Published: 2022-02-02 00:00:00 ET

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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.

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.

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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's						Silva
			October 4, 2021						October 1, 2020
Assets
Cash and cash equivalents			$	754					$	8,126
Accounts receivable, net			6,643						17,885
Advances to suppliers, net			—						3,011
Inventory			15,792						33,162
Other current assets			415						833
Property, plant and equipment (net)			11,000						24,437
Operating lease right-of-use assets			8,531						—
Intangibles
Customer relationships			24,000						53,000
Developed technology			4,500						—
Trade names			—						7,800
Non-compete agreements			3,000						—
Goodwill			41,061						46,144
Total assets acquired			115,696						194,398
Liabilities
Accounts payable and accrued expenses			6,159						11,683
Customer advances and deposits			351						—
Accrued compensation			655						3,350
Income taxes payable			—						946
Current portion of operating lease liabilities			8,531						—
Deferred income taxes			—						14,419
Total liabilities assumed			15,696						30,398
Total assets acquired and liabilities assumed			$	100,000					$	164,000

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)			2021						2020						2021						2020
Restructuring costs:
Employee termination benefits			$	627					$	2,625					$	2,174					$	2,625
Other			—						1,766						(24)						1,766
Total restructuring costs			627						4,391						2,150						4,391
Impairment costs:
Property, plant and equipment			7,806						13,886						8,307						13,886
Inventory			—						1,702						—						1,702
Total impairment costs			7,806						15,588						8,307						15,588
Total restructuring and impairment costs			$	8,433					$	19,979					$	10,457					$	19,979

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)						2021						2020						2021						2020
Tobacco sales						$	540,363					$	583,543					$	1,181,329					$	1,193,230
Ingredient sales						70,682						47,337						175,087						82,820
Processing revenue						19,647						18,831						52,391						47,605
Other sales and revenue from contracts with customers						16,988						14,867						41,733						32,671
Total revenue from contracts with customers						647,680						664,578						1,450,540						1,356,326
Other operating sales and revenues						4,964						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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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.

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    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)						2021						2020						2021						2020
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 outstanding						24,792,108						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 outstanding						24,792,108						24,677,122						24,761,290						24,646,342
Effect of dilutive securities
Employee and outside director share-based awards						156,983						141,796						151,354						118,097
Denominator for diluted earnings per share						24,949,091						24,818,918						24,912,644						24,764,439
Diluted earnings per share						$	1.40					$	1.34					$	2.44					$	1.94

    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.

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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,
			2021						2020
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 Value						Accumulated Amortization						Net Carrying Value
Customer relationships(1)			11			—			13						$	86,500					$	(8,030)					$	78,470
Trade names						5									11,100						(3,270)						7,830
Developed technology(1)						3									9,300						(3,286)						6,014
Noncompetition agreements(1)						5									4,000						(588)						3,412
Other						5									751						(687)						64
Total intangible assets															$	111,651					$	(15,861)					$	95,790

															December 31, 2020
			Useful Life (years)												Gross Carrying Value						Accumulated Amortization						Net Carrying Value
Customer relationships(2)			11			—			13						$	62,500					$	(1,935)					$	60,565
Trade names(2)						5									11,100						(1,050)						10,050
Developed technology						3									4,800						(1,600)						3,200
Noncompetition agreements						5									1,000						(200)						800
Other						5									796						(701)						95
Total intangible assets															$	80,196					$	(5,486)					$	74,710

															March 31, 2021
			Useful Life (years)												Gross Carrying Value						Accumulated Amortization						Net Carrying Value
Customer relationships			11			—			13						$	62,500					$	(3,323)					$	59,177
Trade names						5									11,100						(1,605)						9,495
Developed technology						3									4,800						(2,000)						2,800
Noncompetition agreements						5									1,000						(250)						750
Other						5									760						(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						2020						2021						2020
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
2023			12,495
2024			11,247
2025			11,812
2026 and thereafter			57,008
Total expected future amortization expense			$	95,790

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, 2021						December 31, 2020						March 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 liabilities						22,612						22,709						19,725
Total operating lease liabilities						$	31,740					$	31,723					$	27,623

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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 December 31,												Nine Months Ended December 31,
(in thousands of dollars)						2021						2020						2021						2020
Income Statement Location
Cost of goods sold						$	2,805					$	3,401					$	8,104					$	9,531
Selling, general, and administrative expenses						2,536						2,520						7,102						7,176
Total operating lease costs(1)						$	5,341					$	5,921					$	15,206					$	16,707

(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)						December 31, 2021
Maturity of Operating Lease Liabilities
2022 (excluding the nine months ended December 31, 2021)						$	2,743
2023						9,493
2024						7,526
2025						5,393
2026						3,116
2027 and thereafter						7,676
Total undiscounted cash flows for operating leases						$	35,947
Less: Imputed interest						(4,207)
Total operating lease liabilities						$	31,740

As of December 31, 2021, the Company had no leases that have not yet commenced.

The following table sets forth supplemental information related to operating leases:

						Three Months Ended December 31,												Nine Months Ended December 31,
(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						$	3,219					$	3,171					$	8,836								$	9,358
Right-of-use assets obtained in exchange for new operating leases						3,843						1,532						12,894									3,122
Weighted Average Remaining Lease Term (years)																		5.31									5.33
Weighted Average Collateralized Incremental Borrowing Rate																		3.84			%						4.21			%

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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 December 31, 2021, the total notional amount of the interest rate swaps was $370 million, which corresponded with the 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 December 31, 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 was amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements. As of December 31, 2021, the entire deferred gain has been amortized.

Cash Flow Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Sales of Crop Inputs, Forecast Purchases of Tobacco, and Related Processing Costs

The majority of the tobacco production in most countries outside the United States where Universal operates is sold in export markets at prices denominated in U.S. dollars. However, sales of crop inputs (such as seeds and fertilizers) to farmers, purchases of tobacco from farmers, and most processing costs (such as labor and energy) in those countries are usually denominated in the local currency. Changes in exchange rates between the U.S. dollar and the local currencies where tobacco is grown and processed affect the ultimate U.S. dollar sales of crop inputs and cost of processed tobacco. From time to time, the Company enters into forward and option contracts to buy U.S. dollars and sell the local currency at future dates that coincide with the sale of crop inputs to farmers. In the case of forecast purchases of tobacco and the related processing costs, the Company enters into forward and option contracts to sell U.S. dollars and buy the local currency at future dates that coincide with the expected timing of a portion of the tobacco purchases and processing costs. These strategies offset the variability of future U.S. dollar cash flows for sales of crop inputs, tobacco purchases, and processing costs for the foreign currency notional amount hedged. These hedging strategies have been used mainly for tobacco purchases, processing costs, and sales of crop inputs in Brazil, although the Company has also entered into hedges for a portion of the tobacco purchases in Africa.

The aggregate U.S. dollar notional amount of forward and option contracts entered into for these purposes during the nine-month periods in fiscal years 2022 and 2021 was as follows:

						Nine Months Ended December 31,
(in millions of dollars)						2021						2020
Tobacco purchases						$	134.7					$	89.4
Processing costs						32.5						24.6
Crop input sales						20.8						23.5
Total						$	188.0					$	137.5

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.

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The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of December 31, 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, Africa			2023
Tobacco purchases			2021			Brazil, Africa			2022
Tobacco purchases			2020			Brazil			2022
Crop input sales			2022			Brazil			2023
Crop input sales			2021			Brazil			2022

Forward contracts related to processing costs have not been designated as hedges, and gains and losses on those contracts have been recognized in earnings on a mark-to-market basis.

Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Net Local Currency Monetary Assets and Liabilities of Foreign Subsidiaries

Most of the Company’s foreign subsidiaries transact the majority of their sales in U.S. dollars and finance the majority of their operating requirements with U.S. dollar borrowings, and therefore use the U.S. dollar as their functional currency. These subsidiaries normally have certain monetary assets and liabilities on their balance sheets that are denominated in the local currency. Those assets and liabilities can include cash and cash equivalents, accounts receivable and accounts payable, advances to farmers and suppliers, deferred income tax assets and liabilities, recoverable value-added taxes, operating lease liabilities, and other items. Net monetary assets and liabilities denominated in the local currency are remeasured into U.S. dollars each reporting period, generating gains and losses that the Company records in earnings as a component of selling, general, and administrative expenses. The level of net monetary assets or liabilities denominated in the local currency normally fluctuates throughout the year based on the operating cycle, but it is most common for monetary assets to exceed monetary liabilities, sometimes by a significant amount. When this situation exists and the local currency weakens against the U.S. dollar, remeasurement losses are generated. Conversely, remeasurement gains are generated on a net monetary asset position when the local currency strengthens against the U.S. dollar. To manage a portion of its exposure to currency remeasurement gains and losses, the Company enters into forward contracts to buy or sell the local currency at future dates coinciding with expected changes in the overall net local currency monetary asset position of the subsidiary. Gains and losses on the forward contracts are recorded in earnings as a component of selling, general, and administrative expenses for each reporting period as they occur, and thus directly offset the related remeasurement losses or gains in the consolidated statements of income for the notional amount hedged. The Company does not designate these contracts as hedges for accounting purposes. The contracts are generally arranged to hedge the subsidiary's projected exposure to currency remeasurement risk for specified periods of time, and new contracts are entered as necessary throughout the year to replace previous contracts as they mature. The Company is currently using forward currency contracts to manage its exposure to currency remeasurement risk in Brazil.  The total notional amounts of contracts outstanding at December 31, 2021 and 2020, and March 31, 2021, were approximately $59.6 million, $13.3 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 December 31,												Nine Months Ended December 31,
(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						$	3,967					$	953					$	2,318					$	(3,020)
Gain (loss) reclassified from accumulated other comprehensive loss into earnings						$	(2,263)					$	(2,206)					$	(6,743)					$	(6,233)
Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings						$	353					$	353					$	1,061					$	1,061
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						$	480					$	5,757					$	3,479					$	3,973
Gain (loss) reclassified from accumulated other comprehensive loss into earnings						$	2,274					$	(2,362)					$	3,563					$	(9,575)
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						$	—					$	—					$	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						$	174					$	922					$	3,939					$	506
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 loss of approximately $1.3 million remained in accumulated other comprehensive loss at December 31, 2021. That balance reflects gains and losses on contracts related to the 2023, 2022, 2021, and 2020 Brazil crops, the 2022 and 2021 Africa crops, and the 2022 and 2021 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through December 31, 2021. Based on the hedging strategy, as the gain or loss is

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recognized in earnings, it is expected to be offset by a change in the direct cost for the tobacco or by a change in sales prices if the strategy has been mandated by the customer. Generally, margins on the sale of the tobacco will not be significantly affected.

Effect of Derivative Financial Instruments on the Consolidated Balance Sheets

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at December 31, 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)												December 31, 2021						December 31, 2020						March 31, 2021												December 31, 2021						December 31, 2020						March 31, 2021
Derivatives Designated as Hedging Instruments
Interest rate swap agreements						Other non-current assets						$	—					$	—					$	—					Other long-term liabilities						$	16,658					$	33,950					$	25,719
Foreign currency exchange contracts						Other current assets						2,169						5,688						1,137						Accounts payable and accrued expenses						3,952						911						1,031
Total												$	2,169					$	5,688					$	1,137											$	20,610					$	34,861					$	26,750
Derivatives Not Designated as Hedging Instruments
Foreign currency exchange contracts						Other current assets						$	1,390					$	1,625					$	435					Accounts payable and accrued expenses						$	1,298					$	324					$	791
Total												$	1,390					$	1,625					$	435											$	1,298					$	324					$	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.

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 December 31, 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:

						December 31, 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						—						14,794						—						—						14,794
Interest rate swap agreements						—						—						—						—						—
Foreign currency exchange contracts						—						—						3,559						—						3,559
Total financial assets measured and reported at fair value						$	335					$	14,794					$	3,559					$	—					$	18,688
Liabilities
Interest rate swap agreements						—						—						16,658						—						16,658
Foreign currency exchange contracts						—						—						5,250						—						5,250
Total financial liabilities measured and reported at fair value						$	—					$	—					$	21,908					$	—					$	21,908

						December 31, 2020
												Fair Value Hierarchy
(in thousands of dollars)						NAV						Level 1						Level 2						Level 3						Total
Assets
Money market funds						$	380					$	—					$	—					$	—					$	380
Trading securities associated with deferred compensation plans						—						15,703						—						—						15,703
Foreign currency exchange contracts						—						—						7,313						—						7,313
Total financial assets measured and reported at fair value						$	380					$	15,703					$	7,313					$	—					$	23,396
Liabilities
Acquisition-related contingent consideration obligations - long term						$	—					$	—					$	—					$	2,532					2,532
Interest rate swap agreements						—						—						33,950						—						33,950
Foreign currency exchange contracts						—						—						1,235						—						1,235
Total financial liabilities measured and reported at fair value						$	—					$	—					$	35,185					$	2,532					$	37,717

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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 three months 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 was 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 nine months ended December 31, 2021 and 2020 is provided below.

(in thousands of dollars)			Nine Months Ended December 31,
			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 December 31, 2021, and 2020 and March 31, 2021:

(in millions of dollars)			December 31, 2021						December 31, 2020						March 31, 2021
Fair market value of long term obligations			$	517					$	516					$	517
Carrying value of long term obligations			$	520					$	520					$	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.

Tanzania

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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 December 31,												Three Months Ended December 31,
(in thousands of dollars)						2021						2020						2021						2020
Service cost						$	1,678					$	1,603					$	43					$	48
Interest cost						2,212						2,403						265						286
Expected return on plan assets						(3,373)						(3,676)						(21)						(24)
Net amortization and deferral						976						1,120						(115)						(139)
Net periodic benefit cost						$	1,493					$	1,450					$	172					$	171

						Pension Benefits												Other Postretirement Benefits
						Nine Months Ended December 31,												Nine Months Ended December 31,
(in thousands of dollars)						2021						2020						2021						2020
Service cost						$	4,981					$	4,691					$	137					$	145
Interest cost						6,725						7,316						745						859
Expected return on plan assets						(10,145)						(11,032)						(65)						(72)
Net amortization and deferral						2,928						3,361						(346)						(424)
Net periodic benefit cost						$	4,489					$	4,336					$	471					$	508

During the nine months ended December 31, 2021, the Company made contributions of approximately $4.9 million to its pension plans. Additional contributions of $1.3 million are expected during the remaining three months of fiscal year 2022.

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 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.

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During the nine-month periods ended December 31, 2021 and 2020, Universal issued the following stock-based awards, representing the regular annual grants to officers and outside directors of the Company:

						Nine Months Ended December 31,
						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 nine-month periods ended December 31, 2021 and 2020, the Company recorded total stock-based compensation expense of approximately $5.3 million and $5.0 million, respectively. The Company expects to recognize stock-based compensation expense of approximately $1.2 million during the remaining three months of fiscal year 2022.

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, dehydrated products, flavors, and extracts. Customers for the Ingredients Operations segment include large multinational food and beverage companies, smaller independent manufacturers, and retail organizations. FruitSmart, Silva, and Shank's 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. Shank's manufactures flavors and extracts and also offers bottling and custom packaging for customers. In fiscal year 2021, the Company announced the wind-down of CIFI, a greenfield operation that primarily manufactured both dehydrated and liquid sweet potato products.

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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.

						Three Months Ended December 31,												Nine Months Ended December 31,
(in thousands of dollars)						2021						2020						2021						2020
SALES AND OTHER OPERATING REVENUES
Tobacco Operations						$	578,002					$	623,852					$	1,268,610					$	1,278,844
Ingredients Operations						74,642						49,079						188,018						86,923
Consolidated sales and other operating revenues						$	652,644					$	672,931					$	1,456,628					$	1,365,767
OPERATING INCOME
Tobacco Operations						$	69,796					$	84,122					$	105,599					$	107,658
Ingredients Operations						3,494						(2,451)						10,573						(4,698)
Segment operating income						73,290						81,671						116,172						102,960
Deduct: Equity in pretax (earnings) loss of unconsolidated affiliates (1)						(2,084)						(1,506)						(5,056)						(2,089)
Restructuring and impairment costs (2)						(8,433)						(19,979)						(10,457)						(19,979)
Add: Other income (loss)(3)						—						—						2,532						4,173
Consolidated operating income						$	62,773					$	60,186					$	103,191					$	85,065

(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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    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 nine months ended December 31, 2021 and 2020:

						Nine Months Ended December 31,
(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						(4,685)						13,232
Less: Net (gain) loss on foreign currency translation attributable to noncontrolling interests						170						25
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes						(4,515)						13,257
Balance at end of period						$	(39,650)					$	(29,666)
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 $(301) and $(1,092))						730						6,423
Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $748 and $(1,914)) (1)						(2,265)						6,682
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes						(1,535)						13,105
Balance at end of period						$	(1,949)					$	879
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 $(487) and $634)						1,832						(2,386)
Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $(1,193) and $(1,086)) (2)						4,488						4,086
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes						6,320						1,700
Balance at end of period						$	(13,160)					$	(25,702)
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 $(524) and $(561))(3)						2,355						1,273
Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes						2,355						1,273
Balance at end of period						$	(49,653)					$	(67,773)
Total accumulated other comprehensive loss at end of period						$	(104,412)					$	(122,262)

(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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A reconciliation of the changes in Universal Corporation shareholders’ equity and noncontrolling interests in subsidiaries for the three and nine months ended December 31, 2021 and 2020 is as follows:

						Three Months Ended December 31, 2021																		Three Months Ended December 31, 2020
(in thousands of dollars)						Universal Corporation						Non-controlling Interests						Total						Universal Corporation						Non-controlling Interests						Total
Balance at beginning of three-month period						$	1,297,332					$	36,094					$	1,333,426					$	1,239,500					$	39,376					$	1,278,876
Changes in common stock
Accrual of stock-based compensation						1,204						—						1,204						1,334						—						1,334
Dividend equivalents on RSUs						266						—						266						255						—						255
Changes in retained earnings
Net income						34,940						9,215						44,155						33,273						7,168						40,441
Cash dividends declared
Common stock						(19,193)						—						(19,193)						(18,877)						—						(18,877)
Dividend equivalents on RSUs						(266)						—						(266)						(254)						—						(254)
Other comprehensive income (loss)						1,721						(14)						1,707						15,294						(54)						15,240
Other changes in noncontrolling interests
Dividends paid to noncontrolling shareholders						—						(2,057)						(2,057)						—						—						—
Balance at end of period						$	1,316,004					$	43,238					$	1,359,242					$	1,270,525					$	46,490					$	1,317,015

						Nine Months Ended December 31, 2021																		Nine Months Ended December 31, 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						5,289						—						5,289						5,042						—						5,042
Withholding of shares from stock-based compensation for grantee income taxes						(2,458)						—						(2,458)						(1,949)						—						(1,949)
Dividend equivalents on RSUs						802						—						802						755						—						755
Changes in retained earnings
Net income						60,807						9,015						69,822						48,049						7,541						55,590
Cash dividends declared
Common stock						(57,558)						—						(57,558)						(56,617)						—						(56,617)
Dividend equivalents on RSUs						(802)						—						(802)						(755)						—						(755)
Other comprehensive income (loss)						2,625						(170)						2,455						29,335						25						29,360
Other changes in noncontrolling interests
Dividends paid to noncontrolling shareholders						—						(6,733)						(6,733)						—						(3,695)						(3,695)
Balance at end of period						$	1,316,004					$	43,238					$	1,359,242					$	1,270,525					$	46,490					$	1,317,015

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