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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 DECEMBER 31, 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)
Virginia54-0414210
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
9201 Forest Hill Avenue,Richmond,Virginia23235
(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 classTrading Symbol(s)Name of Exchange on which registered
Common Stock, no par valueUVVNew 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 FilerþAccelerated 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 January 31, 2022, the total number of shares of common stock outstanding was 24,608,283.



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 December 31,Nine Months Ended December 31,
2021202020212020
(Unaudited)(Unaudited)
Sales and other operating revenues$652,644 $672,931 $1,456,628 $1,365,767 
Costs and expenses
Cost of goods sold521,171 533,431 1,169,999 1,103,744 
Selling, general and administrative expenses60,267 59,335 175,513 161,152 
Other income  (2,532)(4,173)
Restructuring and impairment costs8,433 19,979 10,457 19,979 
Operating income62,773 60,186 103,191 85,065 
Equity in pretax earnings (loss) of unconsolidated affiliates2,084 1,506 5,056 2,089 
Other non-operating income (expense)56 30 158 (8)
Interest income209 2 799 262 
Interest expense7,462 6,735 20,800 19,140 
Income before income taxes and other items57,660 54,989 88,404 68,268 
Income taxes13,505 14,548 18,582 12,678 
Net income44,155 40,441 69,822 55,590 
Less: net loss (income) attributable to noncontrolling interests in subsidiaries(9,215)(7,168)(9,015)(7,541)
Net income attributable to Universal Corporation$34,940 $33,273 $60,807 $48,049 
Earnings per share:
Basic
$1.41 $1.35 $2.46 $1.95 
Diluted
$1.40 $1.34 $2.44 $1.94 
Weighted average common shares outstanding:
Basic
24,792,108 24,677,122 24,761,290 24,646,342 
Diluted
24,949,091 24,818,918 24,912,644 24,764,439 
Total comprehensive income, net of income taxes$45,862 $55,681 $72,277 $84,950 
Less: comprehensive (income) loss attributable to noncontrolling interests(9,201)(7,114)(8,845)(7,566)
Comprehensive income (loss) attributable to Universal Corporation$36,661 $48,567 $63,432 $77,384 
Dividends declared per common share$0.78 $0.77 $2.34 $2.31 

See accompanying notes.

3


UNIVERSAL CORPORATION     
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
December 31,December 31,March 31,
202120202021
(Unaudited)(Unaudited)
ASSETS
Current assets
Cash and cash equivalents$99,305 $95,405 $197,221 
Accounts receivable, net400,132 354,676 367,482 
Advances to suppliers, net126,830 102,795 121,618 
Accounts receivable—unconsolidated affiliates1,909 6,197 584 
Inventories—at lower of cost or net realizable value:
Tobacco855,587 814,287 640,653 
Other161,704 144,333 145,965 
Prepaid income taxes23,590 18,174 15,029 
Other current assets76,255 68,928 66,806 
Total current assets1,745,312 1,604,795 1,555,358 
Property, plant and equipment
Land24,752 22,499 22,400 
Buildings296,642 268,377 284,430 
Machinery and equipment662,504 662,854 658,826 
983,898 953,730 965,656 
Less accumulated depreciation(636,042)(621,928)(616,146)
347,856 331,802 349,510 
Other assets
Operating lease right-of-use assets34,139 34,717 31,230 
Goodwill, net214,023 180,655 173,051 
Other intangibles, net95,790 74,710 72,304 
Investments in unconsolidated affiliates81,040 85,610 84,218 
Deferred income taxes15,676 22,281 12,149 
Pension asset13,495  11,950 
Other noncurrent assets46,197 54,071 52,154 
500,360 452,044 437,056 
Total assets$2,593,528 $2,388,641 $2,341,924 

See accompanying notes.
4


UNIVERSAL CORPORATION     
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

December 31,December 31,March 31,
202120202021
(Unaudited)(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable and overdrafts$252,609 $129,603 $101,294 
Accounts payable and accrued expenses221,374 156,421 139,484 
Accounts payable—unconsolidated affiliates8,788 7,416 1,282 
Customer advances and deposits26,341 14,498 8,765 
Accrued compensation18,803 22,744 29,918 
Income taxes payable10,742 6,650 4,516 
Current portion of operating lease liabilities9,128 9,014 7,898 
Current portion of long-term debt   
Total current liabilities547,785 346,346 293,157 
Long-term debt518,547 518,047 518,172 
Pensions and other postretirement benefits52,624 66,764 57,637 
Long-term operating lease liabilities22,612 22,709 19,725 
Other long-term liabilities49,235 71,346 59,814 
Deferred income taxes43,483 46,414 44,994 
Total liabilities1,234,286 1,071,626 993,499 
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 December 31, 2021 (24,514,867 at December 31, 2020 and 24,514,867 at March 31, 2021)
330,306 325,350 326,673 
Retained earnings1,090,110 1,067,437 1,087,663 
Accumulated other comprehensive loss(104,412)(122,262)(107,037)
Total Universal Corporation shareholders' equity1,316,004 1,270,525 1,307,299 
Noncontrolling interests in subsidiaries43,238 46,490 41,126 
Total shareholders' equity1,359,242 1,317,015 1,348,425 
Total liabilities and shareholders' equity$2,593,528 $2,388,641 $2,341,924 

See accompanying notes.


5


UNIVERSAL CORPORATION     
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Nine Months Ended December 31,
20212020
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$69,822 $55,590 
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization39,110 32,626 
Net provision for losses (recoveries) on advances to suppliers2,864 2,753 
Foreign currency remeasurement (gain) loss, net6,829 (8,823)
Foreign currency exchange contracts1,980 (7,723)
Restructuring and impairment costs10,457 19,979 
Restructuring payments(3,787)(5,179)
Change in estimated fair value of contingent consideration for FruitSmart acquisition(2,532)(4,173)
Other, net1,814 5,260 
Changes in operating assets and liabilities, net(178,133)(51,687)
Net cash provided (used) by operating activities(51,576)38,623 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment(39,831)(33,794)
Purchase of business, net of cash held by the business(102,462)(161,095)
Proceeds from sale of property, plant and equipment12,609 4,086 
Other (800)
Net cash used by investing activities(129,684)(191,603)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt, net151,413 57,207 
Issuance of long-term debt 150,000 
Dividends paid to noncontrolling interests(6,733)(3,695)
Dividends paid on common stock(57,241)(56,301)
Other(3,264)(1,949)
Net cash provided (used) by financing activities84,175 145,262 
Effect of exchange rate changes on cash, restricted cash and cash equivalents(831)1,693 
Net decrease in cash, restricted cash and cash equivalents(97,916)(6,025)
Cash, restricted cash and cash equivalents at beginning of year203,221 107,430 
Cash, restricted cash and cash equivalents at end of period$105,305 $101,405 
Supplemental Information:
Cash and cash equivalents$99,305 $95,405 
Restricted cash (Other noncurrent assets)6,000 6,000 
Total cash, restricted cash and cash equivalents$105,305 $101,405 

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 December 31, 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 Shank's Extracts, LLC
On October 4, 2021, the Company acquired 100% of the capital stock of Shank's Extract's, LLC. (“Shank's”), a flavors and extracts processing company, for approximately $100 million in cash and $2.4 million of additional working capital on-hand at the date of acquisition. The acquisition of Shank's diversifies the Company's product offerings and generates new opportunities for its plant-based ingredients platform.

The purchase price allocation for Shank's as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. A portion of the goodwill recorded as part of the acquisition was attributable to the assembled workforce of Shank's. The goodwill and intangibles recognized for the Shank's acquisition are deductible for U.S.
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income tax purposes. The transaction was treated as an asset acquisition for U.S. Federal tax purposes, resulting in a step-up of tax basis to fair value. The Company determined the Shank's operations are not material to the Company’s consolidated results. Therefore, pro forma information is not presented.

For the three and nine months ended December 31, 2021, the Company incurred $0.6 million and $2.3 million, respectively, for acquisition-related transaction costs for the purchase of Shank's. The acquisition-related costs were expensed as incurred and recorded in selling, general, and administrative expense on the consolidated statements of income.
In November 2021, the Company acquired the land and buildings utilized by Shank's operations for $13.3 million. The purchase of the land and buildings resulted in the elimination of the $8.5 million operating lease right-of-use asset and lease liability recognized on the acquisition date for Shank's.

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.

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.

The Company continues to employ one of Silva's selling shareholders and as stipulated in the Silva purchase agreement has transferred $6 million to a third-party escrow account that may ultimately be earned by the selling shareholder upon completion of a post-combination service period. Since the compensation agreement for the selling shareholder who remains employed with the Company includes a post-combination service period, the Company has excluded the entire $6 million in the purchase price to be allocated. The $6 million in escrow is recognized as restricted cash in other noncurrent assets on the consolidated balance sheet at December 31, 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.
For the three and nine months ended December 31, 2021, the Company incurred $2.3 million and $3.9 million for acquisition-related transaction costs for the purchase of Silva, respectively. The acquisition-related costs were expensed as incurred and recorded in selling, general, and administrative expense on the consolidated statements of income.

8

The following table summarizes the preliminary purchase price allocation of the assets acquired and liabilities assumed for the Shank's acquisition and final purchase price allocation for the Silva acquisition.
(in thousands of dollars)
Shank'sSilva
October 4, 2021October 1, 2020
Assets
Cash and cash equivalents$754 $8,126 
Accounts receivable, net6,643 17,885 
Advances to suppliers, net 3,011 
Inventory15,792 33,162 
Other current assets415 833 
Property, plant and equipment (net)11,000 24,437 
Operating lease right-of-use assets8,531  
Intangibles
Customer relationships24,000 53,000 
Developed technology4,500  
Trade names 7,800 
Non-compete agreements3,000  
Goodwill41,061 46,144 
Total assets acquired115,696 194,398 
Liabilities
Accounts payable and accrued expenses6,159 11,683 
Customer advances and deposits351  
Accrued compensation655 3,350 
Income taxes payable 946 
Current portion of operating lease liabilities8,531  
Deferred income taxes 14,419 
Total liabilities assumed15,696 30,398 
Total assets acquired and liabilities assumed$100,000 $164,000 

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
As a result of efforts to exit the idled tobacco operations in Tanzania, the Company reevaluated the carrying values of property, plant, and equipment associated with the Tanzania operations. During the three months ended December 31, 2021, the Company determined the carrying value exceeded the estimated fair value of those assets and recognized a $9.4 million impairment charge.
During the three and nine months ended December 31, 2021, the Company also incurred $0.6 million and $2.2 million of termination costs for the Tobacco Operations segment, respectively.
During the three and nine months ended December 31, 2020, the Company incurred $2.6 million of termination and impairment costs associated with restructuring of tobacco buying and administrative operations in Africa, as well as a $0.9 million charge for the liquidation of an idled service entity in Tanzania, and $0.4 million of termination costs in North America.
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Ingredients Operations
During the nine months ended December 31, 2020, the Company committed to a plan to wind-down its subsidiary, Carolina Innovative Food Ingredients, Inc. ("CIFI"), a sweet potato processing operation located in Nashville, North Carolina. The CIFI operation was a start-up project initially undertaken by the Company in fiscal year 2015. The decision to wind down CIFI was consistent with the Company’s capital allocation strategy to focus on delivering shareholder value through building and enhancing a plant-based ingredients platform, which includes integrating and exploring the synergies of recently acquired businesses. The Company determined that CIFI was not a strategic fit for the platform’s long-term objectives. CIFI’s single-product focused processing facility and ongoing international pricing pressures, among other factors, created challenges that proved insurmountable. As a result of the decision to wind down the CIFI operations, the Company paid termination benefits totaling approximately $0.6 million to employees whose permanent positions were eliminated. In addition to the termination costs, the Company recognized various other costs associated with the wind-down of the CIFI facility. These costs include impairments of property, plant, and equipment (including the factory building), as well as inventory and supply write-downs. The total restructuring and impairment charge for the nine months ended December 31, 2020 for the CIFI operations wind-down was $16.1 million.
During the nine months ended December 31, 2021, the Company recognized $1.2 million of net gains on the sale of the remaining property, plant, and equipment associated with the wind-down of the CIFI operations that was announced in fiscal year 2021.
A summary of the restructuring and impairment costs recorded for the three and nine months ended December 31, 2021 and December 31, 2020 were as follows:

Three Months Ended December 31,Nine Months Ended December 31,
(in thousands)2021202020212020
Restructuring costs:
  Employee termination benefits$627 $2,625 $2,174 $2,625 
  Other 1,766 (24)1,766 
    Total restructuring costs627 4,391 2,150 4,391 
Impairment costs:
  Property, plant and equipment7,806 13,886 8,307 13,886 
  Inventory 1,702  1,702 
    Total impairment costs7,806 15,588 8,307 15,588 
      Total restructuring and impairment costs$8,433 $19,979 $10,457 $19,979 

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, as well as flavor and extract services 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
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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, flavors, and extracts. These operations procure raw materials from domestic and international growers and suppliers and through a variety of processing steps including sorting, cleaning, pressing, mixing, extracting, and blending to manufacture finished goods utilized in both human and pet food. The contracts for food ingredients with customers create a performance obligation to transfer the manufactured finished goods to the customer. Transaction prices for the sale of food ingredients are primarily based on negotiated fixed prices. At the point in time that the customer obtains control over the finished product, which is typically aligned with physical shipment under the contractual terms with the customer, the Company completes its performance obligation and recognizes the revenue for the sale.
Processing Revenue
Processing and packing of customer-owned tobacco and ingredients is a short-duration process. Processing charges are primarily based on negotiated fixed prices per unit of weight processed. Under normal operating conditions, customer-owned raw materials that are placed into the production line exits as processed and packed product and is then later transported to customer-designated transfer locations. The revenue for these services is recognized when the performance obligation is satisfied, which is generally when processing is completed. The Company’s operating history and contract analyses indicate that customer requirements for processed tobacco and food ingredients products are consistently met upon completion of processing.
Other Operating Sales and Revenue
From time to time, the Company enters into various arrangements with customers to provide other value-added services that may include blending, chemical and physical testing of products, storage, and tobacco cutting services for select manufacturers. These other arrangements and operations are a much smaller portion of the Company’s business, and are separate and distinct contractual agreements from the Company’s tobacco and food ingredients sales or third-party processing arrangements with customers. The transaction prices and timing of revenue recognition of these items are determined by the specifics of each contract.
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by significant revenue-generating category:
Three Months Ended December 31,Nine Months Ended December 31,
(in thousands of dollars)2021202020212020
Tobacco sales$540,363 $583,543 $1,181,329 $1,193,230 
Ingredient sales70,682 47,337 175,087 82,820 
Processing revenue19,647 18,831 52,391 47,605 
Other sales and revenue from contracts with customers16,988 14,867 41,733 32,671 
   Total revenue from contracts with customers647,680 664,578 1,450,540 1,356,326 
Other operating sales and revenues4,964 8,353 6,088 9,441 
   Consolidated sales and other operating revenues$652,644 $672,931 $1,456,628 $1,365,767 

    Other operating sales and revenues consists principally of interest on advances to suppliers.

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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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 2021 exchange rate). Notwithstanding the reduced assessment, management and outside counsel continue to believe that the new assessment is not supported by the underlying statutes and relevant case law and have challenged the full amount of the claim. The range of reasonably possible loss is considered to be zero up to the full $3 million assessment. However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at December 31, 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
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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 $147 million at December 31, 2021, $122 million at December 31, 2020, and $144 million at March 31, 2021. The related valuation allowances totaled $17 million at December 31, 2021, $16 million at December 31, 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 increased by net provisions of approximately $2.9 million and $2.8 million in the nine-month periods ended December 31, 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 December 31, 2021, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $65 million ($53 million at December 31, 2020, and $49 million at March 31, 2021), and the related valuation allowances totaled approximately $20 million ($18 million at December 31, 2020, and $19 million at March 31, 2021). The net balances are reported in other current assets and other noncurrent assets in the consolidated balance sheets.

Long-Term Debt

In December 2020, the Company repaid $150 million of revolving credit borrowings used to finance the purchase of Silva with term loans under its existing senior unsecured bank credit facility. The Company increased the borrowings of the senior unsecured five-year and seven-year term loans by $75 million each. At December 31, 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 December 31, 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 December 31, 2021.
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NOTE 7.   EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended December 31,Nine Months Ended December 31,
(in thousands, except share and per share data)2021202020212020
Basic Earnings Per Share
Numerator for basic earnings per share
Net income attributable to Universal Corporation$34,940 $33,273 $60,807 $48,049 
Denominator for basic earnings per share
Weighted average shares outstanding24,792,108 24,677,122 24,761,290 24,646,342 
Basic earnings per share$1.41 $1.35 $2.46 $1.95 
Diluted Earnings Per Share
Numerator for diluted earnings per share
Net income attributable to Universal Corporation$34,940 $33,273 $60,807 $48,049 
Denominator for diluted earnings per share:
Weighted average shares outstanding24,792,108 24,677,122 24,761,290 24,646,342 
Effect of dilutive securities
Employee and outside director share-based awards156,983 141,796 151,354 118,097 
Denominator for diluted earnings per share24,949,091 24,818,918 24,912,644 24,764,439 
Diluted earnings per share$1.40 $1.34 $2.44 $1.94 

NOTE 8.   INCOME TAXES

    The Company operates in the United States and many foreign countries and is subject to the tax laws of many jurisdictions. Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of pending and contested tax issues. The Company's consolidated effective income tax rate is affected by a number of factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes.     
    The consolidated effective income tax rate for the three months and nine months ended December 31, 2021 was 23.4% and 21.0%, respectively. The consolidated effective income tax rate for the three and nine months ended December 31, 2021 was affected by a $1.2 million benefit related to finalizing the prior fiscal year U.S. tax return. The consolidated effective income tax rate for the nine months ended December 31, 2021 was affected by a $1.7 million benefit related to a final tax law ruling at a foreign subsidiary. Without these items, the consolidated effective income tax rate for the three and nine months ended December 31, 2021 would have been approximately 25.5% and 24.3%, respectively.
    The Company's consolidated effective income tax rate for the three and nine months ended December 31, 2020 was 26.5% and 18.6%, respectively. The Company recognized a $2.9 million income tax benefit in the three and nine months ended December 31, 2020 related to amending and finalizing of prior fiscal years' consolidated U.S. income tax returns. The consolidated income tax rate for the nine months ended December 31, 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 these discrete items, the consolidated effective income tax rate for the three and nine months ended December 31, 2020 would have been approximately 31.7% and 29.3%. Additionally, for the nine months ended December 31, 2020, the Company recognized $1.8 million of interest expense related to a settlement of an uncertain tax position at foreign subsidiary.

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NOTE 9.   GOODWILL AND OTHER INTANGIBLES
The Company's changes in goodwill at December 31, 2021 and 2020 consisted of the following:
(in thousands of dollars)Nine Months Ended December 31,
20212020
Balance at beginning of fiscal year$173,051 $126,826 
Acquisition of business(1)(2)
41,061 53,728 
Foreign currency translation adjustment
(89)101 
Balance at end of period$214,023 $180,655 
(1) On October 4, 2021, the Company acquired 100% of the capital stock of Shank's for approximately $100 million in cash and $2.4 million of additional working capital on-hand at the date of acquisition. The Shank's acquisition resulted in $41.1 million of goodwill. See Note 3 for additional information.
(2) 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 $46.1 million of goodwill after the final purchase accounting was completed in the three months ended September 30, 2021. See Note 3 for additional information.

The Company's intangible assets primarily consist of capitalized customer-related intangibles, trade names, proprietary developed technology and noncompetition agreements. The Company's intangible assets subject to amortization consisted of the following at December 31, 2021 and 2020 and at March 31, 2021:
(in thousands, except useful life)December 31, 2021
Useful Life (years)Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships(1)
1113$86,500 $(8,030)$78,470 
Trade names511,100 (3,270)7,830 
Developed technology(1)
39,300 (3,286)6,014 
Noncompetition agreements(1)
54,000 (588)3,412 
Other5751 (687)64 
Total intangible assets$111,651 $(15,861)$95,790 
December 31, 2020
Useful Life (years)Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships(2)
1113$62,500 $(1,935)$60,565 
Trade names(2)
511,100 (1,050)10,050 
Developed technology34,800 (1,600)3,200 
Noncompetition agreements51,000 (200)800 
Other5796 (701)95 
Total intangible assets$80,196 $(5,486)$74,710 
March 31, 2021
Useful Life (years)Gross Carrying ValueAccumulated AmortizationNet Carrying Value
Customer relationships1113$62,500 $(3,323)$59,177 
Trade names511,100 (1,605)9,495 
Developed technology34,800 (2,000)2,800 
Noncompetition agreements51,000 (250)750 
Other5760 (678)82 
Total intangible assets$80,160 $(7,856)$72,304 
(1)On October 4, 2021, the Company acquired 100% of the capital stock of Shank's for approximately $100 million in cash and $2.4 million of additional working capital on-hand at the date of acquisition. The Shank's acquisition resulted in $31.5 million of intangible assets. See Note 3 for additional information.
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(2)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 intangible assets. 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 nine months ended December 31, 2021 and 2020 was:
(in thousands of dollars)Three Months Ended December 31,Nine Months Ended December 31,
2021
202020212020
Amortization Expense$3,207 $2,404 $8,005 $4,021 

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 December 31, 2021, the expected future amortization expense for intangible assets is as follows:
Fiscal Year (in thousands of dollars)
2022 (excluding the nine months ended December 31, 2021)
$3,228 
202312,495 
202411,247 
202511,812 
2026 and thereafter57,008 
Total expected future amortization expense$95,790 

NOTE 10.   LEASES

The Company, as a lessee, enters into operating leases for land, buildings, equipment, and vehicles. For all operating leases with terms greater than 12 months and with fixed payment arrangements, a lease liability and corresponding right-of-use asset are recognized in the balance sheet for the term of the lease by calculating the net present value of future lease payments. On the date of lease commencement, the present value of lease liabilities is determined by discounting the future lease payments by the Company’s collateralized incremental borrowing rate, adjusted for the lease term and currency of the lease payments. If a lease contains a renewal option that the Company is reasonably certain to exercise, the Company accounts for the original lease term and expected renewal term in the calculation of the lease liability and right-of-use asset.
The following table sets forth the right-of-use assets and lease liabilities for operating leases included in the Company’s consolidated balance sheet:
(in thousands of dollars)December 31, 2021December 31, 2020March 31, 2021
Assets
   Operating lease right-of-use assets$34,139 $34,717 $31,230 
Liabilities
    Current portion of operating lease liabilities$9,128 $9,014 $7,898 
    Long-term operating lease liabilities22,612 22,709 19,725 
          Total operating lease liabilities$31,740 $31,723 $27,623