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 quarter and nine months ended December 31, 2024. Revenues and operating income increased by 14% and 19%, respectively, for the quarter, and by 14% and 24%, respectively, for the nine months ended December 31, 2024, compared to the same periods in fiscal year 2024. These increases were primarily driven by strong tobacco sales volumes and prices. Improved results for our Tobacco Operations segment in both the quarter and nine months ended December 31, 2024, compared to the same periods in fiscal year 2024, were largely driven by strong customer demand, successful tobacco procurement and marketing efforts, and larger, higher quality, and better yielding crops in Africa. Strong trading volumes combined with higher shipment volumes and better-quality crops in Asia and accelerated shipment timing in the United States requested by certain customers also contributed to the improved results. The Ingredients Operations segment also continued to perform in line with strategic plans, with sales of newly produced and developed value-added products largely offsetting market-driven pricing pressures experienced by certain of the Company’s traditional product lines. The progress Universal is making in its ingredients business is a direct result of the investments made in fiscal years 2024 and 2025, including in its enhanced ingredients facility.
FINANCIAL HIGHLIGHTS
Three Months Ended December 31, Change Nine Months Ended December 31, Change
(in millions of dollars, except per share data) 2024 2023 % 2024 2023 %
Consolidated Results
Sales and other operating revenue $ 937.2 $ 821.5 14 % $ 2,245.0 $ 1,977.7 14 %
Cost of goods sold $ 743.6 $ 654.6 14 % $ 1,812.4 $ 1,592.5 14 %
Gross profit margin percentage 20.7 % 20.3 % 40 bps 19.3 % 19.5 % -20 bps
Selling, general and administrative expenses $ 89.5 $ 78.6 14 % $ 232.0 $ 227.8 2 %
Restructuring and impairment costs $ — $ 0.9 (100) % $ 10.6 $ 3.5 200 %
Operating income $ 104.1 $ 87.5 19 % $ 190.0 $ 153.8 24 %
Adjusted operating income (Non-GAAP)* $ 104.1 $ 88.4 18 % $ 200.6 $ 157.3 28 %
Net income attributable to Universal Corporation $ 59.6 $ 53.2 12 % $ 85.7 $ 79.3 8 %
Adjusted net income attributable to Universal Corporation (Non-GAAP)* $ 59.6 $ 54.1 10 % $ 96.2 $ 82.3 17 %
Diluted earnings (loss) per share $ 2.37 $ 2.12 12 % $ 3.41 $ 3.17 8 %
Adjusted diluted earnings (loss) per share (Non-GAAP)* $ 2.37 $ 2.16 10 % $ 3.83 $ 3.29 16 %
Segment Results
Tobacco operations sales and other operating revenues $ 853.9 $ 743.9 15 % $ 1,996.1 $ 1,742.5 15 %
Tobacco operations operating income $ 102.6 $ 87.6 17 % $ 194.4 $ 148.9 31 %
Ingredients operations sales and other operating revenues $ 83.3 $ 77.6 7 % $ 249.0 $ 235.2 6 %
Ingredients operations operating income (loss) $ 3.7 $ 2.2 69 % $ 7.9 $ 5.0 59 %
*See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below.
Quarter Ended December 31, 2024, compared to Quarter Ended December 31, 2023
Consolidated Results
Revenues and operating income increased by 14%, or $115.7 million, and by 19%, or $16.6 million, respectively, in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023, primarily driven by improved performance in the Tobacco Operations segment.
27
Selling, general, and administrative expenses were up by 14%, or $10.9 million, primarily on an unfavorable foreign currency comparison of approximately $11 million in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023.
Adjusted operating income was up by 18%, or $15.7 million, and adjusted net income attributable to Universal Corporation was up by 10%, or $5.6 million, in the third 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 15%, or $110.0 million, and by 17%, or $15.0 million, respectively, for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. Tobacco Operations segment results reflected continued strong customer demand and successful tobacco procurement and marketing efforts. Tobacco average sales price and tobacco sales volumes increased 5% and 11%, respectively, in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. In addition, results for the quarter ended December 31, 2024, benefited from higher sales volumes in Asia, in part on better-quality crops, and in North America on accelerated shipment timing in the United States per certain customers’ requests, compared to the same quarter in fiscal year 2024. Selling, general, and administrative expenses were higher by approximately $14.9 million for the segment mainly due to unfavorable foreign currency comparisons of $10.4 million in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. Uncommitted tobacco inventory levels remained low at about 10% at December 30, 2024.
Ingredients Operations Segment
Revenues and operating income for the Ingredients Operations segment increased by 7%, or $5.7 million, and by 69%, or $1.5 million, respectively, for the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. Revenues for value-added products in the Ingredients Operations segment were higher in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023. However, the segment did experience some margin pressure in the quarter ended December 31, 2024, due to high raw material costs and inflation-driven increases in consumer food prices. Also, in the quarter, we continued to see a high level of interest in our value-added products, reflecting the effectiveness of the investments made in Universal Ingredients in fiscal year 2024 and 2025.
Additional Items
Cost of goods sold increased by 14%, or $89.0 million, in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023, largely on higher tobacco sales volumes and tobacco prices.
Interest expense was up by 24%, or $4 million, in the quarter ended December 31, 2024, compared to the quarter ended December 31, 2023, primarily on on higher notes payable and overdrafts of approximately $173 million.
The consolidated effective tax rate for the three months ended December 31, 2024, was 23%. The consolidated tax for the three months ended December 31, 2023, was 19%. The consolidated effective tax rate for the three months ended December 31, 2024, was higher than the consolidated tax rate for the three months ended December 31, 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.
Nine Months Ended December 31, 2024, compared to Nine Months Ended December 31, 2023
Consolidated Results
Revenues and operating income for the nine months ended December 31, 2024, increased by 14%, or $267.3 million, and by 24%, or $36.2 million, respectively, compared to the nine months ended December 31, 2023, primarily driven by improved performance in the Tobacco Operations segment.
Selling, general, and administrative expenses were up by 2%, or $4.2 million, on $5.6 million of unfavorable foreign currency comparisons, $5.0 million of higher sales commissions, and $3.0 million of higher legal and professional fees largely offset by $10.4 million of higher recoveries of farmer advances in the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023.
28
Adjusted operating income was up by 28%, or $43.3 million, and adjusted net income attributable to Universal Corporation was up by 17%, or $13.9 million, for the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023, largely on strong performance in the Tobacco Operations segment.
Tobacco Operations Segment
Revenues for the Tobacco Operations segment increased by 15%, or $253.6 million, and operating income for the segment increased by 31%, or $45.5 million, in the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023. Tobacco Operations segment results reflected continued strong customer demand as well as successful tobacco procurement and marketing. In addition, an approximately 7% increase in the tobacco average sales price; an 8% increase in total sales volumes; larger, higher quality, better yielding crops from Africa; better-quality crops from Asia; and accelerated shipment timing in the United States per certain customers’ requests, contributed to higher results for the segment in the nine months ended December 31, 2024, compared to the same period in fiscal year 2024.
Ingredients Operations Segment
Revenues and operating income for the Ingredients Operations segment increased by 6%, or $13.7 million, and 59%, or $2.9 million, respectively, in the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023. Results for the Ingredients Operations segment reflected some increased sales of new products, as well as lower inventory write-downs of $2.1 million compared to the nine months ended December 31, 2023. However, the segment did experience some margin pressure in the nine months ended December 31, 2024, due to high raw material costs and inflation-driven increases in consumer food prices. We also continued to see a high level of interest in our value-added products in the nine months ended December 31, 2024, reflecting the effectiveness of the investments made in Universal Ingredients in fiscal year 2024 and 2025.
Additional Items
Cost of goods sold increased by 14%, or $219.8 million, in the nine months ended December 31, 2024, compared to the nine months ended December 31, 2023, largely on higher tobacco sales volumes and tobacco prices that reflected continued strong customer demand as well as successful tobacco procurement and marketing.
Restructuring and impairment costs of $10.6 million in the nine months ended December 31, 2024, were related to the previously announced consolidation of the Company’s European tobacco sheet operations.
The consolidated effective tax rate for the nine months ended December 31, 2024, was 26%. The consolidated effective tax rate for the nine months ended December 31, 2023, was 20%. The consolidated effective tax rate for the nine months ended December 31, 2024, was higher than the consolidated tax rate for the nine months ended December 31, 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 associated with the restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.
Sustainability
On December 19, 2024, Universal released its 2024 Sustainability Report (the “Report”), highlighting its efforts in advancing energy efficiency, strengthening supply chain resiliency and continuing to be a strong partner for its farming communities. Responsible business practices are integrated into Universal’s business strategy, allowing the Company to cultivate sustainable growth as good stewards of the environment. As a result of the Company’s transition to cleaner fuels for its operations, 93.5% of the tobacco Universal processes is coal-free as of fiscal year 2024. This positive change supports the Company’s goal of reducing its greenhouse gas (GHG) emissions by 30% by 2030 from its 2020 baseline year. In 2024, the Company also trained over 175,000 farmers on Good Agricultural Practices and Agricultural Labor Practices to advance human rights standards throughout its supply chain. Universal also adopted a Behavior-Based Safety program to cultivate a proactive safety culture in its operations.
29
Other Items
Reconciliation of Certain Non-GAAP Financial Measures:
The following tables set 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 Operating Income Reconciliation
Three Months Ended December 31, Nine Months Ended December 31,
(in thousands) 2024 2023 2024 2023
As Reported: Consolidated operating income $ 104,076 $ 87,464 $ 190,037 $ 153,811
Restructuring and impairment costs (1)
— 924 10,573 3,523
As Adjusted operating income (Non-GAAP) $ 104,076 $ 88,388 $ 200,610 $ 157,334
Adjusted Net Income Attributable to Universal Corporation and Adjusted Diluted Earnings Per Share Reconciliation
(in thousands except for per share amounts)
Three Months Ended December 31, Nine Months Ended December 31,
2024 2023 2024 2023
As Reported: Net income attributable to Universal Corporation $ 59,639 $ 53,216 $ 85,709 $ 79,280
Restructuring and impairment costs (1)
— 924 10,573 3,523
Total of Non-GAAP adjustments to income before income taxes — 924 10,573 3,523
Non-GAAP adjustments to income taxes
Income tax benefit from restructuring and impairment costs (2)
— (47) (132) (512)
Total of income tax impacts for Non-GAAP adjustments to income before income taxes — (47) (132) (512)
As adjusted: Net income attributable to Universal Corporation (Non-GAAP) $ 59,639 $ 54,093 $ 96,150 $ 82,291
As reported: Diluted earnings per share $ 2.37 $ 2.12 $ 3.41 $ 3.17
As adjusted: Diluted earnings per share (Non-GAAP) $ 2.37 $ 2.16 $ 3.83 $ 3.29
(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
December 31, December 31, March 31,
(in thousands) 2024 2023 2024
Add: Notes payable and overdrafts $ 538,526 $ 365,327 $ 417,217
Add: Long-term obligations 617,780 617,225 617,364
Add: Current portion of long-term obligations — — —
Total Debt 1,156,306 982,552 1,034,581
Add: Customer advances and deposits 3,362 19,620 17,179
Less: Cash and cash equivalents 215,108 74,102 55,593
Net Debt (Non-GAAP) $ 944,560 $ 928,070 $ 996,167
Add: Total Universal Corporation shareholders' equity 1,450,610 1,417,076 1,437,207
Net Capitalization (Non-GAAP) $ 2,395,170 $ 2,345,146 $ 2,433,374
Net Debt/Net Capitalization (Non-GAAP) 39 % 40 % 41 %
Liquidity and Capital Resources
Overview
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.
After significant seasonal working capital investment in our tobacco operations in the first half of the fiscal year, we generally see tobacco inventory levels and other working capital items decrease in the second half of our fiscal year as tobacco crops in Africa, South America, and the United States are being shipped. 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 nine months ended December 31, 2024. We funded our working capital needs in the nine months ended December 31, 2024, using a combination of cash on hand, short-term borrowings, customer advances, and operating cash flows.
Operating Activities
Net cash provided by our operations was $168.2 million during the nine months ended December 31, 2024. That amount was $215.0 million higher than during the same period in fiscal year 2024, primarily on lower working capital requirements in the nine months ended December 31, 2024, due to accelerated tobacco purchases in Brazil in our fiscal year 2024. Tobacco inventory levels were $924.7 million as of December 31, 2024, which was $84.3 million below the levels on December 31, 2023, largely due to the timing of tobacco shipments. We generally do not purchase material quantities of tobacco on a speculative basis, and we target committed inventory levels of 80% or more of total tobacco inventory. Our level of committed inventory percentages is influenced by timing of farmer deliveries of new crops, as well as the receipt of customer orders. In addition, 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 December 31, 2024, our uncommitted tobacco inventories were $94.3 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 $75.8 million, or about 8% of our tobacco inventory as of December 31, 2023.
31
Our balance sheet accounts reflected seasonal patterns in the nine months ended December 31, 2024, on deliveries of tobacco crops by farmers in Africa, South America, and the United States. Accounts receivable increased by $125.7 million from March 31, 2024 levels, on tobacco crop shipments offset in part by collections on receivables. Notes payable and overdrafts were up $121.3 million from March 31, 2024 levels, on seasonal working capital needs.
Accounts receivable were up $214.7 million at December 31, 2024, compared to the same period in the prior fiscal year, on higher tobacco sales volumes as well as the timing of tobacco crop shipments. Accounts receivable--unconsolidated affiliates were $32.5 million lower as of December 31, 2024, compared to the same period in the prior fiscal year, on the timing of crop shipments. Notes payable and overdrafts and cash and cash equivalents were up $173.2 million and $141.0 million, respectively, compared to December 31, 2023 levels, largely due to a lower use of cash and cash equivalents to fund working capital needs.
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 nine months ended December 31, 2024 and 2023, we invested about $54.9 million and $47.7 million, respectively, in our property, plant and equipment. Depreciation expense was approximately $36.1 million and $35.4 million for the nine months ended December 31, 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 prices. 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 December 31, 2024, we did not purchase any shares of common stock. As of December 31, 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 39% at December 31, 2024, down from the December 31, 2023 level of approximately 40%, and down from the March 31, 2024 level of approximately 41%. As of December 31, 2024, we had $215.1 million in cash and cash equivalents, and our short-term debt totaled $538.5 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 until June 16, 2025, to file the second and third quarter financial statements with the SEC. Based on our September 30, 2024 financial statements and 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 December 31, 2024, we had $270 million available under the committed revolving credit facility that will mature in December 2027, and we had approximately $152 million in available, uncommitted credit lines. We have no long-term debt maturing until fiscal year 2028.
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 are expected to exceed our normal working capital needs and currently anticipated capital expenditure requirements over the next twelve months.
32
Derivatives
From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates. At December 31, 2024, the fair value of our outstanding interest rate swap agreements was an asset of about $6.3 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. As of December 31, 2024, the fair value of our open hedges for forecasted tobacco purchases was a net liability of approximately $13.8 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 $2.8 million as of December 31, 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 Annual Report on 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.