NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is a global business-to-business agri-products supplier to consumer product manufacturers. The Company is the leading global leaf tobacco supplier and provides high-quality plant-based ingredients to food and beverage end markets. Because of the seasonal nature of the Company’s business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year. All adjustments necessary to state fairly the results for the period have been included and were of a normal recurring nature. This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
The extent to which the ongoing COVID-19 pandemic will impact the Company's financial condition, results of operations and demand for its products and services will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread and mutations of COVID-19, the severity of the pandemic, the duration of the COVID-19 outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the COVID-19 pandemic and the impact on the U.S. and the global economies, markets and supply chains. At June 30, 2021, it is not possible to predict the overall impact of the ongoing COVID-19 pandemic on the Company's business, financial condition, results of operations and demand for its products and services.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The updated guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance in ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, although early adoption is permitted. The Company adopted the new standard effective April 1, 2021, which was the beginning of its fiscal year ending March 31, 2022. There was no material impact to the consolidated financial statements from the adoption of ASU 2019-12.
Pronouncements to be Adopted in Future Periods
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions related to contract modifications and hedge accounting to address the transitions from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. ASU 2020-04 also temporarily allows hedge relationships to continue without de-designation upon changes due to reference rate reform. The standard is effective upon issuance and can be applied as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact that the guidance will have on its consolidated financial statements.
NOTE 3. BUSINESS COMBINATION
Acquisition of Silva International, Inc.
On October 1, 2020 the Company acquired 100% of the capital stock of Silva International, Inc. (“Silva”), a natural, specialty dehydrated vegetable, fruit, and herb processing company serving global markets, for approximately $164 million in cash and $5.9 million of additional working capital on-hand at the date of acquisition. The acquisition of Silva diversifies the Company's product offerings and generates new opportunities for its plant-based ingredients platform.
The Company continues to employ one of Silva's selling shareholders and as stipulated in the Silva purchase agreement has transferred $6 million to a third-party escrow account that may ultimately be earned by the selling shareholder upon completion of a post-combination service period. Since the compensation agreement for the selling shareholder who remains employed with the Company includes a post-combination service period, the Company has excluded the entire $6 million in the
purchase price to be allocated. The $6 million in escrow is recognized as restricted cash in other noncurrent assets on the consolidated balance sheet at June 30, 2021. The contingent consideration arrangement for the selling shareholder includes a post-combination service requirement and forfeitable payment provisions, therefore under ASC Topic 805, "Business Combinations," must be treated as compensation expense. This expense is being recognized ratably over the requisite service period in selling, general, and administrative expense on the consolidated statements of income.
The following preliminary allocation of the purchase price was based on third-party valuations and assumptions. At June 30, 2021, the Company is finalizing the fair value assigned to income tax related assets and liabilities. The final purchase price allocation is expected to be completed in the second quarter of fiscal year 2022. The following table summarizes the preliminary purchase price allocation of the assets acquired and liabilities assumed on October 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,126
|
|
|
|
|
|
Accounts receivable, net
|
17,885
|
|
|
|
|
|
Advances to suppliers, net
|
3,011
|
|
|
|
|
|
Inventory
|
33,162
|
|
|
|
|
|
Other current assets
|
833
|
|
|
|
|
|
Property, plant and equipment (net)
|
24,437
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
Customer relationships
|
53,000
|
|
|
|
|
|
Trade names
|
7,800
|
|
|
|
|
|
Goodwill
|
46,144
|
|
|
|
|
|
Total assets acquired
|
194,398
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Accounts payable and accrued expenses
|
11,683
|
|
|
|
|
|
Accrued compensation
|
3,350
|
|
|
|
|
|
Income taxes payable
|
946
|
|
|
|
|
|
Deferred income taxes
|
14,419
|
|
|
|
|
|
Total liabilities assumed
|
30,398
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired and liabilities assumed
|
$
|
164,000
|
|
|
|
|
A portion of the goodwill recorded as part of the acquisition was attributable to the assembled workforce of Silva. The goodwill recognized for the Silva acquisition is not deductible for U.S. income tax purposes. The tax basis of the assets acquired and liabilities assumed did not result in a step-up of tax basis. The Company determined the Silva operations are not material to the Company’s consolidated results. Therefore, pro forma information is not presented.
NOTE 4. 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.
Tobacco Operations
In the three months ended June 30, 2021, the Company incurred and paid $1.5 million of termination costs associated with restructuring of tobacco processing and administrative operations in Africa.
Ingredients Operations
In the three months ended June 30, 2021, the Company incurred $0.5 million of impairment costs on property, plant, and equipment associated with the wind-down of the Carolina Innovative Food Ingredients, Inc. ("CIFI") operations that was announced in fiscal year 2021.
There were no restructuring and impairment costs incurred for the three months ended June 30, 2020.
NOTE 5. REVENUE FROM CONTRACTS WITH CUSTOMERS
The majority of the Company’s consolidated revenue consists of sales of processed leaf tobacco to customers. The Company also earns revenue from processing leaf tobacco owned by customers and from various other services provided to customers. The Company also has fruit and vegetable processing operations that provide customers with a range of food ingredient products. Payment terms with customers vary depending on customer creditworthiness, product types, services provided, and other factors. Contract durations and payment terms for all revenue categories generally do not exceed one year. 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. Below is a description of the major revenue-generating categories from contracts with customers.
Tobacco Sales
The majority of the Company’s business involves purchasing leaf tobacco from farmers in the origins where it is grown, processing and packing the tobacco in its factories, and then transferring ownership and control of the tobacco to customers. 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. Transaction prices for the sale of tobaccos are primarily based on negotiated fixed prices, but the Company does have a small number of cost-plus contracts with certain customers. Cost-plus arrangements provide the Company reimbursement of the cost to purchase and process the tobacco, plus a contractually agreed-upon profit margin. The Company utilizes the most likely amount methodology under the accounting guidance to recognize revenue for cost-plus arrangements with customers. 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. At the point in time that the customer obtains control over the tobacco, 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.
Ingredient Sales
In recent fiscal years, the Company has diversified operations through acquisition of established companies that offer customers a wide range of both liquid and dehydrated fruit and vegetable ingredient products. These operations procure raw materials from domestic and international growers and suppliers and through a variety of processing steps including sorting, cleaning, pressing, mixing, and blending to manufacture finished goods utilized in both human and pet food. The contracts for food ingredients with customers create a performance obligation to transfer the manufactured finished goods to the customer. Transaction prices for the sale of food ingredients are primarily based on negotiated fixed prices. 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.
Processing Revenue
Processing and packing of customer-owned tobacco and ingredients is a short-duration process. Processing charges are primarily based on negotiated fixed prices per unit of weight processed. Under normal operating conditions, customer-owned raw materials that are placed into the production line exits as processed and packed product and is then later transported to customer-designated transfer locations. 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 food ingredients products are consistently met upon completion of processing.
Other Operating Sales and Revenue
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 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.
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by significant revenue-generating category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands of dollars)
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Tobacco sales
|
|
|
|
|
|
$
|
270,264
|
|
|
$
|
275,142
|
|
|
Ingredient sales
|
|
|
|
|
|
51,888
|
|
|
16,356
|
|
|
Processing revenue
|
|
|
|
|
|
16,696
|
|
|
16,300
|
|
|
Other sales and revenue from contracts with customers
|
|
|
|
|
|
10,765
|
|
|
7,602
|
|
|
Total revenue from contracts with customers
|
|
|
|
|
|
349,613
|
|
|
315,400
|
|
|
Other operating sales and revenues
|
|
|
|
|
|
416
|
|
|
411
|
|
|
Consolidated sales and other operating revenues
|
|
|
|
|
|
$
|
350,029
|
|
|
$
|
315,811
|
|
Other operating sales and revenues consists principally of interest on advances to suppliers.
NOTE 6. OTHER CONTINGENT LIABILITIES AND OTHER MATTERS
Other Contingent Liabilities
Other Contingent Liabilities (Letters of credit)
The Company had other contingent liabilities totaling approximately $1 million at June 30, 2021, primarily related to outstanding letters of credit.
Value-Added Tax Assessments in Brazil
As further discussed below, the Company’s local operating subsidiaries pay significant amounts of value-added tax (“VAT”) in connection with their operations, which generate tax credits that they normally are entitled to recover through offset, refund, or sale to third parties. 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 $9 million. 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 $11 million. Those amounts are based on the exchange rate for the Brazilian currency at June 30, 2021. 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 June 30, 2021, a portion of the subsidiary’s arguments had been accepted, and the outstanding assessment had been reduced. The reduced assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $9 million (at the June 30, 2021 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 $9 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 June 30, 2021.
With respect to the Parana assessment, management of the subsidiary and outside counsel challenged the full amount of the 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. In addition, under the law, the subsidiary’s tax filings for certain periods covered in the assessment were no longer open to any challenge by the tax authorities. 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 June 30, 2021 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 June 30, 2021.
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.
Other Legal and Tax Matters
Various subsidiaries of the Company are involved in litigation and tax examinations incidental to their business activities. While the outcome of these matters cannot be predicted with certainty, management is vigorously defending the matters and does not currently expect that any of them will have a material adverse effect on the Company’s business or financial position. However, should one or more of these matters be resolved in a manner adverse to management’s current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
Advances to Suppliers
In many sourcing origins where the Company operates, it provides agronomy services and seasonal advances of seed, seedlings, fertilizer, and other supplies to tobacco farmers for crop production, or makes seasonal cash advances to farmers for the procurement of those inputs. These advances are short term, are repaid upon delivery of tobacco to the Company, and are reported in advances to suppliers in the consolidated balance sheets. In several origins, the Company has made long-term advances to tobacco farmers to finance curing barns and other farm infrastructure. In some years, due to low crop yields and other factors, individual farmers may not deliver sufficient volumes of tobacco to fully repay their seasonal advances, and the Company may extend repayment of those advances into future crop years. The long-term portion of advances is included in other noncurrent assets in the consolidated balance sheets. 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 $92 million at June 30, 2021, $83 million at June 30, 2020, and $144 million at March 31, 2021. The related valuation allowances totaled $18 million at June 30, 2021, $16 million at June 30, 2020, and $18 million at March 31, 2021, and were estimated based on the Company’s historical loss information and crop projections. The allowances were reduced by net recoveries of approximately $0.3 million and increased by net provisions of approximately $0.1 million in the three-month periods ended June 30, 2021 and 2020, respectively. 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.
Recoverable Value-Added Tax Credits
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. Items subject to VAT vary from jurisdiction to jurisdiction, as do the rates at which the tax is assessed. When tobacco is sold to customers in the country of origin, the operating subsidiaries generally collect VAT on those sales. The subsidiaries are normally permitted to offset their VAT payments against the collections and remit only the incremental VAT collections to the tax authorities. When tobacco is sold for export, VAT is normally not assessed. In countries where tobacco sales are predominately for export markets, VAT collections generated on downstream sales are often not sufficient to fully offset the subsidiaries’ VAT payments. In those situations, unused VAT credits can accumulate. Some jurisdictions have procedures that allow companies to apply for refunds of unused VAT credits from the tax authorities, but the refund process often takes an extended period of time and it is not uncommon for refund applications to be challenged or rejected in part on technical grounds. Other jurisdictions may permit companies to sell or transfer unused VAT credits to third parties in private transactions, although approval for such transactions must normally be obtained from the tax authorities, limits on the amounts that can be transferred may be imposed, and the proceeds realized may be heavily discounted from the face value of the credits. Due to these factors, local operating subsidiaries in some countries can accumulate significant balances of VAT credits over time. 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 June 30, 2021, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $61 million ($54 million at June 30, 2020, and $49 million at March 31, 2021), and the related valuation allowances totaled approximately $19 million ($17 million at June 30, 2020, and $19 million at March 31, 2021). The net balances are reported in other current assets and other noncurrent assets in the consolidated balance sheets.
Long-Term Debt
In December 2020, the Company repaid $150 million of revolving credit borrowings used to finance the purchase of Silva with term loans under its existing senior unsecured bank credit facility. The Company increased the borrowings of the senior unsecured five-year and seven-year term loans by $75 million each. At June 30, 2021, the five-year term loan maturing December 2023 and the seven-year term loan maturing December 2025 had outstanding borrowings of $225 million and $295 million, respectively. Under the senior unsecured bank credit facility, the additional $150 million of terms loans bear interest at variable rates plus a margin based on the Company's credit metrics and interest payments remained unhedged at June 30, 2021. The Company maintains receive-floating/pay-fixed interest rates swap agreements for a portion of the outstanding five and seven-year term loans. See Note 11 for additional information on outstanding interest rate swap agreements.
Shelf Registration and Stock Repurchase Plan
In November 2020, the Company filed an undenominated automatic universal shelf registration statement with the U.S. Securities and Exchange Commission to provide for the future issuance of an undefined amount of securities as determined by the Company and offered in one or more prospectus supplements prior to issuance.
A stock repurchase plan, which was authorized by the Company's Board of Directors, became effective and was publicly announced on November 5, 2020. This stock repurchase plan authorizes the purchase of up to $100 million in common and/or preferred stock in open market or privately negotiated transactions through November 15, 2022 or when funds for the program have been exhausted, subject to market conditions and other factors. The program had $100 million of remaining capacity for repurchases of common and/or preferred stock at June 30, 2021.
NOTE 7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands, except share and per share data)
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share
|
|
|
|
|
|
|
|
|
|
Net income attributable to Universal Corporation
|
|
|
|
|
|
$
|
6,357
|
|
|
$
|
7,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
24,694,489
|
|
|
24,602,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
$
|
0.26
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Universal Corporation
|
|
|
|
|
|
$
|
6,357
|
|
|
$
|
7,274
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
24,694,489
|
|
|
24,602,610
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee and outside director share-based awards
|
|
|
|
|
|
157,662
|
|
|
100,969
|
|
|
Denominator for diluted earnings per share
|
|
|
|
|
|
24,852,151
|
|
|
24,703,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
$
|
0.26
|
|
|
$
|
0.29
|
|
NOTE 8. INCOME TAXES
The Company operates in the United States and many foreign countries and is subject to the tax laws of many jurisdictions. Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of
pending and contested tax issues. The Company's consolidated effective income tax rate is affected by a number of factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes.
The consolidated effective income tax rate for the three months ended June 30, 2021 was 24% . There were no discrete items that impacted the income tax provision for the three months ended June 30, 2021.
The consolidated effective income tax rate for the three months ended June 30, 2020 was a benefit of $5.0 million. The Company's consolidated effective income tax rate for the three months ended June 30, 2020 was affected by a $4.4 net tax benefit for final U.S. tax regulations issued for hybrid dividends paid by foreign subsidiaries. Without this discrete item for the final U.S. tax regulations, the consolidated effective income tax rate for the three months ended June 30, 2020 would have been a benefit of approximately 24%. Additionally, for the three months ended June 30, 2020 the Company recognized $1.8 million as a component of interest expense related to a settlement of an uncertain tax position at foreign subsidiary.
NOTE 9. GOODWILL AND OTHER INTANGIBLES
The Company's changes in goodwill at June 30, 2021 and 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
Balance at beginning of fiscal year
|
$
|
173,051
|
|
|
$
|
126,826
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
(10)
|
|
|
36
|
|
|
|
|
|
|
|
Balance at end of period
|
$
|
173,041
|
|
|
$
|
126,862
|
|
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 June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except useful life)
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
|
Useful Life (years)
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Customer relationships(1)
|
11
|
—
|
13
|
|
$
|
62,500
|
|
|
$
|
(4,710)
|
|
|
$
|
57,790
|
|
|
$
|
9,500
|
|
|
$
|
(365)
|
|
|
$
|
9,135
|
|
|
Trade names(1)
|
|
5
|
|
|
11,100
|
|
|
(2,160)
|
|
|
8,940
|
|
|
3,300
|
|
|
(330)
|
|
|
2,970
|
|
|
Developed technology(1)
|
|
3
|
|
|
4,800
|
|
|
(2,400)
|
|
|
2,400
|
|
|
4,800
|
|
|
(800)
|
|
|
4,000
|
|
|
Noncompetition agreements(1)
|
|
5
|
|
|
1,000
|
|
|
(300)
|
|
|
700
|
|
|
1,000
|
|
|
(100)
|
|
|
900
|
|
|
Other
|
|
5
|
|
|
777
|
|
|
(703)
|
|
|
74
|
|
|
734
|
|
|
(625)
|
|
|
109
|
|
|
Total intangible assets
|
|
|
|
|
$
|
80,177
|
|
|
$
|
(10,273)
|
|
|
$
|
69,904
|
|
|
$
|
19,334
|
|
|
$
|
(2,220)
|
|
|
$
|
17,114
|
|
(1) On October 1, 2020 the Company acquired 100% of the capital stock of Silva for approximately $164.0 million in cash and $5.9 million of working capital on-hand at the date of acquisition. The Silva acquisition resulted in $60.8 million of intangibles. See Note 3 for additional information.
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 months ended June 30, 2021 and 2020 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
Three Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Amortization Expense
|
$
|
2,403
|
|
|
$
|
808
|
|
|
|
|
|
Amortization expense for the developed technology intangible asset is recorded in cost of goods sold in the consolidated income statements of income. The amortization expense for the other intangible assets is recorded in selling, general, and administrative expenses in the consolidated statements of income.
As of June 30, 2021, the expected future amortization expense for intangible assets is as follows:
|
|
|
|
|
|
|
|
Fiscal Year (in thousands of dollars)
|
|
|
2022 (excluding the three months ended June 30, 2021)
|
$
|
7,216
|
|
|
2023
|
9,204
|
|
|
2024
|
7,969
|
|
|
2025
|
8,534
|
|
|
2026 and thereafter
|
36,981
|
|
|
Total expected future amortization expense
|
$
|
69,904
|
|
NOTE 10. LEASES
The Company, as a lessee, enters into operating leases for land, buildings, equipment, and vehicles. For all operating leases with terms greater than 12 months and with fixed payment arrangements, a lease liability and corresponding right-of-use asset are recognized in the balance sheet for the term of the lease by calculating the net present value of future lease payments. On the date of lease commencement, the present value of lease liabilities is determined by discounting the future lease payments by the Company’s collateralized incremental borrowing rate, adjusted for the lease term and currency of the lease payments. If a lease contains a renewal option that the Company is reasonably certain to exercise, the Company accounts for the original lease term and expected renewal term in the calculation of the lease liability and right-of-use asset.
The following table sets forth the right-of-use assets and lease liabilities for operating leases included in the Company’s consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
|
June 30, 2021
|
|
June 30, 2020
|
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
31,281
|
|
|
$
|
37,576
|
|
|
$
|
31,230
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
7,998
|
|
|
$
|
9,914
|
|
|
$
|
7,898
|
|
|
Long-term operating lease liabilities
|
|
20,826
|
|
|
24,040
|
|
|
19,725
|
|
|
Total operating lease liabilities
|
|
$
|
28,824
|
|
|
$
|
33,954
|
|
|
$
|
27,623
|
|
The following table sets forth the location and amount of operating lease costs included in the Company's consolidated statement of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands of dollars)
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Income Statement Location
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
|
$
|
2,578
|
|
|
$
|
2,911
|
|
|
Selling, general, and administrative expenses
|
|
|
|
|
|
2,305
|
|
|
2,190
|
|
|
Total operating lease costs(1)
|
|
|
|
|
|
$
|
4,883
|
|
|
$
|
5,101
|
|
(1)Includes variable operating lease costs.
The following table reconciles the undiscounted cash flows to the operating lease liabilities in the Company’s consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
|
June 30, 2021
|
|
Maturity of Operating Lease Liabilities
|
|
|
|
2022 (excluding the three months ended June 30, 2021)
|
|
$
|
6,889
|
|
|
2023
|
|
7,279
|
|
|
2024
|
|
5,461
|
|
|
2025
|
|
4,560
|
|
|
2026
|
|
2,656
|
|
|
2027 and thereafter
|
|
5,805
|
|
|
Total undiscounted cash flows for operating leases
|
|
$
|
32,650
|
|
|
Less: Imputed interest
|
|
(3,826)
|
|
|
Total operating lease liabilities
|
|
$
|
28,824
|
|
As of June 30, 2021, the Company had no leases that did not yet commence.
The following table sets forth supplemental information related to operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands, except lease term and incremental borrowing rate)
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
|
|
|
|
$
|
2,777
|
|
|
|
$
|
3,028
|
|
|
|
Right-of-use assets obtained in exchange for new operating leases
|
|
|
|
|
|
2,741
|
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term (years)
|
|
|
|
|
|
5.54
|
|
|
5.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Collateralized Incremental Borrowing Rate
|
|
|
|
|
|
4.12
|
|
%
|
|
4.04
|
|
%
|
NOTE 11. DERIVATIVES AND HEDGING ACTIVITIES
Universal is exposed to various risks in its worldwide operations and uses derivative financial instruments to manage two specific types of risks – interest rate risk and foreign currency exchange rate risk. Interest rate risk has been managed by entering into interest rate swap agreements, and foreign currency exchange rate risk has been managed by entering into forward and option foreign currency exchange contracts. However, the Company’s policy also permits other types of derivative instruments. In addition, foreign currency exchange rate risk is also managed through strategies that do not involve derivative instruments, such as using local borrowings and other approaches to minimize net monetary positions in non-functional currencies. The disclosures below provide additional information about the Company’s hedging strategies, the derivative instruments used, and the effects of these activities on the consolidated statements of income and comprehensive income and the consolidated balance sheets. In the consolidated statements of cash flows, the cash flows associated with all of these activities are reported in net cash provided by operating activities.
Cash Flow Hedging Strategy for Interest Rate Risk
In February 2019, the Company entered into receive-floating/pay-fixed interest rate swap agreements that were designated and qualify as hedges of the exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on two outstanding non-amortizing bank term loans that were funded as part of a new bank credit facility in December 2018. Although no significant ineffectiveness is expected with this hedging strategy, the effectiveness of the interest rate swaps is evaluated on a quarterly basis. At June 30, 2021, the total notional amount of the interest rate swaps was $370 million, which corresponded with the former original outstanding balance of the term loans. During the third quarter of fiscal year 2021, the Company converted $150 million from the balance in its revolving credit line into the existing term loans, splitting the balance equally between them. At June 30, 2021, the Company is not hedging the interest payments on the additional $150 million of term loans. The increase to the principal balance of the term loans does not have an impact to the effectiveness analysis of the interest rate swap agreements.
Previously, the Company had receive-floating/pay-fixed interest rate swap agreements that were designated and qualified as cash flow hedges for two outstanding non-amortizing bank loans that were repaid concurrent with closing on the new bank credit facility. Those swap agreements were subsequently terminated in February 2019 concurrent with the inception of the new swap agreements. The fair value of the previous swap agreements, approximately $5.4 million, was received from the counterparties upon termination and is being amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements. As of June 30, 2021, $0.7 million remained in accumulated other comprehensive loss to be amortized through December 31, 2021.
Cash Flow Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Sales of Crop Inputs, Forecast Purchases of Tobacco, and Related Processing Costs
The majority of the tobacco production in most countries outside the United States where Universal operates is sold in export markets at prices denominated in U.S. dollars. However, sales of crop inputs (such as seeds and fertilizers) to farmers, purchases of tobacco from farmers, and most processing costs (such as labor and energy) in those countries are usually denominated in the local currency. Changes in exchange rates between the U.S. dollar and the local currencies where tobacco is grown and processed affect the ultimate U.S. dollar sales of crop inputs and cost of processed tobacco. 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. 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. dollars and buy the local currency at future dates that coincide with the expected timing of a portion of the tobacco purchases and processing costs. These strategies offset the variability of future U.S. dollar cash flows for sales of crop inputs, tobacco purchases, and processing costs for the foreign currency notional amount hedged. These hedging strategies have been used mainly for tobacco purchases, processing costs, and sales of crop inputs in Brazil, although the Company has also entered into hedges for a portion of the tobacco purchases in Africa.
The aggregate U.S. dollar notional amount of forward and option contracts entered into for these purposes during the three-month periods in fiscal years 2022 and 2021 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in millions of dollars)
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
Tobacco purchases
|
|
$
|
42.0
|
|
|
$
|
30.2
|
|
|
Processing costs
|
|
10.2
|
|
|
8.0
|
|
|
Crop input sales
|
|
20.8
|
|
|
23.5
|
|
|
Total
|
|
$
|
73.0
|
|
|
$
|
61.7
|
|
Variations in exchange rates and in the amount and timing of fixed-price orders from customers for their purchases from individual crop years routinely cause variations in the U.S. dollar notional amount of forward contracts entered into from one year to the next. All contracts related to tobacco purchases and crop input sales were designated and qualified as hedges of the future cash flows associated with the forecast purchases of tobacco. As a result, changes in fair values of the forward contracts have been recognized in comprehensive income as they occurred, but only recognized in earnings as a component of cost of goods sold upon sale of the related tobacco to third-party customers. In fiscal year 2022, only non-deliverable forward contracts were utilized for the sale of 2022 crop year inputs. Premium payments for option contracts entered into for the sale of crop inputs in fiscal year 2021 were expensed into earnings as incurred.
The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of June 30, 2021 for cash flows hedges of tobacco purchases and crop input sales will be recognized in earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedging Program
|
Crop Year
|
Geographic Location(s)
|
Fiscal Year Earnings
|
|
Tobacco purchases
|
2022
|
Brazil
|
2023
|
|
Tobacco purchases
|
2021
|
Brazil, Africa
|
2022
|
|
Tobacco purchases
|
2020
|
Brazil
|
2022
|
|
Crop input sales
|
2022
|
Brazil
|
2023
|
|
Crop input sales
|
2021
|
Brazil
|
2022
|
Forward contracts related to processing costs have not been designated as hedges, and gains and losses on those contracts have been recognized in earnings on a mark-to-market basis.
Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Net Local Currency Monetary Assets and Liabilities of Foreign Subsidiaries
Most of the Company’s foreign subsidiaries transact the majority of their sales in U.S. dollars and finance the majority of their operating requirements with U.S. dollar borrowings, and therefore use the U.S. dollar as their functional currency. These subsidiaries normally have certain monetary assets and liabilities on their balance sheets that are denominated in the local currency. Those assets and liabilities can include cash and cash equivalents, accounts receivable and accounts payable, advances to farmers and suppliers, deferred income tax assets and liabilities, recoverable value-added taxes, operating lease liabilities, and other items. Net monetary assets and liabilities denominated in the local currency are remeasured into U.S. dollars each reporting period, generating gains and losses that the Company records in earnings as a component of selling, general, and administrative expenses. The level of net monetary assets or liabilities denominated in the local currency normally fluctuates throughout the year based on the operating cycle, but it is most common for monetary assets to exceed monetary liabilities, sometimes by a significant amount. When this situation exists and the local currency weakens against the U.S. dollar, remeasurement losses are generated. Conversely, remeasurement gains are generated on a net monetary asset position when the local currency strengthens against the U.S. dollar. To manage a portion of its exposure to currency remeasurement gains and losses, the Company enters into forward contracts to buy or sell the local currency at future dates coinciding with expected changes in the overall net local currency monetary asset position of the subsidiary. Gains and losses on the forward contracts are recorded in earnings as a component of selling, general, and administrative expenses for each reporting period as they occur, and thus directly offset the related remeasurement losses or gains in the consolidated statements of income for the notional amount hedged. 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 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 June 30, 2021 and 2020, and March 31, 2021, were approximately $16.7 million, $11.8 million, and $16.6 million, respectively. To further mitigate currency remeasurement exposure, the Company’s foreign subsidiaries may utilize short-term local currency financing during certain periods. This strategy, while not involving the use of derivative instruments, is intended to minimize the subsidiary’s net monetary position by financing a portion of the local currency monetary assets with local currency monetary liabilities, thus hedging a portion of the overall position.
Several of the Company’s foreign subsidiaries transact the majority of their sales and finance the majority of their operating requirements in their local currency, and therefore use their respective local currencies as the functional currency for reporting purposes. From time to time, these subsidiaries sell tobacco to customers in transactions that are not denominated in the functional currency. In those situations, the subsidiaries routinely enter into forward exchange contracts to offset currency risk for the period of time that a fixed-price order and the related trade account receivable are outstanding with the customer. The contracts are not designated as hedges for accounting purposes.
Effect of Derivative Financial Instruments on the Consolidated Statements of Income
The table below outlines the effects of the Company’s use of derivative financial instruments on the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands of dollars)
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges - Interest Rate Swap Agreements
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Effective Portion of Hedge
|
|
|
|
|
|
|
|
|
|
Gain (loss) recorded in accumulated other comprehensive loss
|
|
|
|
|
|
$
|
(1,396)
|
|
|
$
|
(3,697)
|
|
|
Gain (loss) reclassified from accumulated other comprehensive loss into earnings
|
|
|
|
|
|
$
|
(2,223)
|
|
|
$
|
(1,838)
|
|
|
Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings
|
|
|
|
|
|
$
|
353
|
|
|
$
|
354
|
|
|
Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings
|
|
|
|
|
|
Interest expense
|
|
Ineffective Portion of Hedge
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in earnings
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Location of gain (loss) recognized in earnings
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
Hedged Item
|
|
|
|
|
|
|
|
|
|
Description of hedged item
|
|
|
|
|
|
Floating rate interest payments on term loan
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedges - Foreign Currency Exchange Contracts
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
Effective Portion of Hedge
|
|
|
|
|
|
|
|
|
|
Gain (loss) recorded in accumulated other comprehensive loss
|
|
|
|
|
|
$
|
8,233
|
|
|
$
|
(1,447)
|
|
|
Gain (loss) reclassified from accumulated other comprehensive loss into earnings
|
|
|
|
|
|
$
|
(516)
|
|
|
$
|
(734)
|
|
|
Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings
|
|
|
|
|
|
Cost of goods sold
|
|
Ineffective Portion and Early De-designation of Hedges
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in earnings
|
|
|
|
|
|
$
|
668
|
|
|
$
|
—
|
|
|
Location of gain (loss) recognized in earnings
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
Hedged Item
|
|
|
|
|
|
|
|
|
|
Description of hedged item
|
|
|
|
|
|
Forecast purchases of tobacco in Brazil and Africa
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedges - Foreign Currency Exchange Contracts
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in earnings
|
|
|
|
|
|
$
|
4,604
|
|
|
$
|
(144)
|
|
|
Location of gain (loss) recognized in earnings
|
|
|
|
|
|
Selling, general and administrative expenses
|
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 in Brazil and Africa and the crop input sales in Brazil, a net hedge gain of approximately $7.3 million remained in accumulated other comprehensive loss at June 30, 2021. That balance reflects gains and losses on contracts related to the 2022, 2021, and 2020 Brazil crops, the 2021 Africa crop, and the 2022 and 2021 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through June 30, 2021. 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 June 30, 2021 and 2020, and March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in a Fair Value Asset Position
|
|
Derivatives in a Fair Value Liability Position
|
|
|
|
Balance
Sheet
Location
|
|
Fair Value as of
|
|
Balance
Sheet
Location
|
|
Fair Value as of
|
|
(in thousands of dollars)
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
March 31, 2021
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
Other
non-current
assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other
long-term
liabilities
|
|
$
|
24,892
|
|
|
$
|
39,022
|
|
|
$
|
25,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Other
current
assets
|
|
5,423
|
|
|
571
|
|
|
1,137
|
|
|
Accounts
payable and
accrued
expenses
|
|
2,063
|
|
|
1,390
|
|
|
1,031
|
|
|
Total
|
|
|
|
$
|
5,423
|
|
|
$
|
571
|
|
|
$
|
1,137
|
|
|
|
|
$
|
26,955
|
|
|
$
|
40,412
|
|
|
$
|
26,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
Other
current
assets
|
|
$
|
3,124
|
|
|
$
|
149
|
|
|
$
|
435
|
|
|
Accounts
payable and
accrued
expenses
|
|
$
|
88
|
|
|
$
|
702
|
|
|
$
|
791
|
|
|
Total
|
|
|
|
$
|
3,124
|
|
|
$
|
149
|
|
|
$
|
435
|
|
|
|
|
$
|
88
|
|
|
$
|
702
|
|
|
$
|
791
|
|
Substantially all of the Company's foreign exchange derivative instruments are subject to master netting arrangements whereby the right to offset occurs in the event of default by a participating party. The Company has elected to present these contracts on a gross basis in the consolidated balance sheets.
NOTE 12. FAIR VALUE MEASUREMENTS
Universal measures certain financial and nonfinancial assets and liabilities at fair value based on applicable accounting guidance. The financial assets and liabilities measured at fair value include money market funds, trading securities associated with deferred compensation plans, interest rate swap agreements, forward foreign currency exchange contracts and acquisition-related contingent consideration obligations. The application of the fair value guidance to nonfinancial assets and liabilities primarily includes the determination of fair values for goodwill and long-lived assets when indicators of potential impairment are present.
Under the accounting guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The framework for measuring fair value is based on a fair value hierarchy that distinguishes between observable inputs and unobservable inputs. Observable inputs are based on market data obtained from independent sources. Unobservable inputs require the Company to make its own assumptions about the value placed on an asset or liability by market participants because little or no market data exists.
There are three levels within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
Level
|
|
Description
|
|
|
|
|
|
1
|
|
quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date;
|
|
|
|
|
|
2
|
|
quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and
|
|
|
|
|
|
3
|
|
unobservable inputs for the asset or liability.
|
As permitted under the accounting guidance, the Company uses net asset value per share ("NAV") as a practical expedient to measure the fair value of its money market funds. The fair values for those funds are presented under the heading "NAV" in the tables that follow in this disclosure. In measuring the fair value of liabilities, the Company considers the risk of non-performance in determining fair value. Universal has not elected to report at fair value any financial instruments or any other assets or liabilities that are not required to be reported at fair value under current accounting guidance.
Recurring Fair Value Measurements
At June 30, 2021 and 2020, and at March 31, 2021, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
(in thousands of dollars)
|
|
NAV
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,992
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,992
|
|
|
Trading securities associated with deferred compensation plans
|
|
—
|
|
|
15,735
|
|
|
—
|
|
|
—
|
|
|
15,735
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
8,547
|
|
|
—
|
|
|
8,547
|
|
|
Total financial assets measured and reported at fair value
|
|
$
|
1,992
|
|
|
$
|
15,735
|
|
|
$
|
8,547
|
|
|
$
|
—
|
|
|
$
|
26,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration obligations - short term
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,532
|
|
|
$
|
2,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
24,892
|
|
|
—
|
|
|
24,892
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
2,151
|
|
|
—
|
|
|
2,151
|
|
|
Total financial liabilities measured and reported at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,043
|
|
|
$
|
2,532
|
|
|
$
|
29,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
(in thousands of dollars)
|
|
NAV
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
4,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,013
|
|
|
Trading securities associated with deferred compensation plans
|
|
—
|
|
|
13,963
|
|
|
—
|
|
|
—
|
|
|
13,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
720
|
|
|
—
|
|
|
720
|
|
|
Total financial assets measured and reported at fair value
|
|
$
|
4,013
|
|
|
$
|
13,963
|
|
|
$
|
720
|
|
|
$
|
—
|
|
|
$
|
18,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration obligations - long term
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,532
|
|
|
2,532
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
39,022
|
|
|
—
|
|
|
39,022
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
2,092
|
|
|
—
|
|
|
2,092
|
|
|
Total financial liabilities measured and reported at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,114
|
|
|
$
|
2,532
|
|
|
$
|
43,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
|
|
|
|
Fair Value Hierarchy
|
|
|
|
(in thousands of dollars)
|
|
NAV
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
1,992
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,992
|
|
|
Trading securities associated with deferred compensation plans
|
|
—
|
|
|
15,735
|
|
|
—
|
|
|
—
|
|
|
15,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
1,572
|
|
|
—
|
|
|
1,572
|
|
|
Total financial assets measured and reported at fair value
|
|
$
|
1,992
|
|
|
$
|
15,735
|
|
|
$
|
1,572
|
|
|
$
|
—
|
|
|
$
|
19,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration obligations - long-term
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,532
|
|
|
$
|
2,532
|
|
|
Interest rate swap agreements
|
|
—
|
|
|
—
|
|
|
25,719
|
|
|
—
|
|
|
25,719
|
|
|
Foreign currency exchange contracts
|
|
—
|
|
|
—
|
|
|
1,822
|
|
|
—
|
|
|
1,822
|
|
|
Total financial liabilities measured and reported at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,541
|
|
|
$
|
2,532
|
|
|
$
|
30,073
|
|
Money market funds
The fair value of money market funds, which are reported in cash and cash equivalents in the consolidated balance sheets, is based on NAV, which is the amount at which the funds are redeemable and is used as a practical expedient for fair value. These funds are not classified in the fair value hierarchy, but are disclosed as part of the fair value table above.
Trading securities associated with deferred compensation plans
Trading securities represent mutual fund investments that are matched to employee deferred compensation obligations. These investments are bought and sold as employees defer compensation, receive distributions, or make changes in the funds underlying their accounts. Quoted market prices (Level 1) are used to determine the fair values of the mutual funds.
Interest rate swap agreements
The fair values of interest rate swap agreements are determined based on dealer quotes using a discounted cash flow model matched to the contractual terms of each instrument. Since inputs to the model are observable and significant judgment is not required in determining the fair values, interest rate swaps are classified within Level 2 of the fair value hierarchy.
Foreign currency exchange contracts
The fair values of forward and option foreign currency exchange contracts are also determined based on dealer quotes using a discounted cash flow model matched to the contractual terms of each instrument. Since inputs to the model are observable and significant judgment is not required in determining the fair values, forward and option foreign currency exchange contracts are classified within Level 2 of the fair value hierarchy.
Acquisition-related contingent consideration obligations
The Company estimates the fair value of acquisition-related contingent consideration obligations by applying an income approach model that utilizes probability-weighted discounted cash flows. The Company acquired FruitSmart, Inc. in fiscal year 2020 and recognized a contingent consideration liability of $6.7 million on the date of acquisition. Each period the Company evaluates the fair value of the acquisition-related contingent consideration obligations. During the year ended March 31, 2021, the evaluation resulted in a reduction of $4.2 million of contingent consideration of the original $6.7 million liability recorded. Significant judgment is applied to this model and therefore the acquisition-related contingent consideration obligation is classified within Level 3 of the fair value hierarchy.
A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the three months ended June 30, 2021 and 2020 is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
Balance beginning of year
|
$
|
2,532
|
|
|
$
|
6,705
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of contingent consideration liability
|
—
|
|
|
(4,173)
|
|
|
Balance at end of period
|
$
|
2,532
|
|
|
$
|
2,532
|
|
Long-term Debt
The following table summarizes the fair and carrying value of the Company’s long-term debt, including the current portion at each of the balance sheet dates June 30, 2021, and 2020 and March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of dollars)
|
June 30, 2021
|
|
June 30, 2020
|
|
March 31, 2021
|
|
Fair market value of long term obligations
|
$
|
517
|
|
|
$
|
370
|
|
|
$
|
517
|
|
|
Carrying value of long term obligations
|
$
|
520
|
|
|
$
|
370
|
|
|
$
|
520
|
|
The Company estimates the fair value of its long-term debt using Level 2 inputs which are based upon quoted market prices for the same or similar obligations or on calculations that are based on the current interest rates available to the Company for debt of similar terms and maturities.
Nonrecurring Fair Value Measurements
Assets and liabilities that are measured at fair value on a nonrecurring basis primarily relate to long-lived assets, right-of-use operating lease assets and liabilities, goodwill and intangibles, and other current and noncurrent assets. These assets and liabilities fair values are also evaluated for impairment when potential indicators of impairment exist. 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
The Company reviews long-lived assets for impairment whenever events, changes in business conditions, or other circumstances provide an indication that such assets may be impaired.
CIFI
As a result of the wind-down of the CIFI operation, impairments of $0.5 million and $16.1 million of the related long-lived assets were recorded in the three months ended June 30, 2021 and in fiscal year 2021, respectively. The long-lived assets primarily consist of buildings, processing equipment, and other manufacturing related assets. The aggregate fair value and carrying value of those assets following the impairment adjustments was approximately $5 million at June 30, 2021. The fair values of the property, plant and equipment were principally determined using a market-based approach with consideration of the assets fair values to potential third-parties. Significant judgment was required in estimating the amount and timing of the future cash flows associated with the disposition of the assets.
Tanzania
Due to business changes that affected the leaf tobacco market in Tanzania and the Company's operations there, an impairment charge of the long-lived assets in Tanzania was recorded in fiscal year 2019 to reduce their carrying value to fair value at March 31, 2019. The long-lived assets consist principally of the Company's processing facility and equipment, storage
facilities, tobacco buying and receiving stations, employee housing, and vehicles and transportation equipment. The aggregate fair value and carrying value of those assets following the impairment adjustments was approximately $17 million. The fair values of the property, plant and equipment were determined based principally on a probability-weighting of the discounted cash flows expected under multiple operating and disposition scenarios. Significant judgment was required in estimating the amount and timing of the future cash flows associated with the use and disposition of the assets, as well as the probabilities associated with the respective operating and disposition scenarios.
NOTE 13. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors several defined benefit pension plans covering eligible U.S. salaried employees and certain foreign and other employee groups. These plans provide retirement benefits based primarily on employee compensation and years of service. The Company also sponsors defined benefit plans that provide postretirement health and life insurance benefits for eligible U.S. employees attaining specific age and service levels, although postretirement life insurance is no longer provided for active employees.
The components of the Company’s net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
|
|
Three Months Ended June 30,
|
|
Three Months Ended June 30,
|
|
(in thousands of dollars)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1,650
|
|
|
$
|
1,541
|
|
|
$
|
47
|
|
|
$
|
48
|
|
|
Interest cost
|
|
2,259
|
|
|
2,454
|
|
|
239
|
|
|
287
|
|
|
Expected return on plan assets
|
|
(3,385)
|
|
|
(3,677)
|
|
|
(22)
|
|
|
(24)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization and deferral
|
|
976
|
|
|
1,121
|
|
|
(115)
|
|
|
(143)
|
|
|
Net periodic benefit cost
|
|
$
|
1,500
|
|
|
$
|
1,439
|
|
|
$
|
149
|
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2021, the Company made contributions of approximately $2.5 million to its pension plans. Additional contributions of $3.7 million are expected during the remaining nine months of fiscal year 2022.
NOTE 14. STOCK-BASED COMPENSATION
Universal’s shareholders have approved the Executive Stock Plan (“Plan”) under which officers, directors, and employees of the Company may receive grants and awards of common stock, restricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”), stock appreciation rights, incentive stock options, and non-qualified stock options. The Company’s practice is to award grants of stock-based compensation to officers on an annual basis at the first regularly-scheduled meeting of the Compensation Committee of the Board of Directors (the “Compensation Committee”) in the fiscal year following the public release of the Company’s financial results for the prior year. The Compensation Committee administers the Company’s Plan consistently, following previously defined guidelines. 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.
The RSUs granted to employees vest either three or five years from the grant date and are then paid out in shares of common stock. Under the terms of the RSU awards, grantees receive dividend equivalents in the form of additional RSUs that vest and are paid out on the same date as the original RSU grant. The PSUs vest at the end of a performance period of three years that begins with the year of the grant, are paid out in shares of common stock shortly after the vesting date, and do not carry rights to dividends or dividend equivalents prior to vesting. Shares ultimately paid out under PSU grants are dependent on the achievement of predetermined performance measures established by the Compensation Committee and can range from zero to 150% of the stated award. The Company’s outside directors receive RSUs following the annual meeting of shareholders. RSUs awarded to outside directors vest in one or three years from the grant date. Restricted shares vest upon the individual’s retirement from service as a director.
During the three-month periods ended June 30, 2021 and 2020, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands, except share fair value)
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
RSUs:
|
|
|
|
|
|
Number granted
|
|
58,160
|
|
|
63,050
|
|
|
Grant date fair value
|
|
$
|
57.41
|
|
|
$
|
43.66
|
|
|
|
|
|
|
|
|
PSUs:
|
|
|
|
|
|
Number granted
|
|
48,650
|
|
|
63,050
|
|
|
Grant date fair value
|
|
$
|
47.95
|
|
|
$
|
34.33
|
|
Fair value expense for restricted stock units 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. As a result, Universal typically incurs higher stock compensation expense in the first quarter of each fiscal year when grants are awarded to officers than in the other three quarters. For PSUs, the Company generally recognizes fair value expense ratably over the performance and vesting period 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. The Company accounts for forfeitures of stock-based awards as they occur. For the three-month periods ended June 30, 2021 and 2020, the Company recorded total stock-based compensation expense of approximately $3.0 million and $2.6 million, respectively. The Company expects to recognize stock-based compensation expense of approximately $3.1 million during the remaining nine months of fiscal year 2022.
NOTE 15. OPERATING SEGMENTS
As a result of recent acquisitions of plant-based ingredients companies, during the three months ended December 31, 2020 management evaluated the Company’s global business activities, including product and service offerings to its customers, as well as senior management’s operational and financial responsibilities. This assessment included an analysis of how its chief operating decision maker measures business performance and allocates resources. As a result of this analysis, senior management determined the Company conducts operations across two reportable operating segments, Tobacco Operations and Ingredients Operations.
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. 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. 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, and dehydrated products. Customers for the Ingredients Operations segment include large multinational food and beverage companies, as well as smaller independent entities. FruitSmart, Silva, and CIFI 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. In fiscal year 2021, the Company announced the wind-down of CIFI, a greenfield operation that primarily manufactured both dehydrated and liquid sweet potato products.
The Company currently evaluates the performance of its segments based on operating income after allocated overhead expenses, plus equity in the pretax earnings of unconsolidated affiliates. Operating results for the Company’s reportable segments
for each period presented in the consolidated statements of income and comprehensive income were as follows, including a recast of the new reportable operating segments presentation for all periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands of dollars)
|
|
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
SALES AND OTHER OPERATING REVENUES
|
|
|
|
|
|
|
|
|
|
Tobacco Operations
|
|
|
|
|
|
$
|
293,843
|
|
|
$
|
298,373
|
|
|
Ingredients Operations
|
|
|
|
|
|
56,186
|
|
|
17,438
|
|
|
Consolidated sales and other operating revenues
|
|
|
|
|
|
$
|
350,029
|
|
|
$
|
315,811
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
|
|
|
|
|
|
|
Tobacco Operations
|
|
|
|
|
|
$
|
8,889
|
|
|
$
|
5,049
|
|
|
Ingredients Operations
|
|
|
|
|
|
4,349
|
|
|
(701)
|
|
|
Segment operating income
|
|
|
|
|
|
13,238
|
|
|
4,348
|
|
|
Deduct: Equity in pretax (earnings) loss of unconsolidated affiliates (1)
|
|
|
|
|
|
(609)
|
|
|
7
|
|
|
Restructuring and impairment costs (2)
|
|
|
|
|
|
(2,024)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Other income (loss)(3)
|
|
|
|
|
|
—
|
|
|
4,173
|
|
|
Consolidated operating income
|
|
|
|
|
|
$
|
10,605
|
|
|
$
|
8,528
|
|
(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 4 for additional information.
(3)Other income represents the reversal of a portion of the contingent consideration liability associated with the acquisition of FruitSmart. See Note 12 for additional information.
NOTE 16. 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 three months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands of dollars)
|
|
2021
|
|
2020
|
|
Foreign currency translation:
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(35,135)
|
|
|
$
|
(42,923)
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation:
|
|
|
|
|
|
Net gain (loss) on foreign currency translation
|
|
1,719
|
|
|
2,303
|
|
|
|
|
|
|
|
|
Less: Net (gain) loss on foreign currency translation attributable to noncontrolling interests
|
|
(29)
|
|
|
(156)
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes
|
|
1,690
|
|
|
2,147
|
|
|
Balance at end of period
|
|
$
|
(33,445)
|
|
|
$
|
(40,776)
|
|
|
|
|
|
|
|
|
Foreign currency hedge:
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(414)
|
|
|
$
|
(12,226)
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation:
|
|
|
|
|
|
Net gain (loss) on derivative instruments (net of tax (expense) benefit of $(1,566) and $255)
|
|
5,698
|
|
|
(601)
|
|
|
Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $(108) and $(152)) (1)
|
|
284
|
|
|
560
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes
|
|
5,982
|
|
|
(41)
|
|
|
Balance at end of period
|
|
$
|
5,568
|
|
|
$
|
(12,267)
|
|
|
|
|
|
|
|
|
Interest rate hedge:
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(19,480)
|
|
|
$
|
(27,402)
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation:
|
|
|
|
|
|
Net gain (loss) on derivative instruments (net of tax (expense) benefit of $293 and $776)
|
|
(1,103)
|
|
|
(2,921)
|
|
|
Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $(392) and $(312)) (2)
|
|
1,477
|
|
|
1,172
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes
|
|
374
|
|
|
(1,749)
|
|
|
Balance at end of period
|
|
$
|
(19,106)
|
|
|
$
|
(29,151)
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit plans:
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
(52,008)
|
|
|
$
|
(69,046)
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization included in earnings (net of tax expense (benefit) of $(175) and $(193))(3)
|
|
759
|
|
|
108
|
|
|
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes
|
|
759
|
|
|
108
|
|
|
Balance at end of period
|
|
$
|
(51,249)
|
|
|
$
|
(68,938)
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss at end of period
|
|
$
|
(98,232)
|
|
|
$
|
(151,132)
|
|
(1) Gain (loss) on foreign currency cash flow hedges related to forecast purchases of tobacco and crop input sales is reclassified from accumulated other comprehensive income (loss) to cost of goods sold when the tobacco is sold to customers. See Note 11 for additional information.
(2) Gain (loss) on interest rate cash flow hedges is reclassified from accumulated other comprehensive income (loss) to interest expense when the related interest payments are made on the underlying debt, or as amortized to interest expense over the period to original maturity for terminated swap agreements. See Note 11 for additional information.
(3) This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost. See Note 13 for additional information.
NOTE 17. 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 months ended June 30, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Three Months Ended June 30, 2020
|
|
(in thousands of dollars)
|
|
Universal Corporation
|
|
Non-controlling Interests
|
|
Total
|
|
Universal Corporation
|
|
Non-controlling Interests
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1,307,299
|
|
|
$
|
41,126
|
|
|
$
|
1,348,425
|
|
|
$
|
1,246,665
|
|
|
$
|
42,619
|
|
|
$
|
1,289,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual of stock-based compensation
|
|
2,966
|
|
|
—
|
|
|
2,966
|
|
|
2,633
|
|
|
—
|
|
|
2,633
|
|
|
Withholding of shares from stock-based compensation for grantee income taxes
|
|
(2,432)
|
|
|
—
|
|
|
(2,432)
|
|
|
(1,930)
|
|
|
—
|
|
|
(1,930)
|
|
|
Dividend equivalents on RSUs
|
|
264
|
|
|
—
|
|
|
264
|
|
|
244
|
|
|
—
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in retained earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
6,357
|
|
|
(2,445)
|
|
|
3,912
|
|
|
7,274
|
|
|
(374)
|
|
|
6,900
|
|
|
Cash dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
(19,170)
|
|
|
—
|
|
|
(19,170)
|
|
|
(18,863)
|
|
|
—
|
|
|
(18,863)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend equivalents on RSUs
|
|
(264)
|
|
|
—
|
|
|
(264)
|
|
|
(244)
|
|
|
—
|
|
|
(244)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
8,805
|
|
|
29
|
|
|
8,834
|
|
|
465
|
|
|
(156)
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes in noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to noncontrolling shareholders
|
|
—
|
|
|
(980)
|
|
|
(980)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at end of period
|
|
$
|
1,303,825
|
|
|
$
|
37,730
|
|
|
$
|
1,341,555
|
|
|
$
|
1,236,244
|
|
|
$
|
42,089
|
|
|
$
|
1,278,333
|
|