What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-02-08 · 152 added, 319 removed, 691 unchanged (41% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

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

2020 2019 2020 2019

(Unaudited) (Unaudited)

Three Months Ended June 30,

Sales and other operating revenues $ 350,029 $ 315,811

28 unchanged sentences

(in thousands of dollars)

December 31, December 31, March 31,

June 30, June 30, March 31,

2021 2020 2021

19 unchanged sentences

Operating lease right-of-use assets 31,281 37,576 31,230

Goodwill and other intangibles, net 255,365 98,042 144,687

Goodwill, net 173,041 126,862 173,051

Other intangibles, net 69,905 17,114 72,304

Investments in unconsolidated affiliates 85,064 79,198 84,218

Deferred income taxes 18,013 23,085 12,149

Pension asset 11,764 — 11,950

Other noncurrent assets 50,916 44,661 52,154

5 unchanged sentences

(in thousands of dollars)

December 31, December 31, March 31,

June 30, June 30, March 31,

2021 2020 2021

21 unchanged sentences

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

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

Common stock, no par value, 100,000,000 shares authorized 24,577,254 shares issued and outstanding at June 30, 2021 ( 24,488,964 at June 30, 2020 and 24,514,867 at March 31, 2021)

327,471 322,449 326,673

9 unchanged sentences

(in thousands of dollars)

Nine Months Ended December 31,

Three Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization 12,058 10,105

Net provision for losses (recoveries) on advances and guaranteed loans to suppliers 2,753 93

Net provision for losses (recoveries) on advances to suppliers ( 328 ) 57

Foreign currency remeasurement (gain) loss, net 506 ( 4,691 )

8 unchanged sentences

Purchase of property, plant and equipment ( 14,428 ) ( 8,386 )

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

Proceeds from sale of property, plant and equipment 1,589 218

Other ( 800 ) 496

Net cash used by investing activities ( 12,839 ) ( 8,168 )

1 unchanged sentence

Issuance of short-term debt, net 49,439 20,688

Issuance of long-term debt 150,000 —

Dividends paid to noncontrolling interests ( 980 ) —

Repurchase of common stock — ( 20,125 )

Dividends paid on common stock ( 18,876 ) ( 18,567 )

1 unchanged sentence

Net cash provided (used) by financing activities 27,151 191

Effect of exchange rate changes on cash 1,693 93

Effect of exchange rate changes on cash, restricted cash and cash equivalents 78 515

Net decrease in cash, restricted cash and cash equivalents ( 112,533 ) ( 7,415 )

9 unchanged sentences

BASIS OF PRESENTATION

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

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

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

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

See Note 15 for additional information.

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

This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

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

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

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

At June 30, 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.

ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2016-13, "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" (“ASU 2016-13”).

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.

ASU 2016-13 was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company adopted ASU 2016-13 effective April 1, 2020.

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.

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").

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.

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

The Company adopted ASU 2018-15 effective April 1, 2020.

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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The guidance in ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, although early adoption is permitted.

The Company will be required to adopt the new standard effective April 1, 2021, which is the beginning of its fiscal year ending March 31, 2022, and is currently evaluating the impact that the guidance will have on its consolidated financial statements.

The Company adopted the new standard effective April 1, 2021, which was the beginning of its fiscal year ending March 31, 2022.

There was no material impact to the consolidated financial statements from the adoption of ASU 2019-12.

Pronouncements to be Adopted in Future Periods

In March 2020, the FASB issued Accounting Standards Update No.

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

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

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

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

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

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

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 June 30, 2021.

This expense is being recognized ratably over the requisite service period in selling, general, and administrative expense on the consolidated statements of income.

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

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

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

At June 30, 2021 , the Company is finalizing the fair value assigned to income tax related assets and liabilities.

The final purchase price allocation is expected to be completed in the second quarter of fiscal year 2022.

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

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Therefore, pro forma information is not presented.

Acquisition of FruitSmart, Inc.

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

(“FruitSmart”), an independent specialty fruit and vegetable ingredient processor serving global markets, for approximately $ 80 million in cash, up to $ 25 million of contingent consideration payments, and $ 3.8 million of 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.

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

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

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

(in thousands of dollars)

Cash and cash equivalents $ 1,298

Accounts receivable, net 7,707

Inventory 23,793

Other current assets 310

Property, plant and equipment (net) 23,400

Customer relationships 9,500

Developed technology 4,800

Trade names 3,300

Non-compete agreements 1,000

Goodwill 28,863

Total assets acquired 103,971

Accounts payable and accrued expenses 7,592

Accrued compensation 670

Deferred income taxes 9,004

Total liabilities assumed 17,266

Total assets acquired and liabilities assumed $ 86,705

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

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

income tax purposes.

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

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

Therefore, pro forma information is not presented.

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

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

RESTRUCTURING AND IMPAIRMENT COSTS

1 unchanged sentence

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

Ingredients Operations

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

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

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

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

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

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

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

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

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

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

supply write-downs.

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

Tobacco Operations

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

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

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

(in thousands) Three Months Ended December 31, 2020

Restructuring costs:

Employee termination benefits $ 2,625

Total restructuring costs 4,391

Impairment costs:

Property, plant and equipment 13,886

Inventory 1,702

Total impairment costs 15,588

Total restructuring and impairment costs $ 19,979

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

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

(in thousands) Nine Months Ended December 31, 2020

Balance at April 1, 2020 $ 3,404

Costs charged to expense 2,625

Payments ( 5,179 )

Balance at December 31, 2020 $ 850

In the three months ended June 30, 2021, the Company incurred and paid $ 1.5 million of termination costs associated with restructuring of tobacco processing and administrative operations in Africa.

Ingredients Operations

In the three months ended June 30, 2021, the Company incurred $ 0.5 million of impairment costs on property, plant, and equipment associated with the wind-down of the Carolina Innovative Food Ingredients, Inc.

("CIFI") operations that was announced in fiscal year 2021.

There were no restructuring and impairment costs incurred for the three months ended June 30, 2020.

REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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

tobacco, plus a contractually agreed-upon profit margin.

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

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

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

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

Three Months Ended June 30,

(in thousands of dollars) 2021 2020

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Consolidated sales and other operating revenues $ 350,029 $ 315,811

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

GUARANTEES, OTHER CONTINGENT LIABILITIES, AND OTHER MATTERS

Guarantees and Other Contingent Liabilities

Guarantees of Bank Loans and Other Contingent Liabilities

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

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

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 was the face amount (which includes unpaid accrued interest), which was zero at December 31, 2020, $ 5.1 million at December 31, 2019, and $ 3.0 million at March 31, 2020.

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

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

Other operating sales and revenues consists principally of interest on advances to suppliers.

OTHER CONTINGENT LIABILITIES AND OTHER MATTERS

Other Contingent Liabilities

Other Contingent Liabilities (Letters of credit)

The Company had other contingent liabilities totaling approximately $ 1 million at June 30, 2021, primarily related to outstanding letters of credit.

Value-Added Tax Assessments in Brazil

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

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

Those amounts are based on the exchange rate for the Brazilian currency at June 30, 2021.

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

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

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

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

As of June 30, 2021, a portion of the subsidiary’s arguments had been accepted, and the outstanding assessment had been reduced.

The reduced assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $ 9 million (at the June 30, 2021 exchange rate).

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

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

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

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

In fiscal year 2020, the Parana tax authorities acknowledged the statute of limitations related to claims prior to December 2010 had expired and reduced the assessment to $ 3 million (at the December 31, 2020 exchange rate).

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

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

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

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

However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at June 30, 2021.

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

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

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

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

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

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

Short-term and long-term advances to suppliers totaled $ 92 million at June 30, 2021, $ 83 million at June 30, 2020, and $ 144 million at March 31, 2021.

The related valuation allowances totaled $ 18 million at June 30, 2021, $ 16 million at June 30, 2020, and $ 18 million at March 31, 2021, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were reduced by net recoveries of approximately $ 0.3 million and increased by net provisions of approximately $ 0.1 million in the three-month periods ended June 30, 2021 and 2020, respectively.

These net recoveries and provisions 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.

Recoverable Value-Added Tax Credits

In many foreign countries, the Company’s local operating subsidiaries pay significant amounts of value-added tax (“VAT”) on purchases of unprocessed and processed tobacco, crop inputs, packing materials, and various other goods and services.

In many foreign countries, the Company’s local operating subsidiaries pay significant amounts of VAT on purchases of unprocessed and processed tobacco, crop inputs, packing materials, and various other goods and services.

In some countries, VAT is a national tax, and in other countries it is assessed at the state level.

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

At June 30, 2021, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 61 million ($ 54 million at June 30, 2020, and $ 49 million at March 31, 2021), and the related valuation allowances totaled approximately $ 19 million ($ 17 million at June 30, 2020, and $ 19 million at March 31, 2021).

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

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

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

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

At June 30, 2021, the five-year term loan maturing December 2023 and the seven-year term loan maturing December 2025 had outstanding borrowings of $ 225 million and $ 295 million, respectively.

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

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

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

The program had $ 100 million of remaining capacity for repurchases of common and/or preferred stock at June 30, 2021.

EARNINGS PER SHARE

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

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

Three Months Ended June 30,

(in thousands, except share and per share data) 2021 2020

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The Company operates in the United States and many foreign countries and is subject to the tax laws of many jurisdictions.

Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of pending and contested tax issues.

Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of

pending and contested tax issues.

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

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

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

income tax returns.

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

The consolidated effective income tax rate for the three months ended June 30, 2021 was 24 % .

There were no discrete items that impacted the income tax provision for the three months ended June 30, 2021.

The consolidated effective income tax rate for the three months ended June 30, 2020 was a benefit of $ 5.0 million.

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

tax regulations issued for hybrid dividends paid by foreign subsidiaries.

Without these items, the consolidated effective

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

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

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

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

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

income tax returns.

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

Without this discrete item for the final U.S.

tax regulations, the consolidated effective income tax rate for the three months ended June 30, 2020 would have been a benefit of approximately 24 %.

Additionally, for the three months ended June 30, 2020 the Company recognized $ 1.8 million as a component of interest expense related to a settlement of an uncertain tax position at foreign subsidiary.

GOODWILL AND OTHER INTANGIBLES

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

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

The Company's changes in goodwill at June 30, 2021 and 2020 consisted of the following:

(in thousands of dollars) Three Months Ended June 30,

Balance at beginning of fiscal year $ 173,051 $ 126,826

Acquisition of business (1)

Foreign currency translation adjustment

Balance at end of period $ 173,041 $ 126,862

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

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

The Silva acquisition resulted in $ 53.7 million of goodwill.

See Note 3 for additional information.

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

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

(in thousands, except useful life) December 31,

The Company's intangible assets subject to amortization consisted of the following at June 30, 2021 and 2020:

(in thousands, except useful life) June 30,

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

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Total intangible assets $ 80,177 $ ( 10,273 ) $ 69,904 $ 19,334 $ ( 2,220 ) $ 17,114

(1) On January 1, 2020 the Company acquired 100 % of the capital stock of FruitSmart for approximately $ 80.0 million in cash and up to $ 25.0 million of contingent consideration payments.

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

See Note 3 for additional information.

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

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

(1) 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 $ 60.8 million of intangibles.

1 unchanged sentence

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

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

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

2020 2019 2020 2019

The Company's amortization expense for intangible assets for the three months ended June 30, 2021 and 2020 was:

(in thousands of dollars) Three Months Ended June 30,

Amortization Expense $ 2,403 $ 808

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

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

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

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

As of June 30, 2021, the expected future amortization expense for intangible assets is as follows:

Fiscal Year (in thousands of dollars)

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

2022 (excluding the three months ended June 30, 2021)

2026 and thereafter 36,981

5 unchanged sentences

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

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

(in thousands of dollars) June 30, 2021 June 30, 2020 March 31, 2021

Operating lease right-of-use assets $ 31,281 $ 37,576 $ 31,230

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:

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

Three Months Ended June 30,

(in thousands of dollars) 2021 2020

6 unchanged sentences

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

(in thousands of dollars) December 31, 2020

(in thousands of dollars) June 30, 2021

Maturity of Operating Lease Liabilities

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

2022 (excluding the three months ended June 30, 2021)

2027 and thereafter 5,805

2 unchanged sentences

Total operating lease liabilities $ 28,824

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

As of June 30, 2021, the Company had no leases that did not yet commence.

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

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

Three Months Ended June 30,

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

At June 30, 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 December 31, 2020, the Company is not hedging the interest payments on the additional $ 150 million of term loans.

At June 30, 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 to the effectiveness analysis of the interest rate swap agreements.

2 unchanged sentences

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

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

As of June 30, 2021, $ 0.7 million remained in accumulated other comprehensive loss to be amortized through December 31, 2021.

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

12 unchanged sentences

The aggregate U.S.

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

Nine Months Ended December 31,

dollar notional amount of forward and option contracts entered into for these purposes during the three-month periods in fiscal years 2022 and 2021 was as follows:

Three Months Ended June 30,

(in millions of dollars) 2021 2020

3 unchanged sentences

$ 73.0 $ 61.7

The decreased U.S.

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

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

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

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

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

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

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

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

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.

All contracts related to tobacco purchases and crop 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 as a component of cost of goods sold upon sale of the related tobacco to third-party customers.

In fiscal year 2022, only non-deliverable forward contracts were utilized for the sale of 2022 crop year inputs.

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

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of June 30, 2021 for cash flows hedges of tobacco purchases and crop input sales will be recognized in earnings.

Hedging Program Crop Year Geographic Location(s) Fiscal Year Earnings

Tobacco purchases 2022 Brazil 2023

Tobacco purchases 2021 Brazil, Africa 2022

Tobacco purchases 2020 Brazil 2022

Crop input sales 2022 Brazil 2023

Crop input sales 2021 Brazil 2022

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

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

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

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

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

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

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

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

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

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

The total notional amounts of contracts outstanding at June 30, 2021 and 2020, and March 31, 2021, were approximately $ 16.7 million, $ 11.8 million, and $ 16.6 million, respectively.

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

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

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

Three Months Ended June 30,

(in thousands of dollars) 2021 2020

5 unchanged sentences

Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings

$ 353 $ 779 $ 1,061 $ 2,337

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

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

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

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

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

to customers.

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

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

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

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.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa and the crop input sales in Brazil, a net hedge gain of approximately $ 7.3 million remained in accumulated other comprehensive loss at June 30, 2021.

That balance reflects gains and losses on contracts related to the 2022, 2021, and 2020 Brazil crops, the 2021 Africa crop, and the 2022 and 2021 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through June 30, 2021.

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.

Generally, margins on the sale of the tobacco will not be significantly affected.

Effect of Derivative Financial Instruments on the Consolidated Balance Sheets

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

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at June 30, 2021 and 2020, and March 31, 2021:

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

1 unchanged sentence

Location Fair Value as of

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

(in thousands of dollars) June 30, 2021 June 30, 2020 March 31, 2021 June 30, 2021 June 30, 2020 March 31, 2021

Derivatives Designated as Hedging Instruments

15 unchanged sentences

Universal measures certain financial and nonfinancial assets and liabilities at fair value based on applicable accounting guidance.

The financial assets and liabilities measured at fair value include money market funds, trading securities associated with deferred compensation plans, interest rate swap agreements, forward foreign currency exchange contracts, and guarantees of bank loans to tobacco growers.

The application of the fair value guidance to nonfinancial assets and liabilities primarily includes the determination of fair values for goodwill and long-lived assets when indicators of potential impairment are present.

13 unchanged sentences

Recurring Fair Value Measurements

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

At June 30, 2021 and 2020, and at March 31, 2021, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis.

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

December 31, 2020

June 30, 2021

Fair Value Hierarchy

4 unchanged sentences

— 15,735 — — 15,735

Interest rate swap agreements

Foreign currency exchange contracts

2 unchanged sentences

$ 1,992 $ 15,735 $ 8,547 $ — $ 26,274

Acquisition-related contingent consideration obligations - long term

Acquisition-related contingent consideration obligations - short term

$ — $ — $ — $ 2,532 $ 2,532

5 unchanged sentences

$ — $ — $ 27,043 $ 2,532 $ 29,575

December 31, 2019

June 30, 2020

Fair Value Hierarchy

8 unchanged sentences

$ 4,013 $ 13,963 $ 720 $ — $ 18,696

Guarantees of bank loans to tobacco growers

Acquisition-related contingent consideration obligations - long term

$ — $ — $ — $ 2,532 2,532

16 unchanged sentences

$ 1,992 $ 15,735 $ 1,572 $ — $ 19,299

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

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Each 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.

During the year ended March 31, 2021, the evaluation resulted in a 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.

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

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

A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the three months ended June 30, 2021 and 2020 is provided below.

(in thousands of dollars) Three Months Ended June 30,

Balance beginning of year $ 2,532 $ 6,705

1 unchanged sentence

Balance at end of period $ 2,532 $ 2,532

Guarantees of bank loans to tobacco growers

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

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

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 were therefore classified within Level 3 of the fair value hierarchy.

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

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

Balance at beginning of year $ 103 $ 803

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 ) ( 661 )

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

Change in discount rate and estimated collection period ( 2 ) ( 7 )

Currency remeasurement ( 5 ) 1

Balance at end of year $ — $ 131

Long-term Debt

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

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

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 June 30, 2021, and 2020 and March 31, 2021:

(in millions of dollars) June 30, 2021 June 30, 2020 March 31, 2021

Fair market value of long term obligations $ 517 $ 370 $ 517

10 unchanged sentences

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

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

As a result of the wind-down of the CIFI operation, impairments of $ 0.5 million and $ 16.1 million of the related long-lived assets were recorded in the three months ended June 30, 2021 and in fiscal year 2021, respectively.

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 aggregate fair value and carrying value of those assets following the impairment adjustments was approximately $ 5 million at June 30, 2021.

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.

1 unchanged sentence

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.

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.

The aggregate fair value and carrying value of those assets following the impairment adjustments was approximately $ 17 million.

2 unchanged sentences

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company sponsors several defined benefit pension plans covering U.S.

The Company sponsors several defined benefit pension plans covering eligible U.S.

salaried employees and certain foreign and other employee groups.

4 unchanged sentences

Pension Benefits Other Postretirement Benefits

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

(in thousands of dollars) 2020 2019 2020 2019

Service cost $ 1,603 $ 1,529 $ 48 $ 53

Interest cost 2,403 2,678 286 322

Expected return on plan assets ( 3,676 ) ( 4,151 ) ( 24 ) ( 24 )

Net amortization and deferral 1,120 696 ( 139 ) ( 154 )

Net periodic benefit cost

$ 1,450 $ 752 $ 171 $ 197

Pension Benefits Other Postretirement Benefits

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

Three Months Ended June 30, Three Months Ended June 30,

(in thousands of dollars) 2021 2020 2021 2020

5 unchanged sentences

$ 1,500 $ 1,439 $ 149 $ 168

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

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

During the three months ended June 30, 2021, the Company made contributions of approximately $ 2.5 million to its pension plans.

Additional contributions of $ 3.7 million are expected during the remaining nine months of fiscal year 2022.

STOCK-BASED COMPENSATION

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

The Company’s

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

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

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

Awards of restricted stock, RSUs, and PSAs are currently outstanding under the Plans.

The RSUs vest five years from the grant date and are then paid out in shares of common stock.

Universal’s shareholders have approved the Executive Stock Plan (“Plan”) 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, incentive stock options, and non-qualified stock options.

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

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

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

Awards of restricted stock, RSUs, and PSUs are currently outstanding under the Plan.

The RSUs granted to employees vest either three or five years from the grant date and are then paid out in shares of common stock.

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 at the end of a performance period of three years that begins with the year of the grant, are paid out in shares of common stock shortly after 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.

The Company’s outside directors automatically receive RSUs following each annual meeting of shareholders and previously received restricted stock.

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

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

Nine Months Ended December 31,

The PSUs vest at the end of a performance period of three years that begins with the year of the grant, are paid out in shares of common stock shortly after 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.

The Company’s outside directors receive RSUs following the annual meeting of shareholders.

RSUs awarded to outside directors vest in one or three years from the grant date.

Restricted shares vest upon the individual’s retirement from service as a director.

During the three-month periods ended June 30, 2021 and 2020, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Three Months Ended June 30,

(in thousands, except share fair value) 2021 2020

7 unchanged sentences

As a result, Universal typically incurs higher stock compensation expense in the first quarter of each fiscal year when grants are awarded to officers than in the other three quarters.

For PSAs, the Company generally recognizes fair value expense ratably over the performance and vesting period based on management’s judgment of the ultimate award that is likely to be paid out based on the achievement of the predetermined performance measures.

For PSUs, the Company generally recognizes fair value expense ratably over the performance and vesting period based on management’s judgment of the ultimate award that is likely to be paid out based on the achievement of the predetermined performance measures.

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

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

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

For the three-month periods ended June 30, 2021 and 2020, the Company recorded total stock-based compensation expense of approximately $ 3.0 million and $ 2.6 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 3.1 million during the remaining nine months of fiscal year 2022.

OPERATING SEGMENTS

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

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

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

3 unchanged sentences

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

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

consumers with an alternative to traditional combustible products.

Some of these tobacco types are also increasingly used in the manufacture of non-combustible tobacco products that are intended to provide consumers with an alternative to traditional combustible products.

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

6 unchanged sentences

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

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

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

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

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

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

In fiscal year 2021, the Company announced the wind-down of CIFI, a greenfield operation that primarily manufactured both dehydrated and liquid sweet potato products.

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

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

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

Operating results for the Company’s reportable segments

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

Three Months Ended June 30,

(in thousands of dollars) 2021 2020

2 unchanged sentences

Ingredients Operations 56,186 17,438

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

Consolidated sales and other operating revenues $ 350,029 $ 315,811

OPERATING INCOME

3 unchanged sentences

Equity in pretax (earnings) loss of unconsolidated affiliates (1)

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

Restructuring and impairment costs (2)

( 19,979 ) — ( 19,979 ) —

Other income (loss) (3)

6 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the Company for the nine months ended December 31, 2020 and 2019:

Nine Months Ended December 31,

Three Months Ended June 30,

(in thousands of dollars) 2021 2020

10 unchanged sentences

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $( 1,566 ) and $ 255 )

5,698 ( 601 )

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $( 108 ) and $( 152 )) (1)

7 unchanged sentences

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $( 392 ) and $( 312 )) (2)

4,086 ( 1,681 )

Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes 374 ( 1,749 )

7 unchanged sentences

Total accumulated other comprehensive loss at end of period $ ( 98,232 ) $ ( 151,132 )

(1) 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) Gain (loss) on foreign currency cash flow hedges related to forecast purchases of tobacco and crop input sales is 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.

4 unchanged sentences

CHANGES IN SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS IN SUBSIDIARIES

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

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

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

Balance at beginning of three-month period $ 1,239,500 $ 39,376 $ 1,278,876 $ 1,298,659 $ 39,924 $ 1,338,583

Changes in common stock

Repurchase of common stock — — — ( 1,956 ) — ( 1,956 )

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

Dividend equivalents on RSUs 255 — 255 258 — 258

Changes in retained earnings

Net income 33,273 7,168 40,441 25,966 3,352 29,318

Cash dividends declared

( 18,877 ) — ( 18,877 ) ( 18,768 ) — ( 18,768 )

Repurchase of common stock — — — ( 5,830 ) — ( 5,830 )

Dividend equivalents on RSUs ( 254 ) — ( 254 ) ( 258 ) — ( 258 )

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

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

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

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three months ended June 30, 2021 and 2020 is as follows:

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020

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

1 unchanged sentence

Changes in common stock

Repurchase of common stock — — — ( 4,930 ) — ( 4,930 )

Accrual of stock-based compensation 2,966 — 2,966 2,633 — 2,633

6 unchanged sentences

( 19,170 ) — ( 19,170 ) ( 18,863 ) — ( 18,863 )

Repurchase of common stock — — — ( 15,194 ) — ( 15,194 )

Dividend equivalents on RSUs ( 264 ) — ( 264 ) ( 244 ) — ( 244 )

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements