What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-02 · 119 added, 91 removed, 108 unchanged (66% of the section changed)

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government regulation and other stakeholder expectations;

economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from the conflict in Ukraine;

economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts, such as the conflict in Ukraine;

product taxation;

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We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, provide investors with important information that is useful in understanding our business results and trends.

Our tobacco operations performed well and are off to a good start for our fiscal year 2024.

Segment operating income was higher for our Tobacco Operations segment in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022, even though we did not have the benefit of large shipments of carryover tobacco from certain origins that we had in first quarter of fiscal year 2023.

Demand for leaf tobacco from our customers remains strong, and our level of uncommitted tobacco inventory was 16% of tobacco inventory at June 30, 2023.

We are forecasting increased leaf tobacco production in fiscal year 2024,

compared to fiscal year 2023, and believe that even with that increased production, leaf tobacco will remain in an undersupply position.

We are pleased with the ongoing progress we are making to integrate our plant-based ingredients platform, and we continue to execute on our strategy to invest in and expand the platform’s capabilities for future growth in existing and new products.

For the quarter ended June 30, 2023, the platform faced soft demand, due to high customer inventory levels, and our earnings for the platform were below our expectations.

We believe that many of our customers are continuing to draw down on their raw materials inventories after building inventories to protect against prior supply chain uncertainties.

These inventory challenges have been more extensive and persistent in duration than we had forecasted.

In addition, the expansion of the platform’s capabilities has added to our costs, while a sharp drop in certain new crop raw material prices resulted in inventory write-downs in the quarter ended June 30, 2023.

We continue to believe the inventory challenges are temporary and expect excess inventory levels held by our customers to eventually work down.

One of the main objectives of our current investments in our plant-based ingredients platform is to expand our portfolio to include more value-added products for our customers.

We believe that we are well-positioned to capitalize on demand from our customers, and that with the investments we are making, we are a stronger partner for current and future customers due to the expanded range of capabilities and products that we can offer them.

We are encouraged by ongoing customer engagements regarding existing business and new business opportunities.

Our costs, notably interest costs and prices for green leaf tobacco, remained high in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022.

Interest costs were more than double on higher interest rates in the first quarter of fiscal year 2024, compared to the same quarter in fiscal year 2023.

Our debt balances, the sum of notes payable and overdrafts and long-term obligations, were relatively flat in the quarter ended June 30, 2023, compared to the same quarter in the prior fiscal year, as working capital requirements to fund larger tobacco crops and higher green tobacco prices were partially offset by increased customer deposits.

We continue to make transparency around our sustainability efforts and goals a priority.

We recently completed our annual submission to the global non-profit organization CDP regarding climate change, forestry, and water risk to provide more information on our achievements in these areas to our stakeholders.

We continue to work with third parties to verify our emissions and establish our pathway to net zero through the identification and prioritization of high-impact projects throughout our footprint.

Our fiscal year 2024 is developing very well with operating income for the six months and quarter ended September 30, 2023, up 30% and 46%, respectively, compared to the six months and quarter ended September 30, 2022.

Gross profit margins also rebounded nicely in the first half of fiscal year 2024, compared with the same period in fiscal year 2023, with our ingredients companies making a positive contribution.

Our Tobacco Operations segment delivered strong performance in the first half of fiscal year 2024 on robust demand for leaf tobacco from our customers.

Results for the Ingredients Operations segment were also

up in the second quarter of fiscal year 2024, compared to the same quarter in the prior fiscal year.

This segment saw some supply chain normalization, which stabilized demand from certain of our customers and generated better results in the second quarter of fiscal year 2024, compared to the first quarter of fiscal year 2024 when the segment experienced soft customer demand.

Strong demand for leaf tobacco from our customers and a favorable tobacco product mix benefited our results for the first half of fiscal year 2024.

Leaf tobacco margins improved in the first half of fiscal year 2024, despite lower leaf tobacco sales volumes, as we had fewer shipments of lower margin tobacco, compared to the first half of fiscal year 2023.

Segment operating income for our Tobacco Operations segment was up 46% and 55% for the six months and quarter ended September 30, 2023, respectively, compared to the six months and quarter ended September 30, 2022.

Our uncommitted tobacco inventory level of 12% at September 30, 2023, remained low, and global leaf tobacco supply continues to be tight for all types of tobacco.

Looking ahead, we continue to expect that similar to fiscal year 2023, our tobacco shipments will be strongly weighted to the second half of the fiscal year 2024.

We also believe our uncommitted tobacco inventory levels will remain low for the rest of fiscal year 2024.

We were pleased to see demand from certain customers for our ingredients products stabilizing in the quarter ended September 30, 2023.

Although results for the Ingredients Operations segment were lower in the six months ended September 30, 2023, compared to the six months ended September 30, 2022, we believe that our customers have been working through their excess inventory levels, and raw material prices, such as apple prices, are coming down.

While navigating evolving market dynamics, we remain focused on and encouraged by both our core and new business opportunities with existing and first-time ingredients customers.

We continue to strongly believe that our commercial and research and development efforts coupled with our expanded range of capabilities that we can offer our customers due to our ongoing investments in our ingredients platform will strengthen our business for the future.

Our costs continued to be elevated in the first half of fiscal year 2024, compared to the first half of fiscal year 2023.

Interest expense was up over $13 million primarily on higher interest rates, and green tobacco prices were also higher.

Despite the higher costs, we have been able to reduce our debt levels in fiscal year 2024.

At September 30, 2023, our net debt levels, which we define as the sum of notes payable and overdrafts, long-term debt, and customer advances and deposits, less cash and cash equivalents, declined by about $70 million, compared to our net debt levels at September 30, 2022.

Universal has a fundamental responsibility to its stakeholders to achieve high standards of environmental performance to support sustainable operations, which we demonstrate through our supplier engagement and disclosures on climate change, water stewardship, and forestry.

Our record is highlighted by 15 years of participation in CDP disclosure, the establishment of science-based targets, and recognition by CDP as a Supplier Engagement Leader.

To add to our commitment to environmental sustainability, we have committed to water stewardship throughout our operations.

To Universal, water stewardship is water usage that is socially and culturally equitable, environmentally sustainable, economically beneficial, and achieved through a multi‐stakeholder process.

Our Nominating and Corporate Governance Committee and our management team have approved a Water Stewardship policy to guide and publicly commit to water stewardship through our global operations.

FINANCIAL HIGHLIGHTS

Three Months Ended June 30, Change

Six Months Ended September 30, Change

(in millions of dollars, except per share data) 2023 2022 $ %

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*See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below.

Net loss for the quarter ended June 30, 2023, was $(2.1) million, or $(0.08) per diluted share, compared with net income of $6.8 million, or $0.27 per diluted share, for the quarter ended June 30, 2022.

Excluding certain other non-recurring items, detailed in Other Items below, net income and diluted earnings per share decreased by $8.2 million and $0.33, respectively, for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022.

Operating income of $11.0 million for the quarter

ended June 30, 2023, decreased by $2.2 million, compared to operating income of $13.3 million for the quarter ended June 30, 2022.

Consolidated revenues increased by $87.9 million to $517.7 million for the three months ended June 30, 2023, compared to the same period in fiscal year 2023, on higher tobacco sales prices and a favorable product and geographic mix in our Tobacco Operations segment.

Net income for the six months ended September 30, 2023, was $26.1 million, or $1.04 per diluted share, compared with $28.7 million, or $1.15 per diluted share, for the six months ended September 30, 2022.

Excluding restructuring and impairment costs and certain other non-recurring items, detailed in Other Items below, net income increased by $0.2 million and diluted earnings per share were flat for the six months ended September 30, 2023, compared to the six months ended September 30, 2022.

Operating income of $66.3 million for the six months ended September 30, 2023, increased by $15.2 million, compared to operating income of $51.2 million for the six months ended September 30, 2022.

Adjusted operating income, detailed in Other Items below, of $68.9 million increased by $17.8 million for the first half of fiscal year 2024, compared to adjusted operating income of $51.2 million for the first half of fiscal year 2023.

Net income for the quarter ended September 30, 2023, was $28.1 million, or $1.12 per diluted share, compared with $21.9 million, or $0.88 per diluted share, for the quarter ended September 30, 2022.

Excluding restructuring and impairment costs and certain other non-recurring items, detailed in Other Items below, net income and diluted earnings per share increased by $8.4 million and $0.33, respectively, for the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022.

Operating income of $55.3 million for the quarter ended September 30, 2023, increased by $17.4 million, compared to operating income of $37.9 million for the quarter ended September 30, 2022.

Adjusted operating income, detailed in Other Items below, of $57.9 million increased by $20.0 million for the second quarter of fiscal year 2024, compared to adjusted operating income of $37.9 million for the second quarter of fiscal year 2023.

Consolidated revenues increased by $75.4 million to $1.2 billion and decreased slightly by $12.5 million to $638.5 million, respectively, for the six months and quarter ended September 30, 2023, compared to the same periods in fiscal year 2023.

These changes were largely due to lower tobacco sales volumes but higher tobacco sales prices and a favorable product mix in the Tobacco Operations segment.

Tobacco Operations

The first fiscal quarter is historically a slow quarter for our tobacco businesses.

Operating income for the Tobacco Operations segment increased by $0.8 million to $8.9 million for the quarter ended June 30, 2023, compared with the quarter ended June 30, 2022.

Although tobacco sales volumes were down, Tobacco Operations segment operating income was up largely on a more favorable product and geographic mix in the quarter ended June 30, 2023, compared to the same quarter in the prior fiscal year, when a large amount of carryover tobacco crops were shipped.

Prices for green leaf tobacco in the quarter ended June 30, 2023, were also higher than in the quarter ended June 30, 2022.

Carryover crop shipments were significantly lower in Brazil in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022.

In Europe, sales volumes and revenues were up due to shipment timing and a favorable product mix in the quarter ended June 30, 2023, compared to the same quarter in the prior fiscal year.

Carryover crop shipments were up in North America due to shipment timing in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022.

Results for our oriental tobacco joint venture were down significantly in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022, on unfavorable foreign currency comparisons and higher interest expenses.

Selling, general, and administrative expenses for the Tobacco Operations segment were higher in the quarter ended June 30, 2023, compared to June 30, 2022, primarily on higher compensation costs and higher provisions on advances to suppliers following adverse weather conditions in Africa.

Revenues for the Tobacco Operations segment of $443.9 million for the quarter ended June 30, 2023, were up $95.8 million, compared to the same period in the prior fiscal year, on higher tobacco sales prices and a favorable product and geographic mix.

Operating income for the Tobacco Operations segment increased by $19.4 million to $61.3 million and by $18.6 million to $52.4 million, respectively, for the six months and quarter ended September 30, 2023, compared with the six months and quarter ended September 30, 2022.

Tobacco Operations segment operating income was up despite lower tobacco sales volumes largely on a more favorable product mix in the six months and quarter ended September 30, 2023, compared to the same periods in the prior fiscal year, when a large amount of lower margin carryover tobacco crops were shipped.

Carryover crop shipments were significantly lower while current crop shipments were higher in both South America and Africa in the six months and quarter ended September 30, 2023, compared to the same periods in fiscal year 2023.

In Europe, sales volumes and revenues were up due to shipment timing in the six months and quarter ended September 30, 2023, compared to the same periods in the prior fiscal year.

In Asia, our operations also saw an improved product mix in the six months and quarter ended September 30, 2023, compared to the six months and quarter ended September 30, 2022.

Equity earnings from our oriental tobacco joint venture were

down significantly in the six months and quarter ended September 30, 2023, compared to the same periods in the prior fiscal year, on unfavorable foreign currency comparisons and higher interest expenses.

Selling, general, and administrative expenses for the Tobacco Operations segment were higher in the six months ended September 30, 2023, compared to six months ended September 30, 2022, primarily on higher compensation costs partially offset by favorable foreign currency comparisons.

In the quarter ended September 30, 2023, selling, general, and administrative expenses were down, compared to the quarter ended September 30, 2022, largely on favorable foreign currency comparisons.

Revenues for the Tobacco Operations segment of $998.6 million for the six months ended September 30, 2023, and $554.7 million for the quarter ended September 30, 2023, were up $80.5 million and down $15.4 million, respectively, compared to the same periods in the prior fiscal year.

These changes were largely due to lower tobacco sales volumes, higher tobacco sales prices, and a favorable product mix.

Ingredients Operations

Operating loss for the Ingredients Operations segment was $(2.0) million for the quarter ended June 30, 2023, compared to operating income of $4.6 million for the quarter ended June 30, 2022.

Sales for all of our businesses in this segment were down in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022, on lower demand due to our customers continuing to carry high inventory levels.

Prices for some key raw materials were down in the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022.

Inventory write-downs for the Ingredients Operations segment were higher in the quarter ended June 30, 2023, compared to the same quarter in the prior fiscal year, on the changes in customer demand and new crop raw material prices.

Selling, general, and administrative expenses for this segment increased in the quarter ended June 30, 2023, compared to the same quarter in the prior fiscal year, largely on higher labor costs and investments in product development capabilities.

Revenues for the Ingredients Operations segment of $73.8 million for the quarter ended June 30, 2023, were down $7.9 million compared to the quarter ended June 30, 2022, largely on lower sales volumes.

Cost of goods sold in the quarter ended June 30, 2023, increased by 23% to $431.2 million, compared with the same period in the prior fiscal year, largely due to higher green tobacco costs.

Selling, general, and administrative costs for the quarter ended June 30, 2023, increased by $9.0 million to $75.5 million, compared to the same period in the prior fiscal year, primarily on weakening of the U.S.

dollar, increased compensation costs, and higher provisions on advances to suppliers.

Interest expense for the quarter ended June 30, 2023, increased by $8.8 million to $15.5 million on increased costs from higher interest rates.

For the three months ended June 30, 2023, our consolidated effective income tax rate on pre-tax loss was a benefit of 21.6%.

For the three months ended June 30, 2022, our consolidated effective income tax rate on pre-tax income was 54.6%.

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

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

Operating income for the Ingredients Operations segment was $2.8 million and $4.8 million, respectively, for the six months and quarter ended September 30, 2023, compared to $9.1 million and $4.5 million, respectively for the six months and quarter ended September 30, 2022.

Operating income for the Ingredients Operations segment was up slightly for the quarter ended September 30, 2023, compared to the quarter end September 30, 2022, on the stabilization of sales volumes for certain customers.

Results for our Ingredients Operations segment were down in the six months ended September 30, 2023, compared to the six months ended September 30, 2022, on lower demand due to customers continuing to carry high inventory levels.

Prices for some key raw materials were down in the six months ended September 30, 2023, compared to the six months ended September 30, 2022.

Inventory write-downs for the Ingredients Operations segment were higher in the six months ended September 30, 2023, compared to the same period in the prior fiscal year, on the changes in customer demand and new crop raw material prices.

Selling, general, and administrative expenses for this segment increased in the six months and quarter ended September 30, 2023, compared to the same periods in the prior fiscal year, largely on higher labor costs and investments in product development capabilities.

For the quarter ended September 30, 2023, revenues for the Ingredients Operations segment of $83.8 million were up $2.9 million, compared to the quarter ended September 30, 2022, largely on higher sales volumes partly from new business.

Revenues for the Ingredients Operations segment of $157.6 million for six months ended September 30, 2023, compared to the six months ended September 30, 2022, were down $5.1 million, largely on lower sales volumes and sales prices.

Cost of goods sold in the six months ended September 30, 2023, increased by 5% to $938.0 million, compared with the six months ended September 30, 2022, largely due to higher green tobacco costs.

Cost of goods sold in the quarter ended September 30, 2023, decreased by 6% to $506.8 million, compared with the quarter ended September 30, 2022, primarily on changes in tobacco sales volumes and product mix.

Selling, general, and administrative costs for the six months ended September 30, 2023, increased by $10.5 million to $149.3 million, compared to the six months ended September 30, 2022, on higher compensation costs partially offset by favorable foreign currency comparisons.

Selling, general, and administrative costs for the quarter ended September 30, 2023, increased by $1.4 million to $73.8 million, compared to the same period in the prior fiscal year, largely on favorable foreign currency comparisons offset by higher compensation costs and provisions on advances to suppliers.

Interest expense for the six months and quarter ended September 30, 2023, compared to the same periods in the prior fiscal year, increased by $13.6 million to $32.6 million and by $4.8 million to $17.1 million, respectively, on increased costs from higher interest rates.

For both the six months and quarter ended September 30, 2023, our effective tax rate on pre-tax income was 21.5%.

For the six months and quarter ended September 30, 2022, our effective tax rate on pre-tax income was 31.1% and 25.5%, respectively.

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

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

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

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The following table sets forth certain non-recurring items included in reported results to reconcile adjusted operating income to consolidated operating income and adjusted net income to net income attributable to Universal Corporation:

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share Reconciliation

(in thousands) Three Months Ended June 30,

Net income (loss) available to Universal Corporation $ (2,064) $ 6,830

Interest expense reversal on uncertain tax position and income tax from sale of operations in Tanzania — (1,816)

Total of Non-GAAP adjustments to income (loss) before income taxes $ — $ (1,816)

Adjusted Operating Income Reconciliation

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

(in thousands) 2023 2022 2023 2022

Consolidated operating income $ 55,312 $ 37,886 $ 66,347 $ 51,152

Restructuring and impairment costs (1)

2,599 — 2,599 —

As Adjusted operating income (Non-GAAP) $ 57,911 $ 37,886 $ 68,946 $ 51,152

Adjusted Net Income Attributable to Universal Corporation and Adjusted Diluted Earnings Per Share Reconciliation

(in thousands except for per share amounts)

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

2023 2022 2023 2022

Net income attributable to Universal Corporation $ 28,128 $ 21,855 $ 26,064 $ 28,685

Restructuring and impairment costs (1)

2,599 — 2,599 —

Interest expense reversal on uncertain tax position from sale of operations in Tanzania — — — (1,816)

Total of Non-GAAP adjustments to income before income taxes 2,599 — 2,599 (1,816)

Non-GAAP adjustments to income taxes

Income tax benefit from restructuring and impairment costs (465) — (465) —

Income tax expense from sale of operations in Tanzania — — — 1,132

Total of income tax impacts for Non-GAAP adjustments to income (loss) before income taxes and Non-GAAP adjustment to income taxes — 1,132

Net income (loss) attributable to Universal Corporation (Non-GAAP) $ (2,064) $ 6,146

Diluted earnings (loss) per share $ (0.08) $ 0.27

Diluted earnings (loss) per share $ (0.08) $ 0.25

Total of income tax impacts for Non-GAAP adjustments to income before income taxes (465) — (465) 1,132

Net income attributable to Universal Corporation (Non-GAAP) $ 30,262 $ 21,855 $ 28,198 $ 28,001

Diluted earnings per share $ 1.12 $ 0.88 $ 1.04 $ 1.15

Diluted earnings per share (Non-GAAP) $ 1.21 $ 0.88 $ 1.13 $ 1.13

(1) Restructuring and impairment costs are included in Consolidated operating income in the consolidated statements of income, but excluded for purposes of Adjusted operating income, Adjusted net income available to Universal Corporation, and Adjusted diluted earnings per share.

Liquidity and Capital Resources

Our first fiscal quarter is usually a period of significant working capital investment in both Africa and South America as tobacco crops are delivered by farmers.

We funded our working capital needs in the quarter ended June 30, 2023, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows.

Tobacco shipments are expected to be weighted to the second half of our fiscal year.

The first half of our fiscal year is usually a period of significant working capital investment in Africa, South America, and the United States as tobacco crops are delivered by farmers.

We funded our working capital needs in the six months ended September 30, 2023, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows.

Tobacco shipments are expected to be strongly weighted to the second half of our fiscal year 2024.

Our liquidity and operating capital resource requirements are predominantly short term in nature and primarily relate to working capital for tobacco crop purchases.

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The timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping requirements, which may change the level or the duration of crop financing.

Despite a predominance of short-term needs, we maintain a portion of our total debt as long-term to reduce liquidity risk.

Despite a predominance

of short-term needs, we maintain a portion of our total debt as long-term to reduce liquidity risk.

We also periodically have large cash balances that we utilize to meet our working capital requirements.

Operating Activities

Net cash used by our operations was $103.9 million during the quarter ended June 30, 2023.

That amount was $121.9 million lower than during the same period in fiscal year 2023.

Our working capital needs to fund our operations in the quarter ended June 30, 2023, were lower, compared to the quarter ended June 30, 2022, primarily on higher customer advances and deposits partially offset by increased tobacco purchase volumes and higher green tobacco prices.

Customer advances and deposits were up $84.0 million in the first quarter of fiscal year 2024, compared to the same period of fiscal year 2023, due to a customer arrangement providing for a higher amount of advances on tobacco purchases in fiscal year 2024.

Tobacco inventory levels increased by $266.8 million from March 31, 2023 levels to $1.1 billion at June 30, 2023, on seasonal leaf purchases of larger tobacco crops.

Tobacco inventory levels were $20.4 million above June 30, 2022 levels.

Net cash provided by our operations was $10.5 million during the six months ended September 30, 2023.

That amount was $356.8 million higher than during the same period in fiscal year 2023, primarily on sales mix and timing of shipments and customer payments in our Tobacco Operations segment.

Customer advances and deposits were up $153.9 million in the six months ended September 30, 2023, compared to the same period of fiscal year 2023, due to customer arrangements providing for a higher amount of advances on tobacco purchases in fiscal year 2024.

Tobacco inventory levels increased by $252.4 million from March 31, 2023 levels to $1.1 billion at September 30, 2023, on seasonal leaf purchases of larger tobacco crops.

Tobacco inventory levels were $118.1 million above September 30, 2022 levels, primarily on larger tobacco crop sizes in certain origins and higher green leaf tobacco prices.

We generally do not purchase material quantities of tobacco on a speculative basis.

However, when we contract directly with tobacco farmers, we are often obligated to buy all stalk positions, which may contain less marketable leaf styles.

At June 30, 2023, our uncommitted tobacco inventories

were $175.2 million, or about 16% of total tobacco inventory, compared to $91.1 million, or about 11% of our March 31, 2023 tobacco inventory, and $164.3 million, or about 15% of our June 30, 2022 tobacco inventory.

At September 30, 2023, our uncommitted tobacco inventories were $130.2 million, or about 12% of total tobacco inventory, compared to $91.1 million, or about 11% of our March 31, 2023 tobacco inventory, and $109.1 million, or about 11% of our September 30, 2022 tobacco inventory.

While we target committed inventory levels of 80% or more of total tobacco inventory, the level of these uncommitted inventory percentages is influenced by timing of farmer deliveries of new crops, as well as the receipt of customer orders.

Our balance sheet accounts reflected seasonal patterns in the quarter ended June 30, 2023, on deliveries of tobacco crops by farmers in both South America and Africa.

Accounts receivable decreased by $26.5 million from March 31, 2023 levels, as we used collections on receivables to fund seasonal working capital needs.

Advances to suppliers were $111.2 million at June 30, 2023, a reduction of $59.6 million from March 31, 2023, as tobacco crops were delivered in payment on some of those balances, net of new advances on upcoming tobacco crops.

Accounts receivable—unconsolidated affiliates were up $61.1 million in the three months ended June 30, 2023, on the timing of tobacco crop purchases and shipments.

Our balance sheet accounts reflected seasonal patterns in the six months ended September 30, 2023, on deliveries of tobacco crops by farmers in South America, Africa, and the United States.

Accounts receivable decreased by $33.1 million from March 31, 2023 levels, on collections on receivables.

Advances to suppliers were $105.6 million at September 30, 2023, a reduction of $65.2 million from March 31, 2023, as tobacco crops were delivered in payment on some of those balances, net of new advances on upcoming tobacco crops.

Accounts receivable—unconsolidated affiliates were up $43.2 million in the six months ended September 30, 2023, on a larger crop size.

Notes payable and overdrafts were up $105.8 million from March 31, 2023 levels, on seasonal working capital needs.

Customer advances and deposits increased by $100.4 million in the three months ended June 30, 2023, due to a customer arrangement providing for a higher amount of advances on tobacco crop purchases in fiscal year 2024.

Accounts receivable were up $56.5 million for the quarter ended June 30, 2023, compared to the same quarter in the prior fiscal year, on larger tobacco crops and the timing of tobacco crop shipments.

Accounts receivable—unconsolidated affiliates were up $24.8 million in the three months ended June 30, 2023, on larger tobacco crop sizes.

Notes payable and overdrafts were down $94.8 million compared to June 30, 2022 levels, in part due to higher customer advances available to fund working capital needs.

Accounts payable were down $33.3 million for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, primarily on the timing tobacco purchases in fiscal year 2023.

Customer advances and deposits increased by $163.4 million in the six months ended September 30, 2023, due to customer arrangements providing for a higher amount of advances on tobacco crop purchases in fiscal year 2024.

Accounts receivable were down $100.5 million at September 30, 2023, compared to the same period in the prior fiscal year, largely due to customer advance arrangements in fiscal year 2024 and the timing of tobacco crop shipments.

Customer advances and deposits were up $153.9 million at September 30, 2023, compared to September 30, 2022.

Notes payable and overdrafts were down $281.0 million compared to September 30, 2022 levels, in part due to higher customer advances available to fund working capital needs.

Investing Activities

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Our capital expenditures are generally limited to those that add value, replace or maintain equipment, increase efficiency, or position us for future growth.

During the quarter ended June 30, 2023 and 2022, we invested about $18.0 million and $15.1 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $11.9 million and $10.9 million for the quarter ended June 30, 2023 and 2022, respectively.

During the six months ended September 30, 2023 and 2022, we invested about $32.6 million and $26.6 million, respectively, in our property, plant and equipment.

Depreciation expense was approximately $23.4 million and $21.9 million for the six months ended September 30, 2023 and 2022, respectively.

Typically, our capital expenditures for maintenance projects are less than $30 million per fiscal year.

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The program authorizes the purchase of up to $100 million of our common stock through November 15, 2024.

Under the program, we may purchase shares from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates.

Under the program, we may purchase shares

from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates.

Repurchases of shares under the repurchase program may vary based on management discretion, as well as changes in cash flow generation and availability.

During the three months ended June 30, 2023, we did not purchase any shares of common stock.

As of June 30, 2023, approximately 24.6 million shares of our common stock were outstanding, and our available authorization under our current share repurchase program was $100 million.

During the three months ended September 30, 2023, we purchased 100,000 shares of common stock at an aggregate cost of $4.7 million (average price per share $47.44).

As of September 30, 2023, approximately 24.6 million shares of our common stock were outstanding, and our available authorization under our current share repurchase program was $95.3 million.

Financing Activities

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We also consider our net debt plus shareholders' equity to be our net capitalization.

Net debt as a percentage of net capitalization was approximately 42% at June 30, 2023, up slightly from the June 30, 2022 level of approximately 41%, primarily on higher working capital requirements, and up from the March 31, 2023 level of approximately 35%.

As of June 30, 2023, we had $80.5 million in cash and cash equivalents, our short-term debt totaled $359.8 million, and we were in compliance with all covenants of our debt agreements, which require us to maintain certain levels of tangible net worth and observe restrictions on debt levels.

As of June 30, 2023, we had $480 million available under the committed revolving credit facility that will mature in December 2027, and we had about $59 million in available, uncommitted credit lines.

Net debt as a percentage of net capitalization was approximately 42% at September 30, 2023, down from the September 30, 2022 level of approximately 44%, primarily on increased cash provided by our operations, and up from the March 31, 2023 level of approximately 35%.

As of September 30, 2023, we had $99.7 million in cash and cash equivalents, our short-term debt totaled $301.4 million, and we were in compliance with all covenants of our debt agreements, which require us to maintain certain levels of tangible net worth and observe restrictions on debt levels.

As of September 30, 2023, we had $445 million available under the committed revolving credit facility that will mature in December 2027, and we had about $150 million in available, uncommitted credit lines.

We also maintain an effective, undenominated universal shelf registration statement that provides for future issuance of additional debt or equity securities.

This shelf registration expires on November 23, 2023, at which time, we intend to replace it with a new shelf registration statement.

We have no long-term debt maturing until fiscal year 2028.

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From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates.

At June 30, 2023, the fair value of our outstanding interest rate swap agreements was an asset of about $5.8 million, and the notional amount swapped was $310 million.

At September 30, 2023, the fair value of our outstanding interest rate swap agreements was an asset of about $12.4 million, and the notional amount swapped was $310 million.

We entered into these agreements to eliminate the variability of cash flows in the interest payments on a portion of our variable-rate term loans.

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We generally account for our hedges of forecasted tobacco purchases as cash flow hedges.

At June 30, 2023, the fair value of our open hedges was a net asset of about $0.6 million.

At September 30, 2023, we had no open hedges for forecasted tobacco purchases.

We had forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net asset of approximately $1.1 million at September 30, 2023.

Critical Accounting Estimates

3 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 2. Management’s Discussion and Analysis