UNIVERSAL CORP /VA/ 10-Q

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 and new subvariants; 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; our 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 including increased transportation costs and delays attributed to global supply chain challenges; timing of shipments to customers; higher inflation rates; changes in market structure; government regulation and other stakeholder expectations; economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from the conflict in Ukraine; 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, 2022. 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, 2022. 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 Demand for both our tobacco and plant-based ingredients products remains very strong, and we are excited about how our fiscal year 2023 is developing. We are seeing improvement in shipping availability, particularly in Brazil, where we were able to ship large amounts of carryover tobacco in both the six months and quarter ended September 30, 2022. We also remain very pleased with our strategic investment in our plant-based ingredients platform. Our Ingredients Operations segment diversifies our earnings and delivered higher results driven by higher sales in both the six months and quarter ended September 30, 2022, compared to the same periods in the prior fiscal year. 30 We believe we are through our peak seasonal working capital requirements for fiscal year 2023, and we expect a considerable reduction in debt levels over the next two fiscal quarters. We have already seen significant working capital receipts in October 2022. Our tobacco shipments, which are weighted to the second half of our fiscal year, should enable us to reduce our debt levels from the elevated September 30, 2022 levels, as payments are received from our customers. Operating income for our Tobacco Operations segment for the six months and quarter ended September 30, 2022, was up significantly, compared to the six months and quarter ended September 30, 2021, driven by increased tobacco shipments. Improved container and vessel availability in Brazil enabled us to ship a greater amount of tobacco, particularly in the three months ended September 30, 2022. A large portion of the tobacco we shipped during the six months and quarter ended September 30, 2022, was carryover tobacco, and some tobacco we shipped was lower margin tobacco. While we are still having some shipping challenges in certain areas around the world, we are encouraged by the global easing of shipping constraints. All types of leaf tobacco are currently in an undersupply position. We have worked diligently to secure the leaf tobacco desired by our customers, and our tobacco inventories were nearly 90% committed for sale to our customers at September 30, 2022. Burley tobacco crops have been particularly short in Africa, largely due to weather conditions, which has limited our sales opportunities. Our Ingredients Operations segment again delivered healthy results in the six months and quarter ended September 30, 2022. Demand for our ingredients products remains strong, and we continue to capitalize on synergies across the plant-based ingredients platform. We have seen inflationary cost increases, particularly for raw materials and labor, but margins have held up nicely. As these businesses continue to find success with their established products, we are working to grow the platform offerings by investing in key sales and product development personnel to promote and expand the full range of our ingredients capabilities across the platform. Universal remains focused on integrating sustainability into all aspect of our business. A key part of our sustainability efforts is reducing global emissions. To support us in developing our long-term strategy for reducing our global emissions footprint, we have engaged a third party to develop a low carbon transition plan and to prepare for updated guidance on meeting future net zero targets. FINANCIAL HIGHLIGHTS Six Months Ended September 30, Change (in millions of dollars, except per share data) 2022 2021 $ % Consolidated Results Sales and other operating revenue $ 1,080.8 $ 804.0 $ 276.8 34 % Cost of goods sold $ 890.8 $ 648.8 $ 242.0 37 % Gross Profit Margin 17.6 % 19.3 % -170 bps Selling, general and administrative expenses $ 138.8 $ 115.2 $ 23.6 20 % Restructuring and impairment costs $ — $ 2.0 $ (2.0) (100) % Operating income (as reported) $ 51.2 $ 40.4 $ 10.7 27 % Adjusted operating income (non-GAAP)* $ 51.2 $ 41.6 $ 9.5 23 % Diluted earnings per share (as reported) $ 1.15 $ 1.04 $ 0.11 11 % Adjusted diluted earnings per share (non-GAAP)* $ 1.13 $ 0.96 $ 0.17 18 % Segment Results Tobacco operations sales and other operating revenues $ 918.1 $ 690.6 $ 227.5 33 % Tobacco operations operating income $ 41.9 $ 35.8 $ 6.1 17 % Ingredients operations sales and other operating revenues $ 162.7 $ 113.4 $ 49.3 44 % Ingredient operations operating income $ 9.1 $ 7.1 $ 2.0 29 % *See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below. Net income for the six months ended September 30, 2022, was $28.7 million, or $1.15 per diluted share, compared with $25.9 million, or $1.04 per diluted share, for the six months ended September 30, 2021. 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 31 $4.1 million and $0.17, respectively, for the six months ended September 30, 2022, compared to the six months ended September 30, 2021. Operating income of $51.2 million for the six months ended September 30, 2022, increased by $10.7 million, compared to operating income of $40.4 million for the six months ended September 30, 2021. Adjusted operating income, detailed in Other Items below, of $51.2 million increased by $9.5 million for the first half of fiscal year 2023, compared to adjusted operating income of $41.6 million for the first half of fiscal year 2022. Net income for the quarter ended September 30, 2022, was $21.9 million, or $0.88 per diluted share, compared with $19.5 million, or $0.78 per diluted share, for the quarter ended September 30, 2021. 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 $5.3 million and $0.22, respectively, for the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021. Operating income of $37.9 million for the quarter ended September 30, 2022, increased by $8.1 million, compared to operating income of $29.8 million for the quarter ended September 30, 2021. Adjusted operating income, detailed in Other Items below, of $37.9 million increased by $8.9 million for the second quarter of fiscal year 2023, compared to adjusted operating income of $29.0 million for the second quarter of fiscal year 2022. Consolidated revenues increased by $276.8 million to $1.1 billion and by $197.0 million to $651.0 million, respectively, for the six months and quarter ended September 30, 2022, compared to the same periods in fiscal year 2022, on higher tobacco sales volumes and prices as well as the addition of the business acquired in October 2021 in the Ingredients Operations segment. Tobacco Operations Operating income for the Tobacco Operations segment increased by $6.1 million to $41.9 million and by $6.9 million to $33.8 million, respectively, for the six months and quarter ended September 30, 2022, compared to the same periods in fiscal year 2022. Tobacco Operations segment results improved largely due to substantial shipments of both carryover and current crop tobacco, in the six months and quarter ended September 30, 2022, compared to the six months and quarter ended September 30, 2021. While sales volumes were higher for the Tobacco Operations segment in the six months and quarter ended September 30, 2022, compared to the same periods in the prior fiscal year, the sales included some lower margin tobacco. Unfavorable foreign currency comparisons due to the strong U.S. dollar also negatively impacted Tobacco Operations segment results in the six months and quarter ended September 30, 2022. Carrryover and current crop tobacco shipments from Brazil were up significantly in the six months and quarter ended September 30, 2022, compared to the six months and quarter ended September 30, 2021. In Africa, carryover and current crop shipments from Mozambique and Malawi were lower in the six months and quarter ended September 30, 2022, compared to the same periods in fiscal year 2022, due to smaller crop sizes as well as some logistical delays. In North America, sales volumes were down, in part due to shipment timing, and the sales mix included some lower margin tobacco in the six months and quarter ended September 30, 2022, compared to the same periods in fiscal year 2022. Trading business was up in Asia in the first half of fiscal year 2023, compared to the first half of fiscal year 2022. Selling, general, and administrative expenses for the Tobacco Operations segment were higher in the six months and quarter ended September 30, 2022, compared to the six months and quarter ended September 30, 2021, primarily due to unfavorable foreign currency comparisons. Revenues for the Tobacco Operations segment of $918.1 million for the six months and $570.0 million for the quarter ended September 30, 2022, were up $227.5 million and $173.3 million, respectively, compared to the same periods in the prior fiscal year, on higher sales volumes and prices. Ingredients Operations Operating income for the Ingredients Operations segment was $9.1 million and $4.5 million, respectively, for the six months and quarter ended September 30, 2022, compared to $7.1 million and $2.7 million, respectively, for the six months and quarter ended September 30, 2021. Results for the Ingredients Operations segment improved in the six months and quarter ended September 30, 2021, compared to the same periods in the prior fiscal year, on the inclusion of the October 2021 purchase of Shank’s Extracts, LLC (“Shank’s”). For both the six months and quarter ended September 30, 2021, the Ingredients Operations segment continued to see strong demand and volumes in both human and pet food categories. Despite seeing higher costs for raw materials, labor, travel and marketing, margins for the Ingredients Operations segment in the first half of fiscal year 2023 continued to hold up well compared to those in the first half of fiscal year 2022. Selling, general, and administrative expenses for the segment increased in the six months and quarter ended September 30, 2022, compared to the same periods in the prior fiscal year, primarily on the addition of Shank’s. Revenues for the Ingredients Operations segment increased by $49.3 million to $162.7 million and by $23.8 million to $81.0 million, respectively, for the six months and quarter ended September 30, 2022, compared to the six months and quarter ended September 30, 2021, largely on the addition of the revenues for the acquired business as well as higher sales volumes and prices. 32 Other Items Cost of goods sold in the six months and quarter ended September 30, 2022, increased by 37% and 50% to $890.8 million and $540.7 million, respectively, compared to the same periods in the prior fiscal year, as a result of higher sales. The percentage increases in cost of goods sold were higher than comparable percentage increases in revenues in the same periods primarily due to some lower margin sales in the Tobacco Operations segment. Selling, general, and administrative costs for the six months and quarter ended September 30, 2022, increased by $23.6 million to $138.8 million and by $7.0 million to $72.4 million, respectively, compared to the same periods in the prior fiscal year, on additional costs from the acquisition of Shank’s in the Ingredients Operations segment, unfavorable foreign currency comparisons as well as higher compensation and travel costs. Unfavorable foreign currency comparisons were approximately $8.3 million and $1.7 million, respectively, in the six months and quarter ended September 30, 2022, compared to the same periods in the prior year. Interest expense for the six months and quarter ended September 30, 2022, increased by $5.6 million to $19.0 million and by $5.1 million to $12.3 million, respectively, largely on higher debt balances and interest rates. For the six months and quarter ended September 30, 2022, our effective tax rate on pre-tax income was 31.1% and 25.5%, respectively. The consolidated effective income tax rate for the six months ended September 30, 2022, was affected by the sale of our idled Tanzania operations in the quarter ended June 30, 2022, which resulted in $1.1 million of additional income taxes. Without this item, the consolidated effective income tax rate for the six months ended September 30, 2022, would have been approximately 27.6%. Additionally, the sale of our idled Tanzania operations resulted in a $1.8 million reduction to consolidated interest expense related to an uncertain tax position. For the six months and quarter ended September 30, 2021, our effective tax rate on pre-tax income was 16.5% and 15.1% respectively. In the three months ended September 30, 2021, we recognized a $1.7 million income tax benefit related to a foreign subsidiary. Without this income tax benefit, the adjusted effective tax rates were 22.0% and 21.7% for the six months and quarter ended September 30, 2021, respectively. 33 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: Adjusted Operating Income Reconciliation Three Months Ended September 30, Six Months Ended September 30, (in thousands) 2022 2021 2022 2021 As Reported: Consolidated operating income $ 37,886 $ 29,813 $ 51,152 $ 40,418 Transaction costs for acquisitions (1) — 1,713 — 1,713 Restructuring and impairment costs (2) — — — 2,024 Fair value adjustment to contingent consideration for FruitSmart acquisition (3) — (2,532) — (2,532) Adjusted operating income $ 37,886 $ 28,994 $ 51,152 $ 41,623 Adjusted Net Income and Diluted Earnings Per Share (in thousands and reported net of income taxes) Three Months Ended September 30, Six Months Ended September 30, 2022 2021 2022 2021 As Reported: Net income available to Universal Corporation $ 21,855 $ 19,510 $ 28,685 $ 25,867 Transaction costs for acquisitions (1) — 1,713 — 1,713 Restructuring and impairment costs (2) — — — 1,005 Fair value adjustment to contingent consideration for FruitSmart acquisition (3) — (2,532) — (2,532) Interest income and income tax benefit on a final tax ruling at a foreign subsidiary — (2,156) — (2,156) Interest expense reversal on uncertain tax position and income tax from sale of operations in Tanzania — — (684) — Adjusted net income available to Universal Corporation $ 21,855 $ 16,535 $ 28,001 $ 23,897 As reported: Diluted earnings per share $ 0.88 $ 0.78 $ 1.15 $ 1.04 As adjusted: Diluted earnings per share $ 0.88 $ 0.66 $ 1.13 $ 0.96 (1) The Company incurred selling, general, and administrative expenses for due diligence and other transaction costs associated with the acquisition of Shank's. (2) 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. (3) 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. COVID-19 Pandemic Impact We continue to closely monitor developments related to the coronavirus (“COVID-19” or “COVID”) 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 health and safety protocols, business continuity plans for our business, and related policies and practices in the context of this pandemic, and we will take additional steps and reevaluate them to address the spread of COVID and its impacts, as necessary. We also continue to work with our suppliers to mitigate the impacts to our supply chain due to the pandemic. To date, we have not experienced a material impact to our supply chain, although we experienced delays resulting from COVID in certain operations during fiscal year 2021, and since March 2020 we have at times experienced increased volatility in foreign currency exchange rates, which we believe in part related to the uncertainties from COVID as well as actions taken by governments and central banks in response to COVID. We continue to see and monitor some logistical constraints around worldwide vessel and container availability and increased costs stemming from the COVID pandemic. 34 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. The extent to which COVID impacts our business, financial position, results of operations, and cash flows will depend on future developments which are highly uncertain and cannot be predicted including, without limitation, the extent, resurgence, variation or duration of COVID, governmental and other third party actions that may be taken in response to the same, and their effects on the global, national or local economy, including the impacts on our ability to access capital. We remain thankful for the hard work of our employees and the continued support of our customers, growers, and other partners during these challenging times. Liquidity and Capital Resources Overview The first half of our fiscal year is usually a period of significant working capital investment in Africa, South America, and the United States as tobacco crops are delivered by farmers. We funded our working capital needs in the six months ended September 30, 2022, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows. We are experiencing higher and longer duration working capital needs in fiscal year 2023 compared to historical levels due to increased costs, specifically higher leaf tobacco costs, and delayed tobacco shipment timing. Tobacco crop shipments are expected to be weighted to the second half of our fiscal year. 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, COVID has not had a significant impact on our operations, and 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. The extent to which COVID impacts our business, financial position, results of operations, and cash flows will depend on future developments which are highly uncertain and cannot be predicted including, without limitation, the extent, resurgence, variation or duration of COVID, governmental and other third party actions that may be taken in response to the same, and their effects on the global, national or local economy, including the impacts on our ability to access capital. Operating Activities We used $346.2 million in net cash flows from our operations during the six months ended September 30, 2022. That amount was $225.5 million higher than during the same period in fiscal year 2022. Our working capital needs to fund our operations in the six months ended September 30, 2022, were higher, compared to the six months ended September 30, 2021, primarily on higher green tobacco costs as well as tobacco shipment and purchase timing. Tobacco inventory levels increased by $145.7 million from March 31, 2022 levels to $968.2 million at September 30, 2022, on seasonal leaf purchases. Tobacco inventory levels were $113.8 million above September 30, 2021 levels, mainly due to higher green tobacco costs and tobacco 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 September 30, 2022, our uncommitted tobacco inventories were $109.1 million, or about 11% of total tobacco inventory, compared to $130.1 million, or about 16% of our March 31, 2022 tobacco inventory, and $94.5 million, or about 11% of our September 30, 2021 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. Historically, our accounts receivable usually decrease in the first six months of our fiscal year as we use collections on receivables to fund seasonal working capital needs. However, in the first six months of fiscal year 2023, our accounts receivable increased by $84.0 million from March 31, 2022 levels, largely due to tobacco shipment timing in Brazil and increased tobacco 35 trading business in Asia. Notes payable and overdrafts were up $400.0 million from March 31, 2022 levels, partly on increased short-term borrowings to fund seasonal working capital needs. Accounts payable and accrued expenses at September 30, 2022, were down $104.9 million from March 31, 2022 levels, primarily due to payments on acquired tobacco inventory. Accounts receivable of $469.4 million at September 30, 2022, were $172.0 million higher, compared to the same period in the prior fiscal year, primarily on the timing of tobacco crop purchases and shipments, increased tobacco trading business, and higher leaf tobacco costs. Advances to suppliers were up $24.3 million at September 30, 2022, compared to at September 30, 2021, partly due to higher crop input costs. Inventories—Other were also up in the six months ended September 30 2022, compared to the six months ended September 30, 2021, on our acquisition of Shank’s as well as higher crop input costs. Notes payable and overdrafts were up $397.4 million compared to September 30, 2021 levels, on higher tobacco inventory costs, higher accounts receivable balances, and the acquisition of Shank’s in October 2021. 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. 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 six months ended September 30, 2022 and 2021, we invested about $26.6 million and $18.6 million, respectively, in our property, plant and equipment. Depreciation expense was approximately $21.9 million and $19.8 million for the six months ended September 30, 2022 and 2021, 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, invest in sustainability projects, add value for our customers, and position ourselves for future growth. We currently expect to spend approximately $40 to $50 million over the next twelve months on capital projects for maintenance of our facilities and other investments to grow and improve our businesses. On November 3, 2022, we announced that our Board of Directors had approved a new share repurchase program, which replaced the share repurchase program expiring in November 2022, for the purchase of up to $100 million of our common stock through November 15, 2024. Under the new program, 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 September 30, 2022, we purchased 66,124 shares of common stock at an aggregate cost of $3.4 million (average price per share $52.15). As of September 30, 2022, approximately 24.6 million shares of our common stock were outstanding. Financing Activities 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 44% at September 30, 2022, up from the September 30, 2021 level of approximately 33%, largely on higher debt balances due in part to the Shank’s acquisition in October 2021 as well as higher working capital requirements, and up from the March 31, 2022 level of approximately 32%. As of September 30, 2022, we had $58.9 million in cash and cash equivalents, our short-term debt totaled $582.4 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 September 30, 2022, we had $100 million available under a committed revolving credit facility that will mature in December 2023, and we had about $56 million in available, 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. We believe that we have gotten through our peak seasonal working capital requirements for fiscal year 2023. Our tobacco shipments are forecasted to be weighted to the second half of fiscal year 2023, and as payments 36 are received from our customers, we expect our debt levels to decline. 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. Derivatives From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates. At September 30, 2022, the fair value of our outstanding interest rate swap agreements was an asset of about $14 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 September 30, 2022, the fair value of our open hedges was a net asset of about $0.9 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 $2.4 million at September 30, 2022. 37