What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-05-25 compared with 2022-05-27 · 179 added, 212 removed, 1533 unchanged (20% of the section changed)

78 unchanged sentences

Notes payable and overdrafts $ 195,564 $ 182,639

Accounts payable and accrued expenses 272,042 139,484

Accounts payable 83,213 168,491

Accounts payable—unconsolidated affiliates 5,830 5,308

3 unchanged sentences

Current portion of operating lease liabilities 11,404 10,303

Accrued expenses and other current liabilities 106,533 103,551

Current portion of long-term debt — —

29 unchanged sentences

Depreciation and amortization 57,300 52,521 44,733

Provision for losses (recoveries) on advances and guaranteed loans to suppliers 5,988 5,534 937

Provision for losses (recoveries) on advances 10,584 5,988 5,534

Inventory write-downs 13,995 19,944 13,463

4 unchanged sentences

Equity in net income of unconsolidated affiliates, net of dividends 4,010 ( 329 ) ( 296 )

Brazil tax ruling ( 29,236 ) — —

Restructuring and impairment costs — 10,457 22,577

4 unchanged sentences

Accounts and notes receivable ( 74,657 ) ( 23,185 ) ( 5,239 )

Inventories and other assets ( 261,911 ) 43,199 ( 94,538 )

Inventories ( 41,867 ) ( 245,920 ) 54,553

Other assets 10,821 ( 15,991 ) ( 11,354 )

Accounts payable ( 84,588 ) 108,746 11,331

Accrued expenses and other current liabilities 3,365 14,356 14,840

Income taxes ( 7,811 ) 6,644 ( 4,516 )

Accounts payable and other accrued liabilities 123,102 26,171 ( 48,534 )

Customer advances and deposits ( 7,494 ) 4,668 ( 1,426 )

Net cash provided by operating activities 44,882 220,414 10,897

Net cash provided (used) by operating activities ( 10,557 ) 44,882 220,414

Cash Flows From Investing Activities:

1 unchanged sentence

Purchase of business, net of cash held by the business — ( 102,462 ) ( 161,751 )

Proceeds from sale of business, less cash of businesses sold 3,245 — —

Proceeds from sale of property, plant and equipment 1,079 13,004 11,436

4 unchanged sentences

Issuance of long-term debt 123,481 — 150,000

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

Dividends paid to noncontrolling interests in subsidiaries ( 10,221 ) ( 13,390 ) ( 10,881 )

1 unchanged sentence

Dividends paid on common stock ( 77,391 ) ( 76,436 ) ( 75,177 )

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

Debt issuance costs and other ( 6,489 ) ( 3,167 ) ( 1,949 )

4 unchanged sentences

Cash, Restricted Cash and Cash Equivalents at End of Year

$ 64,690 $ 87,648 $ 203,221

Supplemental Information:

Cash and cash equivalents

$ 64,690 $ 81,648 $ 197,221

Restricted cash (Other noncurrent assets)

— 6,000 6,000

Total cash, restricted cash and cash equivalents

$ 64,690 $ 87,648 $ 203,221

Supplemental information—cash paid for:

31 unchanged sentences

Dividends paid to noncontrolling shareholders — — — ( 10,221 ) ( 10,221 )

Other — — — (427) (427)

Balance at end of year $ 337,247 $ 1,136,898 $ ( 77,057 ) $ 39,864 $ 1,436,952

11 unchanged sentences

Changes in common stock

Repurchase of common stock ( 782 ) — — — ( 782 )

Accrual of stock-based compensation 6,187 — — — 6,187

5 unchanged sentences

— ( 76,707 ) — — ( 76,707 )

Repurchase of common stock — ( 2,271 ) — — ( 2,271 )

Dividend equivalents on restricted stock units (RSUs) — ( 1,070 ) — — ( 1,070 )

19 unchanged sentences

Changes in common stock

Repurchase of common stock ( 8,562 ) — — — ( 8,562 )

Accrual of stock-based compensation 6,106 — — — 6,106

5 unchanged sentences

( 75,493 ) — — ( 75,493 )

Repurchase of common stock — ( 24,895 ) — — ( 24,895 )

Dividend equivalents on restricted stock units (RSUs) — ( 1,014 ) — — ( 1,014 )

25 unchanged sentences

The Company conducts its leaf tobacco business in over 30 countries, primarily in major tobacco-producing regions of the world.

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.

and the global economies, markets and supply chains.

At March 31, 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.

Consolidation

19 unchanged sentences

There were no material changes in the Company’s ownership percentage in any of these subsidiaries during fiscal years 2023, 2022, or 2021.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investments in Unconsolidated Affiliates

10 unchanged sentences

All applicable foreign and U.S.

income taxes are provided on these earnings and reported as a component of consolidated income tax expense.

income taxes are provided on these earnings and reported as a component of

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

consolidated income tax expense.

For unconsolidated affiliates located in foreign jurisdictions, repatriation of the Company’s share of the earnings through dividends is assumed in determining consolidated income tax expense.

10 unchanged sentences

Earnings Per Share

The Company calculates basic earnings per share based on earnings available to common shareholders.

The Company calculates basic earnings per share based on Net income attributable to Universal Corporation.

The calculation uses the weighted average number of common shares outstanding during each period.

4 unchanged sentences

All highly liquid investments with a maturity of three months or less at the time of purchase are classified as cash equivalents.

Restricted cash is associated with the acquisition of Silva International, Inc.

("Silva") and is recognized as a component of other noncurrent assets at March 31, 2022 and 2021.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted cash was associated with the acquisition of Silva International, Inc.

("Silva") and was recognized as a component of other noncurrent assets at March 31, 2022 and 2021.

The restricted cash associated with the Silva acquisition was released to the selling shareholder during the fiscal year ended March 31, 2023.

Advances to Tobacco Suppliers

10 unchanged sentences

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

Advances on which interest accrual had been discontinued totaled approximately $ 4 million at both March 31, 2022 and 2021.

Advances on which interest accrual had been discontinued totaled approximately $ 3 million and $4 million at March 31, 2023 and 2022, respectively.

Inventories are valued at the lower of cost or net realizable value.

1 unchanged sentence

The Company tracks the costs associated with this tobacco in the final product lots, and maintains this identification through the time of sale.

This method of cost accounting is referred to as the specific cost or specific identification method.

This method of cost accounting is

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

referred to as the specific cost or specific identification method.

The predominant cost component of the Company’s inventories is the cost of the unprocessed tobacco.

2 unchanged sentences

Freight costs are recorded in cost of goods sold.

Other inventories consist primarily of unprocessed and processed food and vegetable ingredients, extracts, seed, fertilizer, packing materials, and other supplies, and are valued using the specific cost method.

Other inventories consist primarily of unprocessed and processed food and vegetable ingredients, botanical extracts, seed, fertilizer, packing materials, and other supplies, and are valued using the specific cost method.

Recoverable Value-Added Tax Credits

13 unchanged sentences

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Property, Plant and Equipment

16 unchanged sentences

Certain of the Company’s leases include both lease and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component, as the Company has elected the practical expedient to group lease and non-lease components for real estate leases.

Additional disclosures related to the Company's leases are provided in Note 10.

Goodwill and Other Intangibles

3 unchanged sentences

Accounting Standards Codification Topic 350 (“ASC 350”) permits companies to base their initial assessments of potential goodwill impairment on qualitative factors, and the Company elected to use that approach at March 31, 2023 and 2022.

Those factors did not indicate that it was more likely than not that the fair value of any of the reporting units was less than their respective carrying value, therefore no potential impairment of the Company's recorded goodwill was noted as of those dates.

Those factors did not indicate that it was more likely than not

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

that the fair value of any of the reporting units was less than their respective carrying value, therefore no potential impairment of the Company's recorded goodwill was noted as of those dates.

Reporting units are distinct operating subsidiaries or groups of subsidiaries that typically compose the Company’s business in a specific country or location.

12 unchanged sentences

In many cases, this involves the use of discounted cash flow models that are not based on observable market data from independent sources (Level 3 of the fair value hierarchy under the accounting guidance).

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company provides deferred income taxes on temporary differences between the book and tax basis of its assets and liabilities.

20 unchanged sentences

The remeasurement of local currency amounts into U.S.

dollars creates remeasurement gains and losses that are included in earnings as a component of selling, general, and administrative expenses.

The Company recognized net remeasurement losses of $ 19.0 million and $ 16.4 million in fiscal years 2022 and 2020 , and net remeasurement gains of $ 8.5 million in fiscal year 2021.

dollars creates remeasurement gains and losses that are included in earnings

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

as a component of selling, general, and administrative expenses.

The Company recognized net remeasurement gains of $ 3.9 million and $ 8.5 million in fiscal years 2023 and 2021, respectively, and net remeasurement losses of $ 19.0 million in fiscal year 2022.

Foreign currency transactions and forward foreign currency exchange contracts that are not designated as hedges generate gains and losses when they are settled or when they are marked-to-market under the prescribed accounting guidance.

These transaction gains and losses are also included in earnings as a component of selling, general, and administrative expenses.

The Company recognized net foreign currency transaction gains of $ 18.0 million in fiscal year 2022 and net foreign currency transaction losses of $ 1.4 million and $ 2.9 million in fiscal years 2021 and 2020, respectively.

The Company recognized net foreign currency transaction losses of $ 8.8 million and $ 1.4 million in fiscal years 2023 and 2021, respectively, and net foreign currency transaction gains of $ 18.0 million in fiscal year 2022.

Customer Advances and Deposits

From time to time, the Company receives advances and deposits from customers for future delivery of finished goods.

The advance payments are applied against customer receivables after performance obligations are completed and recognition of revenue is appropriate.

Revenue Recognition

Revenue is recognized when the Company completes its performance obligation for the transfer of products and services under its contractual arrangements with customers.

For sales of tobacco, satisfaction of the performance obligation and recognition of the corresponding revenue is based on the transfer of the ownership and control of the product to the customer, which is substantially unchanged from the previous accounting guidance.

For sales of tobacco, satisfaction of the performance obligation and recognition of the corresponding revenue is based on the transfer of the ownership and control of the product to the customer.

A large percentage of the Company’s sales are to major multinational manufacturers of consumer tobacco products.

3 unchanged sentences

While most of the Company’s revenue is derived from tobacco that is purchased from farmers, processed and packed in its factories, and then sold to customers, some revenue is earned from processing tobacco owned by customers and from other value-added services.

The arrangements for processing services usually exist in specific markets where the customers contract directly with farmers for leaf production, and they have accounted for less than 5 % of total revenue on an annual basis through the

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

fiscal year ended March 31, 2022.

Processing and packing of leaf tobacco is a short-duration process.

8 unchanged sentences

Stock-Based Compensation

Share-based payments, such as grants of restricted stock units, performance share units, restricted stock, stock appreciation rights, and stock options, are measured at fair value and reported as expense in the financial statements over the requisite service period.

Additional disclosures related to stock-based compensation are included in Note 15.

2 unchanged sentences

Actual results could differ from those estimates.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting Pronouncements

19 unchanged sentences

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pronouncements to be Adopted in Future Periods

Pronouncements Adopted in Fiscal Year 2023

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 is currently evaluating the impact that the guidance will have 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.

Reclassifications

2 unchanged sentences

Acquisition of Shank's Extracts, LLC

On October 4, 2021 , the Company acquired 100 % of the capital stock of Shank's Extract's, LLC (“Shank's”), a flavors and extracts processing company , for approximately $ 100 million in cash and $ 2.4 million of additional working capital on-hand at the date of acquisition.

On October 4, 2021 , the Company acquired 100 % of the capital stock of Shank's Extract's, LLC (“Shank's”), a flavors and botanical extracts processing company , for approximately $ 100 million in cash and $ 2.4 million of additional working capital on-hand at the date of acquisition.

The acquisition of Shank's diversifies the Company's product offerings and generates new opportunities for its plant-based ingredients platform.

A portion of the goodwill recorded as part of the acquisition was attributable to the assembled workforce of Shank's.

The goodwill and intangibles recognized for the Shank's acquisition are deductible for U.S.

2 unchanged sentences

Federal tax purposes, resulting in a step-up of tax basis to fair value.

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

Therefore, pro forma information is not presented.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the fiscal year ended March 31, 2022 , the Company incurred $ 2.3 million for acquisition-related transaction costs for the purchase of Shank's.

2 unchanged sentences

The purchase of the land and buildings resulted in the elimination of the $ 8.5 million operating lease right-of-use asset and lease liability recognized on the acquisition date for Shank's.

Acquisition of Silva International, Inc.

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

("Silva"), a natural, specialty dehydrated vegetable, fruit, and herb processing company serving global markets, for approximately $ 164 million in cash and $ 5.9 million of additional working capital on-hand at the date of acquisition.

The acquisition of Silva diversified the Company's product offerings and generates new opportunities for its plant-based ingredients platform.

The tax basis of the assets acquired and liabilities assumed did not result in a step-up of tax basis and the related goodwill is not deductible for U.S.

income tax purposes.

The Company continues to employ one of Silva's selling shareholders and as stipulated in the Silva purchase agreement has transferred $ 6.0 million to a third-party escrow account that may ultimately be earned by the selling shareholder upon completion of a post-combination service period.

Since the compensation agreement for the selling shareholder who remains employed with the Company includes a post-combination service period, the Company excluded the entire $ 6.0 million in the purchase price to be allocated.

The $ 6.0 million in escrow is recognized as restricted cash in other noncurrent assets on the consolidated balance sheet at March 31, 2022 .

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

For the fiscal year ended March 31, 2021 , the Company incurred $ 3.9 million for acquisition-related transaction costs for the purchase of Silva.

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the final purchase price allocations of the assets acquired and liabilities assumed for the Shank's and Silva acquisitions.

Shank's Silva

Assets October 4, 2021 October 1, 2020

The following table summarizes the final purchase price allocations of the assets acquired and liabilities assumed for the Shank's acquisition.

Assets October 4, 2021

Cash and cash equivalents $ 754

Accounts receivable, net 6,643

Advances to suppliers, net — 3,011

Inventory 15,792

4 unchanged sentences

Developed technology 4,500

Trade names — 7,800

Non-compete agreements 3,000

4 unchanged sentences

Accrued compensation 655

Income taxes payable — 946

Current portion operating lease liabilities 8,531

Deferred income taxes — 14,419

Total liabilities assumed

Total assets acquired and liabilities assumed

A portion of the goodwill recorded as part of the acquisitions was attributable to the assembled workforce of Shank's and Silva, respectively.

The Company determined the Shank's and Silva operations were not material to the Company’s consolidated results.

Therefore, pro forma information is not presented.

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.

REVENUE FROM CONTRACTS WITH CUSTOMERS

6 unchanged sentences

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Tobacco Sales

3 unchanged sentences

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

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

tobacco, plus a contractually agreed-upon profit margin.

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

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

3 unchanged sentences

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.

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.

12 unchanged sentences

The transaction prices and timing of revenue recognition of these items are determined by the specifics of each contract.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Disaggregation of Revenue from Contracts with Customers

10 unchanged sentences

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Major Customers

2 unchanged sentences

In the aggregate, these customers have accounted for more than 60 % of consolidated revenue for each of the past three fiscal years.

For the fiscal years ended March 31, 2022, 2021, and 2020, revenue from Imperial Brands plc accounted for revenue of approximately $ 380 million, $ 340 million, and $ 320 million, respectively, Philip Morris International, Inc.

accounted for revenue of approximately $ 320 million, $ 460 million, and $ 500 million, respectively, and British American Tobacco plc accounted for revenue of approximately $ 260 million, $ 210 million, and $ 190 million, respectively.

For the fiscal years ended March 31, 2023, 2022, and 2021, revenue from Philip Morris International, Inc.

accounted for revenue of approximately $ 460 million, $ 320 million, and $ 460 million, respectively, Imperial Brands plc accounted for revenue of approximately $ 430 million, $ 380 million, and $ 340 million, respectively, and British American Tobacco plc accounted for revenue of approximately $ 290 million, $ 260 million, and $ 210 million, respectively.

These customers do business with various affiliates in the Company’s Tobacco Operations segment.

2 unchanged sentences

During the fiscal years ended March 31, 2022 and 2021, Universal recorded restructuring and impairment costs related to business changes and various initiatives to adjust certain operations and reduce costs.

There were no restructuring costs incurred for the fiscal year ended March 31, 2023.

Fiscal Year Ended March 31, 2022

2 unchanged sentences

During the fiscal year ended March 31, 2022, the Company determined the carrying value exceeded the estimated fair value of those assets and recognized a $ 9.4 million impairment charge.

See Note 19 for additional information.

During the fiscal year ended March 31, 2023, the Company sold all outstanding common stock, which included all properties, of the idled companies in Tanzania.

During the fiscal year ended March 31, 2022, the Company also incurred $ 2.2 million of termination costs for the Tobacco Operations segment.

5 unchanged sentences

Total restructuring and impairments costs related to the Tobacco Operations segment were $ 6.5 million for the fiscal year ended March 31, 2021.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Ingredients Operations

2 unchanged sentences

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

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

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

4 unchanged sentences

The total restructuring and impairment charge incurred for the CIFI wind-down was $ 16.1 million for the fiscal year ended March 31, 2021.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fiscal Year Ended March 31, 2020

Tobacco Operations

In fiscal year 2020, the Company recorded restructuring and impairment costs totaling $ 7.5 million, primarily related to $ 3.4 million of employee termination benefits for a voluntary workforce reduction at the Company's tobacco facilities in North Carolina, $ 1.8 million of employee termination benefits for the Company’s operations in Africa, and a $ 2.2 million impairment charge for machinery used by the Company's operations in Africa.

Restructuring and impairment costs were also incurred in connection with downsizing efforts at several other locations around the Company.

A summary of the restructuring and impairment costs incurred during the fiscal years ended March 31, 2022 and 2021 is as follows:

Fiscal Years Ended

2022 2021 2020

Restructuring Costs:

1 unchanged sentence

Other restructuring costs ( 24 ) 3,468

2,150 8,705 5,356

Impairment Costs:

Property, plant, and equipment and other noncurrent assets 8,307 13,872

$ 8,307 $ 13,872 $ 2,187

Total restructuring and impairment costs $ 10,457 $ 22,577

2 unchanged sentences

Balance at April 1, 2020

Fiscal Year 2020 Activity:

Costs charged to expense 5,356 — 5,356

Payments and write-offs ( 2,564 ) ( 223 ) ( 2,787 )

Balance at March 31, 2020 3,415 — 3,415

$ 3,415 $ — $ 3,415

Fiscal Year 2021 Activity:

20 unchanged sentences

Basic earnings per share

$ 5.01 $ 3.50 $ 3.55

Diluted Earnings Per Share

7 unchanged sentences

Diluted earnings per share

$ 4.97 $ 3.47 $ 3.53

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

38 unchanged sentences

Foreign dividend withholding taxes 2.6 2.3 5.3

Brazil tax ruling ( 17.1 ) — —

Changes in uncertain tax positions ( 0.1 ) ( 0.3 ) —

1 unchanged sentence

Effective income tax rate 8.3 % 27.2 % 23.4 %

In fiscal year 2022, the Company recognized a $ 1.7 million benefit related to a final tax law ruling at a foreign subsidiary.

Final United States GILTI regulations published in July 2020 significantly changed from the proposed regulations published in 2019.

The final regulations allow for an annual election for GILTI high-tax exclusion instead of a 5-year election and permitted retroactive application to years beginning after December 31, 2017.

Universal elected to apply the final regulations to fiscal years 2019 and 2020 which resulted in a tax reduction of $ 2.7 million.

In fiscal year 2021, the Company also recognized a $ 4.4 million net tax benefit for final U.S.

tax regulations issued for hybrid dividends paid by foreign subsidiaries.

During fiscal year 2020, the Company resolved a transfer pricing matter related to a foreign subsidiary.

The resolution of the uncertainty with the local country taxing authorities resulted in net additional current income tax expense of $ 2.8 million.

The additional income tax expense for fiscal year 2020 increased the effective tax rate for the year by 2.4 %

In fiscal year 2023, one of the Company's subsidiaries in Brazil received a favorable final judgement from the Brazilian Superior Court of Justice.

The lawsuit asserted certain tax credits on exported goods should be excluded from taxable income.

The Brazilian revenue authority asserted certain tax credits generated on purchased goods and services that were ultimately exported from Brazil should be included in the calculation of taxable income.

The Brazilian Superior Court of Justice affirmed the tax credits are non-taxable in accordance with the historical and existing tax legislation in Brazil.

The ruling resulted in recognition of $ 26.6 million of Brazilian tax credits due to the recalculation of federal income taxes in Brazil for years 2015 through 2022.

The affirmative ruling also resulted in recognition of $ 5.0 million of interest income for the fiscal year ended March 31, 2023.

The tax credits and associated interest income credits are expected to be used to reduce federal non-income tax liabilities through the end of calendar year 2027.

The tax credits were recognized as both current and noncurrent assets on the consolidated balance sheet based on when the credits are expected to be realized.

Additionally, any unused tax credits will earn tax-exempt interest income through the expiration date, which can be used to reduce both non-income tax and income tax liabilities.

The Brazilian federal tax authority has formally acknowledged the tax credits and related interest credits to be used by one of the Company's Brazilian subsidiaries.

The ruling resulted in a net income tax benefit of $ 24.2 million in fiscal year 2023.

The net income tax benefit included a $ 2.4 million income tax provision for U.S.

federal income taxes related to the fiscal year 2018 consolidated federal tax return that will need to be amended.

The Company sold its idled Tanzania operations and recognized $ 1.1 million of income taxes in the fiscal year ended March 31, 2023.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In fiscal year 2022, the Company recognized a $ 1.7 million benefit related to a final tax law ruling at a foreign subsidiary.

In fiscal year 2021, the Company recognized a $ 4.4 million net tax benefit for final U.S.

tax regulations issued for hybrid dividends paid by foreign subsidiaries.

Components of Income Before Income Taxes

21 unchanged sentences

Local currency exchange losses of foreign subsidiaries 1,084 595

Interest rate swap 302 5,178

Foreign tax credit carryforward 5,578 2,538

Capital loss carryforwards 4,197 —

All other 11,016 7,148

26 unchanged sentences

This amount reflects a possible decrease in the liability for uncertain tax positions that could result from the completion and resolution of tax audits and the expiration of open tax years in various tax jurisdictions.

The $ 1.7 million settlement in fiscal year 2023 represents the resolution of a tax matter with a foreign tax authority.

The $ 0.8 million settlement in fiscal year 2022 represents the resolution of a tax matter with a local country taxing authority.

The Company accrued $ 0.5 million of the fiscal year 2022 settlement in prior fiscal years.

The settlement in fiscal year 2020 represents the resolution of a tax matter with a local country taxing authority that resulted in a $ 8.9 million settlement of which $ 4.5 million was accrued in prior fiscal years.

For fiscal year ended March 31, 2023, the Company recognized $ 1.8 million as a reduction to interest expense related to an uncertain tax position on the Tanzania operations that were sold in fiscal year 2023.

For the fiscal year ended March 31, 2021, the Company recognized $ 1.8 million as a component of interest expense related to a settlement of an uncertain tax position at a foreign subsidiary.

Amounts accrued or reversed for interest were not material for fiscal years 2022 or 2020.

Amounts accrued or reversed for interest were not material for fiscal year 2022.

Amounts accrued or reversed for penalties were not material for fiscal years 2023 through 2021, and liabilities recorded for penalties at March 31, 2023 and 2022 also were not material.

13 unchanged sentences

Acquisition of business (1)

41,061 46,144

Foreign currency translation adjustment

( 76 ) ( 114 )

Balance at end of year $ 213,922 $ 213,998

2 unchanged sentences

See Note 2 for additional information.

(2) On October 1, 2020, the Company acquired 100 % of the capital stock of Silva for approximately $ 164.0 million in cash and $ 5.9 million of working capital on-hand at the date of acquisition.

The Silva acquisition resulted in $ 46.1 million of goodwill.

See Note 2 for additional information.

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

14 unchanged sentences

See Note 2 for additional information.

(2) The Silva acquisition resulted in $ 60.8 million of intangibles.

See Note 2 for additional information.

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

5 unchanged sentences

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of March 31, 2023, the expected future amortization expense for intangible assets is as follows:

(in thousands)

2024 $ 11,263

1 unchanged sentence

Total expected future amortization expense $ 80,101

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CREDIT FACILITIES

Bank Credit Agreement

On December 20, 2018, the Company entered into a senior unsecured bank credit agreement that included a $ 430 million five-year revolving credit facility (expiring December 20, 2023), a $ 150 million five-year term loan (due December 20, 2023), and a $ 220 million seven-year term loan (due December 20, 2025).

On December 17, 2020, the Company converted $ 150 million from the balance in the revolving credit facility into the existing term loans, splitting the balance equally between them.

Additional information related to the term loans is provided in Note 9.

Borrowings under the revolving credit facility bear interest at a variable rate based on either (1) LIBOR plus a margin that is based on the Company's credit measures or (2) the higher of the federal funds rate plus 0.5 %, prime rate, or one-month LIBOR plus 1.0 %, each plus a margin.

On December 15, 2022, the Company entered into a new senior unsecured 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).

Borrowings under the revolving credit facility bear interest at a variable rate benchmarked to the Secured Overnight Financing Rate ("SOFR"), instead of LIBOR, plus a margin that is based on the Company's credit measures.

In addition to interest, the Company pays a facility fee on the revolving credit facility.

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The credit agreement provides for an expansion of the facility under certain conditions to allow additional borrowings of up to $ 200 million.

Additional information related to the term loans is provided in Note 9.

The credit agreement includes financial covenants that require the Company to maintain a minimum level of tangible net worth and observe limits on debt levels.

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$ 616,809 $ 518,547

As discussed in Note 8, on December 20, 2018, the Company entered into a bank credit agreement.

The credit agreement includes a five-year term loan maturing in December 2023 and a seven-year term loan maturing in December 2025.

At inception, the five-year and seven-year term loans had balances of $ 150 million and $ 220 million, respectively.

On December 17, 2020, the Company converted $ 150 million from the balance in the revolving credit facility, split equally between the two term loans.

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

Under the credit agreement, both term loans bear interest at variable rates plus a margin based on the Company's credit measures.

Interest payments on the additional $ 150 million of new term loans in fiscal year 2021 remain unhedged at March 31, 2022.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As discussed in Note 11, the Company had receive-floating/pay-fixed interest rate swap agreements in place with respect to prior loans that were initially designated and carried over to hedge the variable interest payments on the new loans.

Those swap agreements were subsequently terminated in February 2019 and concurrently replaced with new interest rate swap agreements that convert the variable benchmark rate to a fixed rate through December 20, 2023 for the five-year term loan and through December 20, 2025 for the seven-year term loan.

The proceeds received for the fair value of the terminated interest rate swap agreements, approximately $ 5.4 million, was recognized in accumulated other comprehensive income, to be amortized into earnings as a reduction of interest expense through their original maturity dates.

At March 31, 2022, the entire gain from the terminated interest rate swap agreements has been amortized into interest expense.

With the swap agreements in place, the effective interest rates on the original $ 150 million five-year loan balance and the original $ 220 million seven-year loan balance were 4.19 % and 4.51 % at March 31, 2022, respectively.

The weighted average effective interest rates, when taking into consideration both the hedged and unhedged interest payments for all outstanding long-term debt, were 3.36 % and 3.84 % at March 31, 2022 for the five-year and seven-year term loans, respectively.

As discussed in Note 8, 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 $ 275 million five-year term loan and a $ 345 million seven-year term loan.

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

Under the credit agreement, both term loans bear interest at a variable rate benchmarked to the SOFR, instead of LIBOR, plus a margin that is based on the Company's credit measures.

As discussed in Note 11, the Company had receive-floating/pay-fixed interest rate swap agreements in place with respect to the prior term loans through December 20, 2023 for the five-year term loan and through December 20, 2025 for the seven-year term loan.

These agreements were terminated concurrently with the repayment of the prior term loans and replaced with new interest rate swap agreements that will continue to convert a portion of the variable benchmark rate to a fixed rate on each term loan through their respective maturity dates.

The proceeds for the fair value of the terminated interest rate swap agreements, approximately $ 11.8 million, were recognized in accumulated other comprehensive income and are being amortized into earnings as a reduction of interest expense through their original maturity dates.

With the swap agreements in place, the effective interest rates on the swapped portions of the five-year and seven-year term loans were 5.50 % and 5.65 % at March 31, 2023, respectively.

The weighted average effective interest rates, when taking into consideration both the swapped and unswapped interest payments for all outstanding long-term debt, were 6.11 % and 6.31 % at March 31, 2023 for the five-year and seven-year term loans, respectively.

Changes in the effective interest rates could result from a change in interest rates on the unhedged interest payments or a change in the Company's credit measures that impact the applicable credit spreads specified in the underlying loan agreement.

Disclosures about the fair value of long-term debt are provided in Note 12.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Shelf Registration

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Weighted Average Collateralized Incremental Borrowing Rate

5.93 % 5.43 %

As part of the acquisition of Shank's, the Company recognized $ 8.5 million of operating lease right-of-use assets and corresponding operating lease liabilities on the opening balance sheet related to leases of Shank's facilities.

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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 9 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 March 31, 2022, the total notional amount of the interest rate swaps was $ 370 million, which corresponded with the former original outstanding balance of the term loans.

During the third quarter of fiscal year 2021, the Company converted $ 150 million from the balance in its revolving credit line into the existing term loans, splitting the balance equally between them.

At March 31, 2022, the Company is not hedging the interest payments on the additional $ 150

At March 31, 2023, the total notional amount of the interest rate swaps was $ 310 million, which corresponded to a portion of the aggregate balance of the term loans.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

million of term loans.

The increase to the principal balance of the term loans does not have an impact on 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.

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 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 March 31, 2023, the entire deferred gain has been amortized.

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

In fiscal year 2022, only non-deliverable forward contracts were utilized for the sale of 2023 and 2022 crop year inputs.

In fiscal years 2023 and 2022, only non-deliverable forward contracts were utilized for the sale of crop inputs.

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

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Tobacco purchases 2023 Brazil 2024

Tobacco purchases 2022 Brazil, Africa 2023

Tobacco purchases 2022 Brazil 2024

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

Description of hedged item Forecast purchases of tobacco in

Brazil and Africa

Description of hedged item Forecast purchases of tobacco and sales of crop inputs in Brazil and Africa

Derivatives Not Designated as Hedges -

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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 $ 6.9 million remained in accumulated other comprehensive loss at March 31, 2023.

That balance reflects gains and losses on contracts related to the 2023, 2022, and 2021 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 March 31, 2022.

That balance reflects gains and losses on contracts related to the 2023 and 2022 Brazil crops and the 2024 and 2023 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through March 31, 2023.

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.

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Total financial assets measured and reported at fair value $ 334 $ 13,655 $ 24,068 $ — $ 38,057

Acquisition-related contingent consideration obligations - long-term $ — $ — $ — $ 2,532 $ 2,532

Interest rate swap agreements — — 1,161 — 1,161

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

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

In the quarter ended June 30, 2020, the evaluation resulted in the reduction of $ 4.2 million of contingent consideration of the original $ 6.7 million liability recorded.

In the quarter ended September 30, 2021, an evaluation of the contingent liability resulted in a reduction of the remaining $ 2.5 million contingent liability recorded.

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 the reduction of $ 4.2 million of contingent consideration of the original $ 6.7 million liability recorded.

During the year ended March 31, 2022, an evaluation of the contingent liability resulted in a reduction of the remaining $ 2.5 million contingent liability recorded.

Significant judgment is applied to this model and therefore the acquisition-related contingent consideration obligation is classified within Level 3 of the fair value hierarchy.

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See Note 9 for more information regarding long-term debt.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Nonrecurring Fair Value Measurements

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Accordingly, the nonrecurring measurement of the fair value of these assets and liabilities are classified within Level 3 of the fair value hierarchy.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Acquisition Accounting for Business Combinations

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

Assets Held for Sale

Due to business changes that affected the leaf tobacco market in Tanzania and the Company's operations there, an impairment charge of the long-lived assets in Tanzania was recorded in fiscal year 2019 to reduce their carrying value to fair value at March 31, 2019.

As a result of efforts to sell the idled Tanzania operations, in the third quarter of fiscal year 2022 an additional impairment charge of $ 9.4 million was recorded.

The remaining assets held for sales consist principally of receivables for VAT and the Company's office building, idled processing facility, and land.

The aggregate fair value and carrying value of the assets held for sale following the impairment adjustments is approximately $ 7 million at March 31, 2022.

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

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For pension benefits, the PBO includes the estimated effect of future compensation increases on those benefits.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Actuarial Assumptions

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The expected long-term return on plan assets is developed from financial models used to project future returns on the underlying assets of the funded plans and is reviewed on an annual basis.

The healthcare cost trend rate used by the Company is based on a study of medical cost inflation rates that is reviewed and updated annually for continued applicability.

The healthcare cost

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

trend rate used by the Company is based on a study of medical cost inflation rates that is reviewed and updated annually for continued applicability.

The trend assumption of 6.97 % in 2023 declines gradually to 4.44 % in 2032 .

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As a result, changes to the healthcare cost trend rate have a limited impact on the postretirement medical plan liability and expense.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Benefit Obligations, Plan Assets, and Funded Status

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The unfunded PBO for those pension plans and postretirement benefit plans was $ 29.4 million and $ 17.0 million, respectively, at March 31, 2023.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The funded status of the Company’s plans at the end of fiscal years 2023 and 2022 was reported in the consolidated balance sheets as follows:

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2023 2022 2023 2022

Noncurrent assets (included in Pension asset and other noncurrent assets) $ 12,667 $ 11,950 $ — $ —

Current liability (included in Accounts payable and accrued expenses) ( 1,135 ) ( 4,896 ) ( 1,930 ) ( 2,051 )

Noncurrent assets (included in Pension asset) $ 9,984 $ 12,667 $ — $ —

Current liability (included in Accrued expenses) ( 3,352 ) ( 1,135 ) ( 1,768 ) ( 1,930 )

Noncurrent liability (reported as Pensions and other postretirement benefits) ( 26,078 ) ( 32,569 ) ( 16,691 ) ( 20,321 )

Amounts recognized in the consolidated balance sheets $ ( 19,446 ) $ ( 21,037 ) $ ( 18,459 ) $ ( 22,251 )

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Additional information on the funded status of the Company’s plans as of the respective measurement dates for the fiscal years ended March 31, 2023 and 2022, is as follows:

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Expected return on plan assets ( 13,630 ) ( 13,562 ) ( 14,448 ) ( 76 ) ( 86 ) ( 96 )

Settlement cost — — 676 — — —

Net amortization and deferral 2,038 1,679 4,863 ( 737 ) ( 422 ) ( 591 )

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These models use significant unobservable inputs and are classified as Level 3 within the fair value hierarchy.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair values of the assets of the Company’s pension plans as of March 31, 2023 and 2022, classified based on how their values were determined under the fair value hierarchy are as follows:

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Total investments $ 201,080 $ — $ 20,873 $ 221,953

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2022

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Amounts charged to expense for these plans were approximately $ 3.4 million for fiscal year 2023, $ 3.0 million for fiscal year 2022, and $ 2.9 million for fiscal year 2021.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

COMMON AND PREFERRED STOCK

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Currently, grants are outstanding under the 1997 Executive Stock Plan, the 2002 Executive Stock Plan, the 2007 Stock Incentive Plan, and the 2017 Stock Incentive Plan.

Together, these plans are referred to in this disclosure as the “Plans.” Up to 1,000,000 shares may be issued under the 2017 Stock Incentive Plan, with no specific share limit for any of the award types.

Together, these plans are referred to in this disclosure as the “Plans.” Up to 1,000,000 shares may be issued

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

under the 2017 Stock Incentive Plan, with no specific share limit for any of the award types.

New awards may no longer be issued under the 1997, 2002, and 2007 Plans.

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Additionally, restricted stock vests upon the individual’s retirement from service as a director.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSUs, Restricted Stock, and PSUs

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The fair values of RSUs, restricted stock, and PSUs are based on the market price of the common stock on the grant date.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-Based Compensation Expense

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At March 31, 2023, the Company had $ 4.9 million of unrecognized compensation expense related to stock-based awards, which will be recognized over a weighted-average period of approximately 0.9 years.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS

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While the range of reasonably possible loss is zero up to the full $ 10 million remaining assessment, 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 March 31, 2023.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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Should the subsidiary ultimately be required to pay any tax, interest, or penalties in either case, the portion paid for tax would generate VAT credits that the subsidiary may be able to recover.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Legal and Tax Matters

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OPERATING SEGMENTS

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

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

As a result of this analysis, senior management determined the Company conducts operations across two reportable operating segments, Tobacco Operations and Ingredients Operations.

Management regularly evaluates the Company’s global business activities, including product and service offerings to its customers, as well as senior management’s operational and financial responsibilities.

Assessments include an analysis of how its chief operating decision maker measures business performance and allocates resources.

As a result of this analysis, senior management has determined the Company conducts operations across two reportable operating segments, Tobacco Operations and Ingredients Operations.

The Tobacco Operations segment activities involve contracting, procuring, processing, packing, storing, and shipping leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products throughout the world.

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

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

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

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

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reportable segment data as of, or for, the fiscal years ended March 31, 2022, 2021, and 2020, is as follows, including a recast of fiscal year 2020 for the current reportable operating segment presentation:

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

Reportable segment data as of, or for, the fiscal years ended March 31, 2023, 2022, and 2021, is as follows:

Sales and Other Operating Revenues Operating Income

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Belgium 395,616 283,072 366,476

Philippines 147,876 94,493 68,143

China 204,139 97,826 52,837

Germany 93,057 94,519 104,525

Philippines 149,867 147,876 94,493

Poland 119,629 90,270 97,001

Germany 108,844 93,057 94,519

France 64,563 39,307 26,480

Mexico 51,847 29,514 51,448

Netherlands 51,843 45,297 40,754

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Other comprehensive income (loss) attributable to Universal Corporation:

Net gain (loss) on foreign currency translation (net of tax (expense) benefit of $ 180 in 2020)

( 6,367 ) 8,272 ( 3,066 )

Net gain (loss) on foreign currency translation ( 3,166 ) ( 6,367 ) 8,272

Net loss on foreign currency translation attributable to noncontrolling interests ( 102 ) 537 ( 484 )

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See Note 13 for additional information.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SUBSEQUENT EVENTS

On April 1, 2022, the Company entered into a sales agreement to sell all outstanding common stock of the idled tobacco companies operating in Tanzania for $ 8.5 million.

The sale is expected to close during fiscal year 2023 and is subject to various governmental and regulatory approvals.

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Universal Corporation (the Company) as of March 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Universal Corporation (the Company) as of March 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2023, in conformity with U.S.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Advances to Suppliers

Description of the Matter The Company’s short-term and long-term advances to suppliers totaled approximately $153 million as of March 31, 2022, and the allowances totaled $19 million.

Allowance for Advances to Tobacco Suppliers

Description of the Matter The Company’s short-term and long-term advances to tobacco suppliers totaled approximately $199 million as of March 31, 2023, and the allowances totaled $24 million.

As discussed in Note 1 of the financial statements, the Company provides agronomy services and seasonal advances of seed, fertilizer, and other supplies to tobacco farmers for crop production.

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Management determined the allowance based on assumptions including the assessment of historical loss information and crop projections.

Auditing Management’s estimate for the allowance on advances to suppliers was complex and involved subjective auditor judgment as the estimate relies on a number of factors that are affected by market and economic conditions outside the Company’s control.

Auditing Management’s estimate for the allowance on advances to tobacco suppliers was complex and involved subjective auditor judgment as the estimate relies on a number of factors that are affected by market and economic conditions outside the Company’s control.

There is uncertainty associated with the assumptions used which could have a significant effect on the allowance estimate.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over the allowance on the advances to suppliers.

For example, we tested controls over the supplier advance approval and Management’s review and approval of the models used to calculate the allowance.

We also tested controls used by Management to evaluate the data used in making the estimates for completeness and accuracy.

To test the allowance for advances to suppliers, our audit procedures included, among others, evaluating the significant assumptions used in the allowance calculation.

To test the allowance for advances to tobacco suppliers, our audit procedures included, among others, evaluating the significant assumptions used in the allowance calculation.

For example, we compared historical loss information to Management’s estimate of projected crop yield and analyzed the sensitivity of significant assumptions to evaluate the changes in the allowance that would result from changes in the assumptions.

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We analyzed the sensitivity of significant assumptions to evaluate the changes in the allowance that that would result from changes in the assumptions and we considered subsequent events to identify potential sources of contrary information to Management’s assumptions.

Accounting for Acquisition of Shank's Extracts, LLC.

Description of the Matter As described in Note 1 and 2 to the consolidated financial statements, on October 4, 2021 the Company acquired 100% of the capital stock of Shank’s Extracts, LLC.

(“Shank’s”) for approximately $100 million in cash and $2.4 million of working capital on-hand at the date of acquisition.

The acquisition of Shank’s was accounted for as a business combination.

Auditing the Company's accounting for its business combination was complex due to the significant estimation required by Management to determine the fair value of identifiable intangible assets including customer relationships ($24 million).

Significant estimation was required due to the application of the valuation models and assumptions used by Management to measure the fair value of the customer-related intangible asset.

The significant assumptions used in determining the fair value included the discount rate and forecasted results (e.g., revenue growth rates and operating profit margins).

How We Addressed the Matter in Our Audit We tested the Company's controls over its accounting for business combinations.

For example, we tested controls over the customer-related intangible asset acquired, including Management’s review of the valuation models and significant assumptions.

To test the estimated fair value of the acquired customer-related intangible asset, our audit procedures included, among others, assessing the significant assumptions used in the estimated fair value of the customer-related intangible asset.

For example, we tested the completeness and accuracy of the underlying data and compared the significant assumptions to current industry, market and economic trends, historical results of the acquired business, and other guidelines used by companies within the same industry.

We involved our valuation specialists to assist in evaluating the Company's use of its valuation models.

We performed a sensitivity analysis of the significant assumptions to evaluate the change in the fair values that would result from changes in assumptions.

/s/ Ernst & Young LLP

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In our opinion, Universal Corporation, (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 report dated May 27, 2022 expressed an unqualified opinion thereon.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Shank's Extracts, LLC, which is included in the 2022 consolidated financial statements of the Company and constituted 4.7% and 7.3% of total and net assets, respectively, as of March 31, 2022 and 1.5% and 0.9% of consolidated sales and other operating revenues and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Shank's Extracts, LLC.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 and our report dated May 25, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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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-K

Item 8. Financial Statements and Supplementary Data