Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, the terms “we,” “our,” “us” or “Universal” or the “Company” refer to Universal Corporation together with its subsidiaries. This Quarterly Report on Form 10-Q and the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Among other things, these statements relate to the Company’s financial condition, results of operation, and future business plans, operations, opportunities, and prospects. In addition, the Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in other filings with the Securities and Exchange Commission and in reports to shareholders. These forward-looking statements are generally identified by the use of words such as we “expect,” “believe,” “anticipate,” “could,” “should,” “may,” “plan,” “will,” “predict,” “estimate,” and similar expressions or words of similar import. These forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: impacts of the ongoing COVID-19 pandemic; success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results; product purchased not meeting quality and quantity requirements; reliance on a few large customers; our ability to maintain effective information systems and safeguard confidential information; anticipated levels of demand for and supply of our products and services; costs incurred in providing these products and services; timing of shipments to customers; changes in market structure; government regulation; product taxation; industry consolidation and evolution; changes in exchange rates and interest rates; impacts of regulation and litigation on our customers; industry-specific risks related to our plant-based ingredient businesses; exposure to certain regulatory and financial risks related to climate change; changes in estimates and assumptions underlying our critical accounting policies; the promulgation and adoption of new accounting standards; new government regulations and interpretation of existing standards and regulations; and general economic, political, market, and weather conditions. For a further description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made, and we undertake no obligation to update any forward-looking statements made in this report. This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Results of Operations
Amounts described as net income (loss) and earnings (loss) per diluted share in the following discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. Adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, and the total for segment operating income (loss) referred to in this discussion are non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for operating income (loss), net income (loss) attributable to Universal Corporation, diluted earnings (loss) per share, cash from operating activities or any other operating or financial performance measure calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. A reconciliation of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below. In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 15. "Operating Segments" to the consolidated financial statements. Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits. We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, provide investors with important information that is useful in understanding our business results and trends.
Overview
Our operations produced solid results in the nine months ended December 31, 2021. We are especially pleased by the strong results from our Ingredients Operations segment. That segment is developing nicely and was bolstered by our acquisition of Shank’s on October 4, 2021. Shank’s adds valuable capabilities to the segment, including flavors and extracts, custom packaging, bottling, and product development.
We continued to experience the impact of tobacco shipment timing on our results in the nine months and quarter ended December 31, 2021. Tobacco shipments through the nine months ended December 31, 2021, were lower, compared to the same period in fiscal year 2021, in part due to elevated tobacco shipments in the third quarter of fiscal year 2021 related to earlier customer mandated shipment timing. Logistical challenges due to continued limitations in worldwide shipping availability
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stemming from the ongoing COVID-19 pandemic also slowed tobacco shipments in the nine months ended December 31, 2021. However, despite the shipment timing variations and logistical challenges, we believe that our tobacco business remains robust with strong customer demand, and our uncommitted tobacco inventory levels remain well within our target range.
Our businesses have performed well managing global supply chain constraints, particularly shipping availability. However, due to continued lack of containers, trucks, and vessels in certain geographies, we expect that some tobacco shipments from certain origins will be pushed into fiscal year 2023.
Inflationary pressures including higher freight and labor expenses have driven up our costs in both our tobacco and ingredients operations. We are also seeing higher raw materials costs for both tobacco and ingredients products, and we have been working diligently to build these increased costs into our product costs and customer contracts. Despite rising prices, we believe demand remains strong for both our tobacco and ingredients products. While it is still very early, we are also forecasting smaller crops in several key origins for fiscal year 2023.
Sustainability has long been a core tenant of how we conduct our business, and we work to clearly communicate our sustainability goals and efforts. We published our fiscal year 2021 Sustainability Report in December 2021, and it is available on our website, www.universalcorp.com. We are excited about our measurable sustainability goals and targets outlined in the report and are committed to continue to build on our global sustainability programs to reinforce the sustainability of our supply chains.
FINANCIAL HIGHLIGHTS
Nine Months Ended December 31, Change
(in millions of dollars, except per share data) 2021 2020 $ %
Consolidated Results
Sales and other operating revenue $ 1,456.6 $ 1,365.8 $ 90.9 7 %
Cost of goods sold $ 1,170.0 $ 1,103.7 $ 66.3 6 %
Gross Profit Margin 19.7 % 19.2 % 50 bps
Selling, general and administrative expenses $ 175.5 $ 161.2 $ 14.4 9 %
Restructuring and impairment costs $ 10.5 $ 20.0 $ (9.5) (48) %
Operating income (as reported) $ 103.2 $ 85.1 $ 18.1 21 %
Adjusted operating income (non-GAAP)* $ 116.5 $ 107.6 $ 8.9 8 %
Diluted earnings per share (as reported) $ 2.44 $ 1.94 $ 0.50 26 %
Adjusted diluted earnings per share (non-GAAP)* $ 2.76 $ 2.59 $ 0.17 7 %
Segment Results
Tobacco operations sales and other operating revenues $ 1,268.6 $ 1,278.8 $ (10.2) (1) %
Tobacco operations operating income $ 105.6 $ 107.7 $ (2.1) (2) %
Ingredients operations sales and other operating revenues $ 188.0 $ 86.9 $ 101.1 116 %
Ingredient operations operating income $ 10.6 $ (4.7) $ 15.3 325 %
*See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below.
Net income for the nine months ended December 31, 2021, was $60.8 million, or $2.44 per diluted share, compared with $48.0 million, or $1.94 per diluted share, for the nine months ended December 31, 2020. Excluding restructuring and impairment costs and certain other non-recurring items, detailed in Other Items below, net income and diluted earnings per share increased by $4.5 million and $0.17, respectively, for the nine months ended December 31, 2021, compared to the nine months ended December 31, 2020. Operating income of $103.2 million for the nine months ended December 31, 2021, increased by $18.1 million, compared to operating income of $85.1 million for the nine months ended December 31, 2020. Adjusted operating income, detailed in Other Items below, of $116.5 million increased by $8.9 million for the nine months ended December 31, 2021, compared to adjusted operating income of $107.6 million for the nine months ended December 31, 2020.
Net income for the quarter ended December 31, 2021, was $34.9 million, or $1.40 per diluted share, compared with $33.3 million, or $1.34 per diluted share, for the quarter ended December 31, 2020. Excluding restructuring and impairment costs and certain other non-recurring items, detailed in Other Items below, net income and diluted earnings per share decreased by $9.7
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million and $0.39, respectively, for the quarter ended December 31, 2021, compared to the quarter ended December 31, 2020. Operating income of $62.8 million for the quarter ended December 31, 2021, increased by $2.6 million, compared to operating income of $60.2 million for the quarter ended December 31, 2020. Adjusted operating income, detailed in Other Items below, of $74.9 million decreased by $10.4 million for the third quarter of fiscal year 2022, compared to adjusted operating income of $85.2 million for the third quarter of fiscal year 2021.
Consolidated revenues increased by $90.9 million to $1.5 billion for the nine months ended December 31, 2021, compared to the same period in fiscal year 2021, on the addition of the businesses acquired in the Ingredients Operations segment and a better product mix and higher sales prices in the Tobacco Operations segment. In the quarter ended December 31, 2021, consolidated revenues decreased by $20.3 million to $652.6 million, compared to the quarter ended December 31, 2020, on lower tobacco sales volumes offset in part by a better tobacco product mix and higher tobacco sales prices as well as the inclusion of the Shank’s acquisition in the Ingredients Operations segment.
Tobacco Operations
Operating income for the Tobacco Operations segment decreased by $2.1 million to $105.6 million and by $14.3 million to $69.8 million, respectively, for the nine months and quarter ended December 31, 2021, compared to the same periods in fiscal year 2021. Tobacco Operations segment results declined largely due to tobacco shipment timing, partially offset by a favorable product mix consisting of a higher percentage of lamina tobacco as well as increased value-added services to customers in the nine months and quarter ended December 31, 2021, compared to the nine months and quarter ended December 31, 2020. Africa sales volumes were lower in the nine months and quarter ended December 31, 2021, compared to the same periods in fiscal year 2021, on smaller burley crops as well as slower shipment timing. Sales volumes for Brazil were lower in the nine months ended December 31, 2021, compared to the same period in the prior year, when high volumes of lower margin carryover tobaccos shipped. Vessel and container availability has also been limited in Brazil in fiscal year 2022, which has slowed shipments. In Asia, although trading volumes were down on high freight costs, our operations saw a more favorable product mix, as well as increased value-added services for customers during the nine months and quarter ended December 31, 2021, compared to the same periods in the prior fiscal year. Our operations in Europe experienced higher energy costs in the quarter and nine months ended December 31, 2021, compared to the same periods in the prior fiscal year. Selling, general, and administrative expenses for the Tobacco Operations segment were higher in the nine months and quarter ended December 31, 2021, compared to the nine months and quarter ended December 31, 2020, primarily due to unfavorable foreign currency exchange comparisons, mainly remeasurement. Revenues for the Tobacco Operations segment of $1.3 billion for the nine months and $578.0 million for the quarter ended December 31, 2021, were down $10.2 million and $45.8 million, respectively, compared to the same periods in the prior fiscal year, on lower sales volumes partially offset by a more favorable product mix as well as higher sales prices.
Ingredients Operations
Operating income for the Ingredients Operations segment was $10.6 million and $3.5 million, respectively, for the nine months and quarter ended December 31, 2021, compared to operating losses of $4.7 million and $2.5 million, respectively, for the nine months and quarter ended December 31, 2020. Results for the segment include our October 2020 acquisition of Silva and our October 2021 acquisition of Shank’s. For both the nine months and quarter ended December 31, 2021, our Ingredients Operations saw strong volumes in both human and pet food categories as well as some rebound in demand from sectors that have been impacted by the ongoing COVID-19 pandemic. In addition, the segment saw strong sales of organic-based products, certain dehydrated products, and flavors and extracts. Selling, general, and administrative expenses for the segment increased in the nine months and quarter ended December 31, 2021, compared to the same periods in the prior fiscal year, on the addition of the acquired businesses. Revenues for the Ingredients Operations segment increased by $101.1 million to $188.0 million and by $25.6 million to $74.6 million, respectively, for the nine months and quarter ended December 31, 2021, compared to the nine months and quarter ended December 31, 2020, primarily on the addition of the revenues for the acquired businesses.
COVID-19 Pandemic Impact
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) a pandemic. Foreign governmental organizations and governmental organizations in the United States have taken various actions to combat the spread of COVID-19 and its subsequent variants, including imposing stay-at-home orders, closing “non-essential” businesses and their operations, and restricting international travel. We continue to closely monitor developments related to the ongoing COVID-19 pandemic and have taken and continue to take steps intended to mitigate the potential risks and impacts to us. It is paramount that our employees who operate our businesses are safe and informed. We have assessed and regularly update our existing business continuity plans for our business in the context of this pandemic. For example, we have taken precautions during the pandemic with regard to employee and facility hygiene, imposed travel limitations on our employees, implemented work-from-home procedures, and we continue to assess and reevaluate protocols designed to protect our employees, customers and the public.
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We continue to work with our suppliers to mitigate the impacts to our supply chain due to the ongoing pandemic. To date, we have not experienced a material impact to our supply chain, although the ongoing COVID-19 pandemic resulted in delays in certain operations during fiscal year 2021. Since March 2020, we have at times also experienced increased volatility in foreign currency exchange rates, which we believe is in part related to the continued uncertainties from COVID-19, as well as actions taken by governments and central banks in response to COVID-19. We are currently seeing and monitoring some logistical constraints around worldwide vessel and container availability and increased costs stemming from the ongoing COVID-19 pandemic.
We believe we currently have sufficient liquidity to meet our current obligations and our business operations remain fundamentally unchanged other than shipping delays, which could continue to impact quarterly comparisons. This is, however, a rapidly evolving situation, and we cannot predict the extent, resurgence, or duration of the ongoing COVID-19 pandemic, the effects of it on the global, national or local economy, including the impacts on our ability to access capital, or its effects on our business, financial position, results of operations, and cash flows. We continue to monitor developments affecting our employees, customers and operations. We will take additional steps and reevaluate current protocols to address the spread of COVID-19 and its impacts, as necessary, and remain thankful for the hard work of our employees and the continued support of our customers, growers, and other partners during these challenging times.
Other Items
Cost of goods sold in the nine months ended December 31, 2021, increased by 6% to $1.2 billion and decreased by 2% to $521.2 million in the quarter ended December 31, 2021, compared with the same periods in the prior fiscal year, as a result of the acquisitions in our Ingredients Operations segment as well as variances in volumes and product mix in the Tobacco Operations segment. Selling, general, and administrative costs for the nine months and quarter ended December 31, 2021, increased by $14.4 million to $175.5 million and by $0.9 million to $60.3 million, respectively, compared to the same periods in the prior fiscal year, on additional costs from the acquisitions in the Ingredients Operations segment as well as unfavorable foreign currency comparisons, mainly remeasurement, partially offset by lower compensation costs in the Tobacco Operations segment. Unfavorable foreign currency comparisons were approximately $11.5 million and $5.0 million, respectively, in the nine months and quarter ended December 31, 2021, compared to the same periods in the prior year. Interest expense for the nine months and quarter ended December 31, 2021, increased by $1.7 million to $20.8 million and by $0.7 million to $7.5 million, respectively, largely on higher average debt balances and interest rates.
For the nine months and quarter ended December 31, 2021, the Company’s effective tax rate on pre-tax income was 21.0% and 23.4% respectively. In the nine months ended December 31, 2021, the Company recognized a $1.7 million income tax benefit related to a final tax ruling at a foreign subsidiary and a $1.2 million benefit in the third fiscal quarter of 2022 due to finalizing the prior year U.S. tax return. Without these income tax benefits, the adjusted effective tax rate for the nine months and quarter ended December 31, 2021, would have been 24.2% and 25.5%, respectively.
For the nine months and quarter ended December 31, 2020, our consolidated effective tax rate was 18.6% and 26.5%, respectively. For the nine months ended December 31, 2020, income tax expense included a $4.4 million benefit for final tax regulations regarding the treatment of dividends paid by foreign subsidiaries and a $2.9 million benefit in the third fiscal quarter of 2021 due to amending and finalizing prior year U.S. tax returns. Without these income tax benefits, the consolidated effective tax rate for the nine months and quarter ended December 31, 2020, would have been approximately 29.3% and 31.7%, respectively.
Reconciliation of Certain Non-GAAP Financial Measures
The following tables set forth certain non-recurring items included in reported results to reconcile adjusted operating income to consolidated operating income and adjusted net income to net income attributable to Universal Corporation:
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Adjusted Operating Income Reconciliation
Three Months Ended December 31, Nine Months Ended December 31,
(in thousands) 2021 2020 2021 2020
As Reported: Consolidated operating income $ 62,773 $ 60,186 $ 103,191 $ 85,065
Purchase accounting adjustment (1)
3,057 2,800 3,057 2,800
Transaction costs for acquisitions (2)
597 2,252 2,310 3,915
Restructuring and impairment costs (3)
8,433 19,979 10,457 19,979
Fair value adjustment to contingent consideration for FruitSmart acquisition (4)
— — (2,532) (4,173)
Adjusted operating income $ 74,860 $ 85,217 $ 116,483 $ 107,586
Adjusted Net Income and Diluted Earnings Per Share
(in thousands and reported net of income taxes) Three Months Ended December 31, Nine Months Ended December 31,
2021 2020 2021 2020
As Reported: Net income available to Universal Corporation $ 34,940 $ 33,273 $ 60,807 $ 48,049
Purchase accounting adjustment (1)
2,415 2,800 2,415 2,800
Transaction costs for acquisitions (2)
482 2,252 2,195 3,915
Restructuring and impairment costs (3)
6,874 16,100 7,879 16,100
Fair value adjustment to contingent consideration for FruitSmart acquisition (4)
— — (2,532) (4,173)
Interest (income) expense related to tax matters at foreign subsidiaries — — (470) 1,849
Income tax benefit on a final tax ruling (fiscal year 2022) and dividends paid from foreign subsidiaries (fiscal year 2021) (5)
— — (1,686) (4,421)
Adjusted net income available to Universal Corporation $ 44,711 $ 54,425 $ 68,608 $ 64,119
As reported: Diluted earnings per share $ 1.40 $ 1.34 $ 2.44 $ 1.94
As adjusted: Diluted earnings per share $ 1.80 $ 2.19 $ 2.76 $ 2.59
(1) The Company recognized an increase in cost of goods sold in the third quarters of fiscal year 2022 and 2021, relating to the expensing of fair value adjustments to inventory associated with the acquisition accounting for Shank's (effective October 4, 2021) and Silva (effective October 1, 2020). The adjustment related to the Silva acquisition is not deductible for U.S. income tax purposes.
(2) The Company incurred selling, general, and administrative expenses for due diligence and other transaction costs associated with the acquisitions of Shank's and Silva. A portion of these costs is not deductible for U.S. income tax purposes..
(3) Restructuring and impairment costs are included in Consolidated operating income in the consolidated statements of income, but excluded for purposes of Adjusted operating income, Adjusted net income available to Universal Corporation, and Adjusted diluted earnings per share. See Note 4 for additional information.
(4) The Company reversed the contingent consideration liability for the FruitSmart acquisition, as a result of certain performance metrics that did not meet the required threshold stipulated in the purchase agreement.
(5) The Company recognized income tax benefits related to a favorable final income tax ruling at a foreign subsidiary (fiscal year 2022) and final U.S. tax regulations on certain dividends paid by foreign subsidiaries (fiscal year 2021).
Liquidity and Capital Resources
Overview
After significant seasonal working capital investment in our tobacco operations in the first half of the fiscal year, we generally see tobacco inventory levels and other working capital items decrease in the second half of our fiscal year as tobacco crops in Africa, South America, and North America are being shipped. We saw the beginning of the seasonal contraction in our working capital requirements by the end of the third quarter of fiscal year 2022, however, that contraction has been smaller than in fiscal year 2021 largely due to tobacco shipment timing. We funded our working capital needs in the nine months ended
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December 31, 2021, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows. We expect tobacco crop shipments to continue to be weighted to the second half of the fiscal year with significant shipments expected in our fourth fiscal quarter.
Our liquidity and operating capital resource requirements are predominantly short term in nature and primarily relate to working capital for tobacco crop purchases. Working capital needs are seasonal within each geographic region. The geographic dispersion and the timing of working capital needs permit us to predict our general level of cash requirements, although tobacco crop size, prices paid to farmers, shipment and delivery timing, and currency fluctuations affect requirements each year. Peak working capital requirements are generally reached during the first and second fiscal quarters. Each geographic area follows a cycle of buying, processing, and shipping tobacco, and in many regions, we also provide agricultural materials to farmers during the growing season. The timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping requirements, which may change the level or the duration of crop financing. Despite a predominance of short-term needs, we maintain a portion of our total debt as long-term to reduce liquidity risk. We also periodically have large cash balances that we utilize to meet our working capital requirements.
To date, the ongoing COVID-19 pandemic has not had a material impact on our operations, although we are seeing logistical constraints around worldwide vessel and container availability and increased costs stemming from the ongoing COVID-19 pandemic. We currently anticipate our current cash balances, cash flows from operations, and our available sources of liquidity will be sufficient to meet our cash requirements for at least the next twelve months. This is, however, a rapidly evolving situation, and we cannot predict the extent, resurgence, or duration of the ongoing COVID-19 pandemic, the effects of it on the global, national or local economies, including the impacts on our ability to access capital, or its effects on our business, financial position, results of operations, and cash flows. We continue to monitor developments affecting our employees, customers and operations.
Our balance sheet at December 31, 2021, also reflects our acquisition of Shank’s on October 4, 2021. The acquisition was financed using a combination of cash on hand and borrowings under our committed revolving credit facility.
Operating Activities
We used $51.6 million in net cash flows from our operations during the nine months ended December 31, 2021. That amount was higher than during the same period last fiscal year when we generated $38.6 million in net cash flows largely due to tobacco shipment timing. Tobacco inventory levels increased by $214.9 million from March 31, 2021 levels to $855.6 million at December 31, 2021, on seasonal leaf purchases. Tobacco inventory levels were $41.3 million above December 31, 2020 levels, mainly due to shipment timing. We generally do not purchase material quantities of tobacco on a speculative basis. However, when we contract directly with tobacco farmers, we are often obligated to buy all stalk positions, which may contain less marketable leaf styles. At December 31, 2021, our uncommitted tobacco inventories were $132.0 million, or about 15% of total tobacco inventory, compared to $139.2 million, or about 22% of our March 31, 2021 tobacco inventory, and $155.7 million, or about 19% of our December 31, 2020 tobacco inventory. While we target committed inventory levels of 80% or more of total tobacco inventory, the level of these uncommitted inventory percentages is influenced by timing of farmer deliveries of new crops, as well as the receipt of customer orders.
Our balance sheet accounts reflected seasonal patterns in the nine months ended December 31, 2021, on deliveries of tobacco crops by farmers in both South America, Africa, and North America. Cash and cash equivalent balances decreased by $97.9 million from March 31, 2021 levels, as we used cash, including collections on receivables, to fund seasonal working capital needs. Accounts receivable were $400.1 million at December 31, 2021, an increase of $32.6 million from March 31, 2021, mainly on seasonal increases. Goodwill and other intangibles and notes payable and overdrafts were up by $64.5 million and $151.3 million, respectively, compared from March 31, 2021 levels, mainly due the Shank’s acquisition in our Ingredients Operations segment. Accounts payable and accrued expenses increased by $81.9 million from March 31, 2021 levels, primarily on tobacco purchases.
Accounts receivable were up $45.5 million for the nine months ended December 31, 2021, compared to the same period in the prior fiscal year, on the timing of tobacco shipments. Notes payable and overdrafts increased by $123.0 million in the nine months ended December 31, 2021, compared to the same period in the prior fiscal year, largely on the Shank’s acquisition. Accounts payable and accrued expenses were up $65.0 million in the nine months ended December 31, 2021, compared to the same period in the prior fiscal year, primarily on tobacco purchases.
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Investing Activities
Our capital allocation strategy focuses on four strategic priorities: strengthening and investing for growth in our leaf tobacco business; increasing our strong dividend; exploring growth opportunities for our plant-based ingredients platform that utilize our assets and capabilities; and returning excess capital to our shareholders. In deciding where to invest capital resources, we look for opportunities where we believe we can earn an adequate return as well as leverage our assets and expertise or enhance our farmer base. In line with our capital allocation strategy, we acquired Shank’s for approximately $100 million on October 4, 2021. In the quarter ended December 31, 2021, we also spent approximately $13 million to purchase the real property assets related to the Shank’s acquisition. The acquisition expands our plant-based ingredients platform, adding to our product offerings and growing the value-added services available to our customers by adding flavors and extracts, custom packaging, bottling, and product development capabilities.
Our capital expenditures are generally limited to those that add value, replace or maintain equipment, increase efficiency, or position us for future growth. During the nine months ended December 31, 2021 and 2020, we invested about $39.8 million and $33.8 million, respectively, in our property, plant and equipment. Depreciation expense was approximately $30.4 million and $28.6 million for the nine months ended December 31, 2021 and 2020, respectively. Typically, our capital expenditures for maintenance projects are less than $30 million per fiscal year. In addition, from time to time, we undertake projects that require capital expenditures when we identify opportunities to improve efficiencies, add value for our customers, and position ourselves for future growth. We currently expect to spend approximately $45 to $55 million over the next twelve months on capital projects for maintenance of our facilities and other investments to grow and improve our businesses.
Our Board of Directors approved our current share repurchase program in November 2020. The program authorizes the purchase of up to $100 million of our common stock through November 15, 2022. Under the current authorization, we may purchase shares from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates. Repurchases of shares under the repurchase program may vary based on management discretion, as well as changes in cash flow generation and availability. During the three months ended December 31, 2021, we did not purchase any shares of common stock. As of December 31, 2021, approximately 24.6 million shares of our common stock were outstanding and our available authorization under our current share repurchase program was $100 million.
Financing Activities
On October 4, 2021, we acquired Shank’s for approximately $100 million. In the quarter ended December 31, 2021, we also spent approximately $13 million to purchase the real property assets related to the Shank’s acquisition. We financed the acquisition and real property assets using cash-on-hand and borrowings under our committed revolving credit facility.
We consider the sum of notes payable and overdrafts, long-term debt (including any current portion), and customer advances and deposits, less cash, cash equivalents, and short-term investments on our balance sheet to be our net debt. We also consider our net debt plus shareholders' equity to be our net capitalization. Net debt as a percentage of net capitalization was approximately 35% at December 31, 2021, up from the December 31, 2020 level of approximately 31%, largely on higher debt balances due in part to the Shank’s acquisition in October 2021, and up from the March 31, 2021 level of approximately 25% on the acquisition and seasonal working capital borrowings. As of December 31, 2021, we had $99.3 million in cash and cash equivalents, our short-term debt totaled $252.6 million, and we were in compliance with all covenants of our debt agreements, which require us to maintain certain levels of tangible net worth and observe restrictions on debt levels.
As of December 31, 2021, we had $260 million available under a committed revolving credit facility that will mature in December 2023, and we had about $188 million in unused, uncommitted credit lines. We also maintain an effective, undenominated universal shelf registration statement that provides for future issuance of additional debt or equity securities. We have no long-term debt maturing until fiscal year 2024. Our seasonal working capital requirements for our tobacco business typically increase significantly between March and September and decline after mid-year. Available capital resources from our cash balances, committed credit facility, and uncommitted credit lines exceed our normal working capital needs and currently anticipated capital expenditure requirements over the next twelve months.
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Derivatives
From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates. At December 31, 2021, the fair value of our outstanding interest rate swap agreements was a liability of about $17 million, and the notional amount swapped was $370 million. We entered into these agreements to eliminate the variability of cash flows in the interest payments on a portion of our variable-rate term loans. Under the swap agreements we receive variable rate interest and pay fixed rate interest. The swaps are accounted for as cash flow hedges.
We also use derivative instruments from time to time to hedge certain foreign currency exposures, primarily related to forecasted purchases of tobacco, related processing costs, and crop input sales in Brazil, as well as our net monetary balance sheet exposures in local currency there. We generally account for our hedges of forecasted tobacco purchases as cash flow hedges. At December 31, 2021, the fair value of our open hedges was a net liability of about $1.8 million. We had forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net asset of approximately $0.1 million at December 31, 2021.
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