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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
                        FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________TO_______________

Commission File Number: 001-00652

UNIVERSAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0414210
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
9201 Forest Hill Avenue, Richmond, Virginia 23235
(Address of principal executive offices) (Zip Code)

804-359-9311
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading Symbol(s) Name of Exchange on which registered
Common Stock, no par value UVV New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesþ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer þ Accelerated filer Non-accelerated filer
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 1, 2021, the total number of shares of common stock outstanding was 24,607,384.



UNIVERSAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
2




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
Three Months Ended September 30, Six Months Ended September 30,
2021 2020 2021 2020
(Unaudited) (Unaudited)
Sales and other operating revenues $ 453,955  $ 377,025  $ 803,984  $ 692,836 
Costs and expenses
Cost of goods sold 361,272  308,267  648,828  570,313 
Selling, general and administrative expenses 65,402  52,407  115,246  101,817 
Other income (2,532) —  (2,532) (4,173)
Restructuring and impairment costs —  —  2,024  — 
Operating income 29,813  16,351  40,418  24,879 
Equity in pretax earnings (loss) of unconsolidated affiliates 2,363  590  2,972  583 
Other non-operating income (expense) 54  (20) 102  (38)
Interest income 517  101  590  260 
Interest expense 7,130  5,595  13,338  12,405 
Income before income taxes and other items 25,617  11,427  30,744  13,279 
Income taxes 3,862  3,178  5,077  (1,870)
Net income 21,755  8,249  25,667  15,149 
Less: net loss (income) attributable to noncontrolling interests in subsidiaries (2,245) (747) 200  (373)
Net income attributable to Universal Corporation $ 19,510  $ 7,502  $ 25,867  $ 14,776 
Earnings per share:
Basic
$ 0.79  $ 0.30  $ 1.05  $ 0.60 
Diluted
$ 0.78  $ 0.30  $ 1.04  $ 0.60 
Weighted average common shares outstanding:
Basic
24,776,930  24,658,895  24,745,827  24,630,886 
Diluted
24,916,346  24,770,421  24,894,366  24,737,134 
Total comprehensive income, net of income taxes $ 13,669  $ 22,060  $ 26,415  $ 29,269 
Less: comprehensive (income) loss attributable to noncontrolling interests (2,060) (982) 356  (452)
Comprehensive income (loss) attributable to Universal Corporation $ 11,609  $ 21,078  $ 26,771  $ 28,817 
Dividends declared per common share $ 0.78  $ 0.77  $ 1.56  $ 1.54 

See accompanying notes.

3


UNIVERSAL CORPORATION     
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
September 30, September 30, March 31,
2021 2020 2021
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 100,682  $ 57,084  $ 197,221 
Accounts receivable, net 297,442  329,332  367,482 
Advances to suppliers, net 82,192  65,643  121,618 
Accounts receivable—unconsolidated affiliates 63,112  47,807  584 
Inventories—at lower of cost or net realizable value:
Tobacco 854,331  888,213  640,653 
Other 161,001  116,299  145,965 
Prepaid income taxes 23,112  20,712  15,029 
Other current assets 76,050  69,564  66,806 
Total current assets 1,657,922  1,594,654  1,555,358 
Property, plant and equipment
Land 22,502  21,515  22,400 
Buildings 289,939  259,875  284,430 
Machinery and equipment 653,789  657,435  658,826 
966,230  938,825  965,656 
Less accumulated depreciation (630,766) (617,553) (616,146)
335,464  321,272  349,510 
Other assets
Operating lease right-of-use assets 33,790  35,665  31,230 
Goodwill, net 172,964  126,910  173,051 
Other intangibles, net 67,510  16,309  72,304 
Investments in unconsolidated affiliates 84,517  82,628  84,218 
Deferred income taxes 17,193  22,615  12,149 
Pension asset 13,381  —  11,950 
Other noncurrent assets 43,057  42,239  52,154 
432,412  326,366  437,056 
Total assets $ 2,425,798  $ 2,242,292  $ 2,341,924 

See accompanying notes.
4


UNIVERSAL CORPORATION     
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

September 30, September 30, March 31,
2021 2020 2021
(Unaudited) (Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable and overdrafts $ 184,982  $ 235,413  $ 101,294 
Accounts payable and accrued expenses 157,082  133,034  139,484 
Accounts payable—unconsolidated affiliates 2,414  117  1,282 
Customer advances and deposits 25,219  8,049  8,765 
Accrued compensation 19,591  19,499  29,918 
Income taxes payable 1,136  2,947  4,516 
Current portion of operating lease liabilities 8,985  9,105  7,898 
Current portion of long-term debt —  —  — 
Total current liabilities 399,409  408,164  293,157 
Long-term debt 518,422  368,894  518,172 
Pensions and other postretirement benefits 54,598  64,947  57,637 
Long-term operating lease liabilities 22,530  22,813  19,725 
Other long-term liabilities 55,174  72,657  59,814 
Deferred income taxes 42,239  25,941  44,994 
Total liabilities 1,092,372  963,416  993,499 
Shareholders’ equity
Universal Corporation:
Preferred stock:
Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding
—  —  — 
Common stock, no par value, 100,000,000 shares authorized 24,607,384 shares issued and outstanding at September 30, 2021 (24,514,867 at September 30, 2020 and 24,514,867 at March 31, 2021)
328,836  323,761  326,673 
Retained earnings 1,074,629  1,053,295  1,087,663 
Accumulated other comprehensive loss (106,133) (137,556) (107,037)
Total Universal Corporation shareholders' equity 1,297,332  1,239,500  1,307,299 
Noncontrolling interests in subsidiaries 36,094  39,376  41,126 
Total shareholders' equity 1,333,426  1,278,876  1,348,425 
Total liabilities and shareholders' equity $ 2,425,798  $ 2,242,292  $ 2,341,924 

See accompanying notes.


5


UNIVERSAL CORPORATION     
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Six Months Ended September 30,
2021 2020
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,667  $ 15,149 
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 25,096  20,381 
Net provision for losses (recoveries) on advances to suppliers (44) 348 
Foreign currency remeasurement (gain) loss, net 6,955  (5,105)
Foreign currency exchange contracts 2,486  (8,169)
Restructuring and impairment costs 2,024  — 
Restructuring payments (3,203) (2,937)
Change in estimated fair value of contingent consideration for FruitSmart acquisition (2,532) (4,173)
Other, net (4,916) 3,049 
Changes in operating assets and liabilities, net (172,304) (168,502)
Net cash provided (used) by operating activities (120,771) (149,959)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (18,645) (22,751)
Proceeds from sale of property, plant and equipment 6,767  1,780 
Net cash used by investing activities (11,878) (20,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt, net 82,250  162,646 
Dividends paid to noncontrolling interests (4,676) (3,695)
Dividends paid on common stock (38,047) (37,424)
Other (2,996) (1,949)
Net cash provided (used) by financing activities 36,531  119,578 
Effect of exchange rate changes on cash, restricted cash and cash equivalents (421) 1,006 
Net decrease in cash, restricted cash and cash equivalents (96,539) (50,346)
Cash, restricted cash and cash equivalents at beginning of year 203,221  107,430 
Cash, restricted cash and cash equivalents at end of period $ 106,682  $ 57,084 
Supplemental Information:
Cash and cash equivalents $ 100,682  $ 57,084 
Restricted cash (Other noncurrent assets) 6,000  — 
Total cash, restricted cash and cash equivalents $ 106,682  $ 57,084 

See accompanying notes.
6


UNIVERSAL CORPORATION
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 September 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
7

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 September 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 table summarizes the final 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 six months ended September 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 six months ended September 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 zero restructuring and impairment costs incurred for the three and six months ended September 30, 2020.
8


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. Additionally, the Company 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.
9

Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by significant revenue-generating category:
Three Months Ended September 30, Six Months Ended September 30,
(in thousands of dollars) 2021 2020 2021 2020
Tobacco sales $ 370,702  $ 334,545  $ 640,966  $ 609,687 
Ingredient sales 52,517  19,127  104,405  35,483 
Processing revenue 16,048  12,474  32,744  28,774 
Other sales and revenue from contracts with customers 13,980  10,202  24,745  17,804 
   Total revenue from contracts with customers 453,247  376,348  802,860  691,748 
Other operating sales and revenues 708  677  1,124  1,088 
   Consolidated sales and other operating revenues $ 453,955  $ 377,025  $ 803,984  $ 692,836 

    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 September 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 $10 million. Those amounts are based on the exchange rate for the Brazilian currency at September 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 September 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 September 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 September 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 September 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
10

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 September 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 $98 million at September 30, 2021, $81 million at September 30, 2020, and $144 million at March 31, 2021. The related valuation allowances totaled $14 million at September 30, 2021, $14 million at September 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 $44 thousand and increased by net provisions of approximately $0.3 million in the six-month periods ended September 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 September 30, 2021, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $55 million ($51 million at September 30, 2020, and $49 million at March 31, 2021), and the related valuation allowances totaled approximately $20 million ($18 million at September 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.

11

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 September 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 September 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 September 30, 2021.

NOTE 7.   EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended September 30, Six Months Ended September 30,
(in thousands, except share and per share data) 2021 2020 2021 2020
Basic Earnings Per Share
Numerator for basic earnings per share
Net income attributable to Universal Corporation $ 19,510  $ 7,502  $ 25,867  $ 14,776 
Denominator for basic earnings per share
Weighted average shares outstanding 24,776,930  24,658,895  24,745,827  24,630,886 
Basic earnings per share $ 0.79  $ 0.30  $ 1.05  $ 0.60 
Diluted Earnings Per Share
Numerator for diluted earnings per share
Net income attributable to Universal Corporation $ 19,510  $ 7,502  $ 25,867  $ 14,776 
Denominator for diluted earnings per share:
Weighted average shares outstanding 24,776,930  24,658,895  24,745,827  24,630,886 
Effect of dilutive securities
Employee and outside director share-based awards 139,416  111,526  148,539  106,248 
Denominator for diluted earnings per share 24,916,346  24,770,421  24,894,366  24,737,134 
Diluted earnings per share $ 0.78  $ 0.30  $ 1.04  $ 0.60 

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
12

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 and six months ended September 30, 2021 was 15.1% and 16.5%, respectively. The consolidated effective income tax rate for the three and six months ended September 30, 2021 was affected by a $1.7 million benefit related to a final tax law ruling at a foreign subsidiary. Without this item, the consolidated effective income tax rate for the three and six months ended September 30, 2021 would have been approximately 21.7% and 22.0%, respectively.
    The Company's consolidated effective income tax rate for the three and six months ended September 30, 2020 was 27.8% and a benefit of 14.1%, respectively. The consolidated income tax rate for the six months ended September 30, 2020 was affected by a $4.4 million 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 six months ended September 30, 2020 would have been approximately 19.2%. Additionally, for the six months ended September 30, 2020 the Company recognized $1.8 million 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 September 30, 2021 and 2020 consisted of the following:
(in thousands of dollars) Six Months Ended September 30,
2021 2020
Balance at beginning of fiscal year $ 173,051  $ 126,826 
Foreign currency translation adjustment
(87) 84 
Balance at end of period $ 172,964  $ 126,910 

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 September 30, 2021 and 2020 and at March 31, 2021:
(in thousands, except useful life) September 30, 2021
Useful Life (years) Gross Carrying Value Accumulated Amortization Net Carrying Value
Customer relationships(1)
11 13 $ 62,500  $ (6,097) $ 56,403 
Trade names(1)
5 11,100  (2,715) 8,385 
Developed technology(1)
3 4,800  (2,800) 2,000 
Noncompetition agreements(1)
5 1,000  (350) 650 
Other 5 764  (692) 72 
Total intangible assets $ 80,164  $ (12,654) $ 67,510 
September 30, 2020
Useful Life (years) Gross Carrying Value Accumulated Amortization Net Carrying Value
Customer relationships 13 $ 9,500  $ (548) $ 8,952 
Trade names 5 3,300  $ (495) 2,805 
Developed technology 3 4,800  $ (1,200) 3,600 
Noncompetition agreements 5 1,000  $ (150) 850 
Other 5 762  $ (660) 102 
Total intangible assets $ 19,362  $ (3,053) $ 16,309 
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March 31, 2021
Useful Life (years) Gross Carrying Value Accumulated Amortization Net Carrying Value
Customer relationships(1) 11 13 $ 62,500  $ (3,323) $ 59,177 
Trade names(1) 5 11,100  (1,605) 9,495 
Developed technology(1) 3 4,800  (2,000) 2,800 
Noncompetition agreements(1) 5 1,000  (250) 750 
Other 5 760  (678) 82 
Total intangible assets $ 80,160  $ (7,856) $ 72,304 
(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 and six months ended September 30, 2021 and 2020 was:
(in thousands of dollars) Three Months Ended September 30, Six Months Ended September 30,
2021
2020 2021 2020
Amortization Expense $ 2,853  $ 809  $ 5,256  $ 1,617 

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 other intangible assets is recorded in selling, general, and administrative expenses in the consolidated statements of income.
As of September 30, 2021, the expected future amortization expense for intangible assets is as follows:
Fiscal Year (in thousands of dollars)
2022 (excluding the six months ended September 30, 2021)
$ 4,822 
2023 9,204 
2024 7,969 
2025 8,534 
2026 and thereafter 36,981 
Total expected future amortization expense $ 67,510 

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.
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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) September 30, 2021 September 30, 2020 March 31, 2021
Assets
   Operating lease right-of-use assets $ 33,790  $ 35,665  $ 31,230 
Liabilities
    Current portion of operating lease liabilities $ 8,985  $ 9,105  $ 7,898 
    Long-term operating lease liabilities 22,530  22,813  19,725 
          Total operating lease liabilities $ 31,515  $ 31,918  $ 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 September 30, Six Months Ended September 30,
(in thousands of dollars) 2021 2020 2021 2020
Income Statement Location
   Cost of goods sold $ 2,721  $ 3,219  $ 5,299  $ 6,130 
   Selling, general, and administrative expenses 2,261  2,466  4,566  4,656 
          Total operating lease costs(1)
$ 4,982  $ 5,685  $ 9,865  $ 10,786 
(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) September 30, 2021
Maturity of Operating Lease Liabilities
2022 (excluding the six months ended September 30, 2021)
$ 5,287 
2023 8,752 
2024 6,765 
2025 4,856 
2026 2,719 
2027 and thereafter 7,592 
          Total undiscounted cash flows for operating leases $ 35,971 
          Less: Imputed interest (4,456)
Total operating lease liabilities $ 31,515 

As of September 30, 2021, the Company had no leases that did not yet commence.
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The following table sets forth supplemental information related to operating leases:
Three Months Ended September 30, Six Months Ended September 30,
(in thousands, except lease term and incremental borrowing rate) 2021 2020 2021 2020
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities $ 2,840  $ 3,159  $ 5,617  $ 6,187 
Right-of-use assets obtained in exchange for new operating leases 6,310  567  9,051  1,590 
Weighted Average Remaining Lease Term (years) 5.51 5.55
Weighted Average Collateralized Incremental Borrowing Rate 4.02  % 4.02  %

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 September 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 September 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 September 30, 2021, $0.4 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
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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 six-month periods in fiscal years 2022 and 2021 was as follows:
Six Months Ended September 30,
(in millions of dollars) 2021 2020
Tobacco purchases $ 99.7  $ 39.5 
Processing costs 18.7  10.5 
Crop input sales 20.8  23.5 
Total
$ 139.2  $ 73.5 

Fluctuations 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 September 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 2023 Brazil 2024
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
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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 September 30, 2021 and 2020, and March 31, 2021, were approximately $22.3 million, $19.8 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.
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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 September 30, Six Months Ended September 30,
(in thousands of dollars) 2021 2020 2021 2020
Cash Flow Hedges - Interest Rate Swap Agreements
Derivative
Effective Portion of Hedge
Gain (loss) recorded in accumulated other comprehensive loss $ (253) $ (276) $ (1,649) $ (3,973)
Gain (loss) reclassified from accumulated other comprehensive loss into earnings
$ (2,257) $ (2,189) $ (4,480) $ (4,027)
Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings
$ 355  $ 354  $ 708  $ 708 
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 $ (5,234) $ (337) $ 2,999  $ (1,784)
Gain (loss) reclassified from accumulated other comprehensive loss into earnings
$ 1,805  $ (6,479) $ 1,289  $ (7,213)
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 $ (217) $ —  $ 451  $ — 
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 $ (839) $ (272) $ 3,765  $ (416)
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 $0.5 million remained in accumulated other comprehensive loss at September 30, 2021. That balance reflects gains and losses on contracts related to the 2023, 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 September 30, 2021. Based on the hedging strategy, as the gain or loss is recognized in
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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 September 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) September 30, 2021 September 30, 2020 March 31, 2021 September 30, 2021 September 30, 2020 March 31, 2021
Derivatives Designated as Hedging Instruments
Interest rate swap agreements Other
non-current
assets
$ —  $ —  $ —  Other
long-term
liabilities
$ 22,888  $ 37,109  $ 25,719 
Foreign currency exchange contracts Other
current
assets
889  1,137  Accounts
payable and
accrued
expenses
3,152  982  1,031 
Total $ 889  $ $ 1,137  $ 26,040  $ 38,091  $ 26,750 
Derivatives Not Designated as Hedging Instruments
Foreign currency exchange contracts Other
current
assets
$ 1,028  $ 290  $ 435  Accounts
payable and
accrued
expenses
$ 639  $ 418  $ 791 
Total $ 1,028  $ 290  $ 435  $ 639  $ 418  $ 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.

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    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 September 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:
September 30, 2021
Fair Value Hierarchy
(in thousands of dollars) NAV Level 1 Level 2 Level 3 Total
Assets
Money market funds
$ 335  $ —  $ —  $ —  $ 335 
Trading securities associated with deferred compensation plans
—  14,557  —  —  14,557 
Interest rate swap agreements
—  —  —  —  — 
Foreign currency exchange contracts
—  —  1,917  —  1,917 
Total financial assets measured and reported at fair value
$ 335  $ 14,557  $ 1,917  $ —  $ 16,809 
Liabilities
Interest rate swap agreements
—  —  22,888  —  22,888 
Foreign currency exchange contracts
—  —  3,791  —  3,791 
Total financial liabilities measured and reported at fair value
$ —  $ —  $ 26,679  $ —  $ 26,679 
September 30, 2020
Fair Value Hierarchy
(in thousands of dollars) NAV Level 1 Level 2 Level 3 Total
Assets
Money market funds
$ 1,991  $ —  $ —  $ —  $ 1,991 
Trading securities associated with deferred compensation plans
—  14,495  —  —  14,495 
Foreign currency exchange contracts
—  —  291  —  291 
Total financial assets measured and reported at fair value
$ 1,991  $ 14,495  $ 291  $ —  $ 16,777 
Liabilities
Acquisition-related contingent consideration obligations - long term
$ —  $ —  $ —  $ 2,532  2,532 
Interest rate swap agreements
—  —  37,109  —  37,109 
Foreign currency exchange contracts
—  —  1,400  —  1,400 
Total financial liabilities measured and reported at fair value
$ —  $ —  $ 38,509  $ 2,532  $ 41,041 

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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. During the quarter ended September 30, 2021, an evaluation of the contingent liability resulted in a reduction of the remaining $2.5 million contingent consideration 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.
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A reconciliation of the change in the balance of the acquisition-related contingent consideration obligation (Level 3) for the six months ended September 30, 2021 and 2020 is provided below.
(in thousands of dollars) Six Months Ended September 30,
2021 2020
Balance beginning of year $ 2,532  $ 6,705 
Change in fair value of contingent consideration liability (2,532) (4,173)
Balance at end of period $ —  $ 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 September 30, 2021, and 2020 and March 31, 2021:
(in millions of dollars) September 30, 2021 September 30, 2020 March 31, 2021
Fair market value of long term obligations $ 518  $ 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, the Company recognized restructuring and impairment charges in the first quarter of fiscal year 2022 and during fiscal year 2021. At September 30, 2021 assets for the idled CIFI operation consisted of land and buildings. The aggregate fair value and carrying value of those assets was approximately $4 million at September 30, 2021.

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
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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 September 30, Three Months Ended September 30,
(in thousands of dollars) 2021 2020 2021 2020
Service cost $ 1,653  $ 1,547  $ 47  $ 49 
Interest cost 2,254  2,459  241  286 
Expected return on plan assets (3,387) (3,679) (22) (24)
Net amortization and deferral 976  1,120  (116) (142)
Net periodic benefit cost
$ 1,496  $ 1,447  $ 150  $ 169 
Pension Benefits Other Postretirement Benefits
Six Months Ended September 30, Six Months Ended September 30,
(in thousands of dollars) 2021 2020 2021 2020
Service cost $ 3,303  $ 3,088  $ 94  $ 97 
Interest cost 4,513  4,913  480  573 
Expected return on plan assets (6,772) (7,356) (44) (48)
Net amortization and deferral 1,952  2,241  (231) (285)
Net periodic benefit cost
$ 2,996  $ 2,886  $ 299  $ 337 

During the six months ended September 30, 2021, the Company made contributions of approximately $4.3 million to its pension plans. Additional contributions of $1.9 million are expected during the remaining six 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 in 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
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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 six-month periods ended September 30, 2021 and 2020, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:
Six Months Ended September 30,
(in thousands, except share fair value) 2021 2020
RSUs:
Number granted 72,860  80,650 
Grant date fair value $ 56.31  $ 43.42 
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 six-month periods ended September 30, 2021 and 2020, the Company recorded total stock-based compensation expense of approximately $4.1 million and $3.7 million, respectively. The Company expects to recognize stock-based compensation expense of approximately $2.0 million during the remaining six 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 and Silva 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
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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 September 30, Six Months Ended September 30,
(in thousands of dollars) 2021 2020 2021 2020
SALES AND OTHER OPERATING REVENUES
   Tobacco Operations $ 396,765  $ 356,619  $ 690,608  $ 654,992 
   Ingredients Operations 57,190  20,406  113,376  37,844 
Consolidated sales and other operating revenues $ 453,955  $ 377,025  $ 803,984  $ 692,836 
OPERATING INCOME
   Tobacco Operations $ 26,914  $ 18,487  $ 35,803  $ 23,536 
   Ingredients Operations 2,730  (1,546) 7,079  (2,247)
Segment operating income 29,644  16,941  42,882  21,289 
Deduct: Equity in pretax (earnings) loss of unconsolidated affiliates (1)
(2,363) (590) (2,972) (583)
              Restructuring and impairment costs (2)
—  —  (2,024) — 
Add: Other income (loss)(3)
2,532  —  2,532  4,173 
Consolidated operating income $ 29,813  $ 16,351  $ 40,418  $ 24,879 

(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.

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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 six months ended September 30, 2021 and 2020:
Six Months Ended September 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 (2,360) 7,629 
Less: Net (gain) loss on foreign currency translation attributable to noncontrolling interests 156  79 
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes (2,204) 7,708 
Balance at end of period $ (37,339) $ (35,215)
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 $(512) and $275)
538  571 
Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $271 and $(1,501)) (1)
(718) 5,399 
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes (180) 5,970 
Balance at end of period $ (594) $ (6,256)
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 $346 and $835)
(1,303) (3,138)
Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $(792) and $(697)) (2)
2,980  2,622 
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes 1,677  (516)
Balance at end of period $ (17,803) $ (27,918)
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 $(354) and $(381))(3)
1,611  879 
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes 1,611  879 
Balance at end of period $ (50,397) $ (68,167)
Total accumulated other comprehensive loss at end of period $ (106,133) $ (137,556)
(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.

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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 and six months ended September 30, 2021 and 2020 is as follows:
  Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
(in thousands of dollars) Universal Corporation Non-controlling Interests Total Universal Corporation Non-controlling Interests Total
Balance at beginning of three-month period $ 1,303,825  $ 37,730  $ 1,341,555  $ 1,236,244  $ 42,089  $ 1,278,333 
Changes in common stock        
Accrual of stock-based compensation 1,119  —  1,119  1,075  —  1,075 
Withholding of shares from stock-based compensation for grantee income taxes
(26) —  (26) (19) —  (19)
Dividend equivalents on RSUs 272  —  272  256  —  256 
Changes in retained earnings        
Net income 19,510  2,245  21,755  7,502  747  8,249 
Cash dividends declared    
Common stock
(19,195) —  (19,195) (18,877) —  (18,877)
Dividend equivalents on RSUs (272) —  (272) (257) —  (257)
Other comprehensive income (loss) (7,901) (185) (8,086) 13,576  235  13,811 
Other changes in noncontrolling interests
Dividends paid to noncontrolling shareholders
—  (3,696) (3,696) —  (3,695) (3,695)
Balance at end of period $ 1,297,332  $ 36,094  $ 1,333,426  $ 1,239,500  $ 39,376  $ 1,278,876 

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  Six Months Ended September 30, 2021 Six Months Ended September 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 4,085  —  4,085  3,708  —  3,708 
Withholding of shares from stock-based compensation for grantee income taxes
(2,458) —  (2,458) (1,949) —  (1,949)
Dividend equivalents on RSUs 536  —  536  500  —  500 
Changes in retained earnings        
Net income 25,867  (200) 25,667  14,776  373  15,149 
Cash dividends declared    
Common stock
(38,365) —  (38,365) (37,740) —  (37,740)
Dividend equivalents on RSUs (536) —  (536) (501) —  (501)
Other comprehensive income (loss) 904  (156) 748  14,041  79  14,120 
Other changes in noncontrolling interests
Dividends paid to noncontrolling shareholders
—  (4,676) (4,676) —  (3,695) (3,695)
Balance at end of period $ 1,297,332  $ 36,094  $ 1,333,426  $ 1,239,500  $ 39,376  $ 1,278,876 

NOTE 18. SUBSEQUENT EVENTS

On October 4, 2021 the Company acquired 100% of the capital stock of Shank's Extracts, Inc. ("Shank's"), a privately-held, specialty ingredient, flavoring, and food company with bottling and packaging capabilities, for approximately $100 million in cash. The Company utilized cash-on-hand and revolving credit facility borrowings to fund the acquisition. Subsequent to the acquisition of Shank's operations, the Company agreed to acquire the real property assets related to the Shank's business for approximately $13 million in cash, which is expected to close in the third quarter of fiscal year 2022. Following the acquisition, Shank's became a wholly-owned direct subsidiary of the Company.



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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 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 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: impacts of the ongoing COVID-19 pandemic; 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; 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; timing of shipments to customers; changes in market structure; government regulation; 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 ingredient 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; and general economic, political, market, and weather conditions. 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, 2021. 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 Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

Results of Operations

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. 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) referred to in this discussion are 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. In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 15. "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, provide investors with important information that is useful in understanding our business results and trends.

Overview

In the six months ended September 30, 2021, tobacco operations results improved on a favorable product mix consisting of a higher percentage of lamina tobacco and fewer carryover sales of lower margin tobaccos, compared to the same period in the prior fiscal year. In addition, our uncommitted inventory level of 11% of tobacco inventories at September 30, 2021, was significantly below our uncommitted inventory level of 16% of tobacco inventories at September 30, 2020. At the same time, we continue to have logistical challenges related to worldwide shipping availability stemming from the ongoing COVID-19 pandemic. To address these challenges, we are working closely with our customers to accelerate tobacco shipments in some origins where vessels and containers have been available while diligently managing slower tobacco shipments in origins with reduced container and vessel availability. Our lamina tobacco sales volumes for the first half of fiscal year 2022 were just slightly
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below those in the first half of fiscal year 2021, and we expect our tobacco crop shipments to be heavily weighted to the second half of fiscal year 2022.

We are continuing to monitor global supply chain constraints. However, at this time, we do not know if we will encounter significant shipment timing delays which may push shipments into fiscal year 2023. We are also seeing rising rates of inflation, increases in freight costs, and labor constraints in some locations which are driving up costs. Although we currently do not know the significance of the impact at this time, we are anticipating these increased costs will especially affect our ingredient operations later in the fiscal year.

On October 4, 2021, we announced the closing of our purchase of Shank’s, which will enhance our plant-based ingredients platform through growing the value-added services available to our customers by adding flavors, custom packaging and bottling, and product development capabilities.

As we move into the second half of fiscal year 2022, we look to maintain our strong level of performance despite ongoing global supply chain challenges. At the same time, we remain committed to setting high standards of social and environmental performance essential to supporting a sustainable supply chain, and recently released goals and targets around agricultural labor practices and environmental impacts, which are available on our website.

FINANCIAL HIGHLIGHTS
Six Months Ended September 30, Change
(in millions of dollars, except per share data) 2021 2020 $ %
Consolidated Results
Sales and other operating revenue $ 804.0  $ 692.8  $ 111.1  16  %
Cost of goods sold $ 648.8  $ 570.3  $ 78.5  14  %
Gross Profit Margin