What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-03 · 145 added, 102 removed, 726 unchanged (25% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

Three Months Ended June 30,

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Sales and other operating revenues $ 650,984 $ 453,955 $ 1,080,806 $ 803,984

2 unchanged sentences

Selling, general and administrative expenses 72,373 65,402 138,825 115,246

Other income — ( 2,532 ) — ( 2,532 )

Restructuring and impairment costs — — — 2,024

23 unchanged sentences

(in thousands of dollars)

June 30, June 30, March 31,

September 30, September 30, March 31,

2022 2021 2022

31 unchanged sentences

(in thousands of dollars)

June 30, June 30, March 31,

September 30, September 30, March 31,

2022 2021 2022

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 24,605,889 shares issued and outstanding at June 30, 2022 ( 24,577,254 at June 30, 2021 and 24,550,019 at March 31, 2022)

Common stock, no par value, 100,000,000 shares authorized 24,555,361 shares issued and outstanding at September 30, 2022 ( 24,607,384 at September 30, 2021 and 24,550,019 at March 31, 2022)

333,540 328,836 330,662

9 unchanged sentences

(in thousands of dollars)

Three Months Ended June 30,

Six Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

7 unchanged sentences

Restructuring payments — ( 3,203 )

Change in estimated fair value of contingent consideration for FruitSmart acquisition — ( 2,532 )

Other, net 7,709 ( 4,916 )

9 unchanged sentences

Dividends paid to noncontrolling interests ( 6,825 ) ( 4,676 )

Repurchase of common stock ( 3,448 ) —

Dividends paid on common stock ( 38,594 ) ( 38,047 )

17 unchanged sentences

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

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, 2022.

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

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

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, 2022 (the “2022 Annual Report on Form 10-K”) .

While the business environment in most of the jurisdictions in which we operate continues to move toward a state resembling pre-pandemic conditions, 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 continues to depend on future developments, which are highly uncertain and cannot be predicted.

Such developments may include the ongoing geographic spread and mutations and subvariants 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 June 30, 2022, 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 September 30, 2022, 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

6 unchanged sentences

The standard is effective upon issuance and can be applied as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the impact that the guidance will have on its consolidated financial statements.

The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

BUSINESS COMBINATION

37 unchanged sentences

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

There were no restructuring and impairment costs incurred for the three months ended June 30, 2022.

There were no restructuring and impairment costs incurred for the three and six months ended September 30, 2022.

Tobacco Operations

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

During the six months ended September 30, 2021, the Company incurred $ 1.5 million of termination and impairment costs associated with restructuring of tobacco buying and administrative operations in Africa.

Ingredients Operations

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

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

(“CIFI”), a sweet potato processing operation located in Nashville, North Carolina that was announced in fiscal year 2021.

7 unchanged sentences

Therefore, the Company has applied a practical expedient to not adjust the transaction price for the effects of financing components, as the Company expects that the period from the time the revenue for a transaction is recognized to the time the customer pays for the related good or service transferred will be one year or less.

Shipping and handling costs under sales contracts with customers are treated as fulfillment costs and included in the transaction price.

Below is a description of the major revenue-generating categories from contracts with customers.

6 unchanged sentences

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

Shipping and handling costs under tobacco sales contracts with customers are treated as fulfillment costs and included in the transaction price.

Taxes assessed by government authorities on the sale of leaf tobacco products are excluded from the transaction price.

1 unchanged sentence

Ingredient Sales

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

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

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

14 unchanged sentences

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

Three Months Ended June 30,

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

(in thousands of dollars) 2022 2021 2022 2021

10 unchanged sentences

Other Contingent Liabilities (Letters of credit)

The Company had other contingent liabilities totaling approximately $ 1 million at June 30, 2022, primarily related to outstanding letters of credit.

The Company had other contingent liabilities totaling approximately $ 1 million at September 30, 2022, primarily related to outstanding letters of credit.

Value-Added Tax Assessments in Brazil

5 unchanged sentences

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 $ 10 million.

Those amounts are based on the exchange rate for the Brazilian currency at June 30, 2022.

Those amounts are based on the exchange rate for the Brazilian currency at September 30, 2022.

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 June 30, 2022, 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, 2022 exchange rate).

As of September 30, 2022, 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 September 30, 2022 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 June 30, 2022.

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

2 unchanged sentences

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 June 30, 2022 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.

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 June 30, 2022.

However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at September 30, 2022.

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.

11 unchanged sentences

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 $ 120 million at June 30, 2022, $ 92 million at June 30, 2021, and $ 153 million at March 31, 2022.

The related valuation allowances totaled $ 17 million at June 30, 2022, $ 18 million at June 30, 2021, and $ 19 million at March 31, 2022, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were increased by net recoveries of approximately $ 42 thousand and $ 328 thousand in the three-month periods ended June 30, 2022 and 2021, respectively.

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

Short-term and long-term advances to suppliers totaled $ 122 million at September 30, 2022, $ 98 million at September 30, 2021, and $ 153 million at March 31, 2022.

The related valuation allowances totaled $ 14 million at September 30, 2022, $ 14 million at September 30, 2021, and $ 19 million at March 31, 2022, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were decreased by net recoveries of approximately $ 1.0 million and $ 44 thousand in the six-month periods ended September 30, 2022 and 2021, respectively.

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

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

12 unchanged sentences

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 June 30, 2022, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 77 million ($ 61 million at June 30, 2021, and $ 67 million at March 31, 2022), and the related valuation allowances totaled approximately $ 22 million ($ 19 million at June 30, 2021, and $ 21 million at March 31, 2022).

At September 30, 2022, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 70 million ($ 55 million at September 30, 2021, and $ 67 million at March 31, 2022), and the related valuation allowances totaled approximately $ 24 million ($ 20 million at September 30, 2021, and $ 21 million at March 31, 2022).

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

Long-Term Debt

At June 30, 2022, the Company had a $ 225 million five-year term loan maturing December 2023 and a $ 295 million seven-year term loan maturing December 2025.

Under the senior unsecured bank credit facility, $ 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 June 30, 2022.

At September 30, 2022, the Company had a $ 225 million five-year term loan maturing December 2023 and a $ 295 million seven-year term loan maturing December 2025.

Under the Company's senior unsecured bank credit facility, $ 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 September 30, 2022.

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

4 unchanged sentences

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

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

The program had $ 97 million of remaining capacity for repurchases of common and/or preferred stock at June 30, 2022.

This stock repurchase plan authorized the purchase of up to $ 100,000,000 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 $ 93 million of remaining capacity for repurchases of common and/or preferred stock at September 30, 2022.

This stock repurchase program was replaced on November 2, 2022 when the Company's Board of Directors authorized a new stock repurchase plan up to $ 100,000,000 in common and/or preferred stock through November 15, 2024 or when funds for the program have been exhausted, subject to market conditions and other factors.

Sale of Idled Tanzania Operations

During the three months ended June 30, 2022, the Company entered into a sales agreement to sell all outstanding common stock, which included all properties, of the idled companies in Tanzania for $ 8.5 million.

During the six months ended September 30, 2022, the Company entered into a sales agreement to sell all outstanding shares of common stock, which included all properties, of the idled companies in Tanzania for $ 8.5 million.

The Company received $ 1.3 million when the transaction closed in June 2022.

The remaining proceeds will be received in installments by June 2023.

The remaining proceeds are expected to be received in installments by June 2023.

EARNINGS PER SHARE

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

Three Months Ended June 30,

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

(in thousands, except share and per share data) 2022 2021 2022 2021

17 unchanged sentences

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 Company's consolidated effective income tax rate for the three months ended June 30, 2022 was 54.6 %.

The consolidated effective income tax rate for the three months ended June 30, 2022 was affected by the sale of the idled Tanzania operations that resulted in $ 1.1 million of additional income taxes.

Without this item, them consolidated effective income tax rate for the three months ended June 30, 2022 would have been approximately 36.2 %.

Additionally, the sale of the idled Tanzania operations resulted in a $ 1.8 million reduction to consolidated interest expense related to the removal of an uncertain tax position.

The Company's consolidated effective income tax rate for the three months ended June 30, 2021 was 23.7 %.

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

The Company's consolidated effective income tax rate for the three and six months ended September 30, 2022 was 25.5 % and 31.1 %, respectively.

The consolidated effective income tax rate for the six months ended September 30, 2022 was affected by the sale of the Company's idled Tanzania operations that resulted in $1.1 million of additional income taxes.

Without this item, them consolidated effective income tax rate for the six months ended September 30, 2022 would have been approximately 27.5 %.

Additionally, the sale of the Company's idled Tanzania operations resulted in a $ 1.8 million reduction to consolidated interest expense related to the removal of an uncertain tax position.

The Company's consolidated effective income tax rate for the three and six months ended September 30, 2021 was 15.1 % and 16.5 %, respectively.

The consolidated effective income tax rate for the three and six months ended September 20, 2021 was affected by a $ 1.7 million benefit related to a final tax ruling at a foreign subsidiary.

Without this item, the consolidated effective income tax rate for the three and six months ended September 30, 2021 would have been approximately 21.7 % and 22.0 %, respectively

GOODWILL AND OTHER INTANGIBLES

The Company's changes in goodwill at June 30, 2022 and 2021 consisted of the following:

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

The Company's changes in goodwill at September 30, 2022 and 2021 consisted of the following:

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

Balance at beginning of fiscal year $ 213,998 $ 173,051

3 unchanged sentences

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 June 30, 2022 and 2021 and at March 31, 2022:

(in thousands, except useful life) June 30, 2022

The Company's intangible assets subject to amortization consisted of the following at September 30, 2022 and 2021 and at March 31, 2022:

(in thousands, except useful life) September 30, 2022

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

5 unchanged sentences

Total intangible assets $ 111,539 $ ( 25,410 ) $ 86,129

June 30, 2021

September 30, 2021

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

20 unchanged sentences

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 months ended June 30, 2022 and 2021 was:

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

The Company's amortization expense for intangible assets for the three and six months ended September 30, 2022 and 2021 was:

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

2020 2022 2021

Amortization Expense $ 3,172 $ 2,853 $ 6,345 $ 5,256

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

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

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

As of June 30, 2022, the expected future amortization expense for intangible assets is as follows:

As of September 30, 2022, the expected future amortization expense for intangible assets is as follows:

Fiscal Year (in thousands of dollars)

2023 (excluding the three months ended June 30, 2022)

2023 (excluding the six months ended September 30, 2022)

2027 and thereafter 48,557

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) June 30, 2022 June 30, 2021 March 31, 2022

(in thousands of dollars) September 30, 2022 September 30, 2021 March 31, 2022

Operating lease right-of-use assets $ 43,278 $ 33,790 $ 40,243

2 unchanged sentences

Total operating lease liabilities $ 38,640 $ 31,515 $ 39,920

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 June 30,

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

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

(in thousands of dollars) 2022 2021 2022 2021

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) June 30, 2022

(in thousands of dollars) September 30, 2022

Maturity of Operating Lease Liabilities

2023 (excluding the three months ended June 30, 2022)

2023 (excluding the six months ended September 30, 2022)

2028 and thereafter 8,545

2 unchanged sentences

Total operating lease liabilities $ 38,640

As of June 30, 2022, the Company had no leases that have not yet commenced.

As of September 30, 2022, the Company had no leases that have not yet commenced.

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

Three Months Ended June 30,

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

(in thousands, except lease term and incremental borrowing rate) 2022 2021 2022 2021

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 June 30, 2022, the total notional amount of the interest rate swaps was $ 370 million, which corresponded with the original outstanding balance of the term loans.

At September 30, 2022, the total notional amount of the interest rate swaps was $ 370 million, which corresponded with the 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 June 30, 2022, the Company is not hedging the interest payments on the additional $ 150 million of term loans.

At September 30, 2022, 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 was amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements.

As of June 30, 2022, the entire deferred gain has been amortized.

As of September 30, 2022, the entire deferred gain has been amortized.

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 three-month periods in fiscal years 2023 and 2022 was as follows:

Three Months Ended June 30,

dollar notional amount of forward and option contracts entered into for these purposes during the six-month periods in fiscal years 2023 and 2022 was as follows:

Six Months Ended September 30,

(in millions of dollars) 2022 2021

2 unchanged sentences

Crop input sales — 20.8

$ 35.8 $ 139.2

Fluctuations 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.

2 unchanged sentences

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.

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of June 30, 2022 for cash flows hedges of tobacco purchases and crop input sales are expected to be recognized in earnings.

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of September 30, 2022 for cash flows hedges of tobacco purchases and crop input sales are expected to be recognized in earnings.

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

1 unchanged sentence

Tobacco purchases 2022 Brazil, Africa 2023

Tobacco purchases 2021 Brazil 2023

Crop input sales 2023 Brazil 2024

18 unchanged sentences

The contracts are generally arranged to hedge the subsidiary's projected exposure to currency remeasurement risk for specified periods of time, and new contracts are entered as necessary throughout the year to replace previous contracts as they mature.

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 June 30, 2022 and 2021, and March 31, 2022, were approximately $ 110.1 million, $ 16.7 million, and $ 59.5 million, respectively.

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

The total notional amounts of contracts outstanding at September 30, 2022 and 2021, and March 31, 2022, were approximately $ 112.3 million, $ 22.3 million, and $ 59.5 million, respectively.

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

6 unchanged sentences

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

Three Months Ended June 30,

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

(in thousands of dollars) 2022 2021 2022 2021

5 unchanged sentences

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

$ — $ 355 $ — $ 708

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

20 unchanged sentences

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 gain of approximately $ 4.8 million remained in accumulated other comprehensive loss at June 30, 2022.

That balance reflects gains and losses on contracts related to the 2023, 2022, and 2021 Brazil crops, the 2022 Africa crop, and the 2022 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through June 30, 2022.

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 $ 3.1 million remained in accumulated other comprehensive loss at September 30, 2022.

That balance reflects gains and losses on contracts related to the 2023 and 2022 Brazil crops, the 2022 Africa crop, and the 2023 and 2022 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through September 30, 2022.

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 June 30, 2022 and 2021, and March 31, 2022:

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at September 30, 2022 and 2021, and March 31, 2022:

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) June 30, 2022 June 30, 2021 March 31, 2022 June 30, 2022 June 30, 2021 March 31, 2022

(in thousands of dollars) September 30, 2022 September 30, 2021 March 31, 2022 September 30, 2022 September 30, 2021 March 31, 2022

Derivatives Designated as Hedging Instruments

31 unchanged sentences

Recurring Fair Value Measurements

At June 30, 2022 and 2021, and at March 31, 2022, 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 September 30, 2022 and 2021, and at March 31, 2022, 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:

June 30, 2022

September 30, 2022

Fair Value Hierarchy

14 unchanged sentences

$ — $ — $ 181 $ — $ 181

June 30, 2021

September 30, 2021

Fair Value Hierarchy

8 unchanged sentences

$ 335 $ 14,557 $ 1,917 $ — $ 16,809

Acquisition-related contingent consideration obligations - long term

$ — $ — $ — $ 2,532 2,532

Interest rate swap agreements

37 unchanged sentences

The Company acquired FruitSmart, Inc.

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

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

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

2 unchanged sentences

Significant judgment is applied to this model and therefore the acquisition-related contingent consideration obligation was 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 three months ended June 30, 2022 and 2021 is provided below.

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

A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the six months ended September 30, 2022 and 2021 is provided below.

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

Balance beginning of year $ — $ 2,532

2 unchanged sentences

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 June 30, 2022, and 2021 and March 31, 2022:

(in millions of dollars) June 30, 2022 June 30, 2021 March 31, 2022

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 September 30, 2022, and 2021 and March 31, 2022:

(in millions of dollars) September 30, 2022 September 30, 2021 March 31, 2022

Fair market value of long term obligations $ 517 $ 518 $ 517

18 unchanged sentences

Pension Benefits Other Postretirement Benefits

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

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

(in thousands of dollars) 2022 2021 2022 2021

5 unchanged sentences

$ 1,531 $ 1,496 $ 81 $ 150

During the three months ended June 30, 2022, the Company made contributions of approximately $ 0.9 million to its pension plans.

Additional contributions of $ 3.3 million are expected during the remaining nine months of fiscal year 2023.

Pension Benefits Other Postretirement Benefits

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

(in thousands of dollars) 2022 2021 2022 2021

Service cost $ 3,048 $ 3,303 $ 64 $ 94

Interest cost 4,686 4,513 476 480

Expected return on plan assets ( 6,648 ) ( 6,772 ) ( 38 ) ( 44 )

Net amortization and deferral 2,002 1,952 ( 339 ) ( 231 )

Net periodic benefit cost

$ 3,088 $ 2,996 $ 163 $ 299

During the six months ended September 30, 2022, the Company made contributions of approximately $ 3.2 million to its pension plans.

Additional contributions of $ 0.9 million are expected during the remaining six months of fiscal year 2023.

STOCK-BASED COMPENSATION

10 unchanged sentences

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

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

RSUs awarded to outside directors vest 1 year after the grant date.

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

During the three-month periods ended June 30, 2022 and 2021, 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,

During the six-month periods ended September 30, 2022 and 2021, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Six Months Ended September 30,

Number granted 79,405 72,860

4 unchanged sentences

(1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award.

For employees who are already eligible to retire at the date an award is granted, the total fair value of all non-forfeitable awards is recognized as expense

at the date of grant.

For employees who are already eligible to retire at the date an award is granted, the total fair value of all non-forfeitable awards is recognized as expense at the date of grant.

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.

1 unchanged sentence

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

For the three-month periods ended June 30, 2022 and 2021, the Company recorded total stock-based compensation expense of approximately $ 3.7 million and $ 3.0 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 3.6 million during the remaining nine months of fiscal year 2023.

For the six-month periods ended September 30, 2022 and 2021, the Company recorded total stock-based compensation expense of approximately $ 5.5 million and $ 4.1 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 2.5 million during the remaining six months of fiscal year 2023.

OPERATING SEGMENTS

15 unchanged sentences

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

Three Months Ended June 30,

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

(in thousands of dollars) 2022 2021 2022 2021

8 unchanged sentences

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

( 416 ) ( 2,363 ) 137 ( 2,972 )

Restructuring and impairment costs (2)

— — — ( 2,024 )

Other income (loss) (3)

— 2,532 — 2,532

Consolidated operating income $ 37,886 $ 29,813 $ 51,152 $ 40,418

2 unchanged sentences

See Note 4 for additional information.

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

See Note 12 for additional information.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the Company for the three months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended September 30,

(in thousands of dollars) 2022 2021

12 unchanged sentences

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $ 600 and $ 271 ) (1)

( 1,214 ) ( 718 )

Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes ( 5,360 ) ( 180 )

22 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 months ended June 30, 2022 and 2021 is as follows:

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three and six months ended September 30, 2022 and 2021 is as follows:

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

(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 ( 893 ) — ( 893 ) — — —

Accrual of stock-based compensation 1,622 — 1,622 1,119 — 1,119

6 unchanged sentences

( 19,398 ) — ( 19,398 ) ( 19,195 ) — ( 19,195 )

Repurchase of common stock ( 2,555 ) — ( 2,555 ) — — —

Dividend equivalents on RSUs ( 291 ) — ( 291 ) ( 272 ) — ( 272 )

3 unchanged sentences

— ( 1,680 ) ( 1,680 ) — ( 3,696 ) ( 3,696 )

Balance at end of period $ 1,324,854 $ 29,879 $ 1,354,733 $ 1,297,332 $ 36,094 $ 1,333,426

Six Months Ended September 30, 2022 Six Months Ended September 30, 2021

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

Balance at beginning of year $ 1,340,543 $ 44,226 $ 1,384,769 $ 1,307,299 $ 41,126 $ 1,348,425

Changes in common stock

Repurchase of common stock ( 893 ) — ( 893 ) — — —

Accrual of stock-based compensation 5,304 — 5,304 4,085 — 4,085

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

( 2,090 ) — ( 2,090 ) ( 2,458 ) — ( 2,458 )

Dividend equivalents on RSUs 557 — 557 536 — 536

Changes in retained earnings

Net income 28,685 ( 6,478 ) 22,207 25,867 ( 200 ) 25,667

Cash dividends declared

( 38,845 ) — ( 38,845 ) ( 38,365 ) — ( 38,365 )

Repurchase of common stock ( 2,555 ) — ( 2,555 ) — — —

Dividend equivalents on RSUs ( 557 ) — ( 557 ) ( 536 ) — ( 536 )

Other comprehensive income (loss) ( 5,295 ) ( 617 ) ( 5,912 ) 904 ( 156 ) 748

Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders

— ( 6,825 ) ( 6,825 ) — ( 4,676 ) ( 4,676 )

Other — ( 427 ) ( 427 ) — — —

1 unchanged sentence

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