Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, the terms “we,” “our,” “us” or “Universal” or the “Company” refer to Universal Corporation together with its subsidiaries. This Quarterly Report on Form 10-Q ("Form 10-Q")and the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Among other things, these statements relate to the Company’s financial condition, results of operation, and future business plans, operations, opportunities, and prospects. In addition, the Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in other filings with the Securities and Exchange Commission (the "SEC") and in reports to shareholders. These forward-looking statements are generally identified by the use of words such as we “expect,” “believe,” “anticipate,” “could,” “should,” “may,” “plan,” “will,” “predict,” “estimate,” and similar expressions or words of similar import. These forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results; product purchased not meeting quality and quantity requirements; our reliance on a few large customers; our ability to maintain effective information systems and safeguard confidential information; anticipated levels of demand for and supply of our products and services; costs incurred in providing these products and services, including increased transportation costs and delays attributed to global supply chain challenges; timing of shipments to customers; higher inflation rates; changes in market structure; government regulation and other stakeholder expectations; economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts; product taxation; industry consolidation and evolution; changes in exchange rates and interest rates; impacts of regulation and litigation on our customers; industry-specific risks related to our plant-based ingredients businesses; exposure to certain regulatory and financial risks related to climate change; changes in estimates and assumptions underlying our critical accounting policies; the promulgation and adoption of new accounting standards; new government regulations and interpretation of existing standards and regulations; general economic, political, market, and weather conditions; and our failure to maintain effective internal control over financial reporting. For a further description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as amended by Amendment No.1 thereto ("2024 Form 10-K"), and Item 1A, "Risk Factors" of this Form 10-Q. We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made, and we undertake no obligation to update any forward-looking statements made in this report. This Form 10-Q should be read in conjunction with our 2024 Form 10-K .
Amounts described as net income (loss) and earnings (loss) per diluted share in the following discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. Any references to adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, and the total for segment operating income (loss) are references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for operating income (loss), net income (loss) attributable to Universal Corporation, diluted earnings (loss) per share, cash from operating activities or any other operating or financial performance measure calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. A reconciliation of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below to the extent these non-GAAP financial measures are referenced. In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 12. "Operating Segments" to the consolidated financial statements. Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits. We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, can provide investors with important information that is useful in understanding our business results and trends.
Any references to net debt, net capitalization, and net debt to net capitalization ratio are also references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered substitutes for total debt, total capitalization, total debt to total capitalization ratio, or any other operating or financial performance measures calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. A reconciliation of net debt to total debt and net capitalization to total capitalization are provided
26
in Other Items below to the extent these non-GAAP financial measures are referenced. We believe these non-GAAP measures are meaningful indicators of liquidity and financial position.
Results of Operations
Overview
Universal Corporation had a strong second quarter and first half of fiscal year 2025. Revenues and operating income increased by 11% and 24%, respectively, for the quarter, and by 13% and 30%, respectively, for the six months ended September 30, 2024, compared to the same periods in the prior fiscal year. These increases were driven by strong tobacco sales volumes and prices. Higher results for our Tobacco Operations segment in both the quarter and six months ended September 30, 2024, compared to the same periods in fiscal year 2024, were primarily driven by strong customer demand and larger, higher quality, and better yielding crops in Africa. Accelerated shipment timing requested by certain customers and sales of carryover crop tobacco also contributed to the improved results for the Tobacco Operations segment in the quarter and six months ended September 30, 2024. We also continued to grow our Universal Ingredients’ market presence in the quarter and six months ended September 30, 2024, and saw increased interest from new and existing customers, despite higher food costs creating pricing pressures. We expect our newly expanded ingredients facility to support increases in production and meaningfully contribute to our fiscal year 2026 results.
FINANCIAL HIGHLIGHTS
Three Months Ended September 30, Change Six Months Ended September 30, Change
(in millions of dollars, except per share data) 2024 2023 % 2024 2023 %
Consolidated Results
Sales and other operating revenue $ 710.8 $ 638.5 11 % $ 1,307.8 $ 1,156.2 13 %
Cost of goods sold $ 567.6 $ 506.8 12 % $ 1,068.7 $ 938.0 14 %
Gross profit margin percentage 20.1 % 20.6 % -50 bps 18.3 % 18.9 % -60 bps
Selling, general and administrative expenses $ 63.8 $ 73.8 (14) % $ 142.5 $ 149.3 (5) %
Restructuring and impairment costs $ 10.6 $ 2.6 307 % $ 10.6 $ 2.6 307 %
Operating income $ 68.7 $ 55.3 24 % $ 86.0 $ 66.3 30 %
Adjusted operating income (Non-GAAP)* $ 79.3 $ 57.9 37 % $ 96.5 $ 68.9 40 %
Net income attributable to Universal Corporation $ 25.9 $ 28.1 (8) % $ 26.1 $ 26.1 — %
Adjusted net income attributable to Universal Corporation (Non-GAAP)* $ 36.4 $ 30.3 20 % $ 36.5 $ 28.2 29 %
Diluted earnings (loss) per share $ 1.03 $ 1.12 (8) % $ 1.04 $ 1.04 — %
Adjusted diluted earnings (loss) per share (Non-GAAP)* $ 1.45 $ 1.21 20 % $ 1.46 $ 1.13 29 %
Segment Results
Tobacco operations sales and other operating revenues $ 630.2 $ 554.7 14 % $ 1,142.2 $ 998.6 14 %
Tobacco operations operating income $ 77.3 $ 52.4 48 % $ 91.8 $ 61.3 50 %
Ingredients operations sales and other operating revenues $ 80.6 $ 83.8 (4) % $ 165.6 $ 157.6 5 %
Ingredients operations operating income (loss) $ 1.3 $ 4.8 (72) % $ 4.2 $ 2.8 52 %
*See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below.
Quarter Ended September 30, 2024, compared to Quarter Ended September 30, 2023
Consolidated Results
Revenues and operating income increased by 11%, or $72.3 million, and 24%, or $13.4 million, respectively, in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, driven by improved performance in the Tobacco Operations segment.
27
Selling, general, and administrative expenses decreased by 14%, or $10.0 million, largely on approximately $7.3 million of lower net provisions for farmer advances in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023.
Adjusted operating income was up 37%, or $21.4 million, and adjusted net income attributable to Universal Corporation was up 20%, or $6.1 million, in the second quarter of fiscal year 2025, compared to the same period in the prior fiscal year, on strong performance in the Tobacco Operations segment.
Tobacco Operations Segment
Revenues and operating income for the Tobacco Operations segment increased by 14%, or $75.6 million, and 48%, or $24.9 million, respectively, for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023. Tobacco Operations segment results reflect continued strong customer demand; an approximately 17% increase in the tobacco average sales price; larger, higher quality, better yielding crops from Africa; and accelerated shipment timing per certain customers’ requests. Uncommitted tobacco inventory levels remained low at about 10% at September 30, 2024.
Ingredients Operations Segment
Revenues and operating income for the Ingredients Operations segment decreased by 4%, or $3.3 million, and 72%, or $3.5 million, respectively, for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, on unfavorable comparisons to last fiscal year's strong second fiscal quarter results. Sales volumes for some of the products in the Ingredients Operations segment were higher in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023. However, customer pressure due to the inflationary environment impacted demand and pricing for certain products in the Ingredients Operations segment in the quarter ended September 30, 2024.
Additional Items
Cost of goods sold increased 12%, or $60.9 million, in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, largely on higher tobacco sales prices, reflecting strong customer demand, and larger, higher quality, and better yielding African crops.
Interest expense was up $4 million in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, on higher notes payable and overdrafts of approximately $278 million.
Restructuring and impairment costs of $10.6 million in the quarter ended September 30, 2024, related to the previously announced consolidation of our European sheet operations.
The consolidated effective tax rate for the three months ended September 30, 2024, was 29%. The consolidated tax for the three months ended September 30, 2023 was 22%. The consolidated effective tax rate for the quarter ended September 30, 2024, was higher than the consolidated tax rate for the quarter ended September 30, 2023, due to various factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes coupled with a minimal income tax benefit of $0.1 million associated with the $10.6 million of restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.
Six Months Ended September 30, 2024, compared to Six Months Ended September 30, 2023
Consolidated Results
Revenues and operating income for the first half of fiscal year 2025 increased 13%, or $151.6 million, and 30%, or $19.6 million, respectively, compared to the first half of fiscal year 2024, driven primarily by improved performance in the Tobacco Operations segment.
Selling, general, and administrative expenses decreased by 5%, or $6.8 million, largely on $9.4 million of lower net provisions for farmer advances, but partially offset by higher sales commissions of $3.3 million in the six months ended September 30, 2024, compared to the six months ended September 30, 2023.
28
Adjusted operating income increased by 40%, or $27.6 million, and adjusted net income attributable to Universal Corporation increased by 29%, or $8.3 million, for the six months ended September 30, 2024, compared to the six months ended September 30, 2023, largely on strong performance in the Tobacco Operations segment.
Tobacco Operations Segment
Revenues for the Tobacco Operations segment increased by 14%, or $143.6 million, and operating income for the segment increased by 50%, or $30.5 million, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023. Tobacco Operations segment results reflected continued strong customer demand; an approximately 13% increase in the tobacco average sales price; an approximately 2% increase in total tobacco sales volumes; larger, higher quality, better yielding crops from Africa; and accelerated shipment timing per certain customers’ requests. In addition, our tobacco procurement and marketing efforts have been successful in the six months ended September 30, 2024, despite negative impacts from adverse weather on certain tobacco crops, mainly in South America and North America this fiscal year.
Ingredients Operations Segment
Revenues and operating income for the Ingredients Operations segment increased by 5%, or $8.0 million, and 52%, or $1.4 million, respectively, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023. Results for the Ingredients Operations segment reflected increased sales volumes for some products, including some sales of new products, as well as lower inventory write-downs of approximately $1.8 million compared to the six months ended September 30, 2023. However, customer pressure due to the inflationary environment impacted demand and pricing for certain products in the Ingredients Operations segment in the six months ended September 30, 2024.
Additional Items
Cost of goods sold increased 14%, or $130.8 million, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023, largely on higher tobacco sales volumes and prices, reflecting strong customer demand and larger, higher quality, and better quality crops in Africa.
Restructuring and impairment costs of $10.6 million in the six months ended September 30, 2024, related to the previously announced consolidation of the Company’s European tobacco sheet operations.
The consolidated effective tax rate for the six months ended September 30, 2024, was 32%. The consolidated effective tax rate for the six months ended September 30, 2023, was 22%. The consolidated effective tax rate for the six months ended September 30, 2024, was higher than the consolidated tax rate for the six months ended September 30, 2023, due to various factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes coupled with a minimal income tax benefit of $0.1 million associated with the $10.6 million of restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.
Sustainability
Universal continually looks to set new standards for social and environmental performance. The Company completed a thorough assessment of its sustainability practices and performance through EcoVadis, a leading global third-party platform for business sustainability ratings. As a result of the assessment, EcoVadis ranked Universal in the 91st percentile of the companies rated globally in the prior 12 months. The assessment included 21 sustainability criteria across four core themes: Environment, Labor & Human Rights, Ethics, and Sustainable Procurement.
29
Other Items
Reconciliation of Certain Non-GAAP Financial Measures
The following table sets forth certain non-recurring items included in reported results to reconcile adjusted net income to net income attributable to Universal Corporation:
Adjusted Operating Income Reconciliation
Three Months Ended September 30, Six Months Ended September 30,
(in thousands) 2024 2023 2024 2023
As Reported: Consolidated operating income $ 68,736 $ 55,312 $ 85,961 $ 66,347
Restructuring and impairment costs (1)
10,573 2,599 10,573 2,599
As Adjusted operating income (Non-GAAP) $ 79,309 $ 57,911 $ 96,534 $ 68,946
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,
2024 2023 2024 2023
As Reported: Net income attributable to Universal Corporation $ 25,940 $ 28,128 $ 26,070 $ 26,064
Restructuring and impairment costs (1)
10,573 2,599 10,573 2,599
Total of Non-GAAP adjustments to income before income taxes 10,573 2,599 10,573 2,599
Non-GAAP adjustments to income taxes
Income tax benefit from restructuring and impairment costs (2)
(132) (465) (132) (465)
Total of income tax impacts for Non-GAAP adjustments to income before income taxes (132) (465) (132) (465)
As adjusted: Net income attributable to Universal Corporation (Non-GAAP) $ 36,381 $ 30,262 $ 36,511 $ 28,198
As reported: Diluted earnings per share $ 1.03 $ 1.12 $ 1.04 $ 1.04
As adjusted: Diluted earnings per share (Non-GAAP) $ 1.45 $ 1.21 $ 1.46 $ 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.
(2) The income tax effect of Non-GAAP adjustments was determined based on the timing and nature of the specific Non-GAAP adjustments and their relevant jurisdictional income tax rates (foreign, state, and local) and the applicable U.S. federal income tax rates. The Company considers current and deferred income tax rates to calculate the impact to income taxes for the Non-GAAP adjustments.
30
The following table reconciles total debt to net debt and net capitalization:
Net Debt and Net Capitalization Reconciliation
September 30, September 30, March 31,
(in thousands) 2024 2023 2024
Add: Notes payable and overdrafts $ 579,132 $ 301,379 $ 417,217
Add: Long-term obligations 617,641 617,086 617,364
Add: Current portion of long-term obligations — — —
Total Debt 1,196,773 918,465 1,034,581
Add: Customer advances and deposits 6,837 166,505 17,179
Less: Cash and cash equivalents 80,118 99,683 55,593
Net Debt (Non-GAAP) $ 1,123,492 $ 985,287 $ 996,167
Add: Total Universal Corporation shareholders' equity 1,420,566 1,384,189 1,437,207
Net Capitalization (Non-GAAP) $ 2,544,058 $ 2,369,476 $ 2,433,374
Net Debt/Net Capitalization (Non-GAAP) 44 % 42 % 41 %
Liquidity and Capital Resources
Overview
The first half of our fiscal year is usually a period of significant working capital investment in Africa, South America, and the United States as tobacco crops are delivered by farmers. Due to market conditions in Brazil, we made the strategic decision in the quarter ended March 31, 2024, to accelerate tobacco purchases there. Therefore, some of our working capital investments for the Brazil crop that typically would have been made in our fiscal year 2025, were made in our fiscal year 2024, reducing required working capital investments in the six months ended September 30, 2024. We funded our working capital needs in the six months ended September 30, 2024, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows. Tobacco sales are expected to be more heavily weighted to the second half of fiscal year 2025.
Our liquidity and operating capital resource requirements are predominantly short term in nature and primarily relate to working capital for tobacco crop purchases. Working capital needs are seasonal within each geographic region. The geographic dispersion and the timing of working capital needs permit us to predict our general level of cash requirements, although tobacco crop sizes, prices paid to farmers, shipment and delivery timing, and currency fluctuations affect requirements each year. Peak working capital requirements are generally reached during the first and second fiscal quarters. Each geographic area follows a cycle of buying, processing, and shipping tobacco to customers, and in many regions, we also provide agricultural materials to farmers during the growing season. The timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping requirements, which may change the level or the duration of crop financing. Despite a predominance of short-term needs, we maintain a portion of our total debt as long-term to reduce liquidity risk. We also periodically have large cash balances that we utilize to meet our working capital requirements.
Operating Activities
Net cash used by our operations was $47.4 million during the six months ended September 30, 2024. The net use of cash was $57.9 million more than during the same period in fiscal year 2024, primarily on lower customer advances and deposits largely offset by lower working capital requirements in the six months ended September 30, 2024, due to accelerated tobacco purchases in Brazil in our fiscal year 2024. Customer advances and deposits were lower in the six months ended September 30, 2024, compared to the same period in the prior fiscal year, primarily due to a customer arrangement providing for a higher amount of advances on tobacco crop purchases in fiscal year 2024 that was not repeated in fiscal year 2025. Tobacco inventory levels were $1.1 billion at September 30, 2024. Tobacco inventory levels were $15.6 million below September 30, 2023 levels, primarily on the timing of tobacco crop purchases and shipments. 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. As of September 30, 2024, our uncommitted tobacco inventories were $108.0 million, or about 10% of total tobacco inventory, compared to $181.1 million, or about 17% of our tobacco inventory as of March 31, 2024, and $130.2 million, or about 12% of our tobacco inventory as of September 30, 2023. While we target committed
31
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 six months ended September 30, 2024, on deliveries of tobacco crops by farmers in Africa, South America, and the United States. Accounts receivable increased by $12.3 million from March 31, 2024 levels, on tobacco crop shipments offset in part by collections on receivables. Accounts receivable—unconsolidated affiliates were up $61.3 million from March 31, 2024 levels, on the timing of tobacco crop purchases and shipments. Notes payable and overdrafts were up $161.9 million from March 31, 2024 levels, on seasonal working capital needs.
Accounts receivable were up $168.7 million at September 30, 2024, compared to the same period in the prior fiscal year, on higher sales of carryover crop tobacco as well as the timing of tobacco crop shipments. Advances to suppliers at September 30, 2024 were $34.1 million higher, compared to the same period in the prior fiscal year, on larger tobacco volumes in certain regions. Notes payable and overdrafts were up $277.8 million compared to September 30, 2023 levels, in part due to lower customer advances available to fund working capital needs. Customer advances and deposits were $159.7 million lower at September 30, 2024, compared to September 30, 2023, primarily due to a customer arrangement providing for a higher amount of advances on tobacco crop purchases in fiscal year 2024 that was not repeated in the first quarter of fiscal year 2025.
Investing Activities
Our capital allocation strategy focuses on four strategic priorities: strengthening and investing for growth in our leaf tobacco business; increasing our strong dividend; exploring growth opportunities for our ingredients business; and returning excess capital to our shareholders. In deciding where to invest capital resources, we look for opportunities where we believe we can earn an adequate return as well as leverage our assets and expertise or enhance our farmer base. Our capital expenditures are generally limited to those that add value, replace or maintain equipment, increase efficiency, or position us for future growth. During the six months ended September 30, 2024 and 2023, we invested about $38.8 million and $32.6 million, respectively, in our property, plant and equipment. Depreciation expense was approximately $23.8 million and $23.4 million for the six months ended September 30, 2024 and 2023, respectively. Typically, our capital expenditures for maintenance projects are less than $30 million per fiscal year. In addition, from time to time, we undertake projects that require capital expenditures when we identify opportunities to improve efficiencies, invest in sustainability projects, add value for our customers, and position ourselves for future growth. We currently expect to spend approximately $50 to $60 million over the next twelve months on capital projects for maintenance of our facilities and other investments to grow and improve our businesses.
On November 7, 2024, we announced that our Board of Directors had approved a new share repurchase program, which replaced the share repurchase program expiring November 15, 2024, for the purchase of up to $100 million of our common stock through November 15, 2026. Under the new program, we may purchase shares from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates. Repurchases of shares under the repurchase program may vary based on management discretion, as well as changes in cash flow generation and availability. During the three months ended September 30, 2024, we did not purchase any shares of common stock. As of September 30, 2024, approximately 24.7 million shares of our common stock were outstanding.
Financing Activities
We consider the sum of notes payable and overdrafts, long-term debt (including any current portion), and customer advances and deposits, less cash, cash equivalents, and short-term investments on our balance sheet to be our net debt. We also consider our net debt plus shareholders' equity to be our net capitalization. Net debt as a percentage of net capitalization was approximately 44% at September 30, 2024, up from the September 30, 2023 level of approximately 42%, and up from the March 31, 2024 level of approximately 41%. As of September 30, 2024, we had $80.1 million in cash and cash equivalents, and our short-term debt totaled $579.1 million. As discussed in Note 15. "Subsequent Event" to the consolidated financial statements, we obtained lender consents for our committed revolving credit facility (the "Consents"). The Consents provided for, among other things, an extension to file until June 16, 2025, the second and third quarter financial statements with the SEC. Based on our September 30, 2024 financial statements and our December 31, 2024 financial statements, we were in compliance with the financial covenants in the committed revolving credit facility as of the end of each of the second and third fiscal quarters.
As of September 30, 2024, we had $330 million available under the committed revolving credit facility that will mature in December 2027, and we had approximately $57 million in available, uncommitted credit lines. We have no long-term debt maturing until fiscal year 2028.
32
Our seasonal working capital requirements for our tobacco business typically increase significantly between March and September and decline after mid-fiscal year. Available capital resources from our cash balances, committed revolving credit facility, and uncommitted credit lines exceed our normal working capital needs and currently anticipated capital expenditure requirements over the next twelve months.
Derivatives
From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates. At September 30, 2024, the fair value of our outstanding interest rate swap agreements was a liability of about $2.6 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. Under the swap agreements we receive variable rate interest and pay fixed rate interest. The swaps are accounted for as cash flow hedges.
We also use derivative instruments from time to time to hedge certain foreign currency exposures, primarily related to forecasted purchases of tobacco, related processing costs, and crop input sales, as well as our net monetary balance sheet exposures in local currency. We generally account for our hedges of forecasted tobacco purchases as cash flow hedges. At September 30, 2024, the fair value of our open hedges for forecasted tobacco purchases was a net liability of approximately $3.6 million. We had forward contracts outstanding that were not designated as hedges, and the fair value of those contracts was a net liability of approximately $3.2 million at September 30, 2024.
Critical Accounting Estimates
A summary of our critical accounting policies is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our 2024 Form 10-K. Our critical accounting policies have not changed from those reported in the 2024 Form 10-K.
33
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.