UNIVERSAL CORP /VA/ - Quarter Report: 2024 September (Form 10-Q)

Other, net() Changes in operating assets and liabilities, net:Accounts and notes receivable() Inventories()()Other assets Accounts payable()()Accrued expenses and other current liabilities() Income taxes()()Customer advances and deposits() Net cash provided (used) by operating activities() CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property, plant and equipment()()Proceeds from sale of business, net of cash held by the business Proceeds from sale of property, plant and equipment Net cash used by investing activities()()CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of short-term debt, net Dividends paid to noncontrolling interests()()Repurchase of common stock ()Dividends paid on common stock()()Other()()Net cash provided (used) by financing activities Effect of exchange rate changes on cash, restricted cash and cash equivalents ()Net increase (decrease) in cash, restricted cash and cash equivalents Cash, restricted cash and cash equivalents at beginning of year Cash, restricted cash and cash equivalents at end of period$ $

See accompanying notes.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

NOTE 2.

million of termination and impairment costs in other areas of the Tobacco Operations segment.

During the six months ended September 30, 2023, the Company incurred $ million of restructuring and impairment costs for its Global Labs Services ("GLS") facility in Wilson, NC. GLS provided testing for crop protection agents and tobacco constituents in seed, leaf, and finished products, including e-cigarette liquids and vapors, and had capabilities for testing non-tobacco products. The restructuring and impairment costs were net of approximately $0.2 million of income from the sale of GLS processes and procedures to a third-party buyer. Additionally, during the six months ended September 30, 2023, the Company also incurred $ million of termination and impairment costs in other areas of the Tobacco Operations segment.

$1,403 $4,342 $1,403 Other (182)1,372 (182) Total restructuring costs5,714 1,221 1,221 Impairment costs: Property, plant and equipment 1,378 4,859 1,378 Total impairment costs4,859 1,378 1,378 Total restructuring and impairment costs$10,573 $2,599 $ $2,599

NOTE 3.

$ $ $ Ingredients sales Processing revenue Other sales and revenue from contracts with customers Total revenue from contracts with customers Other operating sales and revenues Consolidated sales and other operating revenues$ $ $ $

Other operating sales and revenues consists principally of interest on advances to suppliers and dividend payments from deconsolidated affiliates.

NOTE 4.

million at September 30, 2024, 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 Brazilian operating subsidiary pays VAT when tobaccos grown outside the state of Rio Grande do Sul are transferred to the factory for processing. The subsidiary has received assessments for additional VAT plus interest and penalties from tax authorities for the state of Parana based on audits of the subsidiary’s VAT filings for specified periods. 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 $ million. Those amounts are based on the exchange rate for the Brazilian currency at September 30, 2024. Management of the operating subsidiary and outside counsel believe that errors were made by the tax authorities in determining all or significant portions of this assessment and that various defenses support the subsidiary’s positions.

Management of the subsidiary and outside counsel challenged the full amount of the Parana assessment claim. A significant portion of the Parana assessment was based on positions taken by the tax authorities that management and outside

million (at the September 30, 2024 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 up to the full $ million assessment. However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and liability has been recorded at September 30, 2024.

The process for reaching a final resolution to the assessment is expected to be lengthy, and management is not currently able to predict when the case will be concluded. Should the subsidiary ultimately be required to pay any tax, interest, or penalties in the case, the portion paid for tax would generate VAT credits that the subsidiary may be able to recover.

Other Legal and Tax Matters

Various subsidiaries of the Company are involved in litigation and tax examinations incidental to their business activities. While the outcome of these matters cannot be predicted with certainty, management is vigorously defending the matters and does not currently expect that any of them will have a material adverse effect on the Company’s business or financial position. However, should one or more of these matters be resolved in a manner adverse to management’s current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.

Advances to Suppliers

In many sourcing origins where the Company operates, it provides agronomy services and seasonal advances of seed, seedlings, fertilizer, and other supplies to tobacco farmers for crop production, or makes seasonal cash advances to farmers for the procurement of those inputs. These advances are short term, are repaid upon delivery of tobacco to the Company, and are reported in advances to suppliers in the consolidated balance sheets. In several origins, the Company has made long-term advances to tobacco farmers to finance curing barns and other farm infrastructure. In some years, due to low crop yields and other factors, individual farmers may not deliver sufficient volumes of tobacco to fully repay their seasonal advances, and the Company may extend repayment of those advances into future crop years. The long-term portion of advances is included in other noncurrent assets in the consolidated balance sheets. Both the current and the long-term portions of advances to suppliers are reported net of allowances recorded when the Company determines that amounts outstanding are not likely to be collected. Short-term and long-term advances to suppliers totaled $ million at September 30, 2024, $ million at September 30, 2023, and $ million at March 31, 2024. The related valuation allowances totaled $ million at September 30, 2024, $ million at September 30, 2023, and $ million at March 31, 2024, and were estimated based on the Company’s historical loss information and crop projections. The allowances were decreased by net recoveries of $ million in the six-month period ended September 30, 2024 and increased by net provisions of approximately $ million in the six-month period ended September 30, 2023. 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

million ($ million at September 30, 2023 and $ million at March 31, 2024). The related valuation allowances totaled approximately $ million at September 30, 2024 and 2023, and March 31, 2024. The net balances are reported in other current assets and other noncurrent assets in the consolidated balance sheets.

Stock Repurchase Program

A stock repurchase program, which was authorized by the Company's Board of Directors, became effective and was publicly announced on November 2, 2022. This stock repurchase program authorized the purchase of up to $ million in common stock in open market or privately negotiated transactions through November 15, 2024, subject to market conditions and other factors. The program had $ million of remaining capacity for repurchases of common stock at September 30, 2024.

This stock repurchase program was replaced on November 6, 2024 when the Company's Board of Directors authorized a new stock repurchase program up to $ million in common stock through November 15, 2026, subject to market conditions and other factors.

NOTE 5.

$ $ $ Denominator for basic earnings (loss) per shareWeighted average shares outstanding Basic earnings (loss) per share$ $ $ $ Diluted Earnings (Loss) Per ShareNumerator for diluted earnings (loss) per shareNet income (loss) attributable to Universal Corporation$ $ $ $ Denominator for diluted earnings (loss) per share:Weighted average shares outstanding Effect of dilutive securitiesBalance at end of period$ $

The Company's intangible assets primarily consist of capitalized customer-related intangibles, trade names, proprietary developed technology and noncompetition agreements.

—$ $()$ Trade names () Developed technology () Noncompetition agreements— () Other () Total intangible assets$ $()$

September 30, 2023

Useful Life (years)

Gross Carrying Value

Accumulated Amortization

Net Carrying Value

Customer relationships

—

()

Trade names

()

Developed technology

()

Noncompetition agreements

—

()

Other

()

Total intangible assets

()

—$ $()$ Trade names () Developed technology () Noncompetition agreements— () Other () Total intangible assets$ $()$

Intangible assets are amortized on a straight-line basis over the asset's estimated useful economic life, as noted above.

$ $ $

2026 2027 2028 2029 and thereafter Total expected future amortization expense$

NOTE 8.

million, which corresponded to a portion of the aggregate outstanding balance of the term loans.

million corresponding to a portion of the principal balance on the repaid loans, were terminated concurrent with the inception of the new swap agreements. The fair value of the previous swap agreements, approximately $ million, was received from the counterparties in December 2022 upon termination and is being amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements.

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. Additionally, the Company initiated a strategy in Brazil and Mexico to hedge a portion of the forecasted local currency-denominated operating costs in fiscal year 2025 by entering into derivative contracts to buy the local currencies and sell the U.S. dollar.

$ Processing costs Operating costs

Total

$ $

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 initially 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. The Company de-designates ineffective tobacco purchases and crop input sales hedges to selling, general, and administrative expense when the forecasted tobacco purchases or crop input sales are no longer expected to occur.

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of September 30, 2024 for cash flows hedges of tobacco purchases and crop input sales are expected to be recognized in earnings.


Hedging Program	Crop Year	Geographic Location(s)	Fiscal Year Earnings
Tobacco purchases	2023	Brazil	2025
Tobacco purchases	2025	Brazil	2026
Crop input sales	2024	Brazil	2025
Crop input sales	2025	Brazil	2026

Forward contracts related to processing costs and operating 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.

million, $ million, and $ 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.

)$ $()$

Gain (loss) reclassified from accumulated other comprehensive loss into earnings

$ $ $ $

Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings

$ $ $ $

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 earningsSelling, general and administrative expenses

Hedged Item

Description of hedged itemFloating rate interest payments on term loansCash Flow Hedges - Foreign Currency Exchange Contracts

Derivative

Effective Portion of Hedge

Gain (loss) recorded in accumulated other comprehensive loss$ $()$()$

Gain (loss) reclassified from accumulated other comprehensive loss into earnings

$ $ $ $

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$ $()$ $ Location of gain (loss) recognized in earningsSelling, general and administrative expenses

Hedged Item

Description of hedged item

Forecast purchases of tobacco in BrazilDerivatives Not Designated as Hedges - Foreign Currency Exchange ContractsGain (loss) recognized in earnings$()$ $()$()Location of gain (loss) recognized in earningsSelling, 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 and the crop input sales in Brazil, a net hedge loss of approximately $ million remained in accumulated other comprehensive loss at September 30, 2024. That balance reflects gains and losses on contracts related to the 2025 and 2023 Brazil crops, and the 2025 and 2024 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through September 30, 2024. Based on the hedging strategy, as the gain or loss is recognized in earnings, it is expected to be offset by a change in the direct

$ $ Other
long-term
liabilities$ $ $ Foreign currency exchange contractsOther
current
assets Accounts
payable and
accrued
expenses Total$ $ $ $ $ $ Derivatives Not Designated as Hedging InstrumentsForeign currency exchange contractsOther
current
assets$ $ $ Accounts
payable and
accrued
expenses$ $ $ Total$ $ $ $ $ $

Substantially all of the Company's foreign exchange derivative instruments are subject to master netting arrangements whereby the right to offset occurs in the event of default by a participating party. The Company has elected to present these contracts on a gross basis in the consolidated balance sheets.

NOTE 9.

$ $ $ $

Trading securities associated with deferred compensation plans

Foreign currency exchange contracts

Total financial assets measured and reported at fair value

$ $ $ $ $ Liabilities

Interest rate swap agreements

$ $ $ $ $

Foreign currency exchange contracts

Total financial liabilities measured and reported at fair value

$ $ $ $ $

September 30, 2023

Fair Value Hierarchy

(in thousands of dollars)

NAV

Level 1

Level 2

Level 3

Total

Assets

Money market funds

Trading securities associated with deferred compensation plans

Interest rate swap agreements

Foreign currency exchange contracts

Total financial assets measured and reported at fair value

Liabilities

Foreign currency exchange contracts

Total financial liabilities measured and reported at fair value

$ $ $ $

Trading securities associated with deferred compensation plans

Interest rate swap agreements

Foreign currency exchange contracts

Total financial assets measured and reported at fair value

$ $ $ $ $ Liabilities

Foreign currency exchange contracts

$ $ $ $ $

Total financial liabilities measured and reported at fair value

$ $ $ $ $

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.

Long-term Debt

$ $ Carrying value of long term obligations$ $ $

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.

Consolidation of tobacco sheet operations

As discussed in Note 2, the Company initiated a plan to consolidate the European Sheet tobacco operations into the Company's facility in the Netherlands. The Company is in the process of winding down its operations in Germany, resulting in an impairment charge of $ million for the long-lived assets in the three-month period ended September 30, 2024, to reduce their carrying value to fair value. The long-lived assets primarily consist of a processing facility, machinery and equipment, and administrative offices. As part of the wind-down, the Company also recognized other impairment charges associated with inventory, certain accounts receivable and other assets during the three-month period ended September 30, 2024.

NOTE 10.

$ $ $ Interest cost Expected return on plan assets()()()()Net amortization and deferral ()()

Net periodic benefit cost

$ $ $ $


	Pension Benefits		Other Postretirement Benefits
	Six Months Ended September 30,		Six Months Ended September 30,
(in thousands of dollars)	2024	2023	2024	2023

Service cost	$	$	$	$
Interest cost
Expected return on plan assets	()	()	()	()
Net amortization and deferral			()	()
Net periodic benefit cost	$	$	$	$

During the six months ended September 30, 2024, the Company made contributions of approximately $ million to its pension plans. Additional contributions of $ million are expected during the remaining six months of fiscal year 2025.

NOTE 11.

years after the grant date and those awarded beginning with fiscal year 2022 vest years after the grant date. After vesting RSUs are 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 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 to % of the stated award. The Company’s outside directors receive RSUs following the annual meeting of shareholders. RSUs awarded to outside directors vest year after the grant date. Restricted shares vest upon the individual’s retirement from service as a director. Grant date fair value$ $ PSUs:Number granted Grant date fair value$ $

Fair value expense for stock-based compensation 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 the award is recognized as expense at the date of grant. The Company accounts for forfeitures of stock-based awards as they occur. For the six-month periods ended September 30, 2024 and 2023, the Company recorded total stock-based compensation expense of approximately $ million and $ million, respectively. The Company expects to recognize stock-based compensation expense of approximately $ million during the remaining six months of fiscal year 2025.

NOTE 12.

$ $ $ Ingredients Operations Consolidated sales and other operating revenues$ $ $ $ OPERATING INCOME (LOSS) Tobacco Operations$ $ $ $ Ingredients Operations Segment operating income

Deduct: Equity in pretax (earnings) loss of unconsolidated affiliates (1)

Restructuring and impairment costs (2)

()()()()Consolidated operating income$ $ $ $

(1)

NOTE 13.

)$()Other comprehensive income (loss) attributable to Universal Corporation:Net gain (loss) on foreign currency translation ()Less: Net (gain) loss on foreign currency translation attributable to noncontrolling interests Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes ()Balance at end of period$()$()Foreign currency hedge:Balance at beginning of year$()$ Other comprehensive income (loss) attributable to Universal Corporation:

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $ and $())

()()

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $ and $) (1)

()()Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes()()Balance at end of period$()$ Interest rate hedge:Balance at beginning of year$ $ Other comprehensive income (loss) attributable to Universal Corporation:

Net gain (loss) on derivative instruments (net of tax (expense) benefit of $ and $())

()

Reclassification of (gain) loss to earnings (net of tax expense (benefit) of $ and $) (2)

()()Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes() Balance at end of period$ $ Pension and other postretirement benefit plans:Balance at beginning of year$()$()Other comprehensive income (loss) attributable to Universal Corporation:

Amortization included in earnings (net of tax expense (benefit) of $ and $())(3)

() Other comprehensive income (loss) attributable to Universal Corporation, net of income taxes() Balance at end of period$()$()Total accumulated other comprehensive loss at end of period$()$()

(1)

(2)

(3)

NOTE 14.

$ $ $ $ $ Changes in common stock Repurchase of common stock () ()Accrual of stock-based compensation

Withholding of shares from stock-based compensation for grantee income taxes

() () Dividend equivalents on RSUs Changes in retained earnings Net income (loss) Cash dividends declared Common stock() ()() ()Repurchase of common stock () ()Dividend equivalents on RSUs() ()() ()Other comprehensive income (loss)()()()()()()Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders

()() ()()Balance at end of period$ $ $ $ $ $

$ $ $ $ $ Changes in common stock Repurchase of common stock () ()Accrual of stock-based compensation

Withholding of shares from stock-based compensation for grantee income taxes

() ()() ()Dividend equivalents on RSUs Changes in retained earnings Net income () Cash dividends declared

Common stock

() ()() ()Repurchase of common stock () ()Dividend equivalents on RSUs() ()() ()Other comprehensive income (loss)()()() () Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders

()() ()()Balance at end of period$ $ $ $ $ $

NOTE 15. SUBSEQUENT EVENTS

Pension De-Risking

In March 2025, the Company's management undertook a de-risking strategy for the Company-sponsored qualified defined benefit pension plan that covers certain domestic employees and retirees. The Company purchased an annuity for a limited group of retirees currently receiving benefit payments. The annuity purchase and transfer of risk to a third-party insurance company resulted in de-recognition of approximately $45 million of projected benefit obligation. The transaction triggered settlement accounting that requires immediate recognition of a portion of the accumulated other comprehensive losses associated with the defined benefit plan. The Company expects to recognize a non-cash settlement charge of approximately $15 million in the fourth quarter of fiscal year 2025.

Debt Covenant Consents

Due to the delays resulting from the previously disclosed investigation of the embezzlement at the Company's subsidiary in Mozambique, the Company was unable to timely file its quarterly reports on Form 10-Q for the second and third quarters of fiscal year 2025 with the Securities and Exchange Commission ("SEC"). The delayed filings resulted in the Company obtaining lender consents (the "Consents") under its Credit Agreement, dated December 15, 2022, among the Company, the lenders party thereto from time to time, and JP Morgan Chase Bank, N.A., as Administrative Agent (the "Credit Agreement"). The Consents provided for, among other things, an extension until June 16, 2025 to file the second and third quarter financial statements with the SEC and resulted in approximately $1.4 million of additional selling, general, and administrative costs. Based on the Company's September 30, 2024 financial statements and its December 31, 2024 financial statements, it was in compliance with the financial covenants in the Credit Agreement, as of the end of each of the second and third quarters of fiscal year 2025.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context otherwise requires, the terms “we,” “our,” “us” or “Universal” or the “Company” refer to Universal Corporation together with its subsidiaries. This Quarterly Report on Form 10-Q ("Form 10-Q")and the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Among other things, these statements relate to the Company’s financial condition, results of operation, and future business plans, operations, opportunities, and prospects. In addition, the Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in other filings with the Securities and Exchange Commission (the "SEC") and in reports to shareholders. These forward-looking statements are generally identified by the use of words such as we “expect,” “believe,” “anticipate,” “could,” “should,” “may,” “plan,” “will,” “predict,” “estimate,” and similar expressions or words of similar import. These forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results; product purchased not meeting quality and quantity requirements; our reliance on a few large customers; our ability to maintain effective information systems and safeguard confidential information; anticipated levels of demand for and supply of our products and services; costs incurred in providing these products and services, including increased transportation costs and delays attributed to global supply chain challenges; timing of shipments to customers; higher inflation rates; changes in market structure; government regulation and other stakeholder expectations; economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts; product taxation; industry consolidation and evolution; changes in exchange rates and interest rates; impacts of regulation and litigation on our customers; industry-specific risks related to our plant-based ingredients businesses; exposure to certain regulatory and financial risks related to climate change; changes in estimates and assumptions underlying our critical accounting policies; the promulgation and adoption of new accounting standards; new government regulations and interpretation of existing standards and regulations; general economic, political, market, and weather conditions; and our failure to maintain effective internal control over financial reporting. For a further description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, as amended by Amendment No.1 thereto ("2024 Form 10-K"), and Item 1A, "Risk Factors" of this Form 10-Q. We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made, and we undertake no obligation to update any forward-looking statements made in this report. This Form 10-Q should be read in conjunction with our 2024 Form 10-K .

Amounts described as net income (loss) and earnings (loss) per diluted share in the following discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. Any references to adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, and the total for segment operating income (loss) are references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered as substitutes for operating income (loss), net income (loss) attributable to Universal Corporation, diluted earnings (loss) per share, cash from operating activities or any other operating or financial performance measure calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. A reconciliation of adjusted operating income (loss) to consolidated operating (income), adjusted net income (loss) attributable to Universal Corporation to consolidated net income (loss) attributable to Universal Corporation and adjusted diluted earnings (loss) per share to diluted earnings (loss) per share are provided in Other Items below to the extent these non-GAAP financial measures are referenced. In addition, we have provided a reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) in Note 12. "Operating Segments" to the consolidated financial statements. Management evaluates the consolidated Company and segment performance excluding certain significant charges or credits. We believe these non-GAAP financial measures, which exclude items that we believe are not indicative of our core operating results, can provide investors with important information that is useful in understanding our business results and trends.

Any references to net debt, net capitalization, and net debt to net capitalization ratio are also references to non-GAAP financial measures. These measures are not financial measures calculated in accordance with GAAP and should not be considered substitutes for total debt, total capitalization, total debt to total capitalization ratio, or any other operating or financial performance measures calculated in accordance with GAAP, and may not be comparable to similarly-titled measures reported by other companies. A reconciliation of net debt to total debt and net capitalization to total capitalization are provided

in Other Items below to the extent these non-GAAP financial measures are referenced. We believe these non-GAAP measures are meaningful indicators of liquidity and financial position.

Results of Operations

Overview

Universal Corporation had a strong second quarter and first half of fiscal year 2025. Revenues and operating income increased by 11% and 24%, respectively, for the quarter, and by 13% and 30%, respectively, for the six months ended September 30, 2024, compared to the same periods in the prior fiscal year. These increases were driven by strong tobacco sales volumes and prices. Higher results for our Tobacco Operations segment in both the quarter and six months ended September 30, 2024, compared to the same periods in fiscal year 2024, were primarily driven by strong customer demand and larger, higher quality, and better yielding crops in Africa. Accelerated shipment timing requested by certain customers and sales of carryover crop tobacco also contributed to the improved results for the Tobacco Operations segment in the quarter and six months ended September 30, 2024. We also continued to grow our Universal Ingredients’ market presence in the quarter and six months ended September 30, 2024, and saw increased interest from new and existing customers, despite higher food costs creating pricing pressures. We expect our newly expanded ingredients facility to support increases in production and meaningfully contribute to our fiscal year 2026 results.


FINANCIAL HIGHLIGHTS
	Three Months Ended September 30,						Change		Six Months Ended September 30,						Change
(in millions of dollars, except per share data)	2024			2023			%		2024			2023			%

Consolidated Results
Sales and other operating revenue	$	710.8		$	638.5		11	%	$	1,307.8		$	1,156.2		13	%
Cost of goods sold	$	567.6		$	506.8		12	%	$	1,068.7		$	938.0		14	%
Gross profit margin percentage	20.1		%	20.6		%	-50 bps		18.3		%	18.9		%	-60 bps
Selling, general and administrative expenses	$	63.8		$	73.8		(14)	%	$	142.5		$	149.3		(5)	%
Restructuring and impairment costs	$	10.6		$	2.6		307	%	$	10.6		$	2.6		307	%
Operating income	$	68.7		$	55.3		24	%	$	86.0		$	66.3		30	%
Adjusted operating income (Non-GAAP)*	$	79.3		$	57.9		37	%	$	96.5		$	68.9		40	%
Net income attributable to Universal Corporation	$	25.9		$	28.1		(8)	%	$	26.1		$	26.1		—	%
Adjusted net income attributable to Universal Corporation (Non-GAAP)*	$	36.4		$	30.3		20	%	$	36.5		$	28.2		29	%
Diluted earnings (loss) per share	$	1.03		$	1.12		(8)	%	$	1.04		$	1.04		—	%
Adjusted diluted earnings (loss) per share (Non-GAAP)*	$	1.45		$	1.21		20	%	$	1.46		$	1.13		29	%
Segment Results
Tobacco operations sales and other operating revenues	$	630.2		$	554.7		14	%	$	1,142.2		$	998.6		14	%
Tobacco operations operating income	$	77.3		$	52.4		48	%	$	91.8		$	61.3		50	%
Ingredients operations sales and other operating revenues	$	80.6		$	83.8		(4)	%	$	165.6		$	157.6		5	%
Ingredients operations operating income (loss)	$	1.3		$	4.8		(72)	%	$	4.2		$	2.8		52	%

*See Reconciliation of Certain Non-GAAP Financial Measures in Other Items below.

Quarter Ended September 30, 2024, compared to Quarter Ended September 30, 2023

Consolidated Results

Revenues and operating income increased by 11%, or $72.3 million, and 24%, or $13.4 million, respectively, in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, driven by improved performance in the Tobacco Operations segment.

Selling, general, and administrative expenses decreased by 14%, or $10.0 million, largely on approximately $7.3 million of lower net provisions for farmer advances in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023.

Adjusted operating income was up 37%, or $21.4 million, and adjusted net income attributable to Universal Corporation was up 20%, or $6.1 million, in the second quarter of fiscal year 2025, compared to the same period in the prior fiscal year, on strong performance in the Tobacco Operations segment.

Tobacco Operations Segment

Revenues and operating income for the Tobacco Operations segment increased by 14%, or $75.6 million, and 48%, or $24.9 million, respectively, for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023. Tobacco Operations segment results reflect continued strong customer demand; an approximately 17% increase in the tobacco average sales price; larger, higher quality, better yielding crops from Africa; and accelerated shipment timing per certain customers’ requests. Uncommitted tobacco inventory levels remained low at about 10% at September 30, 2024.

Ingredients Operations Segment

Revenues and operating income for the Ingredients Operations segment decreased by 4%, or $3.3 million, and 72%, or $3.5 million, respectively, for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, on unfavorable comparisons to last fiscal year's strong second fiscal quarter results. Sales volumes for some of the products in the Ingredients Operations segment were higher in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023. However, customer pressure due to the inflationary environment impacted demand and pricing for certain products in the Ingredients Operations segment in the quarter ended September 30, 2024.

Additional Items

Cost of goods sold increased 12%, or $60.9 million, in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, largely on higher tobacco sales prices, reflecting strong customer demand, and larger, higher quality, and better yielding African crops.

Interest expense was up $4 million in the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, on higher notes payable and overdrafts of approximately $278 million.

Restructuring and impairment costs of $10.6 million in the quarter ended September 30, 2024, related to the previously announced consolidation of our European sheet operations.

The consolidated effective tax rate for the three months ended September 30, 2024, was 29%. The consolidated tax for the three months ended September 30, 2023 was 22%. The consolidated effective tax rate for the quarter ended September 30, 2024, was higher than the consolidated tax rate for the quarter ended September 30, 2023, due to various factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes coupled with a minimal income tax benefit of $0.1 million associated with the $10.6 million of restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.

Six Months Ended September 30, 2024, compared to Six Months Ended September 30, 2023

Consolidated Results

Revenues and operating income for the first half of fiscal year 2025 increased 13%, or $151.6 million, and 30%, or $19.6 million, respectively, compared to the first half of fiscal year 2024, driven primarily by improved performance in the Tobacco Operations segment.

Selling, general, and administrative expenses decreased by 5%, or $6.8 million, largely on $9.4 million of lower net provisions for farmer advances, but partially offset by higher sales commissions of $3.3 million in the six months ended September 30, 2024, compared to the six months ended September 30, 2023.

Adjusted operating income increased by 40%, or $27.6 million, and adjusted net income attributable to Universal Corporation increased by 29%, or $8.3 million, for the six months ended September 30, 2024, compared to the six months ended September 30, 2023, largely on strong performance in the Tobacco Operations segment.

Tobacco Operations Segment

Revenues for the Tobacco Operations segment increased by 14%, or $143.6 million, and operating income for the segment increased by 50%, or $30.5 million, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023. Tobacco Operations segment results reflected continued strong customer demand; an approximately 13% increase in the tobacco average sales price; an approximately 2% increase in total tobacco sales volumes; larger, higher quality, better yielding crops from Africa; and accelerated shipment timing per certain customers’ requests. In addition, our tobacco procurement and marketing efforts have been successful in the six months ended September 30, 2024, despite negative impacts from adverse weather on certain tobacco crops, mainly in South America and North America this fiscal year.

Ingredients Operations Segment

Revenues and operating income for the Ingredients Operations segment increased by 5%, or $8.0 million, and 52%, or $1.4 million, respectively, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023. Results for the Ingredients Operations segment reflected increased sales volumes for some products, including some sales of new products, as well as lower inventory write-downs of approximately $1.8 million compared to the six months ended September 30, 2023. However, customer pressure due to the inflationary environment impacted demand and pricing for certain products in the Ingredients Operations segment in the six months ended September 30, 2024.

Additional Items

Cost of goods sold increased 14%, or $130.8 million, in the six months ended September 30, 2024, compared to the six months ended September 30, 2023, largely on higher tobacco sales volumes and prices, reflecting strong customer demand and larger, higher quality, and better quality crops in Africa.

Restructuring and impairment costs of $10.6 million in the six months ended September 30, 2024, related to the previously announced consolidation of the Company’s European tobacco sheet operations.

The consolidated effective tax rate for the six months ended September 30, 2024, was 32%. The consolidated effective tax rate for the six months ended September 30, 2023, was 22%. The consolidated effective tax rate for the six months ended September 30, 2024, was higher than the consolidated tax rate for the six months ended September 30, 2023, due to various factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes coupled with a minimal income tax benefit of $0.1 million associated with the $10.6 million of restructuring and impairment costs recognized for the consolidation of the sheet operations in fiscal year 2025.

Sustainability

Universal continually looks to set new standards for social and environmental performance. The Company completed a thorough assessment of its sustainability practices and performance through EcoVadis, a leading global third-party platform for business sustainability ratings. As a result of the assessment, EcoVadis ranked Universal in the 91st percentile of the companies rated globally in the prior 12 months. The assessment included 21 sustainability criteria across four core themes: Environment, Labor & Human Rights, Ethics, and Sustainable Procurement.

Other Items

Reconciliation of Certain Non-GAAP Financial Measures

The following table sets forth certain non-recurring items included in reported results to reconcile adjusted net income to net income attributable to Universal Corporation:


Adjusted Operating Income Reconciliation
	Three Months Ended September 30,				Six Months Ended September 30,
(in thousands)	2024		2023		2024		2023
As Reported: Consolidated operating income	$	68,736	$	55,312	$	85,961	$	66,347


Restructuring and impairment costs(1)	10,573		2,599		10,573		2,599

As Adjusted operating income (Non-GAAP)	$	79,309	$	57,911	$	96,534	$	68,946

Adjusted Net Income Attributable to Universal Corporation and Adjusted Diluted Earnings Per Share Reconciliation

(in thousands except for per share amounts)	Three Months Ended September 30,				Six Months Ended September 30,
	2024		2023		2024		2023
As Reported: Net income attributable to Universal Corporation	$	25,940	$	28,128	$	26,070	$	26,064


Restructuring and impairment costs(1)	10,573		2,599		10,573		2,599





Total of Non-GAAP adjustments to income before income taxes	10,573		2,599		10,573		2,599

Non-GAAP adjustments to income taxes
Income tax benefit from restructuring and impairment costs(2)	(132)		(465)		(132)		(465)


Total of income tax impacts for Non-GAAP adjustments to income before income taxes	(132)		(465)		(132)		(465)


95,255,674

(1)Repurchases are based on the date the shares were traded. This presentation differs from the consolidated statement of cash flows, where the cost of share repurchases is based on the date the transactions were settled.

(2)Amounts listed for average price paid per share include broker commissions paid in the transactions.

(3)A stock repurchase program, which was authorized by the Company's Board of Directors, became effective and was publicly announced on November 3, 2022. This stock repurchase program authorized the purchase of up to $100 million in common stock in open market or privately negotiated transactions through November 15, 2024, subject to market conditions and other factors. The program had $95 million of remaining capacity for repurchases of common stock at September 30, 2024. This stock repurchase program was replaced on November 6, 2024 when the Company's Board of Directors authorized a new stock repurchase program up to $100 million in common stock through November 15, 2026, subject to market conditions and other factors.

Our current dividend policy anticipates the payment of quarterly dividends in the future. However, the declaration and payment of dividends to holders of common stock is at the discretion of the Board of Directors and will be dependent upon our future earnings, financial condition, and capital requirements. Under certain provisions of our credit facilities, we must meet financial covenants relating to minimum tangible net worth and maximum levels of debt. If we were not in compliance with them, these financial covenants could restrict our ability to pay dividends. We were in compliance with all such covenants at September 30, 2024.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) ted or a Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933, as amended).

ITEM 6. EXHIBITS



10.2						Consulting Agreement with George C. Freeman, III.*

31.1						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.*

32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*

101						Interactive Data File (submitted electronically herewith).*

						101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section and shall not be part of any registration or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

__________

*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		UNIVERSAL CORPORATION
		(Registrant)

Date:	April 21, 2025	/s/ Johan C. Kroner
		Johan C. Kroner, Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date:	April 21, 2025	/s/ Scott J. Bleicher
		Scott J. Bleicher, Vice President and Controller
		(Principal Accounting Officer)

UNIVERSAL CORP /VA/ - Quarter Report: 2024 September (Form 10-Q)

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