What changed in this filing

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Item 1. Financial Statements

2021-02-08 compared with 2020-11-05 · 293 added, 156 removed, 717 unchanged (39% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

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

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

2020 2019 2020 2019

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Other income — — ( 4,173 ) —

Restructuring and impairment costs 19,979 — 19,979 —

Operating income 60,186 44,115 85,065 94,828

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Total comprehensive income, net of income taxes $ 55,681 $ 40,023 $ 84,950 $ 51,479

comprehensive income attributable to noncontrolling interests ( 982 ) ( 1,546 ) ( 452 ) ( 492 )

comprehensive (income) loss attributable to noncontrolling interests ( 7,114 ) ( 3,491 ) ( 7,566 ) ( 3,983 )

Comprehensive income (loss) attributable to Universal Corporation $ 48,567 $ 36,532 $ 77,384 $ 47,496

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(in thousands of dollars)

September 30, September 30, March 31,

December 31, December 31, March 31,

2020 2019 2020

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(in thousands of dollars)

September 30, September 30, March 31,

December 31, December 31, March 31,

2020 2019 2020

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Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding

Common stock, no par value, 100,000,000 shares authorized 24,514,867 shares issued and outstanding at September 30, 2020 ( 24,841,863 at September 30, 2019 and 24,421,835 at March 31, 2020)

Common stock, no par value, 100,000,000 shares authorized 24,514,867 shares issued and outstanding at December 31, 2020 ( 24,693,557 at December 31, 2019 and 24,421,835 at March 31, 2020)

325,350 324,388 321,502

9 unchanged sentences

(in thousands of dollars)

Six Months Ended September 30,

Nine Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

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Foreign currency exchange contracts ( 7,723 ) ( 698 )

Restructuring and impairment costs 19,979 —

Restructuring payments ( 5,179 ) ( 444 )

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Purchase of property, plant and equipment ( 33,794 ) ( 21,692 )

Purchase of business, net of cash held by the business ( 161,095 ) —

Proceeds from sale of property, plant and equipment 4,086 2,946

Other ( 800 ) 496

Net cash used by investing activities ( 191,603 ) ( 18,250 )

1 unchanged sentence

Issuance of short-term debt, net 57,207 41,201

Issuance of long-term debt 150,000 —

Dividends paid to noncontrolling interests ( 3,695 ) ( 3,359 )

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Effect of exchange rate changes on cash 1,693 93

Net decrease in cash and cash equivalents ( 50,346 ) ( 244,383 )

Cash and cash equivalents at beginning of year 107,430 297,556

Cash and cash equivalents at end of period $ 57,084 $ 53,173

Net decrease in cash, restricted cash and cash equivalents ( 6,025 ) ( 232,822 )

Cash, restricted cash and cash equivalents at beginning of year 107,430 297,556

Cash, restricted cash and cash equivalents at end of period $ 101,405 $ 64,734

Supplemental Information:

Cash and cash equivalents $ 95,405 $ 64,734

Restricted cash (Other noncurrent assets) 6,000 —

Total cash, restricted cash and cash equivalents $ 101,405 $ 64,734

See accompanying notes.

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BASIS OF PRESENTATION

Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is an agri-products supplier and the leading global leaf tobacco supplier.

Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is an agri-products supplier.

The Company is the leading global leaf tobacco supplier and provides high-quality plant-based ingredients to food and beverage end markets.

Because of the seasonal nature of the Company’s business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year.

All adjustments necessary to state fairly the results for the period have been included and were of a normal recurring nature.

During the three months ended December 31, 2020, the Company realigned its reportable operating segments.

As a result of this realignment, the Company now reports two reportable operating segments, Tobacco Operations and Ingredients Operations.

See Note 15 for additional information.

Certain amounts in prior year statements have been reclassified to conform to the current year presentation.

This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

The extent to which the ongoing COVID-19 pandemic will impact the Company's 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.

The extent to which the ongoing COVID-19 pandemic will impact the Company's financial condition, results of operations and demand for its products and services will depend on future developments, which are highly uncertain and cannot be predicted.

Such developments may include the ongoing geographic spread of COVID-19, the severity of the pandemic, the duration of the COVID-19 outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the COVID-19 pandemic and the impact on the U.S.

and the global economies, markets and supply chains.

At September 30, 2020, it is not possible to predict the overall impact of the ongoing COVID-19 pandemic on the Company's business, financial condition, results of operations and demand for our products and services.

At December 31, 2020, it is not possible to predict the overall impact of the ongoing COVID-19 pandemic on the Company's business, financial condition, results of operations and demand for its products and services.

ACCOUNTING PRONOUNCEMENTS

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BUSINESS COMBINATION

Acquisition of Silva International, Inc.

On October 1, 2020 the Company acquired 100 % of the capital stock of Silva International, Inc.

(“Silva”), a natural, specialty dehydrated vegetable, fruit, and herb processing company serving global markets, for approximately $ 164 million in cash and $ 8.9 million of additional working capital on-hand at the date of acquisition.

The acquisition of Silva diversifies the Company's product offerings and generates new opportunities for its plant-based ingredients platform.

The Company continues to employ one of Silva's selling shareholders and as stipulated in the Silva purchase agreement has transferred $ 6 million to a third-party escrow account that may ultimately be earned by the selling shareholder upon completion of a post-combination service period.

Since the compensation agreement for the selling shareholder who remains employed with the Company includes a post-combination service period, the Company has excluded the entire $ 6 million in the purchase price to be allocated.

The $ 6 million in escrow is recognized as restricted cash in other noncurrent assets on the consolidated balance sheet at December 31, 2020.

The contingent consideration arrangement for the selling shareholder includes a post-combination service requirement and forfeitable payment provisions, therefore under ASC Topic 805, "Business Combination s ," must be treated as compensation expense and recognized ratably over the requisite service period in selling, general, and administrative expense on the consolidated statements of income.

For the three and nine months ending December 31, 2020, the Company incurred $ 2.2 million and $ 3.9 million for acquisition-related transaction costs for the purchase of Silva, respectively.

The acquisition-related costs were expensed as incurred and recorded in selling, general, and administrative expense on the consolidated statements of income.

The following preliminary allocation of the purchase price was based on third-party valuations and assumptions.

At December 31, 2020 , the Company is finalizing working capital acquired and income tax related assets and liabilities.

The final purchase price allocation is expected to be completed in the fourth quarter of fiscal year 2021.

The following table summarizes the preliminary purchase price allocation of the assets acquired and liabilities assumed on October 1, 2020.

(in thousands of dollars)

Cash and cash equivalents $ 8,126

Accounts receivable, net 17,885

Advances to suppliers, net 3,011

Inventory 33,162

Other current assets 833

Property, plant and equipment (net) 24,437

Customer relationships 53,000

Trade names 7,800

Goodwill 53,728

Total assets acquired 201,982

Accounts payable and accrued expenses 13,103

Accrued compensation 3,350

Income taxes payable 1,042

Deferred income taxes 20,487

Total liabilities assumed 37,982

Total assets acquired and liabilities assumed $ 164,000

A portion of the goodwill recorded as part of the acquisition was attributable to the assembled workforce of Silva.

The goodwill recognized for the Silva acquisition is not deductible for U.S.

income tax purposes.

The tax basis of the assets acquired and liabilities assumed did not result in a step-up of tax basis.

The Company determined the Silva operations are not material to the Company’s consolidated results.

Therefore, pro forma information is not presented.

Acquisition of FruitSmart, Inc.

On January 1, 2020 the Company acquired 100 % of the capital stock of FruitSmart, Inc.

(“FruitSmart”), an independent specialty fruit and vegetable ingredient processor serving global markets, for approximately $ 80 million in cash, up to $ 25 million of contingent consideration payments, and $ 3.8 million of working capital on-hand at the date of acquisition.

(“FruitSmart”), an independent specialty fruit and vegetable ingredient processor serving global markets, for approximately $ 80 million in cash, up to $ 25 million of contingent consideration payments, and $ 3.8 million of additional working capital on-hand at the date of acquisition.

The contingent consideration is based on FruitSmart’s achievement of certain adjusted gross profit metrics in calendar years 2020 and 2021 .

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Therefore, in the quarter ended June 30, 2020 the Company recorded $ 4.2 million in other operating income for the reversal of a portion of the contingent consideration liability.

As of September 30, 2020, $ 2.5 million of contingent consideration liability related to the FruitSmart acquisition is included in other long-term liabilities on the consolidated balance sheet.

As of December 31, 2020, $ 2.5 million of contingent consideration liability related to the FruitSmart acquisition is included in other long-term liabilities on the consolidated balance sheet.

The following final allocation of the purchase price was based on third-party valuations and assumptions.

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Total assets acquired 103,971

Current liabilities 8,262

Accounts payable and accrued expenses 7,592

Accrued compensation 670

Deferred income taxes 9,004

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A portion of the goodwill recorded as part of the acquisition was attributable to the assembled workforce of FruitSmart.

The tax basis of the assets acquired and liabilities did not result in a step-up of tax basis and the related goodwill is not deductible for U.S.

The goodwill recognized for the FruitSmart acquisition is not deductible for U.S.

income tax purposes.

The tax basis of the assets acquired and liabilities assumed did not result in a step-up of tax basis.

The Company determined the FruitSmart operations are not material to the Company’s consolidated results.

Therefore, pro forma information is not presented.

For the three and nine month ending December 31, 2019 , the Company incurred $ 1.0 million and $ 1.9 million for acquisition-related transaction costs for the purchase of FruitSmart, respectively.

The acquisition-related costs were expensed as incurred and recorded in selling, general, and administrative expense on the consolidated statements of income.

RESTRUCTURING AND IMPAIRMENT COSTS

Universal continually reviews its business for opportunities to realize efficiencies, reduce costs, and realign its operations in response to business changes.

Restructuring and impairment costs are periodically incurred in connection with those activities.

Ingredients Operations

During the three months ended December 31, 2020, the Company committed to a plan to wind-down its subsidiary, Carolina Innovative Food Ingredients, Inc.

("CIFI"), a sweet potato processing operation located in Nashville, North Carolina.

The CIFI operation was a start-up project initially undertaken by the Company in fiscal year 2015.

The decision to wind down CIFI is consistent with the Company’s capital allocation strategy to focus on delivering shareholder value through building and enhancing a plant-based ingredients platform, which includes integrating and exploring the synergies of recently acquired businesses FruitSmart and Silva.

The Company determined that CIFI was not a strategic fit for the platform’s long-term objectives.

CIFI’s single-product focused processing facility and ongoing international pricing pressures, among other factors, created challenges that proved insurmountable.

Sales of existing inventory and certain administrative activities at CIFI will continue into fiscal year 2022, but no manufacturing occurred subsequent to December 31, 2020.

As a result of the decision to wind down the CIFI operations, the Company will pay termination benefits totaling approximately $ 0.6 million to employees whose permanent positions are being eliminated, with termination benefits due to be paid before the end of February 2021.

In addition to the termination costs, the Company recognized various other costs associated with the wind-down of the CIFI facility.

These costs include impairments of property, plant, and equipment (including the factory building), as well as inventory and

supply write-downs.

The restructuring and impairment charge incurred for the CIFI wind-down was $ 16.1 million for the three and nine months ended December 31, 2020.

Tobacco Operations

During the three and nine months ended December 31, 2020, the Company incurred $ 2.6 million of termination and impairment costs associated with restructuring of tobacco buying and administrative operations in Africa, as well as a $ 0.9 million charge for the liquidation of an idled service entity in Tanzania, and $ 0.4 million of termination benefits in North America.

Total restructuring and impairments costs related to the Tobacco Operations segment for the three and nine months ended December 31, 2020 were $ 3.9 million.

A summary of the restructuring and impairment costs recorded in the quarter ended December 31, 2020 were as follows:

(in thousands) Three Months Ended December 31, 2020

Restructuring costs:

Employee termination benefits $ 2,625

Total restructuring costs 4,391

Impairment costs:

Property, plant and equipment 13,886

Inventory 1,702

Total impairment costs 15,588

Total restructuring and impairment costs $ 19,979

For the three and nine months ended December 31, 2020, the restructuring and impairment costs reduced operating income and income before income taxes by $ 20.0 million, net income attributable to Universal Corporation by $ 16.1 million, and diluted earnings per share by $ 0.65 .

A reconciliation of the liability for termination benefits through December 31, 2020 is as follows:

(in thousands) Nine Months Ended December 31, 2020

Balance at April 1, 2020 $ 3,404

Costs charged to expense 2,625

Payments ( 5,179 )

Balance at December 31, 2020 $ 850

REVENUE FROM CONTRACTS WITH CUSTOMERS

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The Company also earns revenue from processing leaf tobacco owned by customers and from various other services provided to customers.

The Company also has fruit and vegetable processing operations that provide customers with a range of food ingredient products.

Payment terms with customers vary depending on customer creditworthiness, product types, services provided, and other factors.

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Transaction prices for the sale of tobaccos are primarily based on negotiated fixed prices, but the Company does have a small number of cost-plus contracts with certain customers.

Cost-plus arrangements provide the Company reimbursement of the cost to purchase and process the tobacco, plus a contractually agreed-upon profit margin.

Cost-plus arrangements provide the Company reimbursement of the cost to purchase and process the

tobacco, plus a contractually agreed-upon profit margin.

The Company utilizes the most likely amount methodology under the accounting guidance to recognize revenue for cost-plus arrangements with customers.

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At the point in time that the customer obtains control over the tobacco, which is typically aligned with physical shipment under the contractual terms with the customer, the Company completes its performance obligation and recognizes the revenue for the sale.

Tobacco Processing Revenue

Processing and packing of customer-owned leaf tobacco is a short-duration process.

Ingredient Sales

In recent fiscal years, the Company has diversified operations through acquisition of established companies that offer customers a wide range of both liquid and dehydrated fruit and vegetable ingredient products.

These operations procure raw materials from domestic and international growers and suppliers and through a variety of processing steps including sorting, cleaning, pressing, mixing, and blending to manufacture finished goods utilized in both human and pet food.

The contracts for food ingredients with customers create a performance obligation to transfer the manufactured finished goods to the customer.

Transaction prices for the sale of food ingredients are primarily based on negotiated fixed prices.

At the point in time that the customer obtains control over the finished product, which is typically aligned with physical shipment under the contractual terms with the customer, the Company completes its performance obligation and recognizes the revenue for the sale.

Processing Revenue

Processing and packing of customer-owned tobacco and ingredients is a short-duration process.

Processing charges are primarily based on negotiated fixed prices per unit of weight processed.

Under normal operating conditions, customer-owned raw tobacco that is placed into the production line exits as processed and packed tobacco within one hour and is then later transported to customer-designated storage facilities.

Under normal operating conditions, customer-owned raw materials that are placed into the production line exits as processed and packed product and is then later transported to customer-designated transfer locations.

The revenue for these services is recognized when the performance obligation is satisfied, which is generally when processing is completed.

The Company’s operating history and contract analyses indicate that customer requirements for processed tobacco are consistently met upon completion of processing.

The Company’s operating history and contract analyses indicate that customer requirements for processed tobacco and food ingredients products are consistently met upon completion of processing.

Other Operating Sales and Revenue

From time to time, the Company enters into various arrangements with customers to provide other value-added services that may include blending, chemical and physical testing of tobacco, and service cutting for select manufacturers.

The Company also has fruit and vegetable processing operations that provide customers with a range of food ingredient products.

These other arrangements and operations are a much smaller portion of the Company’s business, and are separate and distinct contractual agreements from the Company’s tobacco sales or tobacco processing arrangements with customers.

From time to time, the Company enters into various arrangements with customers to provide other value-added services that may include blending, chemical and physical testing of products, storage, and tobacco cutting services for select manufacturers.

These other arrangements and operations are a much smaller portion of the Company’s business, and are separate and distinct contractual agreements from the Company’s tobacco and food ingredients sales or third-party processing arrangements with customers.

The transaction prices and timing of revenue recognition of these items are determined by the specifics of each contract.

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The following table disaggregates the Company’s revenue by significant revenue-generating category:

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

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

(in thousands of dollars) 2020 2019 2020 2019

Tobacco sales $ 583,543 $ 475,574 $ 1,193,230 $ 1,193,062

Tobacco processing revenue 12,474 16,701 28,774 35,135

Ingredient sales 47,337 1,064 82,820 2,705

Processing revenue 18,831 20,112 47,605 55,247

Other sales and revenue from contracts with customers 14,867 6,623 32,671 22,773

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Guarantees of Bank Loans and Other Contingent Liabilities

The majority of crop financing utilized for fiscal year 2021 in Brazil did not require guaranteed bank loans to tobacco growers, resulting in the elimination of guarantees at September 30, 2020.

The majority of crop financing utilized for fiscal year 2021 in Brazil did not require guaranteed bank loans to tobacco growers, resulting in the elimination of guarantees at December 31, 2020.

For the majority of crop financing prior to fiscal year 2021, the Company relied heavily on guaranteed bank loans to tobacco growers in Brazil for crop financing.

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however, in that case, the subsidiary would have recourse against the farmers.

The maximum potential amount of future payments that the Company’s subsidiary could be required to make was the face amount (which includes unpaid accrued interest), which was zero at September 30, 2020, $ 5 million at September 30, 2019, and $ 3 million at March 31, 2020.

The fair value of the guarantees was zero liability at September 30, 2020, $ 0.1 million at September 30, 2019, and $ 0.1 million at March 31, 2020.

In addition to these guarantees, the Company had other contingent liabilities totaling approximately $ 1 million at September 30, 2020, primarily related to outstanding letters of credit.

The maximum potential amount of future payments that the Company’s subsidiary could be required to make was the face amount (which includes unpaid accrued interest), which was zero at December 31, 2020, $ 5.1 million at December 31, 2019, and $ 3.0 million at March 31, 2020.

The fair value of the guarantees was zero liability at December 31, 2020, $ 0.1 million at December 31, 2019, and $ 0.1 million at March 31, 2020.

In addition to these guarantees, the Company had other contingent liabilities totaling approximately $ 1 million at December 31, 2020, primarily related to outstanding letters of credit.

Value-Added Tax Assessments in Brazil

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In September 2014, tax authorities for the state of Parana issued an assessment for tax, interest, and penalties for periods from 2009 through 2014 totaling approximately $ 11 million.

Those amounts are based on the exchange rate for the Brazilian currency at September 30, 2020.

Those amounts are based on the exchange rate for the Brazilian currency at December 31, 2020.

Management of the operating subsidiary and outside counsel believe that errors were made by the tax authorities for both states in determining all or significant portions of these assessments and that various defenses support the subsidiary’s positions.

With respect to the Santa Catarina assessments, the subsidiary took appropriate steps to contest the full amount of the claims.

As of September 30, 2020, a portion of the subsidiary’s arguments had been accepted, and the outstanding assessment had been reduced.

The reduced assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $ 8 million (at the September 30, 2020 exchange rate).

As of December 31, 2020, a portion of the subsidiary’s arguments had been accepted, and the outstanding assessment had been reduced.

The reduced assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $ 9 million (at the December 31, 2020 exchange rate).

The subsidiary is continuing to contest the full remaining amount of the assessment.

While the range of reasonably possible loss is zero up to the full $ 8 million remaining assessment with interest, based on the strength of the subsidiary’s defenses, no loss within that range is considered probable at this time and no liability has been recorded at September 30, 2020.

While the range of reasonably possible loss is zero up to the full $ 9 million remaining assessment with interest, based on the strength of the subsidiary’s defenses, no loss within that range is considered probable at this time and no liability has been recorded at December 31, 2020.

With respect to the Parana assessment, management of the subsidiary and outside counsel challenged the full amount of the claim.

A significant portion of the Parana assessment was based on positions taken by the tax authorities that management

and outside counsel believe deviate significantly from the underlying statutes and relevant case law.

A significant portion of the Parana assessment was based on positions taken by the tax authorities that management and outside counsel believe deviate significantly from the underlying statutes and relevant case law.

In addition, under the law, the subsidiary’s tax filings for certain periods covered in the assessment were no longer open to any challenge by the tax authorities.

In December 2015, the Parana tax authorities withdrew the initial claim and subsequently issued a new assessment covering the same tax periods, reflecting a substantial reduction from the original assessment.

In fiscal year 2020, the Parana tax authorities acknowledged the statute of limitations related to claims prior to December 2010 had expired and reduced the assessment to $ 3 million (at the September 30, 2020 exchange rate).

Notwithstanding the reduced assessment, management and outside counsel continue to believe that the new assessment is not supported by the underlying statutes and relevant case law and have challenged the full amount of the claim.

The range of reasonably possible loss is considered to be zero up to the full $ 3 million assessment.

However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at September 30, 2020.

However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at December 31, 2020.

In both states, the process for reaching a final resolution to the assessments is expected to be lengthy, and management is not currently able to predict when either case will be concluded.

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Both the current and the long-term portions of advances to suppliers are reported net of allowances recorded when the Company determines that amounts outstanding are not likely to be collected.

Short-term and long-term advances to suppliers totaled $ 81 million at September 30, 2020, $ 94 million at September 30, 2019, and $ 153 million at March 31, 2020.

The related valuation allowances totaled $ 14 million at September 30, 2020, $ 16 million at September 30, 2019, and $ 16 million at March 31, 2020, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were increased by net provisions of approximately $ 0.3 million and reduced by net recoveries of approximately $ 1.9 million in the six-month periods ended September 30, 2020 and 2019, respectively.

Short-term and long-term advances to suppliers totaled $ 122 million at December 31, 2020, $ 142 million at December 31, 2019, and $ 153 million at March 31, 2020.

The related valuation allowances totaled $ 16 million at December 31, 2020, $ 18 million at December 31, 2019, and $ 16 million at March 31, 2020, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were increased by net provisions of approximately $ 2.8 million and reduced by net recoveries of approximately $ 0.1 million in the nine-month periods ended December 31, 2020 and 2019, respectively.

These net provisions and recoveries are included in selling, general, and administrative expenses in the consolidated statements of income.

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Due to these factors, local operating subsidiaries in some countries can accumulate significant balances of VAT credits over time.

The Company reviews these balances on a

regular basis and records valuation allowances on the credits to reflect amounts that are not expected to be recovered, as well as discounts anticipated on credits that are expected to be sold or transferred.

At September 30, 2020, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 51 million ($ 56 million at September 30, 2019, and $ 52 million at March 31, 2020), and the related valuation allowances totaled approximately $ 18 million ($ 20 million at September 30, 2019, and $ 19 million at March 31, 2020).

The Company reviews these balances on a regular basis and records valuation allowances on the credits to reflect amounts that are not expected to be recovered, as well as discounts anticipated on credits that are expected to be sold or transferred.

At December 31, 2020, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 53 million ($ 58 million at December 31, 2019, and $ 52 million at March 31, 2020), and the related valuation allowances totaled approximately $ 18 million ($ 20 million at December 31, 2019, and $ 19 million at March 31, 2020).

The net balances are reported in other current assets and other noncurrent assets in the consolidated balance sheets.

Stock Repurchase Plan

A stock repurchase plan, which was authorized by our Board of Directors, became effective and was publicly announced on November 7, 2017 and further extended on May 29, 2019.

This stock repurchase plan authorized the purchase of up to $ 100 million in common and/or preferred stock in open market or privately negotiated transactions, subject to market conditions and other factors.

The program had $ 56.1 million of remaining capacity for repurchases of common and/or preferred stock at September 30, 2020.

This stock repurchase program was replaced in November 2020 when our Board of Directors approved a new authorization for the purchase of up to $ 100 million in common and/or preferred stock through November 15, 2022, or when authorized funds for the program have been exhausted.

Long-Term Debt

In December 2020, the Company repaid $ 150 million of revolving credit borrowings used to finance the purchase of Silva with term loans under its existing senior unsecured bank credit facility.

The Company increased the borrowings of the senior unsecured five-year and seven-year term loans by $ 75 million each.

At December 31, 2020, the five-year term loan maturing December 2023 and the seven-year term loan maturing December 2025 had outstanding borrowings of $ 225 million and $ 295 million, respectively.

Under the senior unsecured bank credit facility, the additional $ 150 million of terms loans bear interest at variable rates plus a margin based on the Company's credit metrics and interest payments remained unhedged at December 31,

The Company maintains receive-floating/pay-fixed interest rates swap agreements for a portion of the outstanding five and seven-year term loans.

See Note 11 for additional information on outstanding interest rate swap agreements.

Shelf Registration and Stock Repurchase Plan

In November 2020, the Company filed an undenominated automatic universal shelf registration statement with the U.S.

Securities and Exchange Commission to provide for the future issuance of an undefined amount of securities as determined by the Company and offered in one or more prospectus supplements prior to issuance.

A stock repurchase plan, which was authorized by the Company's Board of Directors, became effective and was publicly announced on November 5, 2020.

This stock repurchase plan authorizes the purchase of up to $ 100 million in common and/or preferred stock in open market or privately negotiated transactions through November 15, 2022 or when funds for the program have been exhausted, subject to market conditions and other factors.

The program had $ 100 million of remaining capacity for repurchases of common and/or preferred stock at December 31, 2020.

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

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

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

(in thousands, except share and per share data) 2020 2019 2020 2019

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The Company's consolidated effective income tax rate is affected by a number of factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes.

The consolidated effective income tax rate for the quarter and six months ended September 30, 2020 were 28 % and a benefit of 14 %, respectively.

The Company's consolidated effective income tax rate for the six months ended September 30, 2020 was affected by a $ 4.4 million net tax benefit for final U.S.

tax regulations issued for hybrid dividends paid by foreign

subsidiaries.

Without this discrete item for the final U.S.

tax regulations, the consolidated effective income tax rate for the six months ended September 30, 2020 would have been approximately 19 %.

Additionally, for the six months ended September 30, 2020 the Company recognized $ 1.8 million as a component of interest expense related to on-going settlement discussions for an uncertain tax position at foreign subsidiary.

The consolidated effective income tax rate for the quarter and six months ended September 30, 2019 were approximately 28 % and 34 %, respectively.

Income taxes for the six months ended September 30, 2019 were affected by a $ 2.8 million net tax provision related to a tax settlement at a foreign subsidiary.

Without this discrete item, the consolidated effective income tax rate for the three months ended September 30, 2019 would have been approximately 28 %.

The consolidated effective income tax rate for the three and nine months ended December 31, 2020 was 26 % and 19 %, respectively.

The Company recognized a $ 2.9 million income tax benefit in the three and nine months ended December 31, 2020 in connection with amending and finalizing of prior year consolidated U.S.

income tax returns.

The Company's consolidated effective income tax rate for the nine months ended December 31, 2020 was also affected by a $ 4.4 million net tax benefit for final U.S.

tax regulations issued for hybrid dividends paid by foreign subsidiaries.

Without these items, the consolidated effective

income tax rate for the three and nine months ended December 31, 2020 would have been approximately 32 % and 29 %, respectively.

Additionally, for the nine months ended December 31, 2020 the Company recognized $ 1.8 million as a component of interest expense related to on-going settlement discussions for an uncertain tax position at foreign subsidiary.

The consolidated effective income tax rate for the three and nine months ended December 31, 2019 was approximately 26 % and 30 %, respectively.

Income taxes for the nine months ended December 31, 2019 were affected by a $ 2.8 million net tax provision related to a tax settlement at a foreign subsidiary.

The Company recognized a $ 1.5 million income tax benefit in the three and nine months ended December 31, 2019 in connection with amending and finalizing of prior year consolidated U.S.

income tax returns.

Without these items, the consolidated effective income tax rate for the three months and nine months ended December 31, 2019 would have been approximately 30 % and 29 %, respectively.

GOODWILL AND OTHER INTANGIBLES

The Company's changes in goodwill at September 30, 2020 and 2019 consisted of the following:

(in thousands of dollars) Six Months Ended September 30,

The Company's changes in goodwill at December 31, 2020 and 2019 consisted of the following:

(in thousands of dollars) Nine Months Ended December 31,

Balance at beginning of fiscal year $ 126,826 $ 97,907

Acquisition of business (1)

Foreign currency translation adjustment

Balance at end of period $ 180,655 $ 97,969

(1) On October 1, 2020 the Company acquired 100 % of the capital stock of Silva International, Inc.

for approximately $ 164.0 million in cash and $ 8.9 million of working capital on-hand at the date of acquisition.

The Silva acquisition resulted in $ 53.7 million of goodwill.

See Note 3 for additional information.

The Company's intangible assets primarily consist of capitalized customer-related intangibles, trade names, proprietary developed technology and noncompetition agreements.

The Company's intangible assets subject to amortization consisted of the following at September 30, 2020 and 2019:

(in thousands, except useful life) September 30,

Useful Life Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value

The Company's intangible assets subject to amortization consisted of the following at December 31, 2020 and 2019:

(in thousands, except useful life) December 31,

Useful Life (years) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value

Customer relationships (1) (2)

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See Note 3 for additional information.

(2) On October 1, 2020 the Company acquired 100 % of the capital stock of Silva International, Inc.

for approximately $ 164.0 million in cash and $ 8.9 million of working capital on-hand at the date of acquisition.

The Silva acquisition resulted in $ 60.8 million of intangibles.

See Note 3 for additional information.

Intangible assets are amortized on a straight-line basis over the asset's estimated useful economic life as noted above.

The Company's amortization expense for intangible assets for the three and six months ended September 30, 2020 and 2019:

(in thousands of dollars) Three Months Ended September 30, Six Months Ended September 30,

The Company's amortization expense for intangible assets for the three and nine months ended December 31, 2020 and 2019:

(in thousands of dollars) Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

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The amortization expense for the other intangible assets is recorded in selling, general, and administrative expenses in the consolidated income statements of income.

As of September 30, 2020, the expected future amortization expense for intangible assets is as follows:

As of December 31, 2020, the expected future amortization expense for intangible assets is as follows:

Fiscal Year (in thousands of dollars)

2021 (excluding the six months ended September 30, 2020)

2021 (excluding the nine months ended December 31, 2020)

2025 and thereafter 45,515

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The following table sets forth the right-of-use assets and lease liabilities for operating leases included in the Company’s consolidated balance sheet:

(in thousands of dollars) September 30, 2020 September 30, 2019 March 31, 2020

(in thousands of dollars) December 31, 2020 December 31, 2019 March 31, 2020

Operating lease right-of-use assets $ 34,717 $ 34,230 $ 39,256

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The following table sets forth the location and amount of operating lease costs included in the Company's consolidated statement of income:

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

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

(in thousands of dollars) 2020 2019 2020 2019

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The following table reconciles the undiscounted cash flows to the operating lease liabilities in the Company’s consolidated balance sheet:

(in thousands of dollars) September 30, 2020

(in thousands of dollars) December 31, 2020

Maturity of Operating Lease Liabilities

2021(excluding the six months ended September 30, 2020)

2021(excluding the nine months ended December 31, 2020)

2026 and thereafter 7,264

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Total operating lease liabilities $ 31,723

As of September 30, 2020, the Company had no leases that have not yet commenced.

As of December 31, 2020, the Company had no leases that did not yet commence.

The following table sets forth supplemental information related to operating leases:

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

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

(in thousands, except lease term and incremental borrowing rate) 2020 2019 2020 2019

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Although no significant ineffectiveness is expected with this hedging strategy, the effectiveness of the interest rate swaps is evaluated on a quarterly basis.

At September 30, 2020, the total notional amount of the interest rate swaps was $ 370 million, which corresponded with the aggregate outstanding balance of the term loans.

At December 31, 2020, the total notional amount of the interest rate swaps was $ 370 million, which corresponded with the former original outstanding balance of the term loans.

During the third quarter of fiscal year 2021, the Company converted $ 150 million from the balance in its revolving credit line into the existing term loans, splitting the balance equally between them.

At December 31, 2020, the Company is not hedging the interest payments on the additional $ 150 million of term loans.

The increase to the principal balance of the term loans does not have an impact to the effectiveness analysis of the interest rate swap agreements.

Previously, the Company had receive-floating/pay-fixed interest rate swap agreements that were designated and qualified as cash flow hedges for two outstanding non-amortizing bank loans that were repaid concurrent with closing on the new bank credit facility.

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The fair value of the previous swap agreements, approximately $ 5.4 million, was received from the counterparties upon termination and is being amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements.

As of September 30, 2020, $ 1.8 million remained in accumulated other comprehensive loss to be amortized through December 31, 2021.

As of December 31, 2020, $ 1.4 million remained in accumulated other comprehensive loss to be amortized through December 31, 2021.

Cash Flow Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Sales of Crop Inputs, Forecast Purchases of Tobacco, and Related Processing Costs

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The aggregate U.S.

dollar notional amount of forward and option contracts entered into for these purposes during the six-month periods in fiscal years 2021 and 2020 was as follows:

Six Months Ended September 30,

dollar notional amount of forward and option contracts entered into for these purposes during the nine-month periods in fiscal years 2021 and 2020 was as follows:

Nine Months Ended December 31,

(in millions of dollars) 2020 2019

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The decreased U.S.

dollar notional amounts for tobacco purchases and processing costs hedged during the six months ended September 30, 2020 compared to the six months ended September 30, 2019, primarily reflect a difference in timing of the purchase and processing hedges entered into for the 2021 and 2020 crop years in Brazil.

dollar notional amounts for tobacco purchases and processing costs hedged during the nine months ended December 31, 2020 compared to the nine months ended December 31, 2019, primarily reflects a difference in timing of the purchase and processing hedges entered into for the 2021 and 2020 crop years in Brazil.

The 2020 crop year tobacco purchases hedges were largely entered into during the first quarter of fiscal year 2020.

A portion of the 2021 crop year hedges were entered into during the first and second quarters of fiscal year 2021, with more contracts expected to be entered into later in fiscal year 2021.

A portion of the 2021 crop year hedges were entered into during the first, second, and third quarters of fiscal year 2021, with more contracts expected to be entered into later in fiscal year 2021 and in the first quarter of fiscal year 2022.

The Company entered into 2022 crop year purchase and processing hedges during the third quarter of fiscal year 2021.

All derivative contracts related to tobacco purchases were designated and qualify as hedges of the future cash flows associated with the forecast purchases of tobacco.

As a result, changes in fair values of the forward contracts have been recognized in comprehensive loss as they occurred, but only recognized in earnings upon sale of the related tobacco to third-party customers.

For substantially all hedge gains and losses related to 2020 crop purchases recorded in accumulated other comprehensive loss at September 30, 2020, the Company expects to complete the sale of the tobacco and recognize the amounts in earnings during fiscal year 2021.

For substantially all hedge gains and losses related to the 2021 crop purchases recorded in accumulated other comprehensive loss at September 30, 2020, the Company expects to complete the sale of tobacco and recognize the amounts in earnings during fiscal year 2022.

For substantially all hedge gains and losses related to 2020 crop purchases recorded in accumulated other comprehensive loss at December 31, 2020, the Company expects to complete the sale of the tobacco and recognize the amounts in earnings during fiscal year 2021.

For substantially all hedge gains and losses related to the 2021 and 2022 crop purchases recorded in accumulated other comprehensive loss at December 31, 2020, the Company expects to complete the sale of tobacco and recognize the amounts in earnings during fiscal years 2022 and 2023, respectively.

Forward contracts related to processing costs have not been designated as hedges, and gains and losses on those contracts have been recognized in earnings on a mark-to-market basis.

In fiscal year 2020, option contracts entered for the sale of crop inputs were not designated for hedge accounting.

The gains and losses for the fiscal year 2020 option contracts entered for the sale of crop inputs were recognized in earnings on a mark-to-market basis.

In fiscal year 2021, option contracts entered for the sale of crop inputs were designated and qualify as hedges of future cash flows, therefore the changes in fair value of the fiscal year 2021 option contracts have been recognized in accumulated other comprehensive loss and will be recognized in earnings upon the sale of the related tobacco to third-party customers.

In fiscal year 2020, option contracts entered for the sale of 2020 crop year inputs were not designated for hedge accounting.

The gains and losses for the 2020 crop year option contracts entered for the sale of crop inputs were recognized in earnings on a mark-to-market basis.

In fiscal year 2021, option contracts entered for the sale of 2021 crop year inputs were designated and qualify as hedges of future cash flows, therefore the changes in fair value of the 2021 crop year option contracts have been recognized in accumulated other comprehensive loss and will be recognized in earnings upon the sale of the related tobacco to third-party customers.

Premium payments for option contracts entered into for the sale of crop inputs in fiscal year 2020 and 2021 were expensed into earnings as incurred.

For substantially all hedge gains and losses related to the 2021 crop inputs sales recorded in accumulated other comprehensive loss at September 30, 2020, the Company expects to complete the sale of related tobacco to third-party customers and recognize the amounts in earnings during fiscal year 2022.

For substantially all hedge gains and losses related to the 2021 crop year

inputs option contracts recorded in accumulated other comprehensive loss at December 31, 2020, the Company expects to complete the sale of related tobacco to third-party customers and recognize the amounts in earnings during fiscal year 2022.

Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Net Local Currency Monetary Assets and Liabilities of Foreign Subsidiaries

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To manage a portion of its exposure to currency remeasurement gains and losses, the Company enters into forward contracts to buy or sell the local currency at future dates coinciding with expected changes in the overall net local currency monetary asset position of the subsidiary.

Gains and losses on the forward contracts are recorded in earnings as a component of selling, general, and administrative expenses for each reporting period as they occur, and thus directly offset the related remeasurement losses or gains in the consolidated statements of income for the notional

amount hedged.

The Company does not designate these contracts as hedges for accounting purposes.

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The Company is currently using forward currency contracts to manage its exposure to currency remeasurement risk in Brazil.

The total notional amounts of contracts outstanding at September 30, 2020 and 2019, and March 31, 2020, were approximately $ 19.8 million, $ 36.0 million, and $ 8.9 million, respectively.

The total notional amounts of contracts outstanding at December 31, 2020 and 2019, and March 31, 2020, were approximately $ 13.3 million, $ 33.8 million, and $ 8.9 million, respectively.

To further mitigate currency remeasurement exposure, the Company’s foreign subsidiaries may utilize short-term local currency financing during certain periods.

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The table below outlines the effects of the Company’s use of derivative financial instruments on the consolidated statements of income:

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

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

(in thousands of dollars) 2020 2019 2020 2019

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For the interest rate swap agreements, the effective portion of the gain or loss on the derivative is recorded in accumulated other comprehensive loss and any ineffective portion is recorded in selling, general and administrative expenses.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa and the crop input sales in Brazil, a net hedge loss of approximately $ 9.0 million remained in accumulated other comprehensive loss at September 30, 2020.

That balance reflects gains and losses on contracts related to the 2020 and 2021

Brazil crops, the 2020 and 2021 Africa crops, and the 2021 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through September 30, 2020.

The balance in accumulated other comprehensive loss associated with the 2020 Brazil and Africa crops are expected to be recognized in earnings as a component of cost of goods sold in fiscal year 2021 as those tobaccos are sold to customers.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa and the crop input sales in Brazil, a net hedge loss of approximately $ 0.9 million remained in accumulated other comprehensive loss at December 31, 2020.

That balance reflects gains and losses on contracts related to the 2020, 2021, and 2022 Brazil crops, the 2021 Africa crop, and the 2021 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through December 31, 2020.

The balance in accumulated other comprehensive loss associated with the 2020 Brazil crop is expected to be recognized in earnings as a component of cost of goods sold in fiscal year 2021 as those tobaccos are sold

to customers.

The balance in accumulated other comprehensive loss related to the 2021 Brazil and Africa crops are expected to be recognized in earnings in fiscal year 2022 as those tobaccos are sold to customers.

The balance in accumulated other comprehensive loss related to the 2022 Brazil crops is expected to be recognized in earnings in fiscal year 2023 as those tobaccos are sold to customers.

The balance in accumulated other comprehensive loss associated with the 2021 Brazil crop input sales is expected to be recognized in earnings in fiscal year 2022 as those tobaccos are sold to customers.

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Effect of Derivative Financial Instruments on the Consolidated Balance Sheets

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at September 30, 2020 and 2019, and March 31, 2020:

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at December 31, 2020 and 2019, and March 31, 2020:

Derivatives in a Fair Value Asset Position Derivatives in a Fair Value Liability Position

1 unchanged sentence

Location Fair Value as of

(in thousands of dollars) September 30, 2020 September 30, 2019 March 31, 2020 September 30, 2020 September 30, 2019 March 31, 2020

(in thousands of dollars) December 31, 2020 December 31, 2019 March 31, 2020 December 31, 2020 December 31, 2019 March 31, 2020

Derivatives Designated as Hedging Instruments

31 unchanged sentences

Recurring Fair Value Measurements

At September 30, 2020 and 2019, and at March 31, 2020, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis.

At December 31, 2020 and 2019, and at March 31, 2020, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis.

These assets and liabilities are listed in the tables below and are classified based on how their values were determined under the fair value hierarchy or the NAV practical expedient:

September 30, 2020

December 31, 2020

Fair Value Hierarchy

16 unchanged sentences

$ — $ — $ 35,185 $ 2,532 $ 37,717

September 30, 2019

December 31, 2019

Fair Value Hierarchy

5 unchanged sentences

Foreign currency exchange contracts

— — 1,789 — 1,789

Total financial assets measured and reported at fair value

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

A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the six months ended September 30, 2020 and 2019 is provided below.

(in thousands of dollars) Six Months Ended September 30,

A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the nine months ended December 31, 2020 and 2019 is provided below.

(in thousands of dollars) Nine Months Ended December 31,

Balance beginning of year $ 6,705 $ —

2 unchanged sentences

Guarantees of bank loans to tobacco growers

The majority of crop financing utilized for fiscal year 2021 in Brazil did not require guaranteed bank loans to tobacco growers, resulting in the elimination of guarantees at September 30, 2020.

The majority of crop financing utilized for fiscal year 2021 in Brazil did not require guaranteed bank loans to tobacco growers, resulting in the elimination of guarantees at December 31, 2020.

For the majority of crop financing prior to fiscal year 2021, the Company relied heavily on guaranteed bank loans to tobacco growers in Brazil for crop financing.

2 unchanged sentences

The fair value of the guarantees was determined using the expected loss data for all loans outstanding at each measurement date.

The present value of the cash flows associated with the estimated losses is then calculated at a risk-adjusted interest rate that is aligned with the expected duration of the liability and includes an adjustment for nonperformance risk.

The present value of the cash flows associated with the estimated losses was then calculated at a risk-adjusted interest rate that was aligned with the expected duration of the liability and included an adjustment for nonperformance risk.

This approach is sometimes referred to as the “contingent claims valuation method.” Although historical loss data is an observable input, significant judgment was required in applying this information to the portfolio of guaranteed loans outstanding at each measurement date and in selecting a risk-adjusted interest rate.

1 unchanged sentence

The guarantees of bank loans to tobacco growers were therefore classified within Level 3 of the fair value hierarchy.

A reconciliation of the change in the balance of the financial liability for guarantees of bank loans to tobacco growers (Level 3) for the six months ended September 30, 2020 and 2019 is provided below.

(in thousands of dollars) Six Months Ended September 30,

A reconciliation of the change in the balance of the financial liability for guarantees of bank loans to tobacco growers (Level 3) for the nine months ended December 31, 2020 and 2019 is provided below.

(in thousands of dollars) Nine Months Ended December 31,

Balance at beginning of year $ 103 $ 803

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Long-term Debt

The fair value of the Company’s long-term debt, including the current portion, was approximately $ 370 million at each of the balance sheet dates September 30, 2020, September 30, 2019, and March 31, 2020.

The following table summarizes the fair and carrying value of the Company’s long-term debt, including the current portion at each of the balance sheet dates December 31, 2020, and 2019 and March 31, 2020:

(in millions of dollars) December 31, 2020 December 31, 2019 March 31, 2020

Fair market value of long term obligations $ 516 $ 370 $ 370

Carrying value of long term obligations $ 520 $ 370 $ 370

The Company estimates the fair value of its long-term debt using Level 2 inputs which are based upon quoted market prices for the same or similar obligations or on calculations that are based on the current interest rates available to the Company for debt of similar terms and maturities.

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Assets and liabilities that are measured at fair value on a nonrecurring basis primarily relate to long-lived assets, right-of-use operating lease assets and liabilities, goodwill and intangibles, and other current and noncurrent assets.

These assets and liabilities fair values are evaluated for impairment when potential indicators of impairment exist.

Accordingly, the nonrecurring measurement of the fair value of theses assets and liabilities are classified within Level 3 of the fair value hierarchy.

These assets and liabilities fair values are also evaluated for impairment when potential indicators of impairment exist.

Accordingly, the nonrecurring measurement of the fair value of these assets and liabilities are classified within Level 3 of the fair value hierarchy.

Acquisition Accounting for Business Combinations

The Company accounts for acquisitions qualifying under ASC 805, "Business Combinations," which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The fair values of consideration transferred and net assets acquired are determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, “Fair Value Measurements and Disclosures.” The Company believes that the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.

Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events, changes in business conditions, or other circumstances provide an indication that such assets may be impaired.

As a result of the announcement of the wind-down of the CIFI operation, an impairment of the related long-lived assets was recorded during the three months ended December 31, 2020.

The long-lived assets primarily consist of buildings, processing equipment, and other manufacturing related assets.

The aggregate fair value and carrying value of those assets following the impairment adjustments was approximately $ 6 million.

The fair values of the property, plant and equipment were principally determined using a market-based approach with consideration of the assets fair values to potential third-parties.

Significant judgment was required in estimating the amount and timing of the future cash flows associated with the disposition of the assets.

Due to business changes that affected the leaf tobacco market in Tanzania and the Company's operations there, an impairment charge of the long-lived assets in Tanzania was recorded in fiscal year 2019 to reduce their carrying value to fair value at March 31, 2019.

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Pension Benefits Other Postretirement Benefits

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

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

(in thousands of dollars) 2020 2019 2020 2019

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Pension Benefits Other Postretirement Benefits

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

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

(in thousands of dollars) 2020 2019 2020 2019

5 unchanged sentences

$ 4,336 $ 2,255 $ 508 $ 606

During the six months ended September 30, 2020, the Company made contributions of approximately $ 6.3 million to its pension plans.

Additional contributions of $ 0.8 million are expected during the remaining six months of fiscal year 2021.

During the nine months ended December 31, 2020, the Company made contributions of approximately $ 6.7 million to its pension plans.

Additional contributions of $ 0.4 million are expected during the remaining three months of fiscal year 2021.

STOCK-BASED COMPENSATION

Universal’s shareholders have approved Executive Stock Plans (“Plans”) under which officers, directors, and employees of the Company may receive grants and awards of common stock, restricted stock, restricted stock units (“RSUs”), performance share awards (“PSAs”), stock appreciation rights, incentive stock options, and non-qualified stock options.

The Company’s practice is to award grants of stock-based compensation to officers on an annual basis at the first regularly-scheduled meeting of the Compensation Committee of the Board of Directors (the “Compensation Committee”) in the fiscal year following the public release of the Company’s financial results for the prior year.

The Company’s

practice is to award grants of stock-based compensation to officers on an annual basis at the first regularly-scheduled meeting of the Compensation Committee of the Board of Directors (the “Compensation Committee”) in the fiscal year following the public release of the Company’s financial results for the prior year.

The Compensation Committee administers the Company’s Plans consistently, following previously defined guidelines.

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RSUs awarded to outside directors vest in one year for the 2020 Stock Incentive Plan or three years for any prior Incentive Plans after the grant date, and restricted shares vest upon the individual’s retirement from service as a director.

During the six-month periods ended September 30, 2020 and 2019, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Six Months Ended September 30,

During the nine-month periods ended December 31, 2020 and 2019, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Nine Months Ended December 31,

(in thousands, except share fair value) 2020 2019

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The Company accounts for forfeitures of stock-based awards as they occur.

For each of the six-month periods ended September 30, 2020 and 2019, the Company recorded total stock-based compensation expense of approximately $ 3.7 million.

The Company expects to recognize stock-based compensation expense of approximately $ 2.2 million during the remaining six months of fiscal year 2021.

For the nine-month periods ended December 31, 2020 and 2019, the Company recorded total stock-based compensation expense of approximately $ 5.0 million and $ 4.8 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 1.1 million during the remaining three months of fiscal year 2021.

OPERATING SEGMENTS

The principal approach used by management to evaluate the Company’s performance is by geographic region, although the dark air-cured and oriental tobacco businesses are each evaluated on the basis of their worldwide operations.

The Company evaluates the performance of its segments based on operating income after allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in the pretax earnings (loss) of unconsolidated affiliates.

Operating results for the Company’s reportable segments for each period presented in the consolidated statements of income and comprehensive income were as follows:

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

As a result of recent acquisitions of plant-based ingredients companies in fiscal year 2020 and 2021, during the three months ended December 31, 2020 management evaluated the Company’s global business activities, including product and service offerings to its customers, as well as senior management’s operational and financial responsibilities.

This assessment included an analysis of how its chief operating decision maker measures business performance and allocates resources.

As a result of this analysis, senior management determined the Company conducts operations across two reportable operating segments, Tobacco Operations and Ingredients Operations.

The Tobacco Operations segment activities involve selecting, procuring, processing, packing, storing, shipping, and financing leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products throughout the world.

Through various operating subsidiaries located in tobacco-growing countries around the world and significant ownership interests in unconsolidated affiliates, the Company processes and/or sells flue-cured and burley tobaccos, dark air-cured tobaccos, and oriental tobaccos.

Flue-cured, burley, and oriental tobaccos are used principally in the manufacture of cigarettes, and dark air-cured tobaccos are used mainly in the manufacture of cigars, pipe tobacco, and smokeless tobacco products.

Some of these tobacco types are also increasingly used in the manufacture of non-combustible tobacco products that are intended to provide

consumers with an alternative to traditional combustible products.

The Tobacco Operations segment also provides physical and chemical product testing and smoke testing for tobacco customers.

A substantial portion of the Company’s Tobacco Operations' revenues are derived from sales to a limited number of large, multinational cigarette and cigar manufacturers.

The Ingredients Operations segment provides its customers with a broad variety of plant-based ingredients for both human and pet consumption.

The Ingredients Operations segment utilizes a variety of value-added manufacturing processes converting raw materials into a wide spectrum of fruit and vegetable juices, concentrates, and dehydrated products.

Customers for the Ingredients Operations segment include large multinational food and beverage companies, as well as smaller independent entities.

FruitSmart, Silva, and CIFI are the primary operations for the Ingredients Operations segment.

FruitSmart manufactures fruit and vegetable juices, purees, concentrates, essences, fibers, seeds, seed oils, and seed powders.

Silva is primarily a dehydrated product manufacturer of fruit and vegetable based flakes, dices, granules, powders, and blends.

In December 2020, the Company announced the wind-down of CIFI, a greenfield operation that primarily manufactured both dehydrated and liquid sweet potato products.

See Note 4 for additional information about the wind-down of CIFI.

Universal incurs overhead expenses related to senior management, sales, finance, legal, and other functions that are centralized at its corporate headquarters, as well as functions performed at several sales and administrative offices around the world.

These overhead expenses are currently allocated to the reportable operating segments, generally on the basis of volumes planned to be purchased and/or processed.

Management believes this method of allocation is currently representative of the value of the related services provided to the operating segments.

The Company currently evaluates the performance of its segments based on operating income after allocated overhead expenses, plus equity in the pretax earnings of unconsolidated affiliates.

Operating results for the Company’s reportable segments for each period presented in the consolidated statements of income and comprehensive income were as follows, including a recast of the new reportable operating segments presentation for all periods presented below:

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

(in thousands of dollars) 2020 2019 2020 2019

SALES AND OTHER OPERATING REVENUES

Flue-Cured and Burley Leaf Tobacco Operations:

North America $ 44,858 $ 57,612 $ 84,774 $ 85,271

Other Regions (1)

250,300 355,757 455,033 557,822

Subtotal 295,158 413,369 539,807 643,093

Other Tobacco Operations (2)

81,867 62,552 153,029 129,743

Tobacco Operations $ 623,851 $ 503,839 $ 1,278,844 $ 1,274,853

Ingredients Operations 49,080 1,210 86,923 3,032

Consolidated sales and other operating revenue $ 672,931 $ 505,049 $ 1,365,767 $ 1,277,885

OPERATING INCOME

Flue-Cured and Burley Leaf Tobacco Operations:

North America $ 685 $ 5,472 $ 1,727 $ 6,362

Other Regions (1)

12,236 32,525 7,950 28,710

Subtotal 12,921 37,997 9,677 35,072

Other Tobacco Operations (2)

4,020 7,512 11,612 17,991

Tobacco Operations $ 84,122 $ 45,478 $ 107,658 $ 101,582

Ingredients Operations ( 2,451 ) ( 1,432 ) ( 4,698 ) ( 4,473 )

Segment operating income 81,671 44,046 102,960 97,109

1 unchanged sentence

( 1,506 ) 69 ( 2,089 ) ( 2,281 )

Restructuring and impairment costs (2)

( 19,979 ) — ( 19,979 ) —

Other income (loss) (3)

Consolidated operating income $ 60,186 $ 44,115 $ 85,065 $ 94,828

(1) Includes South America, Africa, Europe, and Asia regions, as well as inter-region eliminations.

(2) Includes Dark Air-Cured, Special Services (including FruitSmart, Inc.), and Oriental, as well as inter-company eliminations.

Sales and other operating revenues for this reportable segment include limited amounts for Oriental because the business is accounted for on the equity method and its financial results consist principally of equity in the pretax earnings (loss) of unconsolidated affiliates.

(3) Equity in pretax earnings (loss) of unconsolidated affiliates is included in segment operating income (Other Tobacco Operations segment), but is reported below consolidated operating income and excluded from that total in the consolidated statements of income and comprehensive income .

(4) Other income represents the reversal of a portion of the contingent consideration liability associated with the acquisition of FruitSmart, Inc.

(1) Equity in pretax earnings (loss) of unconsolidated affiliates is included in segment operating income (Tobacco Operations), but is reported below consolidated operating income and excluded from that total in the consolidated statements of income and comprehensive income.

(2) Restructuring and impairment costs are excluded from segment operating income, but are included in consolidated operating income in the consolidated statements of income and comprehensive income.

See Note 4 for additional information.

(3) Other income represents the reversal of a portion of the contingent consideration liability associated with the acquisition of FruitSmart.

See Note 3 for additional information.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the Company for the six months ended September 30, 2020 and 2019:

Six Months Ended September 30,

Nine Months Ended December 31,

(in thousands of dollars) 2020 2019

10 unchanged sentences

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $( 1,092 ) and $( 235 ))

571 ( 1,311 )

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $( 1,914 ) and $ 54 ) (1)

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CHANGES IN SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS IN SUBSIDIARIES

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three and six months ended September 30, 2020 and 2019 is as follows:

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three and nine months ended December 31, 2020 and 2019 is as follows:

Three Months Ended December 31, 2020 Three Months Ended December 31, 2019

(in thousands of dollars) Universal Corporation Non-controlling Interests Total Universal Corporation Non-controlling Interests Total

3 unchanged sentences

Accrual of stock-based compensation 1,334 — 1,334 1,159 — 1,159

Withholding of shares from stock-based compensation for grantee income taxes

( 19 ) — ( 19 ) — — —

Dividend equivalents on RSUs 255 — 255 258 — 258

6 unchanged sentences

Other comprehensive income (loss) 15,294 ( 54 ) 15,240 10,566 139 10,705

Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders

— ( 3,695 ) ( 3,695 ) — ( 3,359 ) ( 3,359 )

Balance at end of period $ 1,270,525 $ 46,490 $ 1,317,015 $ 1,309,796 $ 43,415 $ 1,353,211

Six Months Ended September 30, 2020 Six Months Ended September 30, 2019

Nine Months Ended December 31, 2020 Nine Months Ended December 31, 2019

(in thousands of dollars) Universal Corporation Non-controlling Interests Total Universal Corporation Non-controlling Interests Total

17 unchanged sentences

Balance at end of period $ 1,270,525 $ 46,490 $ 1,317,015 $ 1,309,796 $ 43,415 $ 1,353,211

SUBSEQUENT EVENTS

On October 1, 2020 the Company acquired 100 % of the capital stock of Silva International, Inc.

("Silva"), a privately-held, natural, specialty dehydrated vegetable, fruit and herb processing company, for approximately $ 170 million in cash.

The Company utilized cash-on-hand and revolving credit facility borrowings to fund the acquisition.

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

What changed 10-Q

Item 1. Financial Statements