What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-07 compared with 2024-02-07 · 125 added, 183 removed, 583 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

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

2023 2022 2023 2022

(Unaudited) (Unaudited)

Three Months Ended June 30,

Sales and other operating revenues $ 597,050 $ 517,722

2 unchanged sentences

Selling, general and administrative expenses 78,696 75,477

Restructuring and impairment costs 924 — 3,523 —

Operating income 17,225 11,035

3 unchanged sentences

Interest expense 20,734 15,543

Income before income taxes and other items 75,769 63,614 108,412 95,826

Income (loss) before income taxes and other items ( 2,097 ) ( 6,584 )

Income taxes 727 ( 1,423 )

Net income 61,287 51,361 86,914 73,568

Net income (loss) ( 2,824 ) ( 5,161 )

net loss (income) attributable to noncontrolling interests in subsidiaries 2,954 3,097

Net income attributable to Universal Corporation $ 53,216 $ 41,660 $ 79,280 $ 70,345

Net income (loss) attributable to Universal Corporation $ 130 $ ( 2,064 )

Earnings per share:

12 unchanged sentences

(in thousands of dollars)

December 31, December 31, March 31,

June 30, June 30, March 31,

2024 2023 2024

31 unchanged sentences

(in thousands of dollars)

December 31, December 31, March 31,

June 30, June 30, March 31,

2024 2023 2024

22 unchanged sentences

Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding

Common stock, no par value, 100,000,000 shares authorized 24,559,181 shares issued and outstanding at December 31, 2023 ( 24,555,361 at December 31, 2022 and 24,555,361 at March 31, 2023)

Common stock, no par value, 100,000,000 shares authorized 24,675,988 shares issued and outstanding at June 30, 2024 ( 24,636,600 at June 30, 2023 and 24,573,408 at March 31, 2024)

347,152 338,445 345,596

9 unchanged sentences

(in thousands of dollars)

Nine Months Ended December 31,

Three Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 86,914 $ 73,568

Net income (loss) $ ( 2,824 ) $ ( 5,161 )

Adjustments to reconcile net income (loss) to net cash used by operating activities:

7 unchanged sentences

Equity in net loss (income) of unconsolidated affiliates, net of dividends ( 154 ) 2,630

Restructuring and impairment costs 3,523 —

Restructuring payments ( 253 ) —

11 unchanged sentences

Purchase of property, plant and equipment ( 22,749 ) ( 17,960 )

Proceeds from sale of business, net of cash held by the business 3,757 3,245

Proceeds from sale of property, plant and equipment 867 326

2 unchanged sentences

Issuance of short-term debt, net 162,140 163,804

Issuance of long-term debt — 123,481

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

Dividends paid to noncontrolling interests ( 8,330 ) ( 4,164 )

Repurchase of common stock ( 4,744 ) ( 3,448 )

Dividends paid on common stock ( 19,659 ) ( 19,398 )

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

Other ( 3,397 ) ( 2,893 )

19 unchanged sentences

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and for interim periods in fiscal years beginning after December 15, 2024, although early adoption is permitted.

The Company is currently evaluating the impact of adopting this standard on its operating segments disclosures.

RESTRUCTURING AND IMPAIRMENT COSTS

Universal continually reviews its business for opportunities to realize efficiencies, reduce costs, and realign its operations in response to business changes.

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

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

Tobacco Operations

During the nine months ended December 31, 2023, the Company began restructuring operations at its Global Labs Services ("GLS") facility in Wilson, NC.

GLS provides testing for crop protection agents and tobacco constituents in seed, leaf, and finished products, including e-cigarette liquids and vapors, and has capabilities for testing non-tobacco products.

As a result of the restructuring of the GLS operations, the Company incurred $ 1.8 million of restructuring and impairment costs for the nine months ended December 31, 2023.

During the nine months ended December 31, 2023, the Company also incurred $ 1.7 million of termination and impairment costs in other areas of the Tobacco Operations segment.

The Company is currently evaluating the impact of adopting this standard on its segment disclosures.

In December 2023, the FASB issued Accounting Standards Update No.

2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures” (“ASU 2023-09”).

ASU 2023-09 requires additional disclosures reconciling the rates of different categories of income tax (i.e.

federal, state, foreign, etc.) and a disaggregation of taxes paid and refunded.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and for interim periods in fiscal years beginning after December 15, 2025, although early adoption is permitted.

The Company is currently evaluating the impact of adopting this standard on its income tax disclosures.

REVENUE FROM CONTRACTS WITH CUSTOMERS

5 unchanged sentences

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

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

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

2 unchanged sentences

On a much smaller basis, the Company also sources processed tobacco from third-party suppliers for resale to customers.

The contracts

for tobacco sales with customers create a performance obligation to transfer tobacco to the customer.

The contracts for tobacco sales with customers create a performance obligation to transfer tobacco to the customer.

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.

1 unchanged sentence

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

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

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

2 unchanged sentences

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

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

The contracts for ingredients with customers create a performance obligation to transfer the manufactured finished goods to the customer.

Transaction prices for the sale of ingredients are primarily based on negotiated fixed prices.

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

At the point in time that the customer obtains control over the finished product, which is typically aligned with physical shipment under the contractual terms with the customer, the Company completes its performance obligation and recognizes the revenue for the sale.

4 unchanged sentences

The revenue for these services is recognized when the performance obligation is satisfied, which is generally when processing is completed.

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

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

Other Sales and Revenue from Contracts with Customers

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

These other arrangements and operations are a much smaller portion of the Company’s business, and are separate and distinct contractual agreements from the Company’s tobacco and ingredients sales or third-party processing arrangements with customers.

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

These other arrangements and operations are a much smaller portion of the Company’s business, and are separate and distinct contractual agreements from the Company’s tobacco and food ingredients sales or third-party processing arrangements with customers.

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

1 unchanged sentence

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

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

Three Months Ended June 30,

(in thousands of dollars) 2024 2023

10 unchanged sentences

Other Contingent Liabilities (Letters of credit)

The Company had other contingent liabilities totaling approximately $ 1 million at December 31, 2023, primarily related to outstanding letters of credit.

The Company had other contingent liabilities totaling approximately $ 1 million at June 30, 2024, primarily related to outstanding letters of credit.

Value-Added Tax Assessments in Brazil

1 unchanged sentence

In Brazil, VAT is assessed at the state level when green tobacco is transferred between states.

The Company’s operating subsidiary there pays VAT when tobaccos grown in the states of Santa Catarina and Parana are transferred to its factory in the state of Rio Grande do Sul for processing.

The subsidiary has received assessments for additional VAT plus interest and penalties from tax authorities for the states of Santa Catarina and Parana based on audits of the subsidiary’s VAT filings for specified periods.

In June 2011, tax authorities for the state of Santa Catarina issued assessments for tax, interest, and penalties for periods from 2006 through 2009 totaling approximately $ 10 million.

The Company’s operating subsidiary there pays VAT when tobaccos grown outside the state of Rio Grande do Sul are transferred to the factory for processing.

The subsidiary has received assessments for additional VAT plus interest and penalties from tax authorities for the state of Parana based on audits of the subsidiary’s VAT filings for specified periods.

In September 2014, tax authorities for the state of Parana issued an assessment for tax, interest, and penalties for periods from 2009 through 2014 totaling approximately $ 10 million.

Those amounts are based on the exchange rate for the Brazilian currency at December 31, 2023.

Management of the operating subsidiary and outside counsel believe that errors were made by the tax authorities for both states in determining all or significant portions of these assessments and that various defenses support the subsidiary’s positions.

With respect to the Santa Catarina assessments, the subsidiary took appropriate steps to contest the full amount of the claims.

As of December 31, 2023, a portion of the subsidiary’s arguments had been accepted, but there has not been any further resolution for the matter.

The assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $ 11 million (at the December 31, 2023 exchange rate).

The subsidiary is continuing to contest the full remaining amount of the assessment.

While the range of reasonably possible loss is zero up to the full $ 11 million remaining assessment with interest, based on the strength of the subsidiary’s defenses, no loss within that range is considered probable at this time and no liability has been recorded at December 31, 2023.

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

Those amounts are based on the exchange rate for the Brazilian currency at June 30, 2024.

Management of the operating subsidiary and outside counsel believe that errors were made by the tax authorities in determining all or significant portions of this assessment and that various defenses support the subsidiary’s positions.

Management of the subsidiary and outside counsel challenged the full amount of the Parana assessment claim.

A significant portion of the Parana assessment was based on positions taken by the tax authorities that management and outside counsel believe deviate significantly from the underlying statutes and relevant case law.

1 unchanged sentence

In December 2015, the Parana tax authorities withdrew the initial claim and subsequently issued a new assessment covering the same tax periods, reflecting a substantial reduction from the original assessment.

In fiscal year 2020, the Parana tax authorities acknowledged the statute of limitations related to claims prior to December 2010 had expired and reduced the assessment to $ 3 million (at the December 31, 2023 exchange rate).

Notwithstanding the reduced assessment, management and outside counsel continue to believe that the new assessment is not supported by the underlying statutes and relevant case law and have challenged the full amount of the claim.

The range of reasonably possible loss is considered to be zero up to the full $ 3 million assessment.

However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at December 31, 2023.

In both states, the process for reaching a final resolution to the assessments is expected to be lengthy, and management is not currently able to predict when either case will be concluded.

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.

However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at June 30, 2024.

The process for reaching a final resolution to the assessment is expected to be lengthy, and management is not currently able to predict when the case will be concluded.

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

Other Legal and Tax Matters

9 unchanged sentences

Both the current and the long-term portions of advances to suppliers are reported net of allowances recorded when the Company determines that amounts outstanding are not likely to be collected.

Short-term and long-term advances to suppliers totaled $ 186 million at December 31, 2023 and 2022, and $ 199 million at March 31, 2023.

The related valuation allowances totaled $ 25 million at December 31, 2023, $ 21 million at December 31, 2022, and $ 24 million at March 31, 2023, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were increased by net provisions of approximately $ 10.0 million and $ 6.1 million in the nine-month periods ended December 31, 2023 and 2022, respectively.

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

Short-term and long-term advances to suppliers totaled $ 120 million at June 30, 2024, $ 138 million at June 30, 2023, and $ 162 million at March 31, 2024.

The related valuation allowances totaled $ 19 million at June 30, 2024, $ 26 million at June 30, 2023, and $ 20 million at March 31, 2024, and were estimated based on the Company’s historical loss information and crop projections.

The allowances were decreased by net recoveries of $ 0.8 million in the three-month period ended June 30, 2024 and increased by net provisions of approximately $ 1.4 million in the three-month period ended June 30, 2023.

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

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

1 unchanged sentence

In many foreign countries, the Company’s local operating subsidiaries pay significant amounts of VAT on purchases of unprocessed and processed tobacco, crop inputs, packing materials, and various other goods and services.

In some countries, VAT is a national tax, and in other countries it is assessed at the state level.

In some countries, VAT

is a national tax, and in other countries it is assessed at the state level.

Items subject to VAT vary from jurisdiction to jurisdiction, as do the rates at which the tax is assessed.

8 unchanged sentences

The Company reviews these balances on a regular basis and records valuation allowances on the credits to reflect amounts that are not expected to be recovered, as well as discounts anticipated on credits that are expected to be sold or transferred.

At December 31, 2023, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 63 million ($ 66 million at December 31, 2022, and $ 64 million at March 31, 2023), and the related valuation allowances totaled approximately $ 21 million ($ 24 million at December 31, 2022, and $ 22 million at March 31, 2023).

At June 30, 2024, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $ 68 million ($ 76 million at June 30, 2023, and $ 72 million at March 31, 2024), and the related valuation allowances totaled approximately $ 21 million ($ 22 million at June 30, 2023, and $ 21 million at March 31, 2024).

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

4 unchanged sentences

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

The program had $ 95 million of remaining capacity for repurchases of common stock at December 31, 2023.

Sale of Idled Tanzania Operations

During the nine months ended December 31, 2022, the Company entered into a sales agreement to sell all outstanding shares of common stock, which included all properties, of the idled companies in Tanzania for $ 8.5 million.

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 had been released to the selling shareholder, who remains employed by the Company, and expensed in the Company's consolidated statements of income.

The program had $ 95 million of remaining capacity for repurchases of common stock at June 30, 2024.

EARNINGS PER SHARE

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

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

Three Months Ended June 30,

(in thousands, except share and per share data) 2024 2023

Basic Earnings Per Share

Numerator for basic earnings per share

Net income attributable to Universal Corporation $ 53,216 $ 41,660 $ 79,280 $ 70,345

Denominator for basic earnings per share

Basic Earnings (Loss) Per Share

Numerator for basic earnings (loss) per share

Net income (loss) attributable to Universal Corporation $ 130 $ ( 2,064 )

Denominator for basic earnings (loss) per share

Weighted average shares outstanding 24,876,220 24,842,171

Basic earnings per share $ 2.14 $ 1.68 $ 3.19 $ 2.84

Diluted Earnings Per Share

Numerator for diluted earnings per share

Net income attributable to Universal Corporation $ 53,216 $ 41,660 $ 79,280 $ 70,345

Denominator for diluted earnings per share:

Basic earnings (loss) per share $ 0.01 $ ( 0.08 )

Diluted Earnings (Loss) Per Share

Numerator for diluted earnings (loss) per share

Net income (loss) attributable to Universal Corporation $ 130 $ ( 2,064 )

Denominator for diluted earnings (loss) per share:

Weighted average shares outstanding 24,876,220 24,842,171

1 unchanged sentence

Employee and outside director share-based awards 189,886 —

Denominator for diluted earnings per share 25,055,829 24,928,426 25,017,167 24,934,447

Diluted earnings per share $ 2.12 $ 1.67 $ 3.17 $ 2.82

Denominator for diluted earnings (loss) per share 25,066,106 24,842,171

Diluted earnings (loss) per share $ 0.01 $ ( 0.08 )

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

1 unchanged sentence

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

Three and nine months ended December 31, 2023

The Company's consolidated effective income tax rate for the three and nine months ended December 31, 2023 was 19.1 % and 19.8 %, respectively.

Three and nine months ended December 31, 2022

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

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

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

Additionally, the sale of the Company's idled Tanzania operations resulted in a $ 1.8 million reduction to consolidated interest expense related to the removal of an uncertain tax position for the nine months ended December 31, 2022.

Numerous countries in which Company operates have enacted or are in the process of enacting legislation to adopt a global minimum effective tax rate described in the Global Anti-Base Erosion framework rules, or Pillar Two, issued by the Organization for Economic Co-operation and Development (“OECD”).

The Pillar Two legislation includes establishing a 15 % global minimum tax rate on a country-by-country basis and is effective for the Company's fiscal year 2025.

The Company performed an assessment of the potential impact on income taxes from enactment of the Pillar Two legislation.

Based on the assessment, the Company does not anticipate a material impact to the consolidated financial statements from the Pillar Two legislation in fiscal year 2025.

Three months ended June 30, 2024

The Company's consolidated effective income tax rate for the three months ended June 30, 2024 was 34.7 %.

Three months ended June 30, 2023

The Company's consolidated effective income tax rate for the three months ended June 30, 2023 was a 21.6 % benefit.

GOODWILL AND OTHER INTANGIBLES

The Company's changes in goodwill at December 31, 2023 and 2022 consisted of the following:

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

The Company's changes in goodwill at June 30, 2024 and 2023 consisted of the following:

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

Balance at beginning of fiscal year $ 213,869 $ 213,922

3 unchanged sentences

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

The Company's intangible assets subject to amortization consisted of the following at December 31, 2023 and 2022 and at March 31, 2023:

(in thousands, except useful life) December 31, 2023

The Company's intangible assets subject to amortization consisted of the following at June 30, 2024 and 2023 and at March 31, 2024:

(in thousands, except useful life) June 30, 2024

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

5 unchanged sentences

Total intangible assets $ 111,685 $ ( 45,611 ) $ 66,074

December 31, 2022

June 30, 2023

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

14 unchanged sentences

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

The Company's amortization expense for intangible assets for the three and nine months ended December 31, 2023 and 2022 was:

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

2022 2023 2022

The Company's amortization expense for intangible assets for the three months ended June 30, 2024 and 2023 was:

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

Amortization Expense $ 2,812 $ 2,827

1 unchanged sentence

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

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

As of June 30, 2024, the expected future amortization expense for intangible assets is as follows:

Fiscal Year (in thousands of dollars)

2024 (excluding the nine months ended December 31, 2023)

2025 (excluding the three months ended June 30, 2024)

2029 and thereafter 32,403

10 unchanged sentences

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

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

At June 30, 2024, the total notional amount of the interest rate swaps was $ 310 million, which corresponded to a portion of the aggregate outstanding balance of the term loans.

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

8 unchanged sentences

From time to time, the Company enters into forward and option contracts to buy U.S.

dollars and sell the local currency at future dates that coincide with the sale of crop inputs to farmers.

dollars and sell the local currency at future dates that coincide with

the sale of crop inputs to farmers.

In the case of forecast purchases of tobacco and the related processing costs, the Company enters into forward and option contracts to sell U.S.

4 unchanged sentences

The aggregate U.S.

dollar notional amount of forward and option contracts entered into for these purposes during the nine-month periods in fiscal years 2024 and 2023 was as follows:

Nine Months Ended December 31,

dollar notional amount of forward and option contracts entered into for these purposes during the three-month periods in fiscal years 2025 and 2024 was as follows:

Three Months Ended June 30,

(in millions of dollars) 2024 2023

7 unchanged sentences

The Company de-designates ineffective tobacco purchases and crop input sales hedges to selling, general, and administrative expense when the forecasted tobacco purchases or crop input sales are no longer expected to occur.

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of December 31, 2023 for cash flows hedges of tobacco purchases and crop input sales are expected to be recognized in earnings.

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of June 30, 2024 for cash flows hedges of tobacco purchases and crop input sales are expected to be recognized in earnings.

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

20 unchanged sentences

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

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

The contracts are generally arranged to hedge the subsidiary's

projected exposure to currency remeasurement risk for specified periods of time, and new contracts are entered as necessary throughout the year to replace previous contracts as they mature.

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

The total notional amounts of contracts outstanding at December 31, 2023 and 2022, and March 31, 2023, were approximately $ 97.2 million, $ 91.8 million, and $ 42.8 million, respectively.

The total notional amounts of contracts outstanding at June 30, 2024 and 2023, and March 31, 2024, were approximately $ 75.4 million, $ 83.0 million, and $ 20.9 million, respectively.

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

6 unchanged sentences

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

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

Three Months Ended June 30,

(in thousands of dollars) 2024 2023

16 unchanged sentences

Gain (loss) reclassified from accumulated other comprehensive loss into earnings

$ 2,190 $ 1,790 $ 6,330 $ 4,831

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

4 unchanged sentences

Description of hedged item

Forecast purchases of tobacco in Brazil and Africa

Forecast purchases of tobacco in Brazil

Derivatives Not Designated as Hedges - Foreign Currency Exchange Contracts

2 unchanged sentences

For the interest rate swap agreements, the effective portion of the gain or loss on the derivative is recorded in accumulated other comprehensive loss and any ineffective portion is recorded in selling, general and administrative expenses.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases and the crop input sales in Brazil, a net hedge gain of approximately $ 1.5 million remained in accumulated other comprehensive loss at December 31, 2023.

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 December 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.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases and the crop input sales in Brazil, a net hedge loss of approximately $ 5.9 million remained in accumulated other comprehensive loss at June 30, 2024.

That balance reflects gains and losses on contracts related to the 2025 and 2023 Brazil crops, and the 2025 and 2024 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through June 30, 2024.

Based on the hedging strategy, as the gain or loss is recognized in earnings, it is expected to be offset by a change in the direct cost for the

tobacco or by a change in sales prices if the strategy has been mandated by the customer.

Generally, margins on the sale of the tobacco will not be significantly affected.

Effect of Derivative Financial Instruments on the Consolidated Balance Sheets

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at December 31, 2023 and 2022, and March 31, 2023:

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at June 30, 2024 and 2023, and March 31, 2024:

Derivatives in a Fair Value Asset Position Derivatives in a Fair Value Liability Position

1 unchanged sentence

Location Fair Value as of

(in thousands of dollars) December 31, 2023 December 31, 2022 March 31, 2023 December 31, 2023 December 31, 2022 March 31, 2023

(in thousands of dollars) June 30, 2024 June 30, 2023 March 31, 2024 June 30, 2024 June 30, 2023 March 31, 2024

Derivatives Designated as Hedging Instruments

31 unchanged sentences

Recurring Fair Value Measurements

At December 31, 2023 and 2022, and at March 31, 2023, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis.

At June 30, 2024 and 2023, and at March 31, 2024, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis.

These assets and liabilities are listed in the tables below and are classified based on how their values were determined under the fair value hierarchy or the NAV practical expedient:

December 31, 2023

June 30, 2024

Fair Value Hierarchy

14 unchanged sentences

$ — $ — $ 7,368 $ — $ 7,368

December 31, 2022

June 30, 2023

Fair Value Hierarchy

21 unchanged sentences

— 12,409 — — 12,409

Interest rate swap agreements

— — 6,706 — 6,706

Foreign currency exchange contracts

2 unchanged sentences

$ 145 $ 12,409 $ 7,028 $ — $ 19,582

Interest rate swap agreements

$ — $ — $ 3,077 $ — $ 3,077

Foreign currency exchange contracts

— — 1,325 — 1,325

Total financial liabilities measured and reported at fair value

14 unchanged sentences

Long-term Debt

The following table summarizes the fair and carrying value of the Company’s long-term debt, and if applicable any current portion, at each of the balance sheet dates December 31, 2023, and 2022 and March 31, 2023:

(in millions of dollars) December 31, 2023 December 31, 2022 March 31, 2023

The following table summarizes the fair and carrying value of the Company’s long-term debt, and if applicable any current portion, at each of the balance sheet dates June 30, 2024, and 2023 and March 31, 2024:

(in millions of dollars) June 30, 2024 June 30, 2023 March 31, 2024

Fair market value of long term obligations $ 619 $ 620 $ 618

5 unchanged sentences

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

Acquisition Accounting for Business Combinations

The Company accounts for acquisitions qualifying under ASC 805, "Business Combinations," which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The fair values of consideration transferred and net assets acquired are determined using a combination of Level 2 and Level 3 inputs as specified in the fair value hierarchy in ASC 820, “Fair Value Measurements and Disclosures.” The Company believes that the fair values assigned to the assets acquired and liabilities assumed are based on reasonable assumptions.

Long-Lived Assets

8 unchanged sentences

Pension Benefits Other Postretirement Benefits

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

(in thousands of dollars) 2023 2022 2023 2022

Service cost $ 1,280 $ 1,549 $ 24 $ 33

Interest cost 2,897 2,341 263 236

Expected return on plan assets ( 3,887 ) ( 3,323 ) ( 15 ) ( 18 )

Net amortization and deferral 205 1,001 ( 189 ) ( 168 )

Net periodic benefit cost

$ 495 $ 1,568 $ 83 $ 83

Pension Benefits Other Postretirement Benefits

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

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

(in thousands of dollars) 2024 2023 2024 2023

5 unchanged sentences

$ 761 $ 498 $ 121 $ 84

During the nine months ended December 31, 2023, the Company made contributions of approximately $ 0.9 million to its pension plans.

Additional contributions of $ 3.0 million are expected during the remaining three months of fiscal year 2024.

During the three months ended June 30, 2024, the Company made contributions of approximately $ 0.2 million to its pension plans.

Additional contributions of $ 2.5 million are expected during the remaining nine months of fiscal year 2025.

STOCK-BASED COMPENSATION

3 unchanged sentences

In recent years, the Compensation Committee has awarded only grants of RSUs and PSUs.

Awards of restricted stock, RSUs, and PSUs are currently outstanding under the Plan.

RSUs awarded prior to fiscal year 2022 vest 5 years after the grant date and those awarded beginning in fiscal year 2022 vest 3 years after the grant date.

Awards of restricted stock, RSUs, and PSUs are currently outstanding.

RSUs awarded prior to fiscal year 2022 vest 5 years after the grant date and those awarded beginning with fiscal year 2022 vest 3 years after the grant date.

After vesting RSUs are paid out in shares of common stock.

5 unchanged sentences

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

During the nine-month periods ended December 31, 2023 and 2022, the Company issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Nine Months Ended December 31,

During the three-month periods ended June 30, 2024 and 2023, the Company issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

Three Months Ended June 30,

Number granted 74,950 71,750

2 unchanged sentences

Grant date fair value $ 38.23 $ 43.01

Fair value expense for RSUs and PSUs is recognized ratably over the period from grant date to the earlier of:

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

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

For PSUs, the Company recognizes expense based on management’s judgment of the ultimate award that is likely to be paid out based on the achievement of the predetermined performance measures.

Universal typically incurs higher stock compensation expense in the first quarter of each fiscal year when grants are awarded to officers who are retirement eligible.

Fair value expense for stock-based compensation is recognized ratably over the period from grant date to the earlier of (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award.

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

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

For the nine-month periods ended December 31, 2023 and 2022, the Company recorded total stock-based compensation expense of approximately $ 10.6 million and $ 6.6 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 1.0 million during the remaining three months of fiscal year 2024.

For the three-month periods ended June 30, 2024 and 2023, the Company recorded total stock-based compensation expense of approximately $ 4.6 million and $ 3.9 million, respectively.

The Company expects to recognize stock-based compensation expense of approximately $ 1.6 million during the remaining nine months of fiscal year 2025.

OPERATING SEGMENTS

The Company conducts operations across two reportable operating segments, Tobacco Operations and Ingredients Operations.

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

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.

Through various operating subsidiaries located in tobacco-growing countries around the world and significant ownership interests in unconsolidated affiliates, the Company processes and/or sells flue-cured and burley tobaccos, dark air-cured tobaccos, and oriental tobaccos.

Flue-cured, burley, and oriental tobaccos are used principally in the manufacture of cigarettes, and dark air-

cured tobaccos are used mainly in the manufacture of cigars, pipe tobacco, and smokeless tobacco products.

Some of these tobacco types are also increasingly used in the manufacture of non-combustible tobacco products that are intended to provide consumers with an alternative to traditional combustible products.

The Tobacco Operations segment also provides physical and chemical product testing and smoke testing for tobacco customers.

Flue-cured, burley, and oriental tobaccos are used principally in the manufacture of cigarettes, and dark air-cured tobaccos are used mainly in the manufacture of cigars, pipe tobacco, and smokeless tobacco products.

Some of these tobacco types are also increasingly used in the manufacture of next generation tobacco products that are intended to provide consumers with an alternative to traditional combustible products.

The Tobacco Operations segment also provides physical and chemical product testing for tobacco customers.

A substantial portion of the Company’s Tobacco Operations' revenues are derived from sales to a limited number of large, multinational cigarette and cigar manufacturers.

The Ingredients Operations segment provides its customers with a broad variety of plant-based ingredients for both human and pet consumption.

The Ingredients Operations segment utilizes a variety of value-added manufacturing processes converting raw materials into a wide spectrum of fruit and vegetable juices, concentrates, dehydrated products, flavors, and botanical extracts.

Customers for the Ingredients Operations segment include large multinational food and beverage companies, smaller independent manufacturers, and retail organizations.

FruitSmart, Silva, and Shank's are the primary operations for the Ingredients Operations segment.

FruitSmart manufactures fruit and vegetable juices, purees, concentrates, essences, fibers, seeds, seed oils, and seed powders.

Silva is primarily a dehydrated product manufacturer of fruit and vegetable based flakes, dices, granules, powders, and blends.

Shank's manufactures flavors and botanical extracts and also offers bottling and custom packaging for customers.

FruitSmart supplies a broad set of juices, concentrates, pomaces, purees, fruit fibers, seeds, seed powders, and other value-added products to food, beverage, and flavor companies throughout the United States and internationally.

Silva procures dehydrated vegetables, fruits, and herbs from around the world and specializes in processing natural materials into custom designed dehydrated vegetable and fruit-based ingredients for a variety of end products.

Shank's offers a diversified portfolio of botanical extracts, distillates, natural flavors, and color for industrial and private label customers worldwide, and is known for their significant vanilla expertise.

Shank's is also equipped to offer customers custom bottling and packaging for their products.

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

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

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

Three Months Ended June 30,

(in thousands of dollars) 2024 2023

3 unchanged sentences

Consolidated sales and other operating revenues $ 597,050 $ 517,722

OPERATING INCOME

OPERATING INCOME (LOSS)

Tobacco Operations $ 14,454 $ 8,883

3 unchanged sentences

( 140 ) 4,166

Restructuring and impairment costs (2)

( 924 ) — ( 3,523 ) —

Consolidated operating income $ 17,225 $ 11,035

(1) Equity in pretax earnings (loss) of unconsolidated affiliates is included in segment operating income (Tobacco Operations), but is reported below consolidated operating income and excluded from that total in the consolidated statements of income and comprehensive income.

(2) Restructuring and impairment costs are excluded from segment operating income, but are included in consolidated operating income in the consolidated statements of income and comprehensive income.

See Note 2 for additional information .

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) attributable to the Company for the nine months ended December 31, 2023 and 2022:

Nine Months Ended December 31,

Three Months Ended June 30,

(in thousands of dollars) 2024 2023

36 unchanged sentences

CHANGES IN SHAREHOLDERS' EQUITY AND NONCONTROLLING INTERESTS IN SUBSIDIARIES

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three and nine months ended December 31, 2023 and 2022 is as follows:

Three Months Ended December 31, 2023 Three Months Ended December 31, 2022

A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three months ended June 30, 2024 and 2023 is as follows:

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

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

11 unchanged sentences

Other comprehensive income (loss) ( 5,136 ) ( 390 ) ( 5,526 ) 4,510 ( 144 ) 4,366

Balance at end of period $ 1,417,076 $ 41,574 $ 1,458,650 $ 1,360,792 $ 39,950 $ 1,400,742

Nine Months Ended December 31, 2023 Nine Months Ended December 31, 2022

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

Balance at beginning of year $ 1,397,088 $ 39,864 $ 1,436,952 $ 1,340,543 $ 44,226 $ 1,384,769

Changes in common stock

Repurchase of common stock ( 1,373 ) — ( 1,373 ) ( 893 ) — ( 893 )

Accrual of stock-based compensation 10,625 — 10,625 6,630 — 6,630

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

( 2,972 ) — ( 2,972 ) ( 2,090 ) — ( 2,090 )

Dividend equivalents on RSUs 940 — 940 851 — 851

Changes in retained earnings

Net income 79,280 7,634 86,914 70,345 3,223 73,568

Cash dividends declared

( 59,004 ) — ( 59,004 ) ( 58,244 ) — ( 58,244 )

Repurchase of common stock ( 3,371 ) — ( 3,371 ) ( 2,555 ) — ( 2,555 )

Dividend equivalents on RSUs ( 940 ) — ( 940 ) ( 851 ) — ( 851 )

Other comprehensive income (loss) ( 3,197 ) ( 79 ) ( 3,276 ) 7,056 ( 247 ) 6,809

Other changes in noncontrolling interests

1 unchanged sentence

— ( 8,330 ) ( 8,330 ) — ( 4,164 ) ( 4,164 )

Other — — — — ( 427 ) ( 427 )

Balance at end of period $ 1,413,457 $ 30,042 $ 1,443,499 $ 1,380,720 $ 32,459 $ 1,413,179

SUBSEQUENT EVENT

In July 2024, management initiated a restructuring plan to consolidate our European sheet tobacco operations into our facility in the Netherlands.

The plan involves the closure of the tobacco sheet operations in Germany in fiscal year 2025.

We expect to recognize between a total of $ 10 million to $ 15 million of restructuring and impairment costs during fiscal years 2025 and 2026 as a result of the consolidation of operations.

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

What changed 10-Q

Item 1. Financial Statements