What changed in this filing

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Item 1. Financial Statements

2023-02-08 compared with 2022-11-03 · 161 added, 128 removed, 743 unchanged (28% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

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

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

2022 2021 2022 2021

30 unchanged sentences

(in thousands of dollars)

September 30, September 30, March 31,

December 31, December 31, March 31,

2022 2021 2022

31 unchanged sentences

(in thousands of dollars)

September 30, September 30, March 31,

December 31, December 31, 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 24,555,361 shares issued and outstanding at September 30, 2022 ( 24,607,384 at September 30, 2021 and 24,550,019 at March 31, 2022)

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

335,160 330,306 330,662

9 unchanged sentences

(in thousands of dollars)

Six Months Ended September 30,

Nine Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

14 unchanged sentences

Proceeds from sale of business, net of cash held by the business 3,245 —

Purchase of business, net of cash held by the business — ( 102,462 )

Proceeds from sale of property, plant and equipment 1,634 12,609

2 unchanged sentences

Issuance of short-term debt, net 166,109 151,413

Issuance of long-term debt 123,481 —

Repayment of long-term debt ( 23,481 ) —

Dividends paid to noncontrolling interests ( 6,825 ) ( 6,733 )

1 unchanged sentence

Dividends paid on common stock ( 57,993 ) ( 57,241 )

Other ( 1,869 ) ( 2,996 )

Proceeds from termination of interest rate swap agreements 11,786 —

Debt issuance and other ( 6,337 ) ( 3,264 )

Net cash provided (used) by financing activities 203,292 84,175

16 unchanged sentences

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 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.

The business environment in most of the jurisdictions in which the Company operates continues to move towards pre-pandemic conditions.

Currently, management does not believe the ongoing COVID-19 pandemic will materially impact the Company's financial condition, results of operations and demand for its products and services.

ACCOUNTING PRONOUNCEMENTS

Pronouncements to be Adopted in Future Periods

Pronouncements Adopted in the Current Period

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

3 unchanged sentences

ASU 2020-04 also temporarily allows hedge relationships to continue without de-designation upon changes due to reference rate reform.

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

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

The Company adopted the new standard effective December 31, 2022.

There was no material impact to the consolidated financial statements from the adoption of ASU 2020-04.

BUSINESS COMBINATION

34 unchanged sentences

Total assets acquired and liabilities assumed $ 100,000

Restricted Cash Release of Deferred Proceeds from Acquisition of Silva International, Inc.

During the three months ended December 31, 2022, the Company released $ 6.0 million, held in a third-party escrow account, to one of Silva's selling shareholders.

The amounts were held in escrow since the date of acquisition, as the employee had a post-combination service requirement with forfeitable payment provisions.

Therefore, under ASC Topic 805, "Business Combinations," the amounts held in escrow were treated as a contingent consideration arrangement and expensed as compensation expense in selling, general, and administrative expense on the consolidated statements of income.

As of December 31, 2022, all amounts have been released to the selling shareholder, who remains employed by the Company, and expensed in the Company's consolidated statements of income.

RESTRUCTURING AND IMPAIRMENT COSTS

1 unchanged sentence

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

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

There were no restructuring and impairment costs incurred for the three and nine months ended December 31, 2022.

Tobacco Operations

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.

As a result of efforts to exit the idled tobacco operations in Tanzania, the Company reevaluated the carrying values of property, plant, and equipment associated with the Tanzania operations.

During the three months ended December 31, 2021, the Company determined the carrying value exceeded the estimated fair value of those assets and recognized a $ 9.4 million impairment charge.

During the nine months ended December 31, 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.

See Note 6 for additional information about the sale of the idled tobacco operations in Tanzania.

During the three and nine months ended December 31, 2021, the Company also incurred $ 0.6 million and $ 2.2 million of termination costs for the Tobacco Operations segment, respectively.

Ingredients Operations

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.

During the three and nine months ended December 31, 2021, the Company recognized net gains of $ 1.6 million and $ 1.2 million, respectively, for the sale of the remaining 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.

A summary of the restructuring and impairment costs recorded for the three and nine months ended December 31, 2021 and were as follows:

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

(in thousands) 2021 2021

Restructuring costs:

Employee termination benefits $ 627 $ 2,174

Other — ( 24 )

Total restructuring costs 627 2,150

Impairment costs:

Property, plant and equipment 7,806 8,307

Total impairment costs 7,806 8,307

Total restructuring and impairment costs $ 8,433 $ 10,457

REVENUE FROM CONTRACTS WITH CUSTOMERS

1 unchanged sentence

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

Additionally, the Company has fruit and vegetable processing operations, as well as flavor and extract services that

provide customers with a range of food ingredient products.

Additionally, the Company has fruit and vegetable processing operations, as well as flavor and extract services that provide customers with a range of food ingredient products.

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

24 unchanged sentences

The Company’s operating history and contract analyses indicate that customer requirements for processed tobacco and food ingredients products are consistently met upon completion of processing.

Other Operating Sales and Revenue

Other Sales and Revenue from Contracts with Customers

From time to time, the Company enters into various arrangements with customers to provide other value-added services that may include blending, chemical and physical testing of products, storage, and tobacco cutting services for select manufacturers.

3 unchanged sentences

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

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

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

(in thousands of dollars) 2022 2021 2022 2021

6 unchanged sentences

Consolidated sales and other operating revenues $ 795,039 $ 652,644 $ 1,875,845 $ 1,456,628

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

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

OTHER CONTINGENT LIABILITIES AND OTHER MATTERS

1 unchanged sentence

Other Contingent Liabilities (Letters of credit)

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

The Company had other contingent liabilities totaling approximately $ 1 million at December 31, 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 September 30, 2022.

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

As of December 31, 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 December 31, 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 September 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 September 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 September 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 December 31, 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 $ 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.

Short-term and long-term advances to suppliers totaled $ 186 million at December 31, 2022, $ 147 million at December 31, 2021, and

$ 153 million at March 31, 2022.

The related valuation allowances totaled $ 21 million at December 31, 2022, $ 17 million at December 31, 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 provisions of approximately $ 6.1 million and $ 2.9 million in the nine-month periods ended December 31, 2022 and 2021, respectively.

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

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

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 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).

At December 31, 2022, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 66 million ($ 65 million at December 31, 2021, and $ 67 million at March 31, 2022), and the related valuation allowances totaled approximately $ 24 million ($ 20 million at December 31, 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 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.

See Note 11 for additional information on outstanding interest rate swap agreements.

Shelf Registration and Stock Repurchase Plan

2 unchanged sentences

A stock repurchase plan, which was authorized by the Company's Board of Directors, became effective and was publicly announced on November 2, 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.

This stock repurchase plan authorized the purchase of up to $ 100 million in common and/or preferred stock in open market or privately negotiated transactions through November 15, 2024 or when funds for the program have been exhausted, subject to market conditions and other factors.

The program had $ 100 million of remaining capacity for repurchases of common and/or preferred stock at December 31, 2022.

Sale of Idled Tanzania Operations

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.

During the nine months ended December 31, 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 has received $ 3.2 million of the $ 8.5 million sales agreement as of December 31, 2022.

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

New Bank Credit Agreement

On December 15, 2022, the Company entered into a new bank credit agreement that replaced its existing bank credit agreement dated December 20, 2018.

In addition to extending the maturity dates of the underlying components of the facility, the new agreement includes a $ 530 million five-year revolving credit facility (expiring December 15, 2027), a $ 275 million five-year term loan (due December 15, 2027), and a $ 345 million seven-year term loan (due December 15, 2029).

At closing, the Company had a balance of $ 385 million outstanding under the revolving credit facility.

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

The new facility may be expanded to allow for additional borrowings of up to $ 200 million under certain conditions.

Borrowings under the revolving credit facility and the two term loans bear interest a variable rate benchmarked to the Secured Overnight Financing Rate ("SOFR") instead of LIBOR plus a

margin based on the Company’s credit measures.

The new credit agreement contains financial covenants that require the Company to maintain certain levels of tangible net worth and leverage.

Those covenants are substantially the same as the covenants in the prior bank credit agreement, and the Company was in compliance with the covenants at December 31, 2022.

During the three months ended December 31, 2022, the Company entered into two new receive-floating / pay-fixed interest rate swap agreements, hedging the variable interest payments on half of the principal value of each of the new term loans.

The swap agreements convert the variable benchmark rate to a fixed rate through December 15, 2027 for the five-year term loan, and through December 15, 2029 for the seven-year term loan.

With the swap agreements in place, the effective interest rates on the hedged portions of the $ 275 million five-year term loan and the $ 345 million seven-year term loan were 5.50 % and 5.65 %, respectively, at December 31, 2022.

Prior to the maturity of the swap agreements, those effective interest rates will change only if a change in the Company’s credit measures results in adjustments to the applicable credit spreads specified in the underlying loan agreement.

Compared to the prior credit agreement, there were only limited changes among the individual bank lenders participating in the new agreement.

Accordingly, under the applicable accounting guidance, a significant portion of the transaction was accounted for as a debt modification rather than a debt extinguishment.

As a result, only an immaterial amount of the unamortized debt issuance costs related to the prior credit agreement were charged to expense.

The remainder of those costs remained capitalized on the Company's consolidated balance sheet and will be amortized over the term of the new credit agreement.

Similarly, in the consolidated statement of cash flows, rather than presenting issuance of the entire $ 620 million of new term loans and repayment of $ 520 million of prior term loans, the amounts presented for the issuance and repayment of long-term debt reflect only the changes in the underlying principal positions among the participating bank lenders.

EARNINGS PER SHARE

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

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

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

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

15 unchanged sentences

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

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

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 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 %.

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

pending and contested tax issues.

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

Three and Nine months ended December 31, 2022

The Company's consolidated effective income tax rate for the three and nine months ended December 31, 2022 was 19.3 % and 23.2 %, respectively.

In the nine months ended December 31, 2022, the Company sold its idled Tanzania operations and recognized $ 1.1 million of income taxes.

Without this item, the consolidated effective income tax rate for the nine months ended December 31, 2022 would have been approximately 22.0 %.

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

Three and Nine months ended December 31, 2021

The Company's consolidated effective income tax rate for the three and nine months ended December 31, 2021 was 23.4 % and 21.0 %, respectively.

The consolidated effective income tax rate for the three and nine months ended December 31, 2021 was affected by a $ 1.2 million benefit related to finalizing the prior fiscal year U.S.

The consolidated effective income tax rate for the nine months ended December 31, 2021 was affected by a $ 1.7 million benefit related to a final tax ruling at a foreign subsidiary.

Without these items, the consolidated effective income tax rate for the three and nine months ended December 31, 2021 would have been approximately 25.5 % and 24.3 %, respectively

GOODWILL AND OTHER INTANGIBLES

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,

The Company's changes in goodwill at December 31, 2022 and 2021 consisted of the following:

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

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

Acquisition of business (1)

Foreign currency translation adjustment

1 unchanged sentence

Balance at end of period $ 213,881 $ 214,023

(1) On October 4, 2021, the Company acquired 100 % of the capital stock of Shank's for approximately $ 100 million in cash and $ 2.4 million of additional working capital on-hand at the date of acquisition.

The Shank's acquisition resulted in $ 41.1 million of goodwill.

See Note 3 for additional information.

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

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

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

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

(in thousands, except useful life) December 31, 2022

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

5 unchanged sentences

Total intangible assets $ 111,607 $ ( 28,690 ) $ 82,917

September 30, 2021

December 31, 2021

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

8 unchanged sentences

Customer relationships 11 — 13 $ 86,500 $ ( 9,963 ) $ 76,537

11 — 13 $ 86,500 $ ( 9,963 ) $ 76,537

Trade names 5 11,100 ( 3,825 ) 7,275

Developed technology 3 — 13 9,300 ( 3,773 ) 5,527

3 — 13 9,300 ( 3,773 ) 5,527

Noncompetition agreements 4 — 5 4,000 ( 825 ) 3,175

4 — 5 4,000 ( 825 ) 3,175

Other 5 736 ( 679 ) 57

Total intangible assets $ 111,636 $ ( 19,065 ) $ 92,571

The Shank's acquisition resulted in $ 31.5 million of intangible assets.

See Note 3 for additional information.

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

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

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

The Company's amortization expense for intangible assets for the three and nine months ended December 31, 2022 and 2021 was:

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

2020 2022 2021

2 unchanged sentences

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

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

As of December 31, 2022, the expected future amortization expense for intangible assets is as follows:

Fiscal Year (in thousands of dollars)

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

2023 (excluding the nine months ended December 31, 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) September 30, 2022 September 30, 2021 March 31, 2022

(in thousands of dollars) December 31, 2022 December 31, 2021 March 31, 2022

Operating lease right-of-use assets $ 42,337 $ 34,139 $ 40,243

3 unchanged sentences

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,

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

(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) September 30, 2022

(in thousands of dollars) December 31, 2022

Maturity of Operating Lease Liabilities

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

2023 (excluding the nine months ended December 31, 2022)

2028 and thereafter 8,821

2 unchanged sentences

Total operating lease liabilities $ 38,190

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

As of December 31, 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 September 30, Six Months Ended September 30,

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

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

12 unchanged sentences

Cash Flow Hedging Strategy for Interest Rate Risk

In February 2019, the Company entered into receive-floating/pay-fixed interest rate swap agreements that were designated and qualify as hedges of the exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on two outstanding non-amortizing bank term loans that were funded as part of a new bank credit facility in December 2018.

In December 2022, the Company entered into receive-floating/pay-fixed interest rate swap agreements that were designated and qualify as hedges of the exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on two outstanding non-amortizing bank term loans that were funded as part of a new bank credit facility in December 2022 (see Note 6 for additional information).

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

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 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.

Previously, the Company had receive-floating/pay-fixed interest rate swap agreements that were designated and qualified as cash flow hedges for two outstanding non-amortizing bank loans that were repaid concurrent with closing on the new bank credit facility.

Those swap agreements were subsequently terminated in February 2019 concurrent with the inception of the new swap agreements.

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

At December 31, 2022, the total notional amount of the interest rate swaps was $ 310 million, which corresponded to a portion of the aggregate outstanding balance of the term loans.

Previously, the Company had receive-floating/pay-fixed interest rate swap agreements that were designated and qualified as cash flow hedges for two non-amortizing bank loans that were repaid concurrent with closing on the new bank credit facility in December 2022.

Those swap agreements, which had an aggregate notional amount of $ 370 million corresponding to a portion of the principal balance on the repaid loans, were terminated concurrent with the inception of the new swap agreements.

The fair value of the previous swap agreements, approximately $ 11.8 million, was received from the counterparties in December 2022 upon termination and is being amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements.

In February 2019, the Company had receive-floating/pay-fixed interest rate swap agreements that were designated and qualified as cash flow hedges for the two non-amortizing bank loans that were repaid in December 2018 and carried over to hedge the variable interest payments for the two non-amortizing bank loans that were repaid in December 2022.

Those swap agreements were terminated in February 2019.

The fair value of the two swap agreements terminated in February 2019, approximately $ 5.4 million, was received in February 2019 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 December 31, 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

2 unchanged sentences

Changes in exchange rates between the U.S.

dollar and the local currencies where tobacco is grown and processed affect the ultimate U.S.

dollar and the local currencies where tobacco is

grown and processed affect the ultimate U.S.

dollar sales of crop inputs and cost of processed tobacco.

5 unchanged sentences

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

These hedging strategies have been used mainly for tobacco purchases, processing costs, and sales of crop inputs in Brazil, although the Company has also entered into hedges for a portion of the tobacco purchases in Africa.

These hedging strategies have been used mainly for tobacco purchases, processing costs, and sales of crop inputs in Brazil, although the Company periodically enters into hedges for a portion of tobacco purchases in Africa.

The aggregate U.S.

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,

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

Nine Months Ended December 31,

(in millions of dollars) 2022 2021

7 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 September 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 December 31, 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

Tobacco purchases 2023 Brazil 2024

Tobacco purchases 2022 Brazil, Africa 2023

Tobacco purchases 2022 Brazil 2023

Crop input sales 2023 Brazil 2024

15 unchanged sentences

To manage a portion of its exposure to currency remeasurement gains and losses, the Company enters into forward contracts to buy or sell the local currency at future dates coinciding with expected changes in the overall net local currency monetary asset position of the subsidiary.

Gains and losses on the forward contracts are recorded in earnings as a component of selling, general, and administrative expenses for each reporting period as they occur, and thus directly offset the related remeasurement losses or gains in the consolidated statements of income for the notional amount hedged.

Gains and losses on the forward contracts are recorded in earnings as a component of

selling, general, and administrative expenses for each reporting period as they occur, and thus directly offset the related remeasurement losses or gains in the consolidated statements of income for the notional amount hedged.

The Company does not designate these contracts as hedges for accounting purposes.

1 unchanged sentence

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.

The total notional amounts of contracts outstanding at December 31, 2022 and 2021, and March 31, 2022, were approximately $ 91.8 million, $ 59.6 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 September 30, Six Months Ended September 30,

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

(in thousands of dollars) 2022 2021 2022 2021

11 unchanged sentences

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

Description of hedged item Floating rate interest payments on term loan

Description of hedged item Floating rate interest payments on term loans

Cash Flow Hedges - Foreign Currency Exchange Contracts

14 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 $ 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.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa, as well as the crop input sales in Brazil, a net hedge gain of approximately $ 3.8 million remained in accumulated other comprehensive loss at December 31, 2022.

That balance reflects gains and losses on contracts related to the 2023 and 2022 Brazil crops, and the 2023 and 2022 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through December 31, 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 September 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 December 31, 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) September 30, 2022 September 30, 2021 March 31, 2022 September 30, 2022 September 30, 2021 March 31, 2022

(in thousands of dollars) December 31, 2022 December 31, 2021 March 31, 2022 December 31, 2022 December 31, 2021 March 31, 2022

Derivatives Designated as Hedging Instruments

31 unchanged sentences

Recurring Fair Value Measurements

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.

At December 31, 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:

September 30, 2022

December 31, 2022

Fair Value Hierarchy

14 unchanged sentences

$ — $ — $ 1,195 $ — $ 1,195

September 30, 2021

December 31, 2021

Fair Value Hierarchy

48 unchanged sentences

("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.

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

During the year ended March 31, 2021, the evaluation resulted in a reduction of $ 4.2 million of contingent consideration of the original $ 6.7 million liability recorded.

1 unchanged sentence

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 six months ended September 30, 2022 and 2021 is provided below.

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

A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the nine months ended December 31, 2022 and 2021 is provided below.

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

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

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

The following table summarizes the fair and carrying value of the Company’s long-term debt, and if applicable any current portion, at each of the balance sheet dates December 31, 2022, and 2021 and March 31, 2022:

(in millions of dollars) December 31, 2022 December 31, 2021 March 31, 2022

Fair market value of long term obligations $ 615 $ 517 $ 517

18 unchanged sentences

Pension Benefits Other Postretirement Benefits

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

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

(in thousands of dollars) 2022 2021 2022 2021

6 unchanged sentences

Pension Benefits Other Postretirement Benefits

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

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

(in thousands of dollars) 2022 2021 2022 2021

5 unchanged sentences

$ 4,656 $ 4,489 $ 246 $ 471

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.

During the nine months ended December 31, 2022, the Company made contributions of approximately $ 3.6 million to its pension plans.

Additional contributions of $ 0.5 million are expected during the remaining three months of fiscal year 2023.

STOCK-BASED COMPENSATION

12 unchanged sentences

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

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,

During the nine-month periods ended December 31, 2022 and 2021, the Company issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Nine Months Ended December 31,

Number granted 79,405 72,860

8 unchanged sentences

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

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.

For the nine-month periods ended December 31, 2022 and 2021, the Company recorded total stock-based compensation expense of approximately $ 6.6 million and $ 5.3 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 1.2 million during the remaining three 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 September 30, Six Months Ended September 30,

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

(in thousands of dollars) 2022 2021 2022 2021

12 unchanged sentences

Other income (loss) (3)

— 2,532 — 2,532

Consolidated operating income $ 77,526 $ 62,773 $ 128,678 $ 103,191

5 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Six Months Ended September 30,

Nine Months Ended December 31,

(in thousands of dollars) 2022 2021

10 unchanged sentences

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $( 530 ) and $( 301 ))

( 4,146 ) 538

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $ 519 and $ 748 ) (1)

6 unchanged sentences

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $( 3,224 ) and $( 487 ))

10,467 ( 1,303 )

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $( 220 ) and $( 1,193 )) (2)

15 unchanged sentences

CHANGES IN SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS IN SUBSIDIARIES

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

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

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three and nine months ended December 31, 2022 and 2021 is as follows:

Three Months Ended December 31, 2022 Three Months Ended December 31, 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 1,326 — 1,326 1,204 — 1,204

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

— — — ( 26 ) — ( 26 )

Dividend equivalents on RSUs 294 — 294 266 — 266

10 unchanged sentences

Balance at end of period $ 1,360,792 $ 39,950 $ 1,400,742 $ 1,316,004 $ 43,238 $ 1,359,242

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

Nine Months Ended December 31, 2022 Nine Months Ended December 31, 2021

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

19 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements