What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-05-28 compared with 2020-05-28 · 603 added, 565 removed, 1232 unchanged (49% of the section changed)

8 unchanged sentences

Selling, general and administrative expenses 219,789 222,902 225,118

Other income ( 4,173 ) — —

Restructuring and impairment costs 22,577 7,543 20,304

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Income before income taxes 125,726 113,291 151,322

Income taxes 29,412 35,288 41,188

Net income 96,314 78,003 110,134

net income attributable to noncontrolling interests in subsidiaries ( 8,904 ) ( 6,323 ) ( 6,013 )

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Earnings per share:

Basic $ 3.55 $ 2.87 $ 4.14

Diluted $ 3.53 $ 2.86 $ 4.11

Weighted average common shares outstanding:

Basic 24,656,009 24,982,259 25,129,192

Diluted 24,788,566 25,106,351 25,330,437

See accompanying notes.

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(in thousands of dollars) 2021 2020 2019

Net income $ 96,314 $ 78,003 $ 110,134

Other comprehensive income (loss):

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Inventories—at lower of cost or net realizable value:

Tobacco 640,653 707,298

Other 145,965 99,275

Prepaid income taxes 15,029 12,144

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Property, plant and equipment

Land 22,400 21,376

Buildings 284,430 256,488

Machinery and equipment 658,826 634,395

965,656 912,259

Less accumulated depreciation ( 616,146 ) ( 597,106 )

349,510 315,153

Operating lease right-of-use assets 31,230 39,256

Goodwill and other intangibles, net

Goodwill, net 173,051 126,826

Other intangibles, net 72,304 17,861

Investments in unconsolidated affiliates 84,218 77,543

Deferred income taxes 12,149 20,954

Pension asset 11,950 —

Other noncurrent assets 52,154 43,711

437,056 326,151

Total assets $ 2,341,924 $ 2,120,921

UNIVERSAL CORPORATION

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and outstanding ( 24,421,835 at March 31, 2020)

326,673 321,502

Retained earnings 1,087,663 1,076,760

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Cash Flows From Operating Activities:

Net income $ 96,314 $ 78,003 $ 110,134

Adjustments to reconcile net income to net cash provided by operating activities:

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Foreign currency remeasurement loss (gain), net ( 8,475 ) 16,422 1,786

Foreign currency exchange contracts ( 1,567 ) 499 ( 32 )

Deferred income taxes ( 2,335 ) ( 8,697 ) 3,873

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Restructuring payments ( 8,283 ) ( 2,787 ) ( 4,014 )

Change in estimated fair value of contingent consideration for FruitSmart acquisition ( 4,173 ) — —

Other, net ( 1,373 ) ( 9,271 ) 5,645

Changes in operating assets and liabilities, net:

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Inventories and other assets 43,199 ( 94,538 ) 33,796

Income taxes ( 4,516 ) 10,927 ( 8,981 )

Accounts payable and other accrued liabilities 26,171 ( 48,534 ) ( 54,912 )

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Proceeds from sale of property, plant and equipment 11,436 8,547 2,061

Other ( 800 ) 495 2,000

Net cash used by investing activities ( 217,269 ) ( 106,365 ) ( 34,699 )

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Debt issuance costs and other ( 1,949 ) ( 3,184 ) ( 5,987 )

Net cash used by financing activities

Net cash provided/(used) by financing activities 91,389 ( 94,146 ) ( 65,787 )

Effect of exchange rate changes on cash 1,257 ( 512 ) ( 608 )

Net increase (decrease) in cash and cash equivalents 95,791 ( 190,126 ) 63,428

Cash and cash equivalents at beginning of year

Cash and Cash Equivalents at End of Year

Cash, restricted cash and cash equivalents at beginning of year 107,430 297,556 234,128

Cash, Restricted Cash and Cash Equivalents at End of Year $ 203,221 $ 107,430 $ 297,556

Supplemental Information:

Cash and cash equivalents $ 197,221 $ 107,430 $ 297,556

Restricted cash (Other noncurrent assets) 6,000 — —

Total cash, restricted cash and cash equivalents $ 203,221 $ 107,430 $ 297,556

Supplemental information—cash paid for:

Interest $ 24,198 $ 19,376 $ 16,462

Income taxes, net of refunds $ 36,443 $ 30,984 $ 44,856

3 unchanged sentences

Universal Corporation Shareholders

(in thousands of dollars)

(in thousands of dollars) Common

Stock Retained

Earnings Accumulated

Comprehensive

Interests Total

Shareholders'

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Changes in common stock

Repurchase of common stock

Accrual of stock-based compensation 6,106 — — — 6,106

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Changes in retained earnings

Net income — 87,410 — 8,904 96,314

Cash dividends declared on common stock ($ 3.08 per share)

Repurchase of common stock

— ( 75,493 ) — — ( 75,493 )

Dividend equivalents on restricted stock units (RSUs) — ( 1,014 ) — — ( 1,014 )

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Universal Corporation Shareholders

(in thousands of dollars)

(in thousands of dollars) Common

Stock Retained

Earnings Accumulated

Comprehensive

Interests Total

Shareholders'

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Changes in retained earnings

Net income — 71,680 — 6,323 78,003

Cash dividends declared on common stock ($ 3.04 per share)

— ( 75,187 ) — — ( 75,187 )

Repurchase of common stock — ( 24,895 ) — — ( 24,895 )

Dividend equivalents on restricted stock units (RSUs) — ( 1,016 ) — — ( 1,016 )

Adoption of FASB Accounting Standards Update 2016-16 eliminating deferred income taxes on unrecognized gains on intra-entity transfers of assets other than inventory

Other comprehensive income (loss)

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Universal Corporation Shareholders

(in thousands of dollars)

(in thousands of dollars) Common

Stock Retained

Earnings Accumulated

Comprehensive

Interests Total

Shareholders'

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Changes in retained earnings

Net income — 104,121 — 6,013 110,134

Cash dividends declared on common stock ($ 3.00 per share)

( 74,914 ) — — ( 74,914 )

Repurchase of common stock — ( 1,046 ) — — ( 1,046 )

Dividend equivalents on restricted stock units (RSUs) — ( 983 ) — — ( 983 )

Adoption of FASB Accounting Standards Update 2016-16 eliminating deferred income taxes on unrecognized gains on intra-entity transfers of assets other than inventory — (1,934) — — (1,934)

Other comprehensive income (loss)

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Pension and other postretirement benefit plans, net of income taxes — — ( 11,665 ) — ( 11,665 )

Other changes in accumulated other comprehensive income (loss)

Reclassification of disproportionate tax effects related to changes in U.S.

corporate income tax law to retained earnings (ASU 2018-02) (see Notes 1 and 6)

Other changes in noncontrolling interests

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Fiscal Year Ended March 31,

2021 2020 2019

Common Shares Outstanding:

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Nature of Operations

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

Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is a global business-to-business agri-products supplier to consumer product manufacturers.

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

The Company conducts its leaf tobacco business in over 30 countries, primarily in major tobacco-producing regions of the world.

The Company also has operations in smaller-scale businesses adjacent to the leaf tobacco business, as well as a fruit and vegetable ingredients business.

The extent to which the ongoing COVID-19 pandemic will impact the Company's financial condition, results of operations and demand for the Company's 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.

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 and mutations 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 March 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 our products and services.

At March 31, 2021, 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.

Consolidation

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The Company reviews the carrying value of its investments in Socotab and its other unconsolidated affiliates on a regular basis and considers whether any factors exist that might indicate an impairment in value that is other than temporary.

At March 31, 2020 , the Company determined that no such factors existed with respect to those investments.

For the fiscal year ended March 31, 2021, the Company determined that no such factors existed with respect to those investments.

The Company's operations in Zimbabwe are deconsolidated under accounting requirements that apply under certain conditions to foreign subsidiaries that are subject to foreign exchange controls and other government restrictions.

The investment in the Zimbabwe operations is accounted for at cost less impairment, and was zero at March 31, 2021 and 2020.

The Company has a net foreign currency translation loss associated with the Zimbabwe operations of approximately $ 7.2 million , which remains a component of accumulated other comprehensive loss.

The Company has a net foreign currency translation loss associated with the Zimbabwe operations of approximately $ 7.2 million, which remains a component of accumulated other comprehensive loss at March 31, 2021.

As a regular part of its reporting, the Company reviews the conditions that resulted in the deconsolidation of the Zimbabwe operations to confirm that such accounting treatment is still appropriate.

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The net income and shareholders’ equity attributable to the noncontrolling interests in these subsidiaries are reported on the face of the consolidated financial statements.

During fiscal year 2018, the Company purchased the noncontrolling interest of one subsidiary for $ 0.6 million .

Other than this transaction, there were no changes in the Company’s ownership percentage in any of these subsidiaries during fiscal years 2018 , 2019 , or 2020 .

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no material changes in the Company’s ownership percentage in any of these subsidiaries during fiscal years 2021, 2020, or 2019.

Investments in Unconsolidated Affiliates

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If the fair value of an unconsolidated investee is determined to be lower than its carrying value, an impairment loss is recognized.

The determination of fair value using discounted cash flow models is normally not based on observable market data from independent sources and therefore requires significant management judgment with respect to estimates of future operating earnings and the selection of an appropriate discount rate.

The determination of fair value using discounted cash flow models is normally not based on

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

observable market data from independent sources and therefore requires significant management judgment with respect to estimates of future operating earnings and the selection of an appropriate discount rate.

The use of different assumptions could increase or decrease estimated future operating cash flows, and the discounted value of those cash flows, and therefore could increase or decrease any impairment charge related to these investments.

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Fiscal Year Ended March 31,

2021 2020 2019

Equity in pretax earnings reported in the consolidated statements of income $ 2,985 $ 4,211 $ 5,299

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Dividends received on investments (1)

( 2,869 ) ( 3,922 ) ( 7,517 )

Equity in net income, net of dividends, reported in the consolidated statements of cash flows

$ 296 $ ( 1,101 ) $ ( 3,659 )

(1) In accordance with the applicable accounting guidance, dividends received from unconsolidated affiliates accounted for on the equity method that represent a return on capital (i.e., a return of earnings on a cumulative basis) are presented as operating cash flows in the consolidated statements of cash flows.

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Diluted earnings per share is computed in a similar manner using the weighted average number of common shares and dilutive potential common shares outstanding.

Dilutive potential common shares include unvested restricted stock units and performance share awards that are assumed to be fully vested and paid out in shares of common stock.

Dilutive potential common shares include unvested restricted stock units and performance share units that are assumed to be fully vested and paid out in shares of common stock.

Calculations of earnings per share for the fiscal years ended March 31, 2021, 2020, and 2019, are provided in Note 5.

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All highly liquid investments with a maturity of three months or less at the time of purchase are classified as cash equivalents.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Advances to Suppliers

Advances to Tobacco Suppliers

In many sourcing origins where the Company operates, it provides agronomy services and seasonal advances of seed, fertilizer, and other supplies to tobacco farmers for crop production, or makes seasonal cash advances to farmers for the procurement of those inputs.

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The long-term portion of advances is included in other noncurrent assets in the consolidated balance sheets.

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 approximately $ 153 million at March 31, 2020 and $ 129 million at March 31, 2019 .

Both the current and the long-term portions of advances to tobacco 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 tobacco suppliers totaled approximately $ 144 million at March 31, 2021 and $ 153 million at March 31, 2020.

The related valuation allowances totaled $ 18 million at March 31, 2021, 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 for estimated uncollectible amounts of approximately $ 1.0 million in fiscal year 2020 and $ 3.7 million in fiscal year 2018 , and reduced by net recoveries of approximately $ 2.3 million in fiscal year 2019 .

The allowances were increased by net provisions for estimated uncollectible amounts of approximately $ 5.5 million in fiscal year 2021 and $ 1.0 million in fiscal year 2020, respectively, and reduced by net recoveries of approximately $ 2.3 million in fiscal year 2019.

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

Interest on advances is recognized in earnings upon the farmers’ delivery of tobacco in payment of principal and interest.

Advances on which interest accrual had been discontinued totaled approximately $ 5 million at March 31, 2020 and $ 6 million at March 31, 2019 .

Tobacco inventories are valued at the lower of cost or net realizable value.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

which interest accrual had been discontinued totaled approximately $ 4 million at March 31, 2021 and $ 5 million at March 31, 2020.

Inventories are valued at the lower of cost or net realizable value.

Raw materials primarily consist of unprocessed leaf tobacco, which is clearly identified by type and grade at the time of purchase.

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Freight costs are recorded in cost of goods sold.

Other inventories consist primarily of seed, fertilizer, packing materials, unprocessed and processed food and vegetable ingredients, and other supplies, and are valued principally at the lower of average cost or net realizable value.

Other inventories consist primarily of unprocessed and processed food and vegetable ingredients, seed, fertilizer, packing materials, and other supplies, and are valued principally at the lower of average cost or net realizable value.

Recoverable Value-Added Tax Credits

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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 March 31, 2020 and 2019 , the aggregate balances of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 52 million and $ 53 million , respectively, and the related valuation allowances totaled approximately $ 19 million and $ 17 million , respectively.

At March 31, 2021 and 2020, the aggregate balances of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 49 million and $ 52 million, respectively, and the related valuation allowances totaled approximately $ 19 million at both dates.

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

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Depreciation is calculated primarily using the straight-line method.

Buildings include tobacco processing and blending facilities, offices, and warehouses.

Buildings include processing and blending facilities, offices, and warehouses.

Machinery and equipment consists of processing and packing machinery and transport, office, and computer equipment.

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and office and computer equipment - 3 to 12 years.

Where applicable and material in amount,

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the Company capitalizes related interest costs during periods that property, plant and equipment are being constructed or made ready for service.

Where applicable and material in amount, the Company capitalizes related interest costs during periods that property, plant and equipment are being constructed or made ready for service.

No interest was capitalized in fiscal years 2021, 2020, or 2019.

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If a lease contains a renewal option that the Company is reasonably certain to exercise, the Company accounts for the original lease term and expected renewal term in the calculation of the lease liability and right-of-use asset.

Certain of the Company’s leases include both lease and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component, as the Company has elected the practical expedient to group lease and non-lease components for real estate leases.

Certain of the Company’s leases include both lease and non-lease

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component, as the Company has elected the practical expedient to group lease and non-lease components for real estate leases.

Goodwill and Other Intangibles

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Accounting Standards Codification Topic 350 (“ASC 350”) permits companies to base their initial assessments of potential goodwill impairment on qualitative factors, and the Company elected to use that approach at March 31, 2021 and 2020.

Those factors did not indicate any potential impairment of the Company's recorded goodwill at those dates.

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 as of those dates.

Reporting units are distinct operating subsidiaries or groups of subsidiaries that typically compose the Company’s business in a specific country or location.

Goodwill is allocated to reporting units based on the country or location to which a specific acquisition relates, or by allocation based on expected future cash flows if the acquisition relates to more than one country or location.

The majority of the Company’s goodwill relates to its reporting unit in Brazil and recent acquisition of FruitSmart, Inc.

The majority of the Company’s goodwill relates to its reporting unit in Brazil and recent acquisitions of Silva International Inc.

and FruitSmart, Inc.

See Note 2 for additional information.

Significant adverse changes in the operations or estimated future cash flows for a reporting unit with recorded goodwill could result in an impairment charge (See Note 4 for additional disclosures regarding goodwill impairment).

Significant adverse changes in the operations or estimated future cash flows for a reporting unit with recorded goodwill could result in an impairment charge.

Other intangibles principally consists of finite lived intangible assets including customer-related intangibles, trade names, developed technology, and noncompetition agreements.

11 unchanged sentences

Additional disclosures related to the Company's income taxes are disclosed in Note 6.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Values of Financial Instruments

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The Company enters into such contracts only with counterparties of good standing.

The credit exposure related to non-performance by the counterparties and the Company is considered in determining the fair values of the derivatives, and the effect has not been material to the financial statements or operations of the Company.

The credit exposure related to non-performance by the counterparties and the Company is considered in determining the fair values of the derivatives, and the effect has not been

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

material to the financial statements or operations of the Company.

Additional disclosures related to the Company’s derivatives and hedging activities are provided in Note 11.

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dollars creates remeasurement gains and losses that are included in earnings as a component of selling, general, and administrative expenses.

The Company recognized net remeasurement losses of $ 16.4 million in fiscal year 2020 and $ 1.8 million in fiscal year 2019 , and net remeasurement gains of $ 0.2 million in fiscal year 2018 .

The Company recognized net remeasurement gains of $ 8.5 million in fiscal year 2021, and net remeasurement losses of $ 16.4 million in fiscal year 2020 and $ 1.8 million in fiscal year 2019.

Foreign currency transactions and forward foreign currency exchange contracts that are not designated as hedges generate gains and losses when they are settled or when they are marked-to-market under the prescribed accounting guidance.

1 unchanged sentence

The Company recognized net foreign currency transaction losses of $ 1.4 million in fiscal year 2021, $ 2.9 million in fiscal year 2020, and $ 4.3 million in fiscal year 2019.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

As discussed below under "Accounting Pronouncements", the Company adopted updated comprehensive accounting guidance for revenue recognition at the beginning of fiscal year 2019 (Accounting Standards Update No.

2014-09, "Revenue from Contracts with Customers" and supplemental amendments, now codified as Section 606 of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification).

Under this updated guidance, revenue is recognized when the Company completes its performance obligation for the transfer of products and services under its contractual arrangements with customers.

Revenue is recognized when the Company completes its performance obligation for the transfer of products and services under its contractual arrangements with customers.

For sales of tobacco, satisfaction of the performance obligation and recognition of the corresponding revenue is based on the transfer of the ownership and control of the product to the customer, which is substantially unchanged from the previous accounting guidance.

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The revenue for these services is recognized when the performance obligation is met upon the completion of processing, and the Company's operating history indicates that customer requirements for processed tobacco are consistently met upon completion of processing.

The Company has diversified its 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), 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.

Additional disclosures related to the Company's revenue from contracts with customers are provided in Note 3.

Stock-Based Compensation

Share-based payments, such as grants of restricted stock units, performance share awards, restricted stock, stock appreciation rights, and stock options, are measured at fair value and reported as expense in the financial statements over the requisite service period.

Share-based payments, such as grants of restricted stock units, performance share units, restricted stock, stock appreciation rights, and stock options, are measured at fair value and reported as expense in the financial statements over the requisite service period.

Additional disclosures related to stock-based compensation are included in Note 15.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Estimates and Assumptions

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Actual results could differ from those estimates.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting Pronouncements

Pronouncements Adopted in Fiscal Year 2019

In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No.

2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”).

ASU 2015-11 requires that most inventory be measured at the lower of cost or net realizable value.

ASU 2015-11 defines net realizable value as the "estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation." ASU 2015-11 was effective for fiscal years beginning after December 31, 2016, and was adopted by the Company effective April 1, 2017, the beginning of fiscal year 2018.

As required under the guidance, ASU 2015-11 has been applied prospectively after the date of adoption, and its adoption did not have a material impact on the Company's consolidated financial statements.

In August 2017, the FASB issued Accounting Standards Update No.

2017-12, "Derivatives and Hedging (Topic 815)" ("ASU 2017-12").

ASU 2017-12 expands derivative strategies that quality for hedge accounting and amends presentation and disclosure requirements.

The guidance was effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

The Company elected to early-adopt ASU 2017-12 in the fourth quarter of fiscal year 2018.

As required under the guidance, ASU 2017-12 was applied using the modified retrospective approach and its adoption did not have a material impact on the Company's consolidated financial statements.

In February 2018, the FASB issued Accounting Standards Update No.

2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02") to address the disproportionate income tax effects on pretax amounts recorded in accumulated other comprehensive income (loss) resulting from the enactment of the Tax Cuts and Jobs Act in December 2017.

Under the existing accounting guidance, companies were required to record the impact of changes in deferred income tax assets and liabilities from the enactment of the new law through income from continuing operations, including the impact related to pretax amounts recorded in accumulated other comprehensive income (loss).

As a result, the income tax effects on amounts recorded in accumulated other comprehensive income (loss) were not reflective of the rates at which those amounts ultimately would be taxed.

ASU 2018-02 permits companies to reclassify these disproportionate tax effects from accumulated other comprehensive income (loss) to retained earnings.

It was effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

The Company elected to early-adopt ASU 2018-02 in the fourth quarter of fiscal year 2018 and reclassify the disproportionate tax effects to retained earnings as allowed under the guidance.

The reclassification increased accumulated other comprehensive loss and increased retained earnings by approximately $ 12.4 million .

Pronouncements Adopted in Fiscal Year 2019

In May 2014, the FASB issued Accounting Standards Update No.

2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which superseded substantially all of the current revenue recognition guidance under U.S.

generally accepted accounting principles (“U.S.

GAAP”), and was developed under a joint project with the International Accounting Standards Board (“IASB”) to improve and converge the existing revenue recognition accounting guidance in U.S.

GAAP and International Accounting Standards.

Under ASU 2014-09, the central underlying principle is to recognize revenues when promised goods or services are transferred to customers at an amount determined by the consideration a company expects to receive for those goods or services.

The guidance outlines a five-step process for determining the amount and timing of revenue to be recognized from those arrangements.

ASU 2014-09 and various supplemental amendments were codified into the U.S.

GAAP hierarchy in Section 606 of the FASB Accounting Standards Codification (“ASC 606”).

The Company's implementation process for ASU 2014-09 included a comprehensive assessment of its contractual arrangements with customers that involved classifying those arrangements by specific revenue streams, documenting the relevant terms and conditions of the contracts, and determining the appropriate revenue recognition for those contracts under the new guidance.

Through this process, the Company determined in all cases that revenue recognition under the new guidance based on the transfer of its goods and services to customers was substantially the same as under the prior guidance.

The Company adopted ASU 2014-09 effective April 1, 2018, the beginning of fiscal year 2019.

The adoption of ASU 2014-09 had no impact on the amount and timing of revenue recognized, and no adjustment for the cumulative effect of implementing the new guidance was required under the modified retrospective transition adoption method selected by the Company.

The disclosures required for revenue recognition under the new guidance are provided in Note 3.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In January 2016, the FASB issued Accounting Standards Update No.

2016-01, “Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities” ("ASU 2016-01").

ASU 2016-01 requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee).

The Company adopted ASU 2016-01 effective April 1, 2018, the beginning of fiscal year 2019.

The adoption of ASU 2016-01 did not have a material effect on the Company's financial statements.

In August 2016, the FASB issued Accounting Standards Update No.

2016-15, "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15").

ASU 2016-15 provides guidance on the disclosure and classification of certain items within the statement of cash flows.

The Company adopted ASU 2016-15 using the retrospective approach effective April 1, 2018, the beginning of fiscal year 2019.

The adoption resulted in the reporting of life insurance proceeds as a cash flow from investing activities and a corresponding reclassification for the prior year period, but otherwise did not have a material effect on the Company's consolidated statement of cash flows for the years ended March 31, 2019, 2018, and 2017.

In October 2016, the FASB issued Accounting Standards Update No.

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The Company adopted ASU 2016-16 effective April 1, 2018, the beginning of fiscal year 2019.

Under the modified retrospective transition method required by the guidance, the Company recorded a $ 1.9 million reduction to retained earnings for the year ended March 31, 2019 for the cumulative effect of recognizing the deferred income tax effects on all prior intercompany sales of equipment as of the date of adoption.

In March 2017, the FASB issued Accounting Standards Update No.

2017-07, "Compensation - Retirement Benefits (Topic 715)" ("ASU 2017-07").

ASU 2017-07 requires that an employer report the service cost component of pension or other postretirement benefits expense in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.

The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations.

With the adoption of ASU 2017-07, the service cost component of net periodic benefit cost continues to be reported in selling, general and administrative expenses in the consolidated statements of income, or in cost of goods sold for the portion that is recorded as a component of the cost of inventory sold or services provided to customers.

The other components of net benefit cost, which include interest cost, expected return on plan assets, and the net amortization and deferral of actuarial gains and losses, are included in other non-operating income (expense) in the consolidated statements of income.

The Company adopted ASU 2017-07 effective April 1, 2018, the beginning of fiscal year 2019.

The financial statement presentation for comparative prior periods has been reclassified accordingly using amounts previously disclosed for net periodic benefit cost as a practical expedient.

The components of net periodic benefit cost and other disclosures related to the Company's pension and other postretirement benefit plans are provided in Note 13.

Under the modified retrospective transition method required by the guidance, the Company recorded a $ 1.9 million reduction to retained earnings for the fiscal year ended March 31, 2019 for the cumulative effect of recognizing the deferred income tax effects on all prior intercompany sales of equipment as of the date of adoption.

Pronouncements Adopted in Fiscal Year 2020

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The adoption of ASU 2016-02 did not result in a cumulative-effect adjustment to retained earnings.

The disclosures required for lease accounting under the new guidance are provided in Note 10.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In January 2017, the FASB issued Accounting Standards Update No.

2017-04, "Intangibles - Goodwill and Other (Topic 350)" ("ASU 2017-04").

The disclosures required for lease accounting are provided in Note 10.

The Company adopted FASB Accounting Standards Update No.

2017-04, “Intangibles - Goodwill and Other (Topic 350)” (“ASU 2017-04”) effective July 1, 2019.

Under current accounting guidance, the fair value of a reporting unit to which a specific goodwill balance relates is first compared to its carrying value in the financial statements (Step 1).

1 unchanged sentence

ASU 2017-04 simplifies the accounting guidance by eliminating Step 2 from the goodwill impairment test and using the fair value of the reporting unit determined in Step 1 to measure the goodwill impairment loss.

The updated guidance is effective for fiscal years beginning after December 15, 2019, although early adoption is permitted.

The Company early adopted ASU 2017-04 effective July 1, 2019.

There was no material impact to the consolidated financial statements from the adoption of ASU 2017-04.

Pronouncements to be Adopted in Future Periods

In June 2016, the FASB issued Accounting Standards Update No.

2016-13, "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13").

ASU 2016-13 replaces current methods for evaluating the impairment of financial instruments not measured at fair value with a model that reflects expected credit losses.

Financial instruments to which ASU 2016-13 will apply for the Company primarily include trade accounts receivable.

The guidance in ASU 2016-13 is effective for fiscal years beginning after December 15, 2019.

The Company will be required to adopt the new standard effective April 1, 2020, which is the beginning of its fiscal year ending March 31, 2021, and is currently evaluating the impact that the guidance will have on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No.

2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of FASB Emerging Issues Task Force)" ("ASU 2018-15").

Pronouncements Adopted in Fiscal Year 2021

The Company adopted FASB Accounting Standards Update No.

2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) effective April 1, 2020.

ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The Company determined that the update applied to trade receivables, but that there was no material impact to the consolidated financial statements from the adoption of ASU 2016-13.

The Company adopted FASB Accounting Standards Update No.

2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of FASB Emerging Issues Task Force)” (“ASU 2018-15”) effective April 1, 2020.

ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license.

Under that model, implementation costs are capitalized or expensed depending on the nature of the costs and the project stage during which they are incurred.

Capitalized implementation costs are amortized over the term of the associated hosted cloud computing arrangement service contract on a straight-line basis, unless another systematic and rational basis is more representative of the pattern in which the entity expects to benefit from its right to access the hosted software.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the entity expects to benefit from its right to access the hosted software.

Capitalized implementation costs would then be assessed for impairment in a manner similar to long-lived assets.

The new guidance is effective for fiscal years beginning after December 15, 2019.

Entities can choose to adopt the new guidance either prospectively to eligible costs incurred on or after the date the guidance is first applied or retrospectively.

The Company will be required to adopt ASU 2018-15 effective April 1, 2020, which is the beginning of its fiscal year ending March 31, 2021, although early adoption is permitted.

The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

There was no material impact to the consolidated financial statements from the adoption of ASU 2018-15.

Pronouncements to be Adopted in Future Periods

In December 2019, the FASB issued Accounting Standards Update No.

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Certain prior year amounts have been reclassified to conform to the current year’s presentation.

BUSINESS COMBINATIONS

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 $ 5.9 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 initial allocation of the purchase price for Silva was based on preliminary valuations and assumptions and is subject to change within the 12-month measurement period following the date of acquisition (October 1, 2020).

The Company finalized a working capital settlement in the fourth quarter of fiscal year 2021 and adjusted the beginning balance sheet for certain tax related assets and liabilities.

The Company is still reviewing tax related assets and liabilities.

The final purchase price allocation will be completed by the second quarter of fiscal year 2022.

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 March 31, 2021 .

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 fiscal year ended March 31, 2021 , the Company incurred $ 3.9 million for acquisition-related transaction costs for the purchase of Silva.

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

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

BUSINESS COMBINATIONS

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 .

The fair value of the contingent consideration, approximately $ 6.7 million, was recognized on the acquisition date and was measured using unobservable (Level 3) inputs.

The Company estimated the fair value of the contingent consideration liability by applying a Monte-Carlo simulation method using the Company’s projection of future adjusted gross profit results and considering the estimated probability of achievement of the adjusted gross profit targets.

The Monte-Carlo simulation is a statistical technique used to generate a defined number of valuation paths in order to develop a reasonable estimate of the fair value of the contingent consideration.

Changes in the fair value of the contingent consideration liability in future periods will be recorded in the Company’s results in the period of the change.

The FruitSmart acquisition was accounted for under the purchase method of accounting and was financed through cash-on-hand and borrowings under the Company’s revolving credit facility.

In a business combination, the purchase price is allocated to assets acquired and liabilities assumed based on their fair values, with any excess of purchase price over fair value recognized as goodwill.

In addition to recognizing assets and liabilities on the acquired company’s balance sheet, the Company reviews supply contracts, leases, financial instruments, employment agreements and other significant agreements to identify potential assets or liabilities that require recognition in connection with the application of acquisition accounting under Accounting Standards Codification 805, "Business Combinations." Intangible assets are recognized separate from goodwill when the asset arises from contractual or other legal rights, or are separable from the acquired entity such that they may be sold, transferred, licensed, rented or exchanged either on a standalone basis or in combination with a related contract, asset or liability.

The initial allocation of the purchase price was based on preliminary valuations and assumptions and is subject to change within the 12 -month measurement period following the date of acquisition.

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

At June 30, 2020 the forecasted calendar year 2020 adjusted gross profit for FruitSmart was not expected to achieve the adjusted gross profit threshold required for a contingent consideration payment.

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 March 31, 2021, $ 2.5 million of contingent consideration liability related to the FruitSmart acquisition is included in accounts payable and accrued expenses on the consolidated balance sheet.

For the fiscal year ended March 31, 2020, the Company incurred $ 4.7 million of acquisition-related transaction costs for the purchase of FruitSmart.

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

The following table summarizes the preliminary purchase price allocation of the assets acquired and liabilities assumed for the Silva acquisition and final purchase price allocation for the FruitSmart acquisition.

Silva FruitSmart

Assets October 1, 2020 January 1, 2020

Cash and cash equivalents $ 8,126 $ 1,298

Accounts receivable

Accounts receivable, net 17,885 7,707

Advances to suppliers, net 3,011 —

Inventory 33,162 23,793

Other current assets 833 310

Property, plant and equipment

Property, plant and equipment (net) 24,437 23,400

Customer relationships 53,000 9,500

Developed technology — 4,800

Noncompetition agreements

Trade names 7,800 3,300

Non-compete agreements — 1,000

Goodwill 46,144 28,863

Total assets acquired 194,398 103,971

Current liabilities

Accounts payable and accrued expenses 11,683 7,592

Accrued compensation 3,350 670

Income taxes payable 946 —

Deferred income taxes 14,419 9,004

1 unchanged sentence

Total assets acquired and liabilities assumed $ 164,000 $ 86,705

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

A portion of the goodwill recorded as part of the acquisitions was attributable to the assembled workforce of FruitSmart and Silva, respectively.

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.

income tax purposes.

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

The Company determined the FruitSmart and Silva operations were not material to the Company’s consolidated results.

Therefore, pro forma information is not presented.

For the fiscal year ended March 31, 2020 , the Company incurred $ 4.7 million of acquisition-related transaction costs for the purchase of FruitSmart.

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

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

REVENUE FROM CONTRACTS WITH CUSTOMERS

The majority of the Company’s consolidated revenue consists of sales of processed leaf tobacco to customers.

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

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

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

In addition, the Company earns revenue from processing leaf tobacco owned by customers and from various other services provided to customers.

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

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

other factors.

Contract durations and payment terms for all revenue categories generally do not exceed one year.

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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 its 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) 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.

Processing Revenue

Processing and packing of customer-owned tobacco and food 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 exit as processed and packed product and are 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 sorting, blending, bobbinizing, chemical and physical testing of products, storage, and other tobacco 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.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Disaggregation of Revenue from Contracts with Customers

1 unchanged sentence

Fiscal Year Ended March 31,

2021 2020 2019

Tobacco sales $ 1,715,066 $ 1,759,769 $ 2,085,001

Tobacco processing revenue

Ingredient sales 127,393 22,014 4,769

Processing revenue 73,021 76,123 85,426

Other sales and revenue from contracts with customers 49,983 33,971 37,930

2 unchanged sentences

Consolidated sales and other operating revenues $ 1,983,357 $ 1,909,979 $ 2,227,153

Other operating sales and revenues consists principally of interest on advances to suppliers and dividend income from unconsolidated affiliates.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other operating sales and revenues consists principally of interest on advances to tobacco suppliers and dividend income from unconsolidated affiliates.

Major Customers

A material part of the Company’s business is dependent upon a few customers.

The Company's six largest customers are Altria Group, Inc, British American Tobacco plc, China Tobacco International, Inc., Imperial Brands plc, Japan Tobacco, Inc., and Philip Morris International, Inc.

The Company’s seven largest customers are Altria Group, Inc, British American Tobacco plc, China Tobacco International, Inc., Imperial Brands plc, Japan Tobacco, Inc., Philip Morris International, Inc., and Swedish Match AB.

In the aggregate, these customers have accounted for approximately 70 % of consolidated revenue for each of the past three fiscal years.

2 unchanged sentences

For the same periods, Imperial Brands plc accounted for revenue of approximately $ 340 million, $ 320 million, and $ 360 million, respectively, and British American Tobacco plc accounted for revenue of approximately $ 210 million, $ 190 million, and $ 270 million, respectively.

These customers primarily do business with various affiliates in the Company’s flue-cured and burley leaf tobacco operations.

These customers do business with various affiliates in the Company’s Tobacco Operations segment.

The loss of, or substantial reduction in business from, any of these customers could have a material adverse effect on the Company.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RESTRUCTURING AND IMPAIRMENT COSTS

During the fiscal years ended March 31, 2021, 2020, and 2019 Universal recorded restructuring and impairment costs related to business changes and various initiatives to adjust certain operations and reduce costs.

For both fiscal years, those costs primarily related to the Company's flue-cured and burley leaf tobacco operations segment.

There were no restructuring or impairment costs recorded for the fiscal year ended March 31, 2018 .

Fiscal Year Ended March 31, 2021

Tobacco Operations

In fiscal year 2021, the Company incurred $ 4.4 million of termination and impairment costs associated with restructuring of tobacco buying and administrative operations in Africa, $ 1.2 million of combined termination costs in other regions, and a $ 0.9 million charge for the liquidation of an idled service entity in Tanzania.

Total restructuring and impairments costs related to the Tobacco Operations segment were $ 6.5 million for the fiscal year ended March 31, 2021.

Ingredients Operations

In fiscal year 2021, 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 incurred termination costs totaling approximately $ 0.6 million for employees whose permanent positions were eliminated.

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

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

inventory and supply write-downs.

The total restructuring and impairment charge incurred for the CIFI wind-down was $ 16.1 million for the fiscal year ended March 31, 2021.

Fiscal Year Ended March 31, 2020

Tobacco Operations

In fiscal year 2020, the Company recorded restructuring and impairment costs totaling $ 7.5 million, primarily related to $ 3.4 million of employee termination benefits for a voluntary workforce reduction at the Company's tobacco facilities in North Carolina, $ 1.8 million of employee termination benefits for the Company’s operations in Africa, and a $ 2.2 million impairment charge for machinery used by the Company's operations in Africa.

1 unchanged sentence

Fiscal Year Ended March 31, 2019

Tobacco Operations

Due to the decline in customer demand for tobaccos from Tanzania, as well as regulatory, tax, and other business and operating considerations, the Company undertook a formal review of the Tanzania leaf tobacco market and its operations there in the third quarter of fiscal year 2019.

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An impairment charge of approximately $ 14.6 million was recorded to reduce the carrying value of the assets to their indicated fair values.

The property, plant and equipment assets are used in buying, processing, and shipping and remains classified as “held and used” at this time as provided for under the accounting guidance.

The property, plant and equipment assets are used in buying, processing, and shipping and remain classified as “held and used” at this time as provided for under the accounting guidance.

Should the expected cash flows from the future use and/or disposition of the assets change from the estimates on which their fair values were determined, additional impairment charges could be required, or gains or losses on any disposition of the assets could be recorded.

2 unchanged sentences

A summary of the restructuring and impairment costs incurred during the fiscal years ended March 31, 2021, 2020, and 2019 is as follows:

Fiscal Years Ended March 31,

Fiscal Years Ended

2021 2020 2019

Restructuring Costs:

1 unchanged sentence

Other restructuring costs 3,468 — 223

8,705 5,356 4,831

Impairment Costs:

Property, plant, and equipment and other noncurrent assets 13,872 2,187 14,584

Goodwill — — 889

$ 13,872 $ 2,187 $ 15,473

Total restructuring and impairment costs $ 22,577 $ 7,543 $ 20,304

2 unchanged sentences

A reconciliation of the Company’s liability for employee termination benefits and other restructuring costs for fiscal years 2019 through 2021 is as follows:

Benefits Other Costs Total

Balance at April 1, 2019 $ 29 $ — $ 29

Fiscal Year 2019 Activity:

Costs charged to expense

4,608 223 4,831

Payments and write-offs ( 4,014 ) — ( 4,014 )

Balance at March 31, 2019 623 223 846

1 unchanged sentence

Costs charged to expense

5,356 — 5,356

Payments and write-offs ( 2,564 ) ( 223 ) ( 2,787 )

Balance at March 31, 2020 3,415 — 3,415

1 unchanged sentence

Costs charged to expense

5,237 3,468 8,705

Payments and write-offs ( 7,282 ) ( 2,855 ) ( 10,137 )

Balance at March 31, 2021 $ 1,370 $ 613 $ 1,983

2 unchanged sentences

The Company may incur additional restructuring and impairment costs in future periods as business changes occur and additional cost savings initiatives are implemented.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EARNINGS PER SHARE

22 unchanged sentences

The Company's consolidated effective income tax rate is affected by a number of factors, including the mix of domestic and foreign earnings and the effect of exchange rate changes on local taxable income and deferred taxes in foreign countries.

In December 2017, the Tax Cuts and Jobs Act of 2017 was passed by the United States Congress and signed into law by the President.

This new law made significant changes to income taxation at the federal level for individuals, pass-through entities, and corporations.

For corporations, the changes included a reduction in the statutory rate on taxable income from 35 % to 21 % , and a move from a worldwide tax system to a system that is more territorial-based for companies with foreign operations.

To accommodate the move from the previous worldwide tax system, the new law provided for a one-time transition tax on the undistributed post-1986 earnings of foreign subsidiaries as of either November 2, 2017 or December 31, 2017, whichever undistributed earnings amount was greater.

Other provisions of the new law allow for immediate expensing of investments in property, plant, and equipment, and impose limitations on the deductibility of interest, executive compensation, and meals and entertainment expense.

For tax years beginning after the date of enactment, the new law requires that certain income earned by foreign subsidiaries, referred to in the law as global intangible low-taxed income ("GILTI"), be included in the U.S.

taxable income of the parent company.

The Company has made an accounting policy election to account for any additional tax resulting from the GILTI provisions in the year in which it is incurred and has not recorded any deferred taxes on temporary book-tax differences related to this income.

For fiscal years ended March 31, 2021, 2020, and 2019 the Company's U.S.

federal statutory tax rate is the 21.0 % rate under the new law.

For the fiscal year ended March 31, 2018, the Company's U.S.

federal statutory tax rate was 31.5 % , reflecting a portion of the year at the 35 % rate under the old law and a portion at the 21 % rate under the new law.

federal statutory tax rate is 21.0 %.

tax system is primarily territorial based after the enactment of the Tax Cuts and Jobs Act of 2017.

tax law imposes a tax on U.S.

shareholders on certain low-taxed income earned by controlled foreign corporations, referred to as global intangible low-taxed income ("GILTI”).

The Company continues to assume repatriation of all undistributed earnings of its consolidated foreign subsidiaries and has therefore provided for expected foreign withholding taxes on the distribution of those earnings where applicable, net of any U.S.

2 unchanged sentences

It is not practicable for the Company to quantify any deferred income tax liability that would be attributable to those events.

Under the applicable accounting guidance, the Company accounted for the effects of the changes in the U.S.

tax law in the period in which they were enacted, which was the third quarter of fiscal year 2018.

Due to the complexities associated with understanding and applying various aspects of the new law and quantifying or estimating amounts upon which calculations required to account for new law were based, the U.S.

Securities and Exchange Commission (“SEC”) issued guidance permitting corporations to record and report specific items impacted by the new law on a provisional basis using reasonable estimates where final amounts had not been determined.

The guidance allowed a measurement period of no more than one year from the date of enactment of the new law to complete all adjustments to amounts recorded on a provisional basis.

The new tax law resulted in a one-time reduction of income tax expense of $ 4.5 million for fiscal year 2018, reflecting provisional amounts initially recorded in the third quarter upon enactment, followed by subsequent adjustments to those provisional amounts in the fourth quarter.

The reduction of income tax expense from the enactment of the new law was primarily attributable to the adjustment of recorded deferred tax assets and liabilities to the tax rates at which they are expected to reverse in the future, as well as the reduction of the liability previously recorded for U.S.

income taxes on the undistributed earnings of foreign subsidiaries to the amounts to be paid under the one-time transition tax provisions of the new law.

Adjustments to the amounts recorded for the enactment of the new law were not material after the fourth quarter of fiscal year 2018, and all effects that were previously accounted for on a provisional basis were designated as final during the third quarter of fiscal year 2019.

The effect of the new law in fiscal year 2018 included a $ 7.8 million net increase in income tax expense from remeasuring net deferred tax assets to the new lower rates at which they are expected to reverse, generally the 21 % U.S.

federal statutory tax rate.

That net increase included approximately $ 12.4 million of net tax expense from remeasuring net deferred tax assets attributable to pension and other postretirement benefit plans, foreign currency translation adjustments, and other amounts that were recorded through other comprehensive income to the new lower rates, which initially left disproportionate tax effects recorded on the pretax amounts in accumulated other comprehensive income (loss).

As discussed in Note 1, the FASB issued ASU 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" to address this issue by allowing companies to reclassify the disproportionate tax effects from accumulated other comprehensive income (loss) to retained earnings.

The Company elected to early-adopt ASU 2018-02 in the fourth quarter of fiscal year 2018 and chose to reclassify the disproportionate tax effects.

The reclassification increased accumulated other comprehensive loss and increased retained earnings by approximately $ 12.4 million in fiscal year 2018.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income Tax Expense

1 unchanged sentence

Fiscal Year Ended March 31,

2021 2020 2019

United States $ 9,500 $ 2,001 $ ( 2,639 )

State and local 621 92 377

Foreign 21,626 41,892 39,578

31,747 43,985 37,316

United States ( 5,938 ) 3,735 5,713

State and local ( 314 ) ( 16 ) ( 4 )

Foreign 3,917 ( 12,416 ) ( 1,837 )

( 2,335 ) ( 8,697 ) 3,872

Total $ 29,412 $ 35,288 $ 41,188

Foreign taxes include any applicable U.S.

tax expense on the earnings of foreign subsidiaries.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidated Effective Income Tax Rate

2 unchanged sentences

Fiscal Year Ended March 31,

2021 2020 2019

federal statutory tax rate 21.0 % 21.0 % 21.0 %

State income taxes, net of federal benefit 0.2 0.1 0.2

Dividends received from deconsolidated operations

Foreign earnings taxed at rates other than the U.S.

2 unchanged sentences

Reversal of dividend withholding tax due to foreign subsidiary tax holiday — — ( 5.1 )

Effects of new tax law:

Adjustment of deferred tax assets and liabilities to lower tax rate

Reduction of U.S.

tax liability on undistributed foreign earnings to amounts payable under one-time transition tax

Changes in uncertain tax positions — 5.6 1.4

Other ( 2.2 ) 1.3 ( 1.1 )

Effective income tax rate 23.4 % 31.1 % 27.2 %

Final United States GILTI regulations published in July 2020 significantly changed from the proposed regulations published in 2019.

The final regulations allow for an annual election for GILTI high-tax exclusion instead of a 5-year election and permitted retroactive application to years beginning after December 31, 2017.

Universal elected to apply the final regulations to fiscal years 2019 and 2020 which resulted in a tax reduction of $ 2.7 million.

In fiscal year 2021, the Company also recognized a $ 4.4 million net tax benefit for final U.S.

tax regulations issued for hybrid dividends paid by foreign subsidiaries.

During fiscal year 2020, the Company resolved a transfer pricing matter related to a foreign subsidiary.

4 unchanged sentences

The reversal reduced income tax expense for fiscal year 2019 by approximately $ 7.8 million, which decreased the effective tax rate for the year by 5.1 %, as noted in the above rate reconciliation.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Components of Income Before Income Taxes

1 unchanged sentence

Fiscal Year Ended March 31,

2021 2020 2019

United States $ 30,060 $ 22,916 $ 37,478

Foreign 95,666 90,375 113,844

Total $ 125,726 $ 113,291 $ 151,322

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred Income Tax Liabilities and Assets

5 unchanged sentences

Goodwill and other intangible assets 35,059 23,435

All other 4,876 4,813

Total deferred tax liabilities $ 80,175 $ 75,371

6 unchanged sentences

Interest rate swap 5,178 7,284

All other 8,568 7,464

Total deferred tax assets 51,410 70,245

4 unchanged sentences

The combined income tax expense (benefit) allocable to continuing operations and other comprehensive income was as follows:

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fiscal Year Ended March 31,

2021 2020 2019

Continuing operations $ 29,412 $ 35,288 $ 41,188

Other comprehensive income (loss)

Other comprehensive loss ( 9,563 ) ( 14,392 ) ( 5,390 )

$ 19,849 $ 20,896 $ 35,798

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Uncertain Tax Positions

1 unchanged sentence

Fiscal Year Ended March 31,

2021 2020 2019

Liability for uncertain tax positions, beginning of year $ 2,377 $ 5,625 $ 3,673

10 unchanged sentences

The settlement in fiscal year 2020 represents the resolution of a tax matter with a local country taxing authority that resulted in a $ 8.9 million settlement of which $ 4.5 million was accrued in prior fiscal years.

The Company recognizes accrued interest related to uncertain tax positions as interest expense, and it recognizes penalties as a component of income tax expense.

Amounts accrued or reversed for interest and penalties were not material for any of the fiscal years 2018 through 2020 , and liabilities recorded for interest and penalties at March 31, 2020 and 2019 also were not material.

For the fiscal year ended March 31, 2021, the Company recognized $ 1.8 million as a component of interest expense related to a settlement of an uncertain tax position at a foreign subsidiary.

Amounts accrued or reversed for interest were not material for fiscal years 2020 or 2019.

Amounts accrued or reversed for penalties were not material for fiscal years 2019 through 2021, and liabilities recorded for interest and penalties at March 31, 2021 and 2020 also were not material.

Universal and its subsidiaries file a U.S.

5 unchanged sentences

federal, state and foreign jurisdictions range from 3 to 6 years.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

GOODWILL AND OTHER INTANGIBLES

The Company's changes in goodwill at March 31, 2021 and 2020 consisted of the following:

(in thousands)

Fiscal Year Ended March 31,

(in thousands) Fiscal Year Ended March 31,

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

Acquisition of business (1) (2)

46,144 28,863

Foreign currency translation adjustment

Impairment (2)

Balance at end of year $ 173,051 $ 126,826

On January 1, 2020 the Company acquired 100 % of the capital stock of FruitSmart, an independent specialty fruit and vegetable ingredient processor serving global markets, for approximately $ 80 million in cash and up to $ 25 million of contingent consideration payments.

The FruitSmart acquisition resulted in $ 28.9 million of goodwill and $ 18.6 million intangibles.

(1) On January 1, 2020 the Company acquired 100 % of the capital stock of FruitSmart for approximately $ 80 million in cash and up to $ 25 million of contingent consideration payments.

The FruitSmart acquisition resulted in $ 28.9 million of goodwill.

See Note 2 for additional information.

T he Company had goodwill related to the Tanzanian operations of approximately $ 0.9 million , which was impaired as part of the Tanzania operations review in fiscal year 2019 .

(2) On October 1, 2020 the Company acquired 100 % of the capital stock of Silva for approximately $ 164.0 million in cash and $ 5.9 million of working capital on-hand at the date of acquisition.

The Silva acquisition resulted in $ 46.1 million of goodwill.

See Note 2 for additional information.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 March 31, 2021 and 2020:

(in thousands, except useful life)

Gross Carrying Value

Accumulated Amortization

Net Carrying Value

Gross Carrying Value

Accumulated Amortization

Net Carrying Value

(in thousands, except useful life) Fiscal Year Ended March 31,

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

Customer relationships (1)(2)

11 - 13 $ 62,500 $ ( 3,323 ) $ 59,177 $ 9,500 $ ( 183 ) $ 9,317

Trade names (1)(2)

5 11,100 ( 1,605 ) 9,495 3,300 ( 165 ) 3,135

Developed technology (1)

3 4,800 ( 2,000 ) 2,800 4,800 ( 400 ) 4,400

Noncompetition agreements (1)

5 1,000 ( 250 ) 750 1,000 ( 50 ) 950

Other 5 760 ( 678 ) 82 657 ( 598 ) 59

Total intangible assets $ 80,160 $ ( 7,856 ) $ 72,304 $ 19,257 $ ( 1,396 ) $ 17,861

(1) The FruitSmart acquisition resulted in $ 18.6 million of intangibles.

See Note 2 for additional information.

(2) The Silva acquisition resulted in $ 60.8 million of intangibles.

See Note 2 for additional information.

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

Amortization expense for intangible assets was approximately $ 0.8 million and $ 0.1 million for the fiscal years ended March 31, 2020 and 2019 , respectively.

The Company's amortization expense for intangible assets for the years ended March 31, 2021 and 2020:

(in thousands) Fiscal Year Ended March 31,

Amortization Expense $ 6,424 $ 832

Amortization expense for the developed technology intangible asset is recorded in cost of goods sold in the consolidated income statements of income.

3 unchanged sentences

Total expected future amortization expense $ 72,304

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CREDIT FACILITIES

Bank Credit Agreement

On December 20, 2018, the Company entered into a senior unsecured bank credit agreement that includes a $ 430 million five-year revolving credit facility (expiring December 20, 2023), a $ 150 million five-year term loan (due December 20, 2023), and a $ 220 million seven-year term loan (due December 20, 2025).

On December 20, 2018, the Company entered into a senior unsecured bank credit agreement that included a $ 430 million five -year revolving credit facility (expiring December 20, 2023), a $ 150 million five -year term loan (due December 20, 2023), and a $ 220 million seven -year term loan (due December 20, 2025).

On December 17, 2020, the Company converted $ 150 million from the balance in the revolving credit facility into the existing term loans, splitting the balance equally between them.

Additional information related to the term loans is provided in Note 9.

Borrowings under the revolving credit facility bear interest at a variable rate based on either (1) LIBOR plus a margin that is based on the Company's credit measures or (2) the higher of the federal funds rate plus 0.5 %, prime rate, or one-month LIBOR plus 1.0 %, each plus a margin.

2 unchanged sentences

The credit agreement provides for an expansion of the facility under certain conditions to allow additional borrowings of up to $ 200 million.

Additional information related to the term loans is provided in Note 9.

The credit agreement includes financial covenants that require the Company to maintain a minimum level of tangible net worth and observe limits on debt levels.

The credit agreement includes financial covenants that require the Company to maintain a

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

minimum level of tangible net worth and observe limits on debt levels.

The Company was in compliance with those covenants at March 31, 2021.

4 unchanged sentences

As of March 31, 2021 and 2020, approximately $ 101 million and $ 78 million, respectively, were outstanding under these uncommitted lines of credit.

The weighted-average interest rates on short-term borrowings outstanding as of March 31, 2020 and 2019 , were approximately 4.2 % and 4.6 % , respectively.

The weighted-average interest rates on short-term borrowings outstanding was 4.2 % as of both March 31, 2021 and 2020.

At March 31, 2021, the Company and its consolidated affiliates had unused uncommitted lines of credit totaling approximately $ 172 million.

5 unchanged sentences

Long-term debt

$ 518,172 $ 368,764

As discussed in Note 8, on December 20, 2018, the Company entered into a bank credit agreement.

The credit agreement includes a $ 150 million five-year term loan maturing in December 2023 and a $ 220 million seven-year term loan maturing in December 2025.

The credit agreement includes a five -year term loan maturing in December 2023 and a seven -year term loan maturing in December 2025.

At inception, the five -year and seven -year term loans had balances of $ 150 million and $ 220 million, respectively.

On December 17, 2020, the Company converted $ 150 million from the balance in the revolving credit facility, split equally between the two term loans.

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

Under the credit agreement, both term loans bear interest at variable rates plus a margin based on the Company's credit measures.

Interest payments on the additional $ 150 million of new term loans in fiscal year 2021 remain unhedged at March 31, 2021.

As discussed in Note 11, the Company had receive-floating/pay-fixed interest rate swap agreements in place with respect to prior loans that were initially designated and carried over to hedge the variable interest payments on the new loans.

Those swap agreements were subsequently terminated in February 2019 and concurrently replaced with new interest rate swap agreements that will continue to convert the variable benchmark rate to a fixed rate through December 20, 2023 for the five-year term loan and through December 20, 2025 for the seven-year term loan.

Those swap agreements were subsequently terminated in February 2019 and concurrently replaced with new interest rate swap agreements that convert the variable benchmark rate to a fixed rate through December 20, 2023 for the five -year term loan and through December 20, 2025 for the seven -year term loan.

The proceeds received for the fair value of the terminated interest rate swap agreements, approximately $ 5.4 million, is being amortized from accumulated other comprehensive income into earnings as a reduction of interest expense through their original maturity dates.

With the new swap agreements in place, the effective interest rates on the $ 150 million five-year loan and the $ 220 million seven-year loan were 3.94 % and 4.26 % , respectively, at March 31, 2020 .

The effective rates will change only if a change in the Company's credit measures results in adjustments to the applicable credit spreads specified in the underlying loan agreement.

At March 31, 2021, $ 1.1 million remains to be amortized into interest expense.

With the swap agreements in place, the effective interest rates on the original $ 150 million five -year loan balance and the original $ 220 million seven -year loan balance were 3.94 % and 4.26 % at March 31, 2021, respectively.

The weighted average effective interest rates, when taking into consideration both the hedged and unhedged interest payments for all outstanding long-term debt, were 3.72 % and 4.09 % at March 31, 2021 for the five -year and seven -year term loans, respectively.

Changes in the effective interest rates could result from a change in interest rates on the unhedged interest payments or a change in the Company's credit measures that impact the applicable credit spreads specified in the underlying loan agreement.

Disclosures about the fair value of long-term debt are provided in Note 12.

Shelf Registration

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 additional debt or equity securities as determined by the Company and offered in one or more prospectus supplements prior to issuance.

Disclosures about the fair value of long-term debt are provided in Note 12.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company, as a lessee, enters into operating leases for land, buildings, equipment, and vehicles.

For all operating leases with terms greater than 12 months and with fixed payment arrangements, a lease liability and corresponding right-of-use asset are recognized in the balance sheet for the term of the lease by calculating the net present value of future lease payments.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On the date of lease commencement, the present value of lease liabilities is determined by discounting the future lease payments by the Company’s collateralized incremental borrowing rate, adjusted for the lease term and currency of the lease payments.

1 unchanged sentence

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)

March 31, 2020

(in thousands) March 31, 2021 March 31, 2020

Operating lease right-of-use assets $ 31,230 $ 39,256

3 unchanged sentences

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

Fiscal Year Ended March 31,

Fiscal Year Ended March 31, Fiscal Year Ended March 31,

(in thousands) 2021 2020

3 unchanged sentences

Total operating lease costs (1)

Includes variable operating lease cost s.

For the fiscal years ended March 31, 2019 and 2018 , the Company recorded $ 17.3 million and $ 16.0 million of total expense for operating leases, respectively.

$ 22,311 $ 19,528

(1) Includes variable operating lease costs .

For the fiscal year ended March 31, 2019, the Company recorded $ 17.3 million of total expense for operating leases.

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

(in thousands)

March 31, 2020

(in thousands) March 31, 2021

Maturity of Operating Lease Liabilities

3 unchanged sentences

Total operating lease liabilities $ 27,623

As of March 31, 2020 , the Company had no leases that have not yet commenced.

As of March 31, 2021, the Company had entered into no additional operating leases that have not yet commenced.

UNIVERSAL CORPORATION

1 unchanged sentence

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

Fiscal Year Ended March 31,

Fiscal Year Ended March 31, Fiscal Year Ended March 31,

(in thousands, except lease term and incremental borrowing rate) 2021 2020

14 unchanged sentences

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

At March 31, 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 March 31, 2021, 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 March 31, 2021, 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 on 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.

1 unchanged sentence

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.

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

As of March 31, 2021, $ 1.1 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 Forecast Purchases of Tobacco, Tobacco Processing Costs, and Crop Input Sales

The majority of the tobacco production in most countries outside the United States where Universal operates is sold in export markets at prices denominated in U.S.

8 unchanged sentences

These strategies offset the variability of future U.S.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

dollar cash flows for sales of crop inputs, tobacco purchases, and processing costs for the foreign currency notional amount hedged.

2 unchanged sentences

dollar notional amount of forward and option contracts entered for these purposes during fiscal years 2021, 2020, and 2019 was as follows:

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fiscal Year Ended March 31,

3 unchanged sentences

Crop input sales 23.5 21.7 —

$ 152.6 $ 180.0 $ 96.7

Variations in exchange rates and in the amount and timing of fixed-price orders from customers for their purchases from individual crop years routinely cause variations in the U.S.

dollar notional amount of forward contracts entered into from one year to the next.

The increased U.S.

dollar notional amounts for tobacco purchases and processing costs hedged during fiscal year 2020 primarily reflect purchase and processing hedges entered into for the 2020 crop year in Brazil, which historically were entered into during the fourth quarter of the fiscal year and into the first quarter of the subsequent year, as well as the additional hedging of forecast tobacco purchases in Africa.

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

All contracts related to tobacco purchases and 2021 crop year input sales were designated and qualified 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 income as they occurred, but only recognized in earnings upon sale of the related tobacco to third-party customers.

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

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

At March 31, 2020 , all hedged forecast purchases of tobacco not yet completed remained probable of occurring within the originally designated time period and, as a result, no hedges had been discontinued.

Purchases of the 2020 crops in Brazil and Africa are expected to be completed by June 2020 , and all forward contracts to hedge those purchases will mature and be settled by that time.

Purchases of the 2021 crops in Africa are expected to be completed by May 2021 and all forward contracts to hedge those purchases will mature and be settled by that time.

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 marked-to-market basis.

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

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

For the remaining hedge gains and losses related to 2020 crops recorded in accumulated other comprehensive loss at March 31, 2021, the Company expects to complete the sale of the tobacco and recognize the amounts in earnings during fiscal year 2022.

At March 31, 2021, all hedged forecast purchases of tobacco and crop input sales not yet completed remained probable of occurring within the originally designated time period and, as a result, no hedges had been discontinued.

Purchases of the 2021 crops in Brazil and Africa are expected to be completed by August 2021, and all forward contracts to hedge those purchases will mature and be settled by that time.

Purchases of the 2022 crops in Brazil are expected to be completed by August 2022 and all forward contracts to hedge those purchases will mature and be settled by that time.

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

17 unchanged sentences

The total notional amounts of contracts outstanding at March 31, 2021 and 2020, were approximately $ 16.6 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.

This strategy, while not involving the use of derivative instruments, is intended to minimize the subsidiary’s net monetary position by financing a portion of the local currency monetary assets with local currency monetary liabilities, thus hedging a portion of the overall position.

Several of the Company’s foreign subsidiaries transact the majority of their sales and finance the majority of their operating requirements in their local currency, and therefore use their respective local currencies as the functional currency for reporting purposes.

From time to time, these subsidiaries sell tobacco to customers in transactions that are not denominated in the functional

To further mitigate currency remeasurement

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

From time to time, these subsidiaries sell tobacco to customers in transactions that are not denominated in the functional currency.

In those situations, the subsidiaries routinely enter into forward exchange contracts to offset currency risk for the period of time that a fixed-price order and the related trade account receivable are outstanding with the customer.

3 unchanged sentences

Fiscal Year Ended March 31,

2021 2020 2019

Cash Flow Hedges - Interest Rate Swap Agreements

3 unchanged sentences

Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings $ 1,416 $ 2,691 $ 260

Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings

Interest expense

Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings Interest expense

Ineffective Portion of Hedge

Gain (loss) recognized in earnings $ — $ — $ —

Location of gain (loss) recognized in earnings

Selling, general and administrative expenses

Description of hedged item

Floating rate interest payments on term loans

Location of gain (loss) recognized in earnings Selling, general and administrative expenses

Description of hedged item Floating rate interest payments on term loans

Cash Flow Hedges - Forward Foreign Currency Exchange Contracts

2 unchanged sentences

Gain (loss) reclassified from accumulated other comprehensive loss into earnings $ ( 13,926 ) $ 1,108 $ ( 3,034 )

Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings

Cost of goods sold

Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings Cost of goods sold

Ineffective Portion and Early De-designation of Hedges

Gain (loss) recognized in earnings $ — $ — $ —

Location of gain (loss) recognized in earnings

Selling, general and administrative expenses

Description of hedged item

Forecast purchases of tobacco in

Location of gain (loss) recognized in earnings Selling, general and administrative expenses

Description of hedged item Forecast purchases of tobacco in

Brazil and Africa

2 unchanged sentences

Gain (loss) recognized in earnings $ ( 872 ) $ ( 4,013 ) $ ( 4,671 )

Location of gain (loss) recognized in earnings

Selling, general and administrative expenses

Location of gain (loss) recognized in earnings Selling, general and administrative expenses

For the outstanding 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 terminated interest rates swaps previously designated as cash flow hedges, a $ 2.5 million net realized hedge gain remained in accumulated other comprehensive loss at March 31, 2020 .

The Company expects to amortize $ 1.4 million of this remaining unamortized gain into earnings as a reduction of interest expense in fiscal year 2021 .

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa, a $ 14.4 million net hedge loss remained in accumulated other comprehensive loss at March 31, 2020 .

That balance reflects losses on contracts related to the 2020 Brazil crops and the 2020 and 2021 Africa crops.

No hedge gain or loss had been reclassified to earnings at March 31, 2020 since shipments of those tobaccos had not yet started.

The majority of the balance in accumulated other comprehensive loss will be recognized in earnings as a component of cost of goods sold in fiscal year 2021 as the 2020 crops

For the terminated interest rates swaps previously designated as cash flow hedges, a $ 1.1 million net realized hedge gain remained in

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in Brazil and Africa are sold to customers.

The balance in accumulated other comprehensive loss associated with the 2021 Africa crop is expected to be recognized in earnings in fiscal year 2022.

accumulated other comprehensive loss at March 31, 2021.

The Company expects to amortize the remaining unamortized gain into earnings as a reduction of interest expense in fiscal year 2022.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa, as well as the crop input sales in Brazil, a net hedge loss of approximately $ 0.8 million remained in accumulated other comprehensive loss at March 31, 2021.

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 March 31, 2021.

The remaining balance in accumulated other comprehensive loss associated with the 2020 and 2021 Brazil crop purchase hedges, along with the balances associated with the 2021 Brazil crop input sales and the 2021 Africa crops are expected to be recognized in earnings as a component of cost of goods sold in fiscal year 2022 as those tobaccos are sold to customers.

The balance in accumulated other comprehensive loss related to the 2022 Brazil crop is expected to be recognized in earnings as a component of cost of goods sold in fiscal year 2023 when those tobaccos are sold to customers.

Based on the hedging strategy, as the gain or loss is recognized in earnings, it is expected to be offset by a change in the direct cost for the tobacco or by a change in sales prices if the strategy has been mandated by the customer.

2 unchanged sentences

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at March 31, 2021 and 2020:

Derivatives in a Fair Value Asset Position

Derivatives in a Fair Value Liability Position

Fair Value as of March 31,

Derivatives in a Fair Value

Asset Position Derivatives in a Fair Value

Liability Position

Location Fair Value as of March 31, Balance

Location Fair Value as of March 31,

2021 2020 2021 2020

Derivatives Designated as Hedging Instruments

Interest rate swap agreements

Forward foreign currency exchange contracts

Interest rate swap agreements Other

assets $ — $ — Other

liabilities $ 25,719 $ 37,163

Forward foreign currency exchange contracts Other

assets 1,137 — Accounts

expenses 1,031 11,467

Total $ 1,137 $ — $ 26,750 $ 48,630

Derivatives Not Designated as Hedging Instruments

Forward foreign currency exchange contracts

Forward foreign currency exchange contracts Other

assets $ 435 $ 314 Accounts

expenses $ 791 $ 4,375

Total $ 435 $ 314 $ 791 $ 4,375

Substantially all of the Company's forward foreign currency exchange contracts are subject to master netting arrangements, whereby the right to offset occurs in the event of default by a participating party.

The Company has elected to present these contracts on a gross basis in the consolidated balance sheets.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FAIR VALUE MEASUREMENTS

7 unchanged sentences

There are three levels within the fair value hierarchy.

Level Description

1 quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date;

1 unchanged sentence

3 unobservable inputs for the asset or liability.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As permitted under the accounting guidance, the Company uses net asset value per share ("NAV") as a practical expedient to measure the fair value of its money market funds.

2 unchanged sentences

Universal has not elected to report at fair value any financial instruments or any other assets or liabilities that are not required to be reported at fair value under current accounting guidance.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recurring Fair Value Measurements

3 unchanged sentences

Fair Value Hierarchy

NAV Level 1 Level 2 Level 3 Total

Money market funds $ 1,992 $ — $ — $ — $ 1,992

2 unchanged sentences

Total financial assets measured and reported at fair value $ 1,992 $ 15,735 $ 1,572 $ — $ 19,299

Guarantees of bank loans to tobacco growers

Acquisition-related contingent consideration obligations - short-term

Acquisition-related contingent consideration obligations - long-term $ — $ — $ — $ 2,532 $ 2,532

4 unchanged sentences

Fair Value Hierarchy

NAV Level 1 Level 2 Level 3 Total

Money market funds

$ 4,011 $ — $ — $ — $ 4,011

Trading securities associated with deferred compensation plans

— 12,635 — — 12,635

Forward foreign currency exchange contracts

— — 314 — 314

Total financial assets measured and reported at fair value $ 4,011 $ 12,635 $ 314 $ — $ 16,960

Guarantees of bank loans to tobacco growers

$ — $ — $ — $ 103 $ 103

Acquisition-related contingent consideration obligations - short-term — — — 4,173 $ 4,173

Acquisition-related contingent consideration obligations - long-term — — — 2,532 $ 2,532

Interest rate swap agreements

— — 37,163 — 37,163

Forward foreign currency exchange contracts

— — 15,842 — 15,842

Total financial liabilities measured and reported at fair value $ — $ — $ 53,005 $ 6,808 $ 59,813

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Money market funds

1 unchanged sentence

These funds are not classified in the fair value hierarchy, but are disclosed as part of the fair value table above.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Trading securities associated with deferred compensation plans

10 unchanged sentences

The Company estimates the fair value of acquisition-related contingent consideration obligations by applying an income approach model that utilizes probability-weighted discounted cash flows.

As a result of the acquisition of FruitSmart, Inc., the Company recognized a contingent consideration liability of $ 6.7 million on the date of acquisition.

See Note 2 for additional information.

Each period the Company evaluates the fair value of the acquisition-related contingent consideration obligations.

The Company acquired FruitSmart, Inc.

in fiscal year 2020 and recognized a contingent consideration liability of $ 6.7 million on the date of acquisition.

Each reporting period the Company evaluates the fair value of the acquisition-related contingent consideration obligations.

In the quarter ended June 30, 2020, the evaluation resulted in the reduction of $ 4.2 million of contingent consideration of the original $ 6.7 million liability recorded.

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.

2 unchanged sentences

Balance beginning of year $ 6,705 $ —

Additions — 6,705

Change in fair value of contingent consideration liability ( 4,173 ) —

Balance at end of year $ 2,532 $ 6,705

As of March 31, 2021, $ 2.5 million of contingent consideration liability related to the FruitSmart acquisition is included in accounts payable and accrued expenses on the consolidated balance sheet.

Guarantees of bank loans to tobacco growers

The Company guarantees bank loans to tobacco growers in Brazil for crop financing.

In the event that the farmers default on their payments to the banks, the Company would be required to perform under the guarantees.

The Company regularly evaluates the likelihood of farmer defaults based on an expected loss analysis and records the fair value of its guarantees as an obligation in its consolidated financial statements.

The fair value of the guarantees is 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.

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

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 March 31, 2021 .

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.

In the event that the farmers defaulted on their payments to the banks, the Company would be required to perform under the guarantees.

The Company regularly evaluated the likelihood of farmer defaults based on an expected loss analysis and records the fair value of its guarantees as an obligation in its consolidated financial statements.

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 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.

Significant increases or decreases in the risk-adjusted interest rate may result in a significantly higher or lower fair value measurement.

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

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

UNIVERSAL CORPORATION

4 unchanged sentences

Payments under the guarantees and transfers to allowance for loss on direct loans to farmers (removal of prior crop year loans from the portfolio)

( 96 ) ( 659 )

Provision for loss or transfers from allowance for loss on direct loans to farmers (addition of current crop year loans)

3 unchanged sentences

Long-term Debt

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

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 March 31, 2021 and 2020:

Fiscal Year Ended March 31,

(in millions of dollars) 2021 2020

Fair market value of long term obligations $ 517 $ 370

Carrying value of long term obligations $ 520 $ 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.

See Note 9 for more information regarding long-term debt.

Nonrecurring Fair Value Measurements

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 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 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.

The significant assumptions used in determining the fair value include the discount rate and forecasted results (e.g., revenue growth rates and operating profit margins).

Long-Lived Assets

As discussed in Note 4, due to business changes that have affected the leaf tobacco market in Tanzania and the Company's operations there, the long-lived assets of those operations were tested for impairment at December 31, 2018, and an impairment charge was recorded to reduce their carrying value to fair value in fiscal year 2019.

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 quarter 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.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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.

The long-lived assets consist principally of the Company's processing facility and equipment, storage facilities, tobacco buying and receiving stations, employee housing, and vehicles and transportation equipment.

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Significant judgment was required in estimating the amount and timing of the future cash flows associated with the use and disposition of the assets, as well as the probabilities associated with the respective operating and disposition scenarios.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

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Assumptions used for financial reporting purposes to compute net periodic benefit cost and benefit obligations for the Company's primary defined benefit plans were as follows:

Pension Benefits

Other Postretirement Benefits

Pension Benefits Other Postretirement Benefits

2021 2020 2019 2021 2020 2019

Discount rates:

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Benefit obligation at end of plan year 4.00 % 4.00 % 4.00 % 4.00 % 4.00 % 4.00 %

Healthcare cost trend rate

Healthcare cost trend rate N/A N/A N/A 6.17 % 7.34 % 7.60 %

Changes in the discount rates in the above table reflect prevailing market interest rates at the end of each fiscal year when the benefit obligations are actuarially measured.

The expected long-term return on plan assets is developed from financial models used to project future returns on the underlying assets of the funded plans and is reviewed on an annual basis.

The healthcare cost trend rate used by the Company is based on a study of medical cost inflation rates that is reviewed and updated annually for continued applicability.

The healthcare cost trend rate used by the Company is based on a study of medical cost inflation rates that is reviewed and updated annually for

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

continued applicability.

The revised trend assumption of 6.17 % in 2021 declines gradually to 4.44 % in 2029 .

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As a result, changes to the healthcare cost trend rate have a limited impact on the postretirement medical plan liability and expense.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Benefit Obligations, Plan Assets, and Funded Status

The following table reflects the changes in benefit obligations and plan assets in fiscal years 2021 and 2020, as well as the funded status of the plans at March 31, 2021 and 2020:

Other Postretirement Benefits

Benefits Other Postretirement Benefits

March 31, March 31,

2021 2020 2021 2020

Actuarial present value of benefit obligation:

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Projected benefit obligation, beginning of year $ 287,082 $ 278,189 $ 30,282 $ 31,635

Service cost 6,618 5,990 172 199

Interest cost 9,571 10,747 1,141 1,306

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Foreign currency exchange rate changes 776 ( 1,477 ) ( 283 ) ( 1,012 )

Settlements — ( 6,038 ) — —

Other ( 3,626 ) 1,029 167 ( 744 )

Benefit payments ( 16,321 ) ( 15,837 ) ( 3,679 ) ( 2,428 )

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Employer contributions 8,472 6,037 3,229 1,928

Settlements — ( 6,038 ) — —

Foreign currency exchange rate changes ( 9 ) ( 1,232 ) — —

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Funded status of the plans, end of year $ ( 26,741 ) $ ( 48,632 ) $ ( 25,893 ) $ ( 26,913 )

In fiscal year 2020 , some employees covered by a foreign pension plan elected to convert their lifetime annuity benefit into limited fixed payments based on the actuarially determined liability at the time of the election.

The election to change the defined benefit resulted in a partial plan settlement and recognition of a $ 0.7 million settlement charge for the fiscal year ended March 31, 2020 .

The Company funds its non-regulated U.S.

pension plan, one of its foreign pension plans, and its postretirement medical plans on a pay-as-you-go basis as the benefit payments are incurred.

Those plans account for approximately 71 % of the $ 48.6 million unfunded pension obligation and approximately 94 % of the $ 26.9 million unfunded postretirement benefit obligation shown on the funded status line in the above table at March 31, 2020 .

The increase in employer pension contributions in fiscal year 2019 reflects higher contributions to the Company's U.S.

ERISA-regulated pension plan to realize incremental income tax benefits, as well as higher contributions to the non-regulated U.S.

plan to fund lump-sum benefit payments to retiring participants.

The unfunded projected benefit obligation for those pension plans and postretirement benefit plans was $ 38.1 million and $ 23.7 million, respectively, at March 31, 2021.

UNIVERSAL CORPORATION

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The funded status of the Company’s plans at the end of fiscal years 2021 and 2020 was reported in the consolidated balance sheets as follows:

Other Postretirement Benefits

Non-current asset (included in other noncurrent assets)

Benefits Other Postretirement Benefits

March 31, March 31,

2021 2020 2021 2020

Noncurrent assets (included in Pension asset and other noncurrent assets) $ 11,950 $ 346 $ — $ —

Current liability (included in Accounts payable and accrued expenses) ( 4,896 ) ( 2,978 ) ( 2,051 ) ( 2,233 )

Non-current liability (reported as pensions and other postretirement benefits)

Noncurrent liability (reported as pensions and other postretirement benefits) ( 33,795 ) ( 46,000 ) ( 23,842 ) ( 24,680 )

Amounts recognized in the consolidated balance sheets $ ( 26,741 ) $ ( 48,632 ) $ ( 25,893 ) $ ( 26,913 )

Additional information on the funded status of the Company’s plans as of the respective measurement dates for the fiscal years ended March 31, 2021 and 2020, is as follows:

Other Postretirement Benefits

Benefits Other Postretirement Benefits

March 31, March 31,

2021 2020 2021 2020

For plans with a projected benefit obligation in excess of plan assets:

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For plans with an accumulated benefit obligation in excess of plan assets:

Aggregate accumulated benefit obligation (ABO)

Aggregate fair value of plan assets

With the additional employer contributions noted above and the return on plan assets during fiscal year 2019, the assets of the Company's U.S.

ERISA-regulated pension plan exceeded the accumulated benefit obligation (ABO) at March 31, 2019.

Aggregate accumulated benefit obligation (ABO) 42,923 278,515 N/A N/A

Aggregate fair value of plan assets 6,051 235,349 N/A N/A

Net Periodic Benefit Cost

The components of the Company’s net periodic benefit cost were as follows:

Pension Benefits

Other Postretirement Benefits

Fiscal Year Ended March 31,

Pension Benefits Other Postretirement Benefits

Fiscal Year Ended March 31, Fiscal Year Ended March 31,

2021 2020 2019 2021 2020 2019

Components of net periodic benefit cost:

Service cost $ 6,618 $ 5,990 $ 6,008 $ 172 $ 199 $ 222

Interest cost 9,571 10,747 10,810 1,141 1,306 1,371

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A one-percentage-point increase or decrease in the assumed healthcare cost trend rate would not result in a significant change to the March 31, 2021 accumulated postretirement benefit obligation or the aggregate service and interest cost components of the net periodic postretirement benefit expense for fiscal year 2022.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amounts Included in Accumulated Other Comprehensive Loss

Amounts included in accumulated other comprehensive loss at the beginning of the year are amortized as a component of net periodic benefit cost during the year.

The amounts recognized in other comprehensive income or loss for fiscal years 2020 and 2019 and the amounts included in accumulated other comprehensive loss at the end of those fiscal years are shown below.

The amounts recognized in other comprehensive income or loss for fiscal years 2021

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and 2020 and the amounts included in accumulated other comprehensive loss at the end of those fiscal years are shown below.

All amounts shown are before allocated income taxes.

Other Postretirement Benefits

Benefits Other Postretirement Benefits

March 31, March 31,

2021 2020 2021 2020

Change in net actuarial loss (gain):

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Losses (gains) arising during the year ( 17,563 ) 21,838 520 302

Settlement — ( 529 ) — —

Amortization included in net periodic benefit cost during the year ( 6,857 ) ( 5,786 ) 450 534

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at end of year, before income taxes

$ 69,199 $ 91,623 $ ( 4,771 ) $ ( 5,929 )

Amounts in the above table reflect the Company and its consolidated subsidiaries.

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The assumed long-term rate of return used to calculate annual benefit expense is based on the asset allocation and expected market returns for the respective asset classes.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The weighted–average target pension asset allocation and target ranges at the March 31, 2021 measurement date and the actual asset allocations at the March 31, 2021 and 2020 measurement dates by major asset category were as follows:

Actual Allocation

Target Allocation

Major Asset Category

Target Allocation March 31,

Major Asset Category Range 2021 2020

Equity securities 29.0 % 19 % - 39 % 32.0 % 25.4 %

Fixed income securities (1)

66.0 % 56 % - 76 % 64.1 % 70.3 %

Alternative investments 5.0 % 0 % - 10 % 3.9 % 4.3 %

Total 100.0 % 100.0 % 100.0 %

(1) Actual amounts include high yield securities and cash balances held for the payment of benefits.

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The Company expects to make contributions of approximately $ 1.4 million to its ERISA regulated defined benefit pension plan and $ 5.9 million to its non-ERISA regulated pension plans in fiscal year 2022.

Estimated future benefit payments to be made from the Company’s plans are as follows:

Postretirement

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Estimated future benefit payments to be made from the Company’s plans are as follows:

Fiscal Year Pension

Benefits Other

Postretirement

2022 $ 19,611 $ 2,484

2023 18,777 2,375

2024 18,656 2,265

2025 17,979 2,173

2026 22,893 2,047

2027 - 2031 84,154 8,882

Fair Values of Pension Plan Assets

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These models use significant unobservable inputs and are classified as Level 3 within the fair value hierarchy.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair values of the assets of the Company’s pension plans as of March 31, 2021 and 2020, classified based on how their values were determined under the fair value hierarchy are as follows:

March 31, 2021

Level 1 Level 2 Level 3 Total

Equity securities $ 83,135 $ — $ — $ 83,135

Fixed income securities (1)

168,201 2,920 6,051 177,172

Alternative investments — — 10,042 10,042

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March 31, 2020

Level 1 Level 2 Level 3 Total

Equity securities $ 58,204 $ — $ — $ 58,204

Fixed income securities (1)

162,667 3,101 4,668 170,436

Alternative investments — — 9,810 9,810

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Programs have been in place continuously throughout fiscal years 2019 through 2021.

The current program, which replaced an expiring program, was authorized and became effective on November 7, 2017 and further extended on May 29, 2019.

The current program, which replaced an expiring program, was authorized and became effective on November 5, 2020.

It authorizes the purchase of up to $ 100 million of the Company's outstanding common stock and expires on the earlier of November 15, 2022, or when the funds authorized for the program have been exhausted.

At March 31, 2020 , $ 56 million of the authorization remained available for share repurchases under the current program.

At March 31, 2021, the full $ 100 million authorization remained available for share repurchases under the current program.

Repurchases of common stock under the programs for fiscal years 2021, 2020, and 2019 were as follows:

Fiscal Year Ended March 31,

2021 2020 2019

Number of shares repurchased — 656,820 30,777

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Weighted-average cost per share $ — $ 50.94 $ 46.87

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EXECUTIVE STOCK PLANS AND STOCK-BASED COMPENSATION

Executive Stock Plans

The Company’s shareholders have approved executive stock 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 (“SARs”), incentive stock options, and non-qualified stock options.

The Company’s shareholders have approved executive stock 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 units (“PSUs”), stock appreciation rights (“SARs”), incentive stock options, and non-qualified stock options.

Currently, grants are outstanding under the 1997 Executive Stock Plan, the 2002 Executive Stock Plan, the 2007 Stock Incentive Plan, and the 2017 Stock Incentive Plan.

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The Company’s practice is to award grants of stock-based compensation to officers 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.

In recent years, the Compensation Committee has awarded only grants of RSUs and PSAs.

In recent years, the Compensation Committee has awarded only grants of RSUs and PSUs.

Outside directors automatically receive restricted stock units following each annual meeting of shareholders.

1 unchanged sentence

Under the terms of the RSU awards, grantees receive dividend equivalents in the form of additional RSUs that vest and are paid out on the same date as the original RSU grant.

The PSAs vest 3 years from the grant date, are paid out in shares of common stock at the vesting date, and do not carry rights to dividends or dividend equivalents prior to vesting.

Shares ultimately paid out under PSA grants are dependent on the achievement of predetermined performance measures established by the Compensation Committee and can range from zero to 150 % of the stated award.

RSUs awarded to outside directors prior to fiscal 2020 vest 3 years after the grant date and those granted in fiscal 2020 vest in 1 year , and restricted stock vests upon the individual’s retirement from service as a director.

The PSUs vest 3 years from the grant date, are paid out in shares of common stock at the vesting date, and do not carry rights to dividends or dividend equivalents prior to vesting.

Shares ultimately paid out under PSU grants are dependent on the achievement of predetermined performance measures established by the Compensation Committee and can range from zero to 150 % of the stated award.

RSUs awarded to outside directors prior to fiscal 2020 vest 3 years after the grant date and those granted in fiscal 2020 vest in 1 year.

Additionally, restricted stock vests upon the individual’s retirement from service as a director.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSUs, Restricted Stock, and PSAs

The following table summarizes the Company’s RSU, restricted stock, and PSA activity for fiscal years 2018 through 2020 :

Restricted Stock

Weighted-Average

RSUs, Restricted Stock, and PSUs

The following table summarizes the Company’s RSU, restricted stock, and PSU activity for fiscal years 2019 through 2021:

RSUs Restricted Stock PSUs

Shares Weighted-Average

Fair Value Shares Weighted-Average

Fiscal Year Ended March 31, 2019:

Unvested at beginning of year 336,919 $ 55.77 30,200 $ 42.37 151,000 $ 50.50

Granted 87,621 64.53 — — 54,800 57.12

Vested ( 99,549 ) 59.09 ( 8,950 ) 44.25 ( 49,092 ) 45.06

Forfeited — — — — ( 9,834 ) 45.55

Unvested at end of year 324,991 57.12 21,250 42.37 146,874 55.12

Fiscal Year Ended March 31, 2020:

Granted 85,463 56.39 — — 60,728 50.16

Vested ( 74,518 ) 54.20 — — ( 67,402 ) 49.17

Forfeited — — — — — —

Unvested at end of year 335,936 57.89 21,250 41.58 140,200 55.73

Fiscal Year Ended March 31, 2021:

Granted 103,829 46.27 — — 65,135 34.33

Vested ( 97,297 ) 54.11 ( 9,650 ) 41.24 ( 40,410 ) 60.37

Forfeited — — — — ( 3,778 ) 57.83

Unvested at end of year 342,468 $ 55.44 11,600 $ 41.86 161,147 $ 46.20

Shares granted and vested in the above table include dividend equivalents on RSUs and any shares awarded above the base grant under the performance provisions of PSAs.

Shares forfeited or canceled include any reductions from the base PSA grant under those same performance provisions.

The fair values of RSUs, restricted stock, and PSAs are based on the market price of the common stock on the grant date.

Shares granted and vested in the above table include dividend equivalents on RSUs and any shares awarded above the base grant under the performance provisions of PSUs.

Shares forfeited or canceled include any reductions from the base PSU grant under those same performance provisions.

The fair values of RSUs, restricted stock, and PSUs are based on the market price of the common stock on the grant date.

Stock-Based Compensation Expense

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Fiscal Year Ended March 31,

2021 2020 2019

Total stock-based compensation expense $ 6,106 $ 5,631 $ 8,152

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Guarantees of Bank Loans and Other Contingent Liabilities

Guarantees of bank loans to growers for crop financing have long been industry practice in Brazil and support the farmers’ production of tobacco there.

The Company's operating subsidiary in Brazil had guarantees outstanding at March 31, 2020 , all of which expire within one year.

As noted above, the subsidiary withholds payments due to the farmers on delivery of tobacco and forwards those payments to the third-party banks.

Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover their obligations to the third-party banks could result in a liability for the subsidiary under the related guarantees;

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 March 31, 2021.

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.

Bank guarantees for the Company's operating subsidiary in Brazil normally expire within one year.

The subsidiary withheld payments due to the farmers on delivery of tobacco and forwarded those payments to the third-party banks.

Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover its obligations to the third-party banks would result in a liability for the subsidiary under the related guarantees;

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 at March 31, 2020 , was the face amount, $ 3 million including unpaid accrued interest ( $ 17 million as of March 31, 2019 ).

The fair value of the guarantees was a liability of approximately $ 0.1 million at March 31, 2020 ( $ 1.0 million at March 31, 2019 ).

The maximum potential amount of future payments that the Company’s subsidiary would have been be required to make at March 31, 2020, was the face amount (which includes unpaid interest), which was $ 3 million.

The fair value of the guarantees was a liability of approximately $ 0.1 million at March 31, 2020.

In addition to these guarantees, the Company has other contingent liabilities totaling approximately $ 1 million at March 31, 2021, primarily under outstanding letters of credit.

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While the range of reasonably possible loss is zero up to the full $ 8 million remaining assessment, 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 March 31, 2021.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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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.

In December 2015, the Parana tax authorities withdrew the initial claim and subsequently issued a new assessment

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

covering the same tax periods.

The new assessment totaled approximately $ 3 million at the March 31, 2021 exchange rate, reflecting a substantial reduction from the original $ 10 million assessment.

4 unchanged sentences

Should the subsidiary ultimately be required to pay any tax, interest, or penalties in either case, the portion paid for tax would generate value-added tax credits that the subsidiary may be able to recover.

Tanzania Fair Competition Commission Proceeding

In June 2012, the Company’s Tanzanian subsidiary, Tanzania Leaf Tobacco Company Ltd.

(“TLTC”), entered into a two crop-year supply agreement for unprocessed “green” tobacco with a newly-formed Tanzanian subsidiary of one of the Company’s major customers.

The agreement involved green tobacco purchases from four of the approximately 400 grower cooperatives in Tanzania, which allowed the customer and its Tanzanian subsidiary on a small test basis to evaluate whether it would be a viable alternative for the customer to establish its own vertically integrated supply operations in that market.

Prior to that time, the customer’s subsidiary did not exist, and it only purchased processed Tanzanian tobacco from tobacco dealers in specified amounts and only for certain grades and stalk positions.

In contrast, the agreement with TLTC required the customer’s subsidiary to purchase green tobacco on a “run of crop” basis.

“Run of crop” requires the purchase of all green tobacco produced on the tobacco plant, regardless of grade or stalk position.

The agreement, therefore, enabled the customer’s subsidiary on a small test basis to evaluate the quality of green tobacco purchased on a “run of crop” basis and to assess how such tobacco would be suited to the customer's tobacco requirements.

The customer unilaterally elected to establish its own vertically integrated supply operations in Tanzania after the expiration of the agreement, and its subsidiary began purchasing green tobacco directly from Tanzanian grower cooperatives during the second crop year thereafter.

Despite the pro-competitive object and effect of the agreement between TLTC and the customer’s subsidiary, in October 2016, the Tanzania Fair Competition Commission (“FCC”) notified TLTC and the customer’s subsidiary that it reviewed the agreement and provisionally concluded that it infringed Tanzania antitrust law by having the object and effect of preventing competition in the purchase of unprocessed green tobacco in the area in which the four grower cooperatives were located.

The FCC also provisionally concluded that the Company’s U.S.

subsidiary, Universal Leaf Tobacco Company, Inc.

(“ULT”), and additional subsidiaries of the customer, were jointly and severally liable for the actions of TLTC and the customer’s Tanzanian subsidiary, respectively.

TLTC and ULT submitted a written response contesting the FCC’s allegations, and on February 27, 2018, the FCC issued its decision to TLTC and ULT which ignored TLTC's and ULT's submissions and confirmed its initial conclusion that the agreement infringed Tanzanian antitrust law.

In its decision, the FCC concluded incorrectly that the parties to the agreement unfairly benefited in the amount of $ 105 thousand .

The FCC arbitrarily assessed a fine jointly against TLTC and ULT of approximately $ 197 million and a fine jointly against the customer’s Tanzanian subsidiary and another subsidiary of the customer exceeding $ 1 billion .

TLTC and ULT worked closely with expert legal advisors and economists on this matter.

Based on these engagements and consultations, the Company firmly believed the FCC’s allegations were frivolous and clearly without merit or support from the facts, law or economic analysis.

The Company further believed the FCC’s proceedings were rife with irregularities and did not comply with applicable legal and regulatory procedures with respect to this matter, including failing to establish jurisdiction over ULT or to offer a legal justification for including ULT in the proceeding.

To the contrary, the Company believed the facts, law and economic analysis clearly supported the legality and pro-competitive nature of the agreement and supported a proper conclusion that there was no infringement of Tanzania antitrust law, and the agreement had no negative impact on the Tanzania tobacco market.

The Company further believed the FCC’s proposed fine is ludicrous, unwarranted and contrary to Tanzania law.

TLTC and ULT immediately appealed the FCC findings to the Tanzania Fair Competition Tribunal, which immediately stayed the execution of any FCC fines.

UNIVERSAL CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On January 22, 2019, the FCC delivered provisional findings regarding two new allegations of antitrust violations.

In those two new provisional findings, the FCC manufactured claims against ULT and ULT's subsidiaries in Tanzania, in addition to other parties in Tanzania.

ULT and its Tanzania subsidiaries had already begun working closely with expert legal advisors on these matters to prepare and submit to the FCC proper and comprehensive responses.

The Company also believed the most recent FCC provisional findings and allegations were frivolous and clearly without merit and lack facts, law or economic analysis to support them.

In one of the two new matters, based on the Company's review of the provisional findings and consultation with counsel, the Company believed the FCC was seeking an equally large, ludicrous, unwarranted, and unlawful fine as the one sought in the original matter.

The FCC's motivations for initiating these additional, spurious allegations against the Company's subsidiaries were unclear.

The FCC contacted TLTC during the pendency of the three matters to initiate settlement discussions in order to resolve and dismiss all outstanding matters.

After protracted negotiations with the FCC regarding mutually-agreeable and reasonable procedural aspects of settlement, on March 27, 2020, ULT, its Tanzania subsidiaries and the FCC executed a binding no-fault settlement of the three matters (the “Settlement Agreement”).

The terms of the Settlement Agreement included mutual confidentiality obligations and mutual releases which discharged all actions, claims, rights and demands of the FCC, ULT and its Tanzania subsidiaries in all these matters, as well as a settlement amount to be paid to the FCC.

Although the confidentiality obligations in the Settlement Agreement do not permit the Company publicly to disclose the settlement amount, such amount was not material to the fourth fiscal quarter or the fiscal year ended March 31, 2020.

We are pleased to avoid the cost of further litigating these frivolous matters, and we believe no further related costs will be incurred.

Other Legal and Tax Matters

2 unchanged sentences

However, should one or more of these matters be resolved in a manner adverse to management’s current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

OPERATING SEGMENTS

Universal’s primary operations 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.

As a result of recent acquisitions of plant-based ingredients companies in fiscal year 2020 and 2021, during the fiscal year ended March 31, 2021 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.

1 unchanged sentence

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.

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

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.

Oriental tobacco operations consist principally of a 49 % interest in an affiliate, and the performance of those operations is evaluated based on the Company’s equity in the pretax earnings of that affiliate.

Under this structure, the Company has the following primary operating segments:

North America, South America, Africa, Europe, Asia, Dark Air-Cured, Oriental, and Special Services.

North America, South America, Africa, Europe, and Asia are primarily involved in flue-cured and/or burley leaf tobacco operations for supply to cigarette manufacturers.

The Dark Air-Cured group supplies dark air-cured tobacco principally to manufacturers of cigars, pipe tobacco, and smokeless tobacco products, and the Oriental business supplies oriental tobacco to cigarette manufacturers.

From time to time, the segments may trade in tobaccos that differ from their main varieties, but those activities are not significant to their overall results.

Special Services includes the Company's laboratory services business, which provides physical and chemical product testing and smoke testing for customers, its food ingredients business (including FruitSmart), and its liquid nicotine business.

The five regional operating segments serving the Company’s cigarette manufacturer customer base share similar characteristics in the nature of their products and services, production processes, class of customer, product distribution methods, and regulatory environment.

Based on the applicable accounting guidance, four of the regions – South America, Africa, Europe, and Asia – are aggregated into a single reporting segment, “Other Regions”, because they also have similar economic characteristics.

North America is reported as an individual operating segment because its economic characteristics differ from the other regions, generally because its operations require lower working capital investments for crop financing and inventory.

The Dark Air-Cured, Oriental and Special Services segments, which have dissimilar characteristics in some of the categories mentioned above, are reported together as “Other Tobacco Operations” because each is below the measurement threshold for separate reporting.

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 allocated to the various operating segments, generally on the basis of tobacco volumes planned to be purchased and/or processed.

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

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

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.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reportable segment data as of, or for, the fiscal years ended March 31, 2020 , 2019 , and 2018 , is as follows:

Sales and Other Operating Revenues

Operating Income

Fiscal Year Ended March 31,

Flue-Cured and Burley Leaf Tobacco Operations:

North America

Other Regions (1)

Other Tobacco Operations (2)

Segment total

Reportable segment data as of, or for, the fiscal years ended March 31, 2021, 2020, and 2019, is as follows, including a recast of the new reportable operating segments presentation for all periods:

Sales and Other Operating Revenues Operating Income

Fiscal Year Ended March 31, Fiscal Year Ended March 31,

2021 2020 2019 2021 2020 2019

Tobacco Operations $ 1,841,837 $ 1,887,084 $ 2,222,246 $ 168,832 $ 146,637 $ 195,383

Ingredients Operations 141,520 22,895 4,907 367 ( 8,516 ) ( 8,611 )

Subtotal 1,983,357 1,909,979 2,227,153 169,199 138,121 186,772

Equity in pretax earnings of unconsolidated affiliates (1)

( 2,985 ) ( 4,211 ) ( 5,299 )

Restructuring and impairment costs (2)

( 22,577 ) ( 7,543 ) ( 20,304 )

Other income (3)

Consolidated total $ 1,983,357 $ 1,909,979 $ 2,227,153 $ 147,810 $ 126,367 $ 161,169

Segment Assets

Accounts Receivable, net (5)

Flue-Cured and Burley Leaf Tobacco Operations:

North America

Other Regions (1)

Other Tobacco Operations (2)

Segment and consolidated totals

Goodwill and Intangibles, net

Depreciation and Amortization

Fiscal Year Ended March 31,

Flue-Cured and Burley Leaf Tobacco Operations:

North America

Other Regions (1)

Other Tobacco Operations (2)

Segment and consolidated totals

Capital Expenditures

Fiscal Year Ended March 31,

Flue-Cured and Burley Leaf Tobacco Operations:

North America

Other Regions (1)

Other Tobacco Operations (2)

Segment and consolidated totals

Segment Assets Accounts Receivable, net

March 31, March 31,

2021 2020 2019 2021 2020 2019

Tobacco Operations $ 2,002,059 $ 1,985,732 $ 2,108,641 $ 336,876 $ 330,367 $ 367,579

Ingredients Operations 339,865 135,189 24,543 30,606 10,344 531

Consolidated total $ 2,341,924 $ 2,120,921 $ 2,133,184 $ 367,482 $ 340,711 $ 368,110

Goodwill, net Intangibles, net

March 31, Fiscal Year Ended March 31,

2021 2020 2019 2021 2020 2019

Tobacco Operations $ 98,044 $ 97,963 $ 97,907 $ 82 $ 59 $ 87

Ingredients Operations

75,007 28,863 — 72,222 17,802 —

Consolidated total $ 173,051 $ 126,826 $ 97,907 $ 72,304 $ 17,861 $ 87

Capital Expenditures Depreciation and Amortization

Fiscal Year Ended March 31, Fiscal Year Ended March 31,

2021 2020 2019 2021 2020 2019

Tobacco Operations $ 46,037 $ 35,175 $ 38,206 $ 33,895 $ 35,251 $ 35,449

Ingredients Operations 20,117 52 554 10,838 3,128 1,655

Consolidated total $ 66,154 $ 35,227 $ 38,760 $ 44,733 $ 38,379 $ 37,104

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

(2) Restructuring and impairment costs are excluded from reportable segment operating income, but are included in consolidated operating income in the consolidated statements of income (see Note 4) .

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

See Note 2 for additional information.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Includes Dark Air-Cured, Oriental, and Special Services, as well as intercompany eliminations.

Sales and other operating revenues, accounts receivable, goodwill and intangibles, depreciation and amortization, and capital expenditures include limited amounts or no 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 of the unconsolidated affiliate.

The investment in the unconsolidated affiliate is included in segment assets and was approximately $ 76.4 million , $ 79.2 million , and $ 89.3 million , at March 31, 2020 , 2019 , and 2018 , respectively.

Equity in pretax earnings 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.

Restructuring and impairment costs are excluded from segment operating income, but are included in consolidated operating income in the consolidated statements of income (see Note 4) .

Accounts receivable, net includes allowances for doubtful accounts of approximately $ 2.0 million , $ 3.0 million and $ 2.0 million at March 31, 2020 , 2019 , and 2018 respectively.

Accounts receivable are generally unsecured and due within 30 days.

Geographic data as of, or for, the fiscal years ended March 31, 2021, 2020, and 2019, is presented below.

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Long-lived assets generally consist of net property, plant, and equipment, goodwill, and other intangibles.

Geographic Data

Sales and Other Operating Revenues

Geographic Data Sales and Other Operating Revenues

Fiscal Year Ended March 31,

2021 2020 2019

United States $ 369,074 $ 221,428 $ 227,771

Belgium 366,476 361,889 390,433

Poland 97,001 84,011 145,478

Germany 94,519 104,525 166,397

Philippines 94,493 68,143 69,820

China 52,837 105,683 115,174

Mexico 51,448 35,475 64,700

All other countries 857,509 928,825 1,047,380

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Long-Lived Assets

2021 2020 2019

United States $ 266,258 $ 145,764 $ 81,270

Brazil 134,909 138,157 139,624

Mozambique 44,206 42,964 45,051

All other countries 149,492 132,955 134,543

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Other comprehensive income (loss) attributable to Universal Corporation:

Net gain (loss) on foreign currency translation (net of tax (expense) benefit of $180 in 2020 and $(5,806) in 2018)

Net gain (loss) on foreign currency translation (net of tax (expense) benefit of $ 180 in 2020)

8,272 ( 3,066 ) ( 16,316 )

Net loss on foreign currency translation attributable to noncontrolling interests ( 484 ) 244 157

Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes

Other changes:

Reclassification to retained earnings (5)

7,788 ( 2,822 ) ( 16,159 )

Balance at end of year $ ( 35,135 ) $ ( 42,923 ) $ ( 40,101 )

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Net gain (loss) on derivative instruments (net of tax (expense) benefit of $( 130 ), $ 2,880 and $ 602 )

1,791 ( 12,391 ) ( 6,490 )

Reclassification of net (gain) loss to earnings (net of tax expense (benefit) of $( 2,726 ), $ 136 , and $( 640 )) (1)

10,021 541 6,149

Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes

11,812 ( 11,850 ) ( 341 )

Balance at end of year $ ( 414 ) $ ( 12,226 ) $ ( 376 )

3 unchanged sentences

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $( 637 ), $ 6,801 , and $ 1,574 )

2,396 ( 25,588 ) ( 5,922 )

Reclassification of net (gain) loss to earnings (net of tax expense (benefit) of $( 1,469 ), $ 234 , and $ 409 ) (2)

5,526 ( 880 ) ( 1,540 )

Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes

Other changes:

Reclassification to retained earnings (5)

7,922 ( 26,468 ) ( 7,462 )

Balance at end of year $ ( 19,480 ) $ ( 27,402 ) $ ( 934 )

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Net gain (loss) arising during the year (net of tax (expense) benefit of $( 3,706 ), $ 4,715 , and $ 4,073 (3)

13,627 ( 16,810 ) ( 13,927 )

Amortization included in earnings (net of tax benefit of $ 895 , $ 554 , and $ 628 ) (4)

3,411 2,044 2,262

Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes

Other changes:

Reclassification to retained earnings (5)

17,038 ( 14,766 ) ( 11,665 )

Balance at end of year $ ( 52,008 ) $ ( 69,046 ) $ ( 54,280 )

Total accumulated other comprehensive income (loss) at end of year $ ( 107,037 ) $ ( 151,597 ) $ ( 95,691 )

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Gain (loss) on foreign currency cash flow hedges related to forecast purchases of tobacco is reclassified from accumulated other comprehensive income (loss) to cost of goods sold when the tobacco is sold to customers.

(1) Gains (losses) on foreign currency cash flow hedges related to forecast purchases of tobacco and crop input sales are reclassified from accumulated other comprehensive income (loss) to cost of goods sold when the tobacco is sold to customers.

See Note 11 for additional information.

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See Note 13 for additional information.

In the fourth quarter of fiscal year 2018, the Company adopted FASB Accounting Standards Update 2018-02, which addressed the disproportionate income tax effects on pretax amounts recorded in accumulated other comprehensive income (loss) arising from the enactment of the Tax Cuts and Jobs Act of 2017.

With the adoption of ASU 2018-02, the disproportionate tax effects were reclassified to retained earnings, and the resulting tax effects remaining in accumulated other comprehensive income (loss) are reflective of the rates which those amounts will ultimately be taxed.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

UNAUDITED QUARTERLY FINANCIAL DATA

Unaudited quarterly financial data for the fiscal years ended March 31, 2020 and 2019 is provided in the table below.

Due to the seasonal nature of the Company's business, management believes it is generally more meaningful to focus on cumulative rather than quarterly results.

Fiscal Year Ended March 31, 2020

Operating Results:

Sales and other operating revenues

Net income attributable to Universal Corporation

Earnings per common share:

Cash Dividends Declared:

Per share of common stock

Market Price Range of Common Stock:

Fiscal Year Ended March 31, 2019

Operating Results:

Sales and other operating revenues

Net income attributable to Universal Corporation

Earnings per common share:

Cash Dividends Declared:

Per share of common stock

Market Price Range of Common Stock:

Earnings per share amounts for each fiscal year may not equal the total of the four quarterly amounts due to differences in weighted-average outstanding shares for the respective periods.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant items included in the quarterly results were as follows:

Fiscal Year Ended March 31, 2020

First Quarter – Net income attributable to Universal Corporation included $ 2.8 million of additional income tax expense for the settlement of an income tax matter at a foreign subsidiary.

The increase in income tax expense reduced diluted earnings per share for the quarter by $ 0.11 .

Second Quarter – Net income attributable to Universal Corporation included $ 0.9 million in non-tax deductible transaction costs associated with the acquisition of FruitSmart, which was completed during the fourth quarter of fiscal year 2020 .

These costs were primarily related to due diligence fees.

These costs reduced diluted earnings per share for the quarter by $ 0.04 .

Third Quarter – Net income attributable to Universal Corporation included additional non-tax deductible transaction costs of $ 1 million associated with the acquisition of FruitSmart.

These costs reduced diluted earnings per share for the quarter by $ 0.04 .

Fourth Quarter – Results included $ 7.5 million in restructuring and impairment costs, primarily related to voluntary workforce reductions at operations in North America (see Note 4).

The restructuring and impairment costs included employee termination benefits, as well as impairment charges related to certain property, plant, and equipment, and other noncurrent assets.

The restructuring and impairment costs reduced net income attributable to Universal Corporation by $ 6.3 million and diluted earnings per share by $ 0.25 .

Net income attributable to Universal Corporation was reduced by $ 2.1 million of costs relating to the expensing of a fair value adjustment to inventory associated with the initial acquisition accounting for FruitSmart.

These costs reduced diluted earnings per share by $ 0.08 .

Additionally, net income attributable to Universal Corporation was reduced by $ 2.8 million of additional non-tax deductible transaction costs associated with the acquisition of FruitSmart.

These costs reduced diluted earnings per share for the quarter $ 0.11 .

Fiscal Year Ended March 31, 2019

First Quarter – Net income attributable to Universal Corporation included a $ 6.9 million reduction of income tax expense for the reversal of amounts previously recorded for dividend withholding taxes on distributed and undistributed retained earnings of a foreign subsidiary following the resolution of uncertainties with the local country taxing authorities with respect to the inclusion of the tax under a tax holiday applicable to the subsidiary.

The reduction of income tax expense increased diluted earnings per share for the quarter by $ 0.27 .

Second Quarter – Net income attributable to Universal Corporation included a $ 0.9 million additional reduction of income tax expense for amounts previously recorded for dividend withholding taxes on distributed and undistributed retained earnings of a foreign subsidiary due to the above-mentioned tax holiday.

The reduction of income tax expense increased diluted earnings per share for the quarter by $ 0.03 .

Third Quarter – Results included restructuring and impairment costs totaling $ 19.4 million , related to the Company's operations in Tanzania (see Note 4).

The restructuring and impairment costs included employee termination benefits, as well as impairment charges related to certain property, plant, equipment, and goodwill.

Those costs reduced net income attributable to Universal Corporation by $ 15.8 million and diluted earnings per share by $ 0.62 .

Fourth Quarter – Results included restructuring costs of approximately $ 0.9 million related to smaller operations, which reduced net income attributable to Universal Corporation by approximately $ 0.6 million and diluted earnings per share by $ 0.02 .

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 28, 2021 expressed an unqualified opinion thereon.

Adoption of New ASU No.

As discussed in Note 10 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of ASU No.

2016-02, Leases (Topic 842), as amended, effective April 1, 2019, using the modified retrospective approach.

Basis for Opinion

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Allowance for Advances to Suppliers

Description of the Matter

The Company’s short-term and long-term advances to suppliers totaled approximately $153 million as of March 31, 2020, and the allowances totaled $16 million.

Description of the Matter The Company’s short-term and long-term advances to suppliers totaled approximately $144 million as of March 31, 2021, and the allowances totaled $18 million.

As discussed in Note 1 of the financial statements, the Company provides agronomy services and seasonal advances of seed, fertilizer, and other supplies to tobacco farmers for crop production.

3 unchanged sentences

There is uncertainty associated with the assumptions used which could have a significant effect on the allowance estimate.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the allowance on the advances to suppliers.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the allowance on the advances to suppliers.

For example, we tested controls over the supplier advance approval and Management’s review and approval of the models used to calculate the allowance.

4 unchanged sentences

Allowance for Recoverable Value-Added Tax (“VAT”) Credits

Description of the Matter

The Company’s gross balance of recoverable value-added tax (“VAT”) credits totaled approximately $52 million as of March 31, 2020, and the related allowance totaled approximately $19 million.

Description of the Matter The Company’s gross balance of recoverable value-added tax (“VAT”) credits totaled approximately $49 million as of March 31, 2021, and the related allowance totaled approximately $19 million.

As discussed in Note 1 of the financial statements, in many foreign countries, the Company pays and receives a significant amount of VAT on purchases and sales of tobacco and tobacco related material.

5 unchanged sentences

There is uncertainty associated with the assumptions used which could have a significant effect on the estimate.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the allowance on the VAT.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the allowance on the VAT.

For example, we tested controls over Management’s review and approval of the models used in the allowance and the completeness and accuracy of the data inputs and outputs used in the calculation.

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We analyzed the sensitivity of significant assumptions to evaluate the changes in the allowance that that would result from changes in the assumptions and we considered subsequent events to identify potential sources of contrary information to Management’s assumptions.

Accounting for Acquisition of Fruitsmart

Description of the Matter

As described in Note 1 and 2 to the consolidated financial statements, on January 1, 2020 the Company acquired 100% of the capital stock of FruitSmart, Inc.

(“FruitSmart”) 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.

The acquisition of FruitSmart was accounted for as a business combination.

Auditing the Company's accounting for its business combination was complex due to the significant estimation required by management to determine the fair value of the contingent consideration ($6.7 million) and identifiable intangible assets including customer relationships ($9.5 million).

Significant estimation was required due to the application of the valuation models and assumptions used by management to measure the fair value of the contingent consideration liability and the customer-related intangible asset.

The significant assumptions used in determining the fair value included volatility, discount rate and forecasted results (e.g., revenue growth rates and operating profit margins).

How We Addressed the Matter in Our Audit

We tested the Company's controls over its accounting for business combinations.

For example, we tested controls over the recognition and measurement of consideration transferred (including contingent consideration) and the customer-related intangible asset acquired, including management’s review over the valuation models and significant assumptions.

To test the estimated fair value of the contingent consideration and customer related intangible asset, we performed audit procedures that included, among others, assessing the conditions that must be met for the contingent consideration to become payable and the significant assumptions used in the estimated fair value of the customer-related intangible asset and contingent consideration.

Accounting for Acquisition of Silva International, Inc.

Description of the Matter As described in Note 1 and 2 to the consolidated financial statements, on October 1, 2020 the Company acquired 100% of the capital stock of Silva International, Inc.

(“Silva”) for approximately $164 million in cash and $5.9 million of working capital on-hand at the date of acquisition.

The acquisition of Silva was accounted for as a business combination.

Auditing the Company's accounting for its business combination was complex due to the significant estimation required by Management to determine the fair value of identifiable intangible assets including customer relationships ($53 million).

Significant estimation was required due to the application of the valuation models and assumptions used by Management to measure the fair value of the customer-related intangible asset.

The significant assumptions used in determining the fair value included the discount rate and forecasted results (e.g., revenue growth rates and operating profit margins).

How We Addressed the Matter in Our Audit We tested the Company's controls over its accounting for business combinations.

For example, we tested controls over the customer-related intangible asset acquired, including Management’s review of the valuation models and significant assumptions.

To test the estimated fair value of the acquired customer-related intangible asset, our audit procedures included, among others, assessing the significant assumptions used in the estimated fair value of the customer-related intangible asset.

For example, we tested the completeness and accuracy of the underlying data and compared the significant assumptions to current industry, market and economic trends, historical results of the acquired business, and other guidelines used by companies within the same industry.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 report dated May 28, 2021 expressed an unqualified opinion thereon.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Fruitsmart, Inc., which is included in the 2020 consolidated financial statements of the Company and constituted 5% and 8% of total and net assets, respectively, as of March 31, 2020 and 1% and (3)% of net sales and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Fruitsmart, Inc.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Silva International, Inc., which is included in the 2021 consolidated financial statements of the Company and constituted 8.5% and 12.5% of total and net assets, respectively, as of March 31, 2021 and 3.1% and 5.7% of net sales and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Silva International, Inc.

Basis for Opinion

19 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data