Other Items below. We believe these non-GAAP measures are meaningful indicators of our liquidity and financial position.
Fiscal Year Ended March 31, 2026, Compared to the Fiscal Year Ended March 31, 2025
Executive Summary
Our fiscal year 2026 performance reflected solid execution across much of our business amid a markedly different operating environment than fiscal year 2025. Coming off what we believe was exceptionally strong performance for our Tobacco Operations segment in fiscal year 2025, our disciplined marketplace management helped mitigate the impact of oversupply for certain tobacco styles, resulting in only slightly lower Tobacco Operations segment revenues and sales volumes in fiscal year 2026 compared to fiscal year 2025. Our Ingredients Operations segment delivered growth in revenues and sales volumes despite persistent market headwinds. Fiscal year 2026 results were negatively impacted by a non-cash, goodwill impairment charge related to our Shank's operation, as well as increased tobacco inventory write-downs, primarily for non-wrapper, dark air-cured tobacco.
FINANCIAL HIGHLIGHTS
Fiscal Year Ended March 31,
Change
(in millions of dollars, except per share data)
Consolidated Results
Sales and other operating revenue
Cost of goods sold
Gross profit margin
-110 bps
Selling, general and administrative expenses
Restructuring and impairment costs
Goodwill Impairment
Operating income (as reported)
Adjusted operating income (non-GAAP)*
Diluted earnings per share (as reported)
Adjusted diluted earnings per share (non-GAAP)*
Segment Results
Tobacco operations sales and other operating revenues
Tobacco operations operating income
Ingredients operations sales and other operating revenues
Ingredients operations operating income
*See Reconciliation of Certain non-GAAP Financial Measures in Other Items below.
Consolidated Results
Revenues for fiscal year 2026, decreased by 1%, or $22.8 million, compared to fiscal year 2025, on lower tobacco sales volumes and prices. Operating income for fiscal year 2026, decreased by 28%, or $64.3 million, compared to fiscal year 2025, driven by inventory write-downs of $52.0 million, primarily of non-wrapper, dark air-cured tobacco, an increase of $32.2 million from fiscal year 2025, and a $41.1 million non-cash, goodwill impairment charge, related to our Shank's operation.
Selling, general, and administrative expenses were down by 2%, or $4.6 million, on $8.8 million of lower sales commissions, $5.1 million of lower compensation costs, and $3.5 million of favorable foreign currency comparisons, offset in part by $4.3 million of lower recoveries on advances to suppliers and $2.0 million of higher customer claims.
Adjusted operating income was down by 13%, or $32.0 million, in fiscal year 2026, compared to fiscal year 2025, largely on the inventory write-downs. Net income attributable to Universal Corporation was down by 66%, or $62.4 million, for fiscal year 2026, compared to fiscal year 2025, primarily on the non-cash, goodwill impairment charge and the increase in inventory write-downs.
Tobacco Operations Segment
Revenues for the Tobacco Operations segment decreased by 1%, or $32.3 million, in fiscal year 2026, compared to fiscal year 2025, on a 2% decline in both tobacco sales volumes and average tobacco sales prices, partially offset by an increase in third-party tobacco processing revenues and product mix. Operating income for the segment decreased by 12%, or $28.6 million, in fiscal year 2026, compared to fiscal year 2025, as lower sales of dark air-cured tobacco and inventory write-downs primarily related to non-wrapper, dark air-cured tobacco more than offset firm demand for most tobacco styles and solid results from flue-cured and burley tobaccos. Tobacco inventory write-downs of $43.4 million in fiscal year 2026, were up $24.7 million, compared to fiscal year 2025. Softer than anticipated customer demand for certain styles of dark air-cured tobacco coupled with longer sales and inventory cycles characteristic of this type of tobacco drove the lower sales as well as the inventory write-downs of non-wrapper, dark air-cured tobacco in fiscal year 2026. Selling, general, and administrative expenses were up 1%, or $2.2 million, in fiscal year 2026, compared to fiscal year 2025, largely on higher compensation costs of $4.5 million and higher provisions for advances to suppliers of $4.3 million, but partially offset by lower sales commissions of $8.6 million. Corporate overhead allocation to the segment was $3.3 million lower in fiscal year 2026, as compared to fiscal year 2025, largely on lower allocated compensation costs.
Ingredients Operations Segment
Revenues for the Ingredients Operations segment increased by 3%, or $9.5 million, in fiscal year 2026, compared to fiscal year 2025, on increased sales volumes. Operating income for the segment decreased by 73%, or $ 9.1 million, in fiscal year 2026, compared to fiscal year 2025, due to product mix, high fixed costs, including additional depreciation from our expanded production facility, as well as inventory write-downs of $8.6 million. Steady performance across much of our ingredients business was offset by slower than anticipated sales growth, high fixed costs related to our expansion investments, and inventory write-downs, at our Shank's operation. Persistent customer market headwinds, including tariff impacts and broader softness in the
consumer-packaged-goods sector, impacted demand at Shank's for both traditional core products and new offerings in fiscal year 2026. Selling, general, and administrative expenses were down 6%, or $3.1 million, in fiscal year 2026, compared to fiscal year 2025, largely on lower compensation costs of $1.5 million and amortization of intangibles of $1.8 million. Corporate overhead allocation to the segment was 4%, or $0.4 million, lower in fiscal year 2026, compared to fiscal year 2025, largely on lower allocated compensation accruals.
Additional Items
Cost of goods sold increased by 1%, or $13.8 million, in fiscal year 2026, compared to fiscal year 2025, largely on a $32.2 million increase in inventory write-downs partially offset by lower tobacco prices.
A non-cash, goodwill impairment charge of $41.1 million was recognized in fiscal year 2026. Restructuring and impairment costs of $10.6 million in fiscal year 2025 were related to the consolidation of the Company’s European tobacco sheet operations.
A non-cash pension settlement charge of $14.1 million was recognized in fiscal year 2025.
The consolidated effective tax rate for fiscal year 2026 was 45.5%. The consolidated effective tax rate for fiscal year 2025 was 26.6%. The consolidated effective tax rate for fiscal year 2026 was higher than the consolidated tax rate for fiscal year 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
We published our Fiscal Year 2025 Sustainability Report in January 2026, highlighting progress across key environmental and supply chain priorities. In fiscal year 2025, Universal increased renewable electricity consumption nearly sixfold year over year, with 17.7% of global electricity sourced from renewable energy, supporting our science-based emissions targets and commitment to achieve net-zero greenhouse gas emissions across the value chain by 2050. We also continued to enhance supply chain transparency and farmer engagement through MobiLeaf TM , our digital farm data platform, and maintained direct relationships with more than 200,000 contracted farmers worldwide.
We concluded fiscal year 2026 by further embedding sustainability across our value chain, building on the progress achieved throughout the year to support our emissions reduction targets and long‑term value creation across Universal’s global operations. This progress was reflected in our most recent Carbon Disclosure Project (CDP) results, released in the fourth quarter of fiscal year 2026, which highlight the success of our engagement with our suppliers. We advanced to an “A” rating in Supplier Engagement, were recognized as a CDP Supplier Engagement Leader, and named to CDP’s Supplier Engagement A List.
Other Items
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:
Adjusted Operating Income Reconciliation
Fiscal Year Ended March 31,
(in thousands)
As Reported: Consolidated operating income
Goodwill impairment (1)
Restructuring and impairment costs (1)
Adjusted operating income (non-GAAP)
Adjusted Net Income and Adjusted Diluted Earnings Per Share Reconciliation
Fiscal Year Ended March 31,
(in thousands except for per share amounts)
As Reported: Net income attributable to Universal Corporation
Goodwill impairment (1)
Restructuring and impairment costs (1)
Pension settlement charge (2)
Total of non-GAAP adjustments to income before income taxes
Income tax benefit from goodwill impairment (1)(3)
Income tax benefit from restructuring and impairment costs (1)(3)
Income tax benefit from pension settlement charge (2)(3)
Total of income tax impacts for non-GAAP adjustments to income before income taxes and non-GAAP adjustment to income taxes (3)
As adjusted: Net income attributable to Universal Corporation (non-GAAP)
As reported: Diluted earnings per share
Adjusted: Diluted earnings per share (non-GAAP)
(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 attributable to Universal Corporation, and Adjusted diluted earnings per share. The three months ended March 31, 2026, included a $41.1 impairment charge to write-off the full amount of goodwill associated with Shank's, a component of the Ingredients Operations segment.
(2) In March 2025, the Company completed a pension de-risking transaction or “ pension lift-out ” to transfer approximately $47 million of its qualified domestic pension plan obligations and assets to a third-party insurer through the purchase of a non-participating annuity. The obligations transferred to the third-party insurer covered the respective benefit obligations for a subset of retirees currently receiving benefit payments. The transaction triggered settlement accounting that required the Company to immediately recognize a portion of the accumulated comprehensive losses associated with the defined benefit pension plan.
(3) 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. federal income tax rates. The Company considers current and deferred income tax rates to calculate the impact to income taxes for the non-GAAP adjustments.
The following table reconciles total debt to net debt and net capitalization:
Net Debt and Net Capitalization Reconciliation
March 31,
March 31,
(in thousands)
Add: Notes payable and overdrafts
Add: Long-term obligations
Add: Current portion of long-term obligations
Total Debt
Add: Customer advances and deposits
Less: Cash and cash equivalents
Net Debt (non-GAAP)
Add: Total Universal Corporation shareholders’ equity
Net Capitalization (non-GAAP)
Net Debt/Net Capitalization (non-GAAP)
Fiscal Year Ended March 31, 2025, Compared to the Fiscal Year Ended March 31, 2024
For a comparison of our performance and financial metrics for the fiscal years ended March 31, 2025, and March 31, 2024, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the SEC on May 30, 2025.
Accounting Pronouncements
See “Accounting Pronouncements” in Note 1 to the consolidated financial statements in Item 8 of this Annual Report for a discussion of recent accounting pronouncements issued by the Financial Accounting Standards Board that will become effective and be adopted by the Company in future reporting periods.
LIQUIDITY AND CAPITAL RESOURCES
Overview
In fiscal year 2026, our liquidity was sufficient to meet our needs. We continued our financial policies and disciplines and returned funds to shareholders. Our working capital requirements were higher in fiscal year 2026, compared to fiscal year 2025. Some working capital investments expected in fiscal year 2025 were made in fiscal year 2024 due to market conditions, which reduced working capital requirements in fiscal year 2025.
Our liquidity and capital resource requirements are predominately short-term in nature and primarily relate to working capital for tobacco crop purchases, and our primary sources of liquidity are net cash flows provided by operating activities, our committed revolving credit facility, and short-term, uncommitted credit lines. Working capital needs for tobacco crop purchases are seasonal within each geographic region. The geographic dispersion and the timing of working capital needs permit us to anticipate our general level of cash requirements, although tobacco crop sizes, prices paid to farmers, shipment and delivery timing, and currency fluctuations affect requirements each year. Peak working capital requirements are generally reached during the first and second fiscal quarters. Each tobacco production region follows a cycle of buying, processing, and shipping tobacco, and in many regions, we also provide agricultural materials to tobacco farmers during the growing season. The timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping requirements, which may change the level or the duration of tobacco crop financing. In contrast to our Tobacco Operations, working capital requirements for our Ingredients Operations tend to be lower and less seasonal. Despite a predominance of short-term needs for working capital, we maintain a portion of our total debt as long-term to reduce liquidity risk. We also periodically may have large cash balances that we utilize to meet our working capital requirements.
We believe that our financial resources are adequate to support our anticipated capital and liquidity needs for the upcoming 12 months and beyond. Our seasonal borrowing requirements primarily relate to purchasing tobacco crops in South America and Africa and can increase during the buying season for those crops by up to $400 million. The funding required can vary significantly depending upon such factors as crop sizes, the price of leaf tobacco, the relative strength of the U.S. dollar, and the timing of shipments and customer payments. We deal with this uncertainty by maintaining substantial credit lines and cash balances. In addition to our operating requirements for working capital, we make capital expenditures to maintain our facilities and invest in opportunities to grow and improve our businesses.
Cash Flow
Our operations generated about $129.1 million in operating cash flows in fiscal year 2026. That amount was about $197.9 million lower than the $327.0 million we generated in fiscal year 2025, primarily on lower working capital requirements in fiscal year 2025, due to certain tobacco purchases that would have typically been made in fiscal year 2025 having been made in fiscal year 2024. During the fiscal year ended March 31, 2026, we spent $53.5 million on capital projects, and we returned $81.3 million to shareholders in the form of dividends. At March 31, 2026, cash balances totaled $62.2 million.
Working Capital
Working capital at March 31, 2026, was about $1.4 billion, up slightly, about $1.5 million from last fiscal year’s level. Tobacco inventories of $832.4 million at March 31, 2026, were up $26.0 million compared to inventory levels at the end of the prior fiscal year, due to larger crop sizes in certain tobacco origins in fiscal year 2026. Other inventories were up $15.7 million at March 31, 2026, from prior year levels, largely on purchase timing and prices of tobacco crop inputs. Accounts receivable of $563.9 million at March 31, 2026, were down $62.0 million, compared to March 31, 2025, largely due to accounts receivable factoring.
We generally do not purchase material quantities of leaf tobacco on a speculative basis. However, when we contract directly with tobacco farmers, we are obligated to buy all stalk positions, which may contain less marketable leaf styles. Our uncommitted tobacco inventories increased by approximately $58.3 million to $222.3 million, or about 27% of tobacco inventory, at March 31, 2026, compared to March 31, 2025 levels. Uncommitted inventories at March 31, 2025, were $164.0 million, which represented 20% of tobacco inventory. While we target committed tobacco inventory levels of 80% or more of total tobacco inventory, the level of these uncommitted inventories is influenced by timing of farmer deliveries and purchases of new crops, as well as the receipt of customer orders. Uncommitted tobacco levels were outside our target range at March 31, 2026, due to delayed customer purchase commitments, but we expect them to be within our range during fiscal year 2027.
Capital Allocation
Our capital allocation strategy focuses on four strategic priorities:
• Strengthening and investing for growth in our leaf tobacco business;
• Increasing our strong dividend;
• Exploring growth opportunities for our plant-based ingredients business; and
• Returning excess capital through share repurchases.
We have been positioning our company for the future by investing in and growing our Universal Ingredients platform, while leveraging our position as the leading global leaf tobacco supplier to maximize opportunities in the leaf tobacco business. We intend to continue to make disciplined investments to take advantage of growth opportunities in tobacco and in our ingredients business. Through these actions, we believe we will be able to deliver enhanced shareholder value through earnings growth and the generation of free cash flow despite operating in a mature tobacco industry. As we look ahead, we intend to continue to evaluate opportunities to return capital to shareholders.
Share Activity
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. We did not repurchase any shares of common stock in fiscal year 2026. At March 31, 2026, our available authorization under our current share repurchase program was $100 million.
Capital Spending
Our capital expenditures are generally limited to those that add value, replace or maintain equipment, increase efficiency, or position us for future growth. In deciding where to invest capital resources, we look for opportunities where we believe we can earn an adequate return, leverage our assets and expertise, and support our farmer base. During fiscal years 2026 and 2025, we invested $53.5 million and $62.6 million, respectively, in our property, plant, and equipment. Capital expenditures in fiscal year 2025 included investments to expand Universal Ingredients’ manufacturing capabilities in Lancaster, Pennsylvania. Depreciation expense was approximately $44.2 million and $48.7 million, respectively, in fiscal years 2026 and 2025. Typically, our capital expenditures for maintenance projects are less than $30 million per fiscal year. We currently plan to spend approximately $55 to $65 million in fiscal year 2027 on capital projects for maintenance of our facilities and other investments to grow and improve our businesses.
Outstanding Debt and Other Financing Arrangements
At March 31, 2026, we had $904.3 million in total debt outstanding, a decrease of $168.7 million, compared to March 31, 2025 levels. We consider the sum of notes payable and overdrafts, long-term debt (including any current portion), and customer advances and deposits, less cash, cash equivalents, and short-term investments on our balance sheet to be our net debt. We also consider our net debt plus shareholders’ equity to be our net capitalization. Net debt increased by $28.9 million to $845.5 million during the fiscal year ended March 31, 2026. The increase in net debt reflects higher working capital requirements. Net debt as a percentage of net capitalization was 37% at March 31, 2026, 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. 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. The Company may request that the lenders extend the applicable maturity date for the revolving credit facility, the five-year term loan and/or the seven-year term loan for up to two one-year extensions, subject to satisfaction of certain terms and conditions and consent of the requisite number of lenders. A $275 million 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. The financial covenants under the new bank credit agreement require us to maintain certain levels of tangible net worth and observe restrictions on net debt levels. These covenants are substantially the same as the covenants in the prior bank credit agreement. 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 March 31, 2026, we had $730 million available under the committed revolving credit facility that will mature in December 2030, and we, together with our consolidated affiliates, had approximately $702 million in uncommitted lines of credit, of which approximately $465 million were unused and available to support seasonal working capital needs. Based on our March 31, 2026 financial statements, we were in compliance with all financial covenants of our debt agreements as of March 31, 2026. We have no long-term debt maturing until fiscal year 2031.
Derivatives
From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates. Currently, we have interest rate swap agreements that convert the variable benchmark SOFR rates on $310 million of our two outstanding term loans to fixed rates. With the swap agreements in place, the effective interest rates on the $275 million five-year term loan and the $345 million seven-year term loan were 5.57% and 6.15%, respectively, as of March 31, 2026. These agreements were entered into to eliminate the variability of cash flows in the interest payments on our variable rate five- and seven-year term loans
and are accounted for as cash flow hedges. Under the swap agreements, we receive variable rate interest and pay fixed rate interest. At March 31, 2026, the fair value of our open interest rate hedge swaps was a net asset of approximately $1 million.
We also enter derivative instruments from time to time to hedge certain foreign currency exposures, primarily related to forecasted purchases of tobacco, related processing costs, and crop input sales, as well as our net monetary asset exposure in local currency. We generally account for our hedges of forecasted tobacco purchases as cash flow hedges. At March 31, 2026, the fair value of those open contracts was a net liability of approximately $14 thousand. We also had other forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net asset of approximately $0.2 million at March 31, 2026. For additional information, see Note 10 to the consolidated financial statements in Item 8.
Pension Funding
The funds supporting our ERISA-regulated U.S. defined benefit pension plan at March 31, 2026, were approximately $160 million. The accumulated benefit obligation (“ABO”) and PBO were approximately $140 million and $150 million, respectively, as of March 31, 2026. The ABO and PBO are calculated on the basis of certain assumptions that are outlined in Note 12 to the consolidated financial statements in Item 8. We expect to make no contributions to our ERISA-regulated pension plan during the next fiscal year. It is our policy to regularly monitor the performance of the funds and to review the adequacy of our funding and plan contributions.
Contractual Obligations
Our contractual obligations as of March 31, 2026, were as follows:
(in thousands of dollars)
Total
After 2031
Notes payable and long-term debt (1)
Operating lease obligations
Inventory purchase obligations:
Tobacco
Agricultural materials
Other purchase obligations
Total
(1) Includes interest payments. Interest payments on $598 million of variable rate debt were estimated based on rates as of March 31, 2026. We have entered into interest rate swaps that effectively convert the interest payments on $310 million of the outstanding balance of our two bank term loans from variable to fixed. The fixed rate has been used to determine the contractual interest payments for all periods.
In addition to principal and interest payments on notes payable and long-term debt, our contractual obligations include operating lease payments, inventory purchase commitments, and capital expenditure commitments. Operating lease obligations represent minimum payments due under leases for various production, storage, distribution, and other facilities, as well as vehicles and equipment. Tobacco inventory purchase obligations primarily represent contracts to purchase tobacco from farmers. The amounts shown above are estimates since actual quantities purchased will depend on crop yield, and prices will depend on the quality of the tobacco delivered. We have partially funded our tobacco purchases in some origins with short-term advances to farmers and other suppliers, which totaled approximately $180 million, net of allowances, at March 31, 2026.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In preparing the financial statements in accordance with GAAP, we are required to make estimates and assumptions that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect our supplemental information disclosures, including information about contingencies, risks, and financial condition. We believe, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP, and are consistently applied. However, changes in the assumptions used could result in a material adjustment to the financial statements. Our critical accounting estimates and assumptions are in the following areas:
Inventories
Inventories of tobacco are valued at the lower of cost or net realizable value with cost determined under the specific cost method. Raw materials are clearly identified at the time of purchase. Other inventories consist primarily of unprocessed and processed food and vegetable ingredients, extracts, seed, fertilizer, packing materials, and other supplies. We track the costs associated with raw materials in the final product lots, and maintain this identification through the time of sale. We also capitalize direct and indirect costs related to processing raw materials. This method of cost accounting is referred to as the specific cost or specific identification method. We write down inventory for changes in net realizable value based upon assumptions related to future demand and market conditions if the indicated value is below cost. Future demand assumptions can be impacted by changes in customer sales, changes in customers’ inventory positions and policies, competitors’ pricing policies and inventory
positions, and varying crop sizes and qualities. Market conditions that differ significantly from those assumed by management could result in additional write-downs. We experience inventory write-downs routinely. Inventory write-downs in fiscal years 2026, 2025, and 2024 were $52.0 million, $19.8 million, and $9.2 million, respectively.
Advances to Tobacco Suppliers
In many sourcing origins, we provide tobacco growers with agronomy services and seasonal crop advances of, or for, seed, fertilizer, and other supplies. These advances are short term in nature and are customarily repaid upon delivery of tobacco to us. In several origins, we have also made long-term advances to tobacco farmers to finance curing barns and other farm infrastructure. In some years, due to low crop yields and other factors, individual farmers may not deliver sufficient volumes of tobacco to repay maturing advances. In those cases, we may extend repayment of the advances into the following crop year. We will incur losses whenever we are unable to recover the full amount of the loans and advances. At each reporting period, we must make estimates and assumptions in determining the valuation allowance for advances to farmers. At March 31, 2026, the gross balance of advances to tobacco suppliers totaled approximately $196 million, and the related valuation allowance totaled approximately $16 million.
Recoverable Value-Added Tax Credits
In many foreign countries, we pay significant amounts of value-added tax (“VAT”) on purchases of unprocessed and processed tobacco, crop inputs, packing materials, and various other goods and services. In some countries, VAT is a national tax, and in other countries it is assessed at the state level. Items subject to VAT vary from jurisdiction to jurisdiction, as do the rates at which the tax is assessed. When we sell tobacco to customers in the country of origin, we generally collect VAT on those sales. We are normally permitted to offset our VAT payments against those collections and remit only the incremental VAT collections to the tax authorities. When tobacco is sold for export, VAT is normally not assessed. In countries where our tobacco sales are predominantly for export markets, we often do not generate enough VAT collections on downstream sales to fully offset our VAT payments. In those situations, we can accumulate unused VAT credits. Some jurisdictions have procedures that allow companies to apply for refunds of unused VAT credits from the tax authorities, but the refund process often takes an extended period of time and it is not uncommon for refund applications to be challenged or rejected in part on technical grounds. Other jurisdictions may permit companies to sell or transfer unused VAT credits to third parties in private transactions, although approval for such transactions must normally be obtained from the tax authorities, limits on the amounts that can be transferred may be imposed, and the proceeds realized may be heavily discounted from the face value of the credits. Due to these factors, in some countries we can accumulate significant balances of VAT credits over time. We review these balances on a regular basis, and we record valuation allowances on the credits to reflect amounts that we do not expect to recover, as well as discounts anticipated on credits we expect to sell or transfer. In determining the appropriate valuation allowance to record in a given jurisdiction, we must make various estimates and assumptions about factors affecting the ultimate recovery of the VAT credits. At March 31, 2026, the gross balance of recoverable tax credits (primarily VAT) totaled approximately $66 million, and the related valuation allowance totaled approximately $22 million.
Business Combinations
From time to time, we may enter into business combinations. In accordance with ASC 805, “ Business Combinations ”, we generally recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, deferred tax asset valuation allowances, liabilities including those related to debt, pensions and other postretirement plans, uncertain tax positions, contingent consideration and contingencies. This method also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations.
Significant estimates and assumptions in estimating the fair value of developed technology, customer relationships, and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. If our estimates of the economic lives change, depreciation or amortization expenses could be increased or decreased, or the acquired asset could be impaired.
Goodwill
A majority of our consolidated goodwill balance relates to our reporting unit in Brazil and the acquisitions of FruitSmart and Silva. We review the carrying value of goodwill for potential impairment on an annual basis and at any time that events or business conditions indicate that it may be impaired.
Accounting Standards Codification Topic 350 (“ASC 350”) permits companies to base initial assessments of potential goodwill impairment on qualitative factors, and the Company elected to use that approach at March 31, 2026 for all entities with allocated goodwill with the exception of Universal Ingredients–Shank’s. For all entities, except Universal Ingredients–Shank’s, those factors did not indicate that it was more likely than not that the fair value of any of the reporting units was less than their respective carrying value, therefore no potential impairment of the Company’s recorded goodwill was noted at March 31, 2026. The Company elected to use the qualitative approach at March 31, 2025 for all entities. Those factors did not indicate that it was more likely than not that the fair value of any of the reporting units was less than their respective carrying value, therefore no potential impairment of the Company’s recorded goodwill was noted at March 31, 2025.
The goodwill associated with Universal Ingredients–Shank’s was tested utilizing a quantitative approach at March 31, 2026. The quantitative approach was utilized because management determined it was more likely than not that the carrying value exceeded the fair value of the reporting unit based on management's lower internal profitability projections in future years due primarily to the impacts of persistent adverse market conditions for certain new and existing product offerings. ASC 350 allows companies to bypass the qualitative assessment and perform a quantitative assessment. The quantitative goodwill assessment consists of comparing the fair value of each reporting unit to the carrying value of that reporting unit. In the event that the carrying value of the reporting unit exceeds its fair value, an impairment of the reporting unit's goodwill is recognized, up to the amount of goodwill allocated to that reporting unit. The fair value of Universal Ingredients–Shank’s at March 31, 2026 was assessed using a combination of a discounted cash flow model, comprised of estimates of future net cash flows and discount rates, as well as a market-based approach that considered a subset of peer companies. Based on this quantitative assessment, the Company determined the carrying value of Universal Ingredients–Shank’s at March 31, 2026 exceeded the derived fair value and recognized a $41.1 million non-cash goodwill charge for the fiscal year ended March 31, 2026
Significant adverse changes in our operations or our estimates of future cash flows for a reporting unit with recorded goodwill, such as those caused by unforeseen events or changes in market conditions, could result in an impairment charge.
Fair Value Measurements
We hold various financial assets and financial liabilities that are required to be measured and reported at fair value in our financial statements, including money market funds, trading securities associated with deferred compensation plans, interest rate swaps, forward foreign currency exchange contracts, and guarantees of bank loans to tobacco growers. We follow the relevant accounting guidance in determining the fair values of these financial assets and liabilities. Money market funds are valued based on net asset value (“NAV”), which is used as a practical expedient to measure the fair value of those funds (not classified within the fair value hierarchy). Quoted market prices (Level 1 of the fair value hierarchy) are used in most cases to determine the fair values of trading securities. Interest rate swaps and forward foreign currency exchange contracts are valued based on dealer quotes using discounted cash flow models matched to the contractual terms of each instrument (Level 2 of the fair value hierarchy). We incorporate credit risk in determining the fair values of our financial assets and financial liabilities, but that risk did not materially affect the fair values of any of those assets or liabilities at March 31, 2026.
Income Taxes
Our consolidated effective income tax rate is based on our expected taxable income, tax laws and statutory tax rates, prevailing foreign currency exchange rates, and tax planning opportunities in the various jurisdictions in which we operate. Significant judgment is required in determining the consolidated effective tax rate and evaluating our tax position. We are subject to the tax laws of many jurisdictions, and could be subject to a tax audit in each of these jurisdictions, which could result in adjustments to tax expense in future periods. In the event that there is a significant, unusual, or one-time item recognized in our results, the tax attributed to that discrete item would be recorded at the same time as the item.
Our consolidated income tax expense and consolidated effective tax rate are heavily dependent on the tax rates of the individual countries in which we operate, the mix of our pretax earnings from those countries, and the prevailing rates of exchange of their local currencies with the U.S. dollar. The mix of pretax earnings and local currency exchange rates in particular can change significantly between annual and quarterly reporting periods based on crop sizes, market conditions, and economic factors. Our consolidated effective tax rate can be volatile from year-to-year and from quarter-to-quarter as result of these factors.
We have no undistributed earnings of consolidated foreign subsidiaries that are classified as permanently or indefinitely reinvested. We assume that all undistributed earnings of our foreign subsidiaries will be repatriated back to their parent entities in the U.S. where the funds are best placed to meet our cash flow requirements. In addition, we strive to mitigate economic, political, and currency risk by following a disciplined annual approach to the distribution of excess capital back to the U.S. Based on these assumptions, in our income tax expense for each reporting period we fully provide for all applicable foreign country withholding taxes that are expected to be due on these distributions.
Our accounting for uncertain tax positions requires that we review all significant tax positions taken, or expected to be taken, in income tax returns for all jurisdictions in which we operate. In this review, we must assume that all tax positions will ultimately be audited, and either accepted or rejected based on the applicable tax regulations by the tax authorities for those jurisdictions. We must recognize in our financial statements only the tax benefits associated with tax positions that are “more likely than not” to be accepted upon audit, at the greatest amount that is considered “more likely than not” to be accepted. These determinations require significant management judgment, and changes in any given quarterly or annual reporting period could affect our consolidated income tax rate.
Tax regulations require items to be included in taxable income in the tax return at different times, and in some cases in different amounts, than the items are reflected in the financial statements. As a result, our effective tax rate reflected in the financial statements is different than that reported in our tax returns. Some of these differences are permanent, such as expenses that are not tax deductible, while others are related to timing issues, such as differences in depreciation methods. Timing differences create deferred tax assets and liabilities. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred or income taxes related to expenses that have not yet been recognized in the financial statements, but have been deducted in our tax return. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future tax returns for which we have already recorded the tax benefit in our financial statements. We record valuation allowances for deferred tax assets when the amount of estimated future taxable income is not likely to support the use of the deduction or credit. Determining the amount of such valuation allowances requires significant management judgment, including estimates of future taxable income in multiple tax jurisdictions where we operate. Based on our periodic earnings forecasts, we project the upcoming year’s taxable income to help us evaluate our ability to realize deferred tax assets.
For additional disclosures on income taxes, see Notes 1 and 5 to the consolidated financial statements in Item 8.
Pension and Other Postretirement Benefit Plans
The measurement of our pension and other postretirement benefit obligations and costs at the end of each fiscal year requires that we make various assumptions that are used by our outside actuaries in estimating the present value of projected future benefit payments to all plan participants. Those assumptions take into consideration the likelihood of potential future events such as salary increases and demographic experience. The assumptions we use may have an effect on the amount and timing of future contributions to our plans. The plan trustee conducts an independent valuation of the fair value of pension plan assets. The significant assumptions used in the calculation of our pension and other postretirement benefit obligations are:
• Discount rate – The discount rate is based on investment yields on a hypothetical portfolio of actual long-term corporate bonds rated AA that align with the cash flows for our benefit obligations.
• Salary scale – The salary scale assumption is based on our long-term actual experience for salary increases, the near-term outlook, and expected inflation.
• Expected long-term return on plan assets – The expected long-term return on plan assets reflects asset allocations and investment strategy adopted by the Finance and Pension Investment Committee of the Board of Directors.
• Retirement and mortality rates – Retirement rates are based on actual plan experience along with our near-term outlook. Early retirement assumptions are based on our actual experience. Mortality rates are based on standard mortality tables which are updated to reflect projected improvements in life expectancy.
• Healthcare cost trend rates – For postretirement medical plan obligations and costs, we make assumptions on future inflationary increases in medical costs. These assumptions are based on our actual experience, along with third-party forecasts of long-term medical cost trends.
From one fiscal year to the next, the rates we use for each of the above assumptions may change based on market developments and other factors. The discount rate reflects prevailing market interest rates at the end of the fiscal year when the benefit obligations are actuarially measured and will increase or decrease based on market patterns. The expected long-term return on plan assets may change based on changes in investment strategy for plan assets or changes in indicated longer-term yields on specific classes of plan assets. In addition to the changes in actuarial assumptions from year to year, actual plan experience affecting our net benefit obligations, such as actual returns on plan assets and actual mortality experience, will differ from the assumptions used to measure the obligations. The effects of these changes and differences increase or decrease the obligation we record for our pension and other postretirement benefit plans, and they also create gains and losses that are accumulated and amortized over future periods, thus affecting the expense we recognize for these plans over those periods. Changes in the discount rate from year to year generally have the largest impact on our projected benefit obligation and annual expense, and the effects may be significant, particularly over successive years where the discount rate moves in the same direction.
As of March 31, 2026, the effect of the indicated increase or decrease in the selected pension and other postretirement benefit valuation assumptions is shown below. The effect assumes no change in benefit levels.
(in thousands of dollars)
Effect on
2026 Projected
Benefit Obligation
Increase
(Decrease)
Effect on
2026 Annual Expense
Increase
(Decrease)
Changes in Assumptions for Pension Benefits
Discount Rate:
1% increase
1% decrease
Expected Long-Term Return on Plan Assets:
1% increase
1% decrease
Changes in Assumptions for Other Postretirement Benefits
Discount Rate:
1% increase
1% decrease
Healthcare Cost Trend Rate:
1% increase
1% decrease
A 1% increase or decrease in the salary scale assumption would not have a material effect on the projected benefit obligation or on annual expense for the Company’s pension benefits. See Note 12 to the consolidated financial statements in Item 8 for additional information on pension and other postretirement benefit plans.
Other Estimates and Assumptions
Other management estimates and assumptions are routinely required in preparing our financial statements, including the determination of valuation allowances on accounts receivable and the fair value of long-lived assets. Changes in market and economic conditions, local tax laws, and other related factors are considered each reporting period, and adjustments to the accounts are made based on management’s best judgment.
OTHER INFORMATION REGARDING TRENDS
AND MANAGEMENT’S ACTIONS
Our financial performance depends on our ability to obtain an appropriate price for our products and services, to secure the product volumes and qualities desired by our customers, and to maintain efficient, competitive operations. As the leading global leaf tobacco supplier, we continually monitor issues and opportunities that may impact the supply of and demand for leaf tobacco, the volumes of leaf tobacco that we handle, and the services we provide. Our ingredients operations similarly require us to monitor issues and opportunities that may impact supply and demand for the materials we source, the products we sell, and the services we provide.
Tobacco Operations Trends
We believe that a key factor to perform successfully in the tobacco industry is our ability to provide customers with the quality of leaf and the level of service they desire on a global basis at competitive prices, while maintaining stability of supply. We add significant value to the leaf tobacco supply chain, providing expertise in dealing with large numbers of farmers, efficiently selling various qualities of leaf produced in each crop to a broad global customer base, and delivering products and services produced in a sustainable manner that meet stringent quality and regulatory specifications. We also make the tobacco markets more efficient and provide crop development guidance at the farm level. As part of our commitment to our customers, we adapt our business model to meet their evolving needs and monitor new product developments in the tobacco industry to identify areas where we can provide additional value to them.
Mature Leaf Tobacco Markets
Leaf tobacco is sourced directly by product manufacturers, by global leaf suppliers such as ourselves, and by other smaller, mostly regional or local, leaf suppliers. We estimate that, of the flue-cured and burley tobacco grown outside of China in countries that are key export markets for tobacco, historically on average about a third is purchased directly by major manufacturers. Global leaf suppliers also usually purchase about a third of the tobacco, and the remainder is sourced by the smaller regional or local suppliers. In some markets the tobacco purchased directly by manufacturers is processed by the global leaf suppliers. Although we operate in a mature industry, we are committed to maintaining our strong position as the leading global leaf tobacco supplier. In recent years, we have been and believe that we will continue to be able to grow parts of our business and maintain performance despite declines in demand for leaf tobacco from product manufacturers. We have done this by continuing to increase our delivery of services, driving supply chain efficiencies, enhancing the range of services we provide to certain customers, including direct buying, agronomic support, and specialized processing services, and our market share. We intend to continue to work to expand our business while at the same time maintaining an appropriate return for the services we provide and believe that there are several longer-term trends in the industry, such as a focus on sustainability, that could provide additional for us both to offer additional services to our customers and to increase our market share.
We continually explore options to capitalize on the strengths of our core competencies and seek growth opportunities related to leaf tobacco and our operations around the world. For example, we have expanded our leaf purchasing, processing, value-added services, and grower support services in multiple origins in response to customer demand.
Focus on Cost Management
Manufacturers naturally seek to mitigate raw materials cost increases, and they place increased emphasis on cost containment as they address declining demand. While this is not a new trend, it continues to offer us opportunities as we bring supply chain efficiencies to the leaf markets. We believe that, as a global leaf supplier, we add efficiencies to the markets through economies of scale, as well as through the vital role we play in finding buyers for all styles and qualities of leaf tobacco, which achieves overall cost reductions. To understand our business, it is important to note that tobacco is not a commodity product. Flavor and smoking characteristics as well as chemistries of tobacco vary based on the type of tobacco, the region where the tobacco is grown, and the position of the leaf on the stalk of the plant. Many different styles and grades of tobacco may be produced in a single tobacco crop. A particular manufacturer may only want and have use for certain leaves of a plant. The leaf tobacco supplier plays a vital role in the industry by finding buyers for all leaf grades and styles of tobacco produced in a farmer’s crop. This role helps to improve leaf utilization.
In addition to bringing supply chain efficiencies to the leaf tobacco markets, we bring operational efficiencies to the industry, which in turn helps reduce costs. These efficiencies include economical utilization of processing capacity, an established and scalable global network of agronomists and technicians helping to maintain a stable, productive, and sustainable farmer base, as well as agronomic and production improvements to optimize leaf yields and qualities. In addition, we are able to offer manufacturers a complete range of services from the field to the delivery of packed product that benefit from our efficiencies. These services include such things as buying station optimization, processing and blending to specific customer specifications or needs, storage of green or packed leaf tobacco, and logistical services. There has been an increase in the level of direct purchasing, sorting, processing, and other value-added services that we provide our customers, notably in the United States, Mexico, Brazil, Poland, Guatemala, the Dominican Republic, and the Philippines. We believe this increase acknowledges the efficiencies and services that we bring to the entire supply chain.
We have also seen some reductions in sourcing from lower-volume tobacco growing origins by both global leaf suppliers and major manufacturers. Flue-cured tobacco is produced in about 64 countries around the world, and burley tobacco is grown in about 49 countries. However, over 85% of both the flue-cured tobacco grown outside of China and the worldwide burley tobacco production is sourced from the top 10 growing areas for each type of tobacco. We believe that these moves to reduce sourcing areas and concentrate on major tobacco export markets are another way for the industry to increase efficiency and to reduce costs. We have contributed to cost reduction and elimination of excess capacity in the supply chain through the closure or realignment of programs in Argentina, Canada, Germany, Hungary, Italy, Malawi, Nicaragua, Switzerland, Tanzania, and Zambia. We maintain a strong presence in all of the major tobacco sourcing areas and believe that any growth in these areas would favor global leaf suppliers such as ourselves. In the future, we expect that increased regulations requiring stringent monitoring and testing of leaf chemistry and compliant sourcing documentation will continue to place greater emphasis on major sourcing areas.
Importance of Compliant Leaf
As we have said for many years, the production of compliant leaf for the tobacco industry continues to grow in importance. To be considered compliant, leaf tobacco must be grown in a traceable, sustainable manner utilizing GAP as well as adhering to ALP principals and monitored for environmental and social impacts. We have long invested significant resources in the programs and infrastructure needed to work with growers to produce compliant leaf and continue to enhance our ability to monitor and demonstrate this compliance for our customers. Our GAP and ALP programs focus on implementing international principles of sustainability by encouraging and training our farmers to employ sound field production and labor management practices that promote farmer profitability and minimal environmental impact. To assist farmers, Universal provides comprehensive training, technical support in the field, and crop analytics through ongoing research and development. Our commitment to compliance is reinforced through MobiLeaf TM , our proprietary mobile device platform that captures and shares data in real-time, embedding sustainability throughout our supply chain and providing monitoring of GAP and ALP efforts, compliance with labor standards, and opportunities to enhance efficiencies. We believe that compliant leaf will continue to grow in importance to our customers and, as a result, will favor global suppliers who are to deliver this product.
Growth of Next Generation Products
Most of the major tobacco product manufacturers have been developing next generation and modified risk products. These include ENDS, oral tobacco and nicotine products, and heated tobacco products. ENDS use liquid nicotine, which is predominately derived from leaf tobacco, and heated tobacco products use leaf tobacco. Oral tobacco and nicotine products may use liquid nicotine or leaf tobacco. At this time, it is unclear how these new products will affect demand for leaf tobacco. However, as our customers have been developing these products, we have been working with them to make sure we are able to meet their needs for both their traditional and new products. This is consistent with our commitment to efficiently and effectively adapt our business model to meet our customers’ evolving needs. Specifically, we have expertise in tobacco seed development, crop production methods, crop sourcing, processing, and manufacturing of reconstituted sheet tobacco, which is beneficial to our customers as they continue to develop alternative tobacco products. We also are able to provide high quality liquid nicotine through our subsidiary, AmeriNic. We continue to monitor industry developments regarding next generation products, including consumer acceptance and regulation, and will adapt accordingly.
Leaf Tobacco Supply
Flue-cured tobacco crops grown outside of China increased in fiscal year 2026 by about 28% to 2.4 billion kilos, compared to fiscal year 2025. Global burley tobacco production at about 722 million kilos in fiscal year 2026, increased by about 54% compared to the burley crops grown in our fiscal year 2025. We estimate that as of March 31, 2026, industry uncommitted flue-cured and burley inventories, excluding China, totaled about 169 million kilos, compared to about 22 million kilos at March 31, 2025. We believe flue-cured and burley tobaccos were in oversupply positions as of March 31, 2026. Flue-cured tobacco production grown outside of China is projected to decrease by about 3%, and the global burley tobacco crop is projected to decrease by about 16% in fiscal year 2027. Even if these anticipated decreases in flue-cured and burley crop production are realized, we believe that both flue-cured and burley tobaccos will remain in oversupply positions.
We also forecast that oriental tobacco production will increase by about 21% and dark air-cured tobacco production will increase by about 2% in fiscal year 2027. As of the date of the Annual Report, we believe oriental tobaccos are currently in an undersupply position but moving towards a more balanced position, and dark air-cured tobaccos are in an oversupply position. Over the long term, we believe that global tobacco production will continue to move in line with slowly declining total demand. Africa, Asia, North America, and South America will remain key sourcing regions for flue-cured and burley tobaccos.
China is a significant cigarette market. However, most of the cigarettes consumed in China and the leaf tobacco used in those cigarettes are produced domestically. Therefore, we normally view the Chinese market independently when evaluating worldwide leaf tobacco supply and demand.
Leaf Tobacco Demand
Industry data from the Nicotine Resource Consortium shows that over the five years ended in 2024, world consumption of cigarettes outside of China declined at a compound annual rate of almost 2%. We expect that near-term global demand for leaf tobacco will slowly decline in line with global cigarette consumption.
Our sales consist primarily of flue-cured, burley, and dark air-cured tobaccos. Flue-cured and burley tobaccos, along with oriental tobaccos, are used in American-blend cigarettes, which are primarily smoked in Western Europe and the United States. English-blend cigarettes, which use flue-cured tobacco, are mainly smoked in the United Kingdom and Asia and other emerging markets. If demand for American-blend cigarettes declines at a higher rate than reductions in demand for English-blend cigarettes, there may be less demand for burley and oriental tobaccos and more demand for flue-cured tobacco. However, demand is affected by many factors, including regulation, product taxation, illicit trade, alternative tobacco products, and Chinese imports. To the extent that domestic leaf production and inventory durations in China do not meet requirements for Chinese cigarette blends, that tobacco could be sourced from other origins where we have major market positions. On a year-to-year basis, we are also susceptible to fluctuations in leaf supply due to crop sizes and leaf demand as manufacturers adjust inventories or respond to changes in cigarette markets. We currently believe that the supply of flue-cured tobaccos and burley tobaccos are in an oversupply position relative to anticipated demand. Inventories held by our customers can also affect their near-term demand for leaf tobacco. We also sell oriental tobaccos, which are used in American-blend cigarettes, and dark tobaccos, which are used in cigars and other smokeless products.
Pricing
Factors that affect green tobacco prices include global supply and demand, market conditions, production costs, foreign exchange rates, and competition from other crops, among others. We work with farmers to maintain tobacco production and to secure product at price levels that are attractive to both the farmers and our customers. Our objective is to secure compliant tobacco that is produced in a cost-effective manner under a sustainable business model with the desired quality for our customers. In some areas, tobacco competes with agricultural commodity products for farmer production.
Global Regulation of Tobacco Products
Public Acceptance of Increased Global Regulation on Tobacco Products
Diminishing social acceptance of tobacco use and increasing pressure from anti-smoking groups have cultivated a political environment that accepts greater regulations on tobacco products, particularly in the United States and the European Union. While the impact of this cultural trend on our business is uncertain, the global acceptance of stringent regulations could reduce demand for tobacco products, which could have a material adverse effect on our business and results of operations.
Strengthened Global Cooperation in the Regulation on Tobacco Products
The WHO Framework Convention on Tobacco Control (“FCTC”) was ratified in 2005 to become the world’s first international public health treaty. Since its inception, the FCTC has continued to strengthen international cooperation and collaboration in tobacco control by advancing the implementation of the treaty’s 38 articles and increasing global participation. At the eleventh Conference of the Parties held in November 2025, the FCTC considered amendments to the agreement and tracked progress in the treaty’s implementation, particularly as it relates to novel/emerging products. The twelfth Conference of the Parties is scheduled for November 2027.
While we cannot predict the extent or speed at which the efforts of the FCTC will reduce tobacco consumption, a proliferation of national laws and regulations spurred by the recommendations of the FCTC would likely reduce demand for both tobacco products and leaf, which could have a material adverse effect on our business and results of operations.
United States FDA’s Continued Enforcement of the Tobacco Control Act
In 2009, the U.S. Congress passed the Family Smoking Prevention and Tobacco Control Act (the “Tobacco Act”). This legislation authorizes the U.S. Food and Drug Administration (“FDA”) to regulate the manufacturing and marketing of tobacco products. The Tobacco Act additionally prohibited characterizing flavors with the exception of menthol in cigarettes, restricted youth access to tobacco products, banned advertising claims regarding certain tobacco products, and established the Center for Tobacco Products.
Since the enactment of the Tobacco Act, the FDA has focused on establishing the scientific foundation and regulatory framework for regulating tobacco products in the United States. On May 10, 2016, the FDA released “deeming” regulations to extend FDA oversight over all tobacco products, including electronic nicotine delivery systems, cigars, hookah tobacco, pipe tobacco, dissolvables, and “novel and future products.” Additionally, the U.S. Congress extended the FDA’s authority to include regulation of tobacco products using synthetically manufactured nicotine in addition to naturally derived nicotine in March 2022. The regulations require tobacco product manufacturers to register tobacco products that were on the market on February 15, 2007, and to seek FDA authorization to sell any products modified or introduced after such date. All submissions require manufacturers to list ingredients in their products.
Although less than 5% of cigarettes manufactured worldwide are consumed in the United States, the FDA is widely considered a global leader in the “science-driven” regulation of tobacco products. Thus, the continued implementation and enforcement of the Tobacco Act in the United States is likely to influence the tobacco control measures considered by other countries and international bodies, including the WHO. It is impossible to predict the ultimate impact these developing regulations will have on our business, but any reduction in the demand for our customers’ products will adversely affect the demand for leaf tobacco.
Global Acceptance of the Continuum of Risk in the Regulation of Novel Tobacco Products
As demand for novel tobacco products, such as e-cigarettes, heat-not-burn devices, and nicotine pouches strengthens in the global market, governments are tasked with developing the appropriate, science-driven approach to regulation. In 2017, the FDA announced a new regulatory approach for the regulation of tobacco products that embraced the placement of each product somewhere along a “continuum of risk”. This comprehensive plan on nicotine use sought to facilitate an adult tobacco consumer’s switch from combustible cigarettes to less risky products found lower on the continuum. As part of this regulatory scheme, the FDA approved the first “heat-not-burn”, “very-low nicotine cigarette”, “electronic nicotine delivery system”, “flavored e-cigarette product”, and “nicotine pouch” premarket tobacco applications to permit the sale of these products within the United States. Furthermore, the FDA approved modified risk tobacco products applications to permit certain products in the heat-not-burn and smokeless categories to make modified exposure or risk claims. Although the WHO FCTC has not endorsed the practical application of the harm-reduction language in the treaty, a growing number of countries have established tobacco control strategies incorporating a continuum of risk concept. In addition, the global tobacco product market is continuously diversifying to include a wide array of novel tobacco products to serve as alternatives to combustible cigarettes.
Regardless of the type, it is generally understood that most novel products on the market contain less leaf tobacco than combustible cigarettes. Therefore, the market-driven rise of novel products alongside a regulatory scheme designed to facilitate an adult tobacco consumer’s switch from combustible cigarettes could affect global leaf demand. It is presently difficult to predict whether this will result in a decrease or an increase in requirements for leaf tobacco production in the long or short terms. Since they are marketed as replacements for combustible tobacco products, the question remains whether novel products will replace traditional cigarettes in the future, add to the market, or have a balancing effect.
Increased Taxation
A number of governments, particularly federal and local governments in the United States and the European Union, impose excise or similar taxes on tobacco products. Further legislation proposing new or increased taxes on tobacco products is likely to continue. In some cases, proposed legislation seeks to significantly increase existing taxes on tobacco products or impose new taxes on products that have not been subject to tax (e.g., ENDS products and liquid nicotine). Increases in product taxation could reduce the affordability of, and demand for, tobacco products, which will affect leaf tobacco requirements by tobacco product manufacturers.
Changes in tax laws or the interpretation of tax laws can also affect our earnings. For example, many countries in which the Company operates have enacted or are in the process of enacting legislation related to the OECD’s guidance. We continually monitor potential and enacted tax law changes in the countries in which we operate.
Illicit Trade
Illicit trade is another factor that influences demand for legally and sustainably produced leaf tobacco. The WHO estimates that one in every 10 cigarettes consumed globally is illicit. Individual governments including the United States, European Union, and Brazil have initiated substantial steps in combating illicit trade. In 2012, the WHO FCTC adopted an illicit trade protocol that, to date, has been ratified by only 68 parties. We continue to support both governmental and industry efforts to eradicate illicit trade.
Ingredients Operations Trends
Universal Ingredients has continued to invest in the development and expansion of its platform through a combination of prior acquisitions which included FruitSmart, Silva, and Universal Ingredients-Shank’s, as well as ongoing investments in infrastructure, product development, marketing, and commercial sales capabilities. These investments are designed to support the integration of complementary capabilities across fruits, vegetables, and botanical extracts and flavorings and are intended to enhance the platform’s ability to deliver value-added ingredient solutions at scale.
Ongoing investments, including the expansion of our Lancaster, Pennsylvania facility, have increased production capacity and enhanced research and development and application capabilities. Together, these investments are intended to support operational efficiencies, enable broader customer engagement across multiple end-markets, and position the platform to support long-term revenue growth and market expansion as customer demand evolves.
Product Development and Innovation
Product development represents a key driver of growth within our Ingredients Operations. Customers across the food, beverage, and pet food markets prioritize innovation to address changing consumer preferences, improve nutritional profiles, and differentiate finished products. As a result, ingredient suppliers are increasingly expected to produce quality inputs, in addition to formulation expertise, application support, and speed to market.
Investments in research and development, including our Applications Capabilities Lab in Lancaster, Pennsylvania, support collaboration with customers to develop and commercialize new products across a range of applications, including beverages, nutritional products, prepared foods, and pet food formulations. These capabilities enable the platform to support customized solutions and multi-component ingredients systems that leverage technologies and expertise across our Ingredients portfolio.
Health, Wellness, and Functional Ingredients
Consumer focus on health and wellness continues to influence demand across the food and beverage industry. Demand is increasing for products positioned around functional benefits such as energy, hydration, digestive health, and overall wellness, delivered through everyday formats such as beverages and convenient food applications. These trends are contributing to increased use of ingredients derived from fruits, vegetables, and botanicals, including natural sources of fiber and plant-based functional compounds.
In parallel, changing consumption patterns, including greater emphasis on portion control, nutrient density, and balanced nutrition, are influencing product development strategies. These shifts support demand for ingredient solutions that enable the development of nutrient-dense, scalable products, particularly in beverages and ready-to-consume applications. We believe our Ingredients platform, which includes fruit-based systems, fibers, and botanical extracts, is well positioned to support these evolving requirements.
While functional ingredients continue to gain traction, consumer adoption is ultimately dictated by taste. There is an expectation that products deliver both effectiveness and enjoyment, with minimal compromise. As a result, food and beverage manufacturers are prioritizing solutions that address bitterness, acidity, and other off notes commonly associated with functional systems. This is accelerating demand for flavor modulation, masking technologies, and naturally derived ingredients that enable clean label positioning while supporting a balanced, sensory profile.
Clean Label, Transparency, Ingredient Integrity
Consumers continue to place increased emphasis on ingredient transparency, product labeling, and processing methods. Demand for clean label, minimally processed, and naturally derived ingredients remains an important trend across food and beverage categories, with consumers seeking suppliers capable of supporting clear product claims, traceability, and consistent quality.
Universal Ingredients’ focus on fruit, vegetable, and botanical-based ingredients, along with capabilities in natural extraction, dehydration, and processing aligns with these market trends. Platform capabilities related to sourcing, quality assurance, and supply reliability support customer efforts to meet evolving expectations around ingredient integrity.
Pet Food and Adjacent Markets
The pet food market represents an additional area of growth, driven in part by the increasing “humanization” of pets and rising demand for premium, natural, and functional ingredients. Consumers are increasingly seeking pet food products that reflect attributes associated with human food, including nutritional quality, ingredient transparency, and functional benefits.
Universal Ingredients’ platform capabilities in fruit- and vegetable-based ingredients, clean-label formulations, and functional components support opportunities in adjacent categories that prioritize natural and functional ingredient solutions, extending applicability of the Ingredients platform beyond traditional food and beverage applications.
Vertical Integration
As we continue to grow Universal Ingredients, we intend in the future to explore the benefits and opportunities to vertically integrate certain plant-based ingredients from our tobacco growing areas to capitalize on our strengths and capabilities there. We have established grower networks and agricultural support infrastructure in origins where we source tobacco, and we also have strong, mature sustainability programs in those origins. We believe that ingredients produced in a sustainable manner will grow in importance to our customers and, as a result, will favor suppliers who are able to deliver these products.
