UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED	JUNE 30, 2021
		OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM ______________TO_______________

Commission File Number: 001-00652

UNIVERSAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia			54-0414210
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)
9201 Forest Hill Avenue,	Richmond,	Virginia	23235
(Address of principal executive offices)			(Zip Code)

804-359-9311

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of Exchange on which registered
Common Stock, no par value	UVV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yesþ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	þ	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 2, 2021, the total number of shares of common stock outstanding was 24,577,880.

UNIVERSAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Item No.		Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements	3
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
3.	Quantitative and Qualitative Disclosures About Market Risk	34
4.	Controls and Procedures	35
	PART II - OTHER INFORMATION
1.	Legal Proceedings	36
1A.	Risk Factors	36
2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
6.	Exhibits	37
	Signatures	38

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except share and per share data)

	Three Months Ended June 30,
	2021		2020
	(Unaudited)
Sales and other operating revenues	$	350,029	$	315,811
Costs and expenses
Cost of goods sold	287,556		262,046
Selling, general and administrative expenses	49,844		49,410
Other income	—		(4,173)
Restructuring and impairment costs	2,024		—
Operating income	10,605		8,528
Equity in pretax earnings (loss) of unconsolidated affiliates	609		(7)
Other non-operating income (expense)	48		(18)
Interest income	73		159
Interest expense	6,208		6,810
Income before income taxes and other items	5,127		1,852
Income taxes	1,215		(5,048)
Net income	3,912		6,900
Less: net loss (income) attributable to noncontrolling interests in subsidiaries	2,445		374
Net income attributable to Universal Corporation	$	6,357	$	7,274
Earnings per share:
Basic	$	0.26	$	0.30
Diluted	$	0.26	$	0.29
Weighted average common shares outstanding:
Basic	24,694,489		24,602,610
Diluted	24,852,151		24,703,579
Total comprehensive income, net of income taxes	$	12,746	$	7,209
Less: comprehensive (income) loss attributable to noncontrolling interests	2,416		530
Comprehensive income (loss) attributable to Universal Corporation	$	15,162	$	7,739
Dividends declared per common share	$	0.78	$	0.77

See accompanying notes.

3

UNIVERSAL CORPORATION     

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)

	June 30,		June 30,		March 31,
	2021		2020		2021
	(Unaudited)		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	84,688	$	100,015	$	197,221
Accounts receivable, net	279,900		222,162		367,482
Advances to suppliers, net	70,377		65,221		121,618
Accounts receivable—unconsolidated affiliates	52,047		32,827		584
Inventories—at lower of cost or net realizable value:
Tobacco	874,381		858,940		640,653
Other	140,249		104,399		145,965
Prepaid income taxes	17,804		13,426		15,029
Other current assets	85,016		65,675		66,806
Total current assets	1,604,462		1,462,665		1,555,358
Property, plant and equipment
Land	23,439		21,454		22,400
Buildings	293,734		258,306		284,430
Machinery and equipment	661,753		644,092		658,826
	978,926		923,852		965,656
Less accumulated depreciation	(627,279)		(608,173)		(616,146)
	351,647		315,679		349,510
Other assets
Operating lease right-of-use assets	31,281		37,576		31,230
Goodwill, net	173,041		126,862		173,051
Other intangibles, net	69,905		17,114		72,304
Investments in unconsolidated affiliates	85,064		79,198		84,218
Deferred income taxes	18,013		23,085		12,149
Pension asset	11,764		—		11,950
Other noncurrent assets	50,916		44,661		52,154
	439,984		328,496		437,056
Total assets	$	2,396,093	$	2,106,840	$	2,341,924

See accompanying notes.

4

UNIVERSAL CORPORATION     

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)

	June 30,		June 30,		March 31,
	2021		2020		2021
	(Unaudited)		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable and overdrafts	$	153,337	$	92,758	$	101,294
Accounts payable and accrued expenses	158,013		133,621		139,484
Accounts payable—unconsolidated affiliates	18		—		1,282
Customer advances and deposits	9,307		10,575		8,765
Accrued compensation	18,576		16,373		29,918
Income taxes payable	5,919		2,359		4,516
Current portion of operating lease liabilities	7,998		9,914		7,898
Current portion of long-term debt	—		—		—
Total current liabilities	353,168		265,600		293,157
Long-term debt	518,297		368,829		518,172
Pensions and other postretirement benefits	55,622		70,473		57,637
Long-term operating lease liabilities	20,826		24,040		19,725
Other long-term liabilities	59,815		75,130		59,814
Deferred income taxes	46,810		24,435		44,994
Total liabilities	1,054,538		828,507		993,499
Shareholders’ equity
Universal Corporation:
Preferred stock:
Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding	—		—		—
Common stock, no par value, 100,000,000 shares authorized 24,577,254 shares issued and outstanding at June 30, 2021 (24,488,964 at June 30, 2020 and 24,514,867 at March 31, 2021)	327,471		322,449		326,673
Retained earnings	1,074,586		1,064,927		1,087,663
Accumulated other comprehensive loss	(98,232)		(151,132)		(107,037)
Total Universal Corporation shareholders' equity	1,303,825		1,236,244		1,307,299
Noncontrolling interests in subsidiaries	37,730		42,089		41,126
Total shareholders' equity	1,341,555		1,278,333		1,348,425
Total liabilities and shareholders' equity	$	2,396,093	$	2,106,840	$	2,341,924

See accompanying notes.

5

UNIVERSAL CORPORATION     

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

	Three Months Ended June 30,
	2021		2020
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,912	$	6,900
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization	12,058		10,105
Net provision for losses (recoveries) on advances to suppliers	(328)		57
Foreign currency remeasurement (gain) loss, net	506		(4,691)
Foreign currency exchange contracts	1,127		(13,951)
Restructuring and impairment costs	2,024		—
Restructuring payments	(1,776)		(2,937)
Change in estimated fair value of contingent consideration for FruitSmart acquisition	—		(4,173)
Other, net	(2,726)		(3,350)
Changes in operating assets and liabilities, net	(141,720)		12,087
Net cash provided (used) by operating activities	(126,923)		47
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(14,428)		(8,386)
Proceeds from sale of property, plant and equipment	1,589		218
Net cash used by investing activities	(12,839)		(8,168)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt, net	49,439		20,688
Dividends paid to noncontrolling interests	(980)		—
Dividends paid on common stock	(18,876)		(18,567)
Other	(2,432)		(1,930)
Net cash provided (used) by financing activities	27,151		191
Effect of exchange rate changes on cash, restricted cash and cash equivalents	78		515
Net decrease in cash, restricted cash and cash equivalents	(112,533)		(7,415)
Cash, restricted cash and cash equivalents at beginning of year	203,221		107,430
Cash, restricted cash and cash equivalents at end of period	$	90,688	$	100,015
Supplemental Information:
Cash and cash equivalents	$	84,688	$	100,015
Restricted cash (Other noncurrent assets)	6,000		—
Total cash, restricted cash and cash equivalents	$	90,688	$	100,015

See accompanying notes.

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UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   BASIS OF PRESENTATION

Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is a global business-to-business agri-products supplier to consumer product manufacturers. The Company is the leading global leaf tobacco supplier and provides high-quality plant-based ingredients to food and beverage end markets. Because of the seasonal nature of the Company’s business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year. All adjustments necessary to state fairly the results for the period have been included and were of a normal recurring nature. This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

    The extent to which the ongoing COVID-19 pandemic will impact the Company's financial condition, results of operations and demand for its products and services will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread and mutations of COVID-19, the severity of the pandemic, the duration of the COVID-19 outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the COVID-19 pandemic and the impact on the U.S. and the global economies, markets and supply chains. At June 30, 2021, it is not possible to predict the overall impact of the ongoing COVID-19 pandemic on the Company's business, financial condition, results of operations and demand for its products and services.

NOTE 2.   ACCOUNTING PRONOUNCEMENTS

Recently Adopted Pronouncements

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The updated guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance in ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, although early adoption is permitted. The Company adopted the new standard effective April 1, 2021, which was the beginning of its fiscal year ending March 31, 2022. There was no material impact to the consolidated financial statements from the adoption of ASU 2019-12.

Pronouncements to be Adopted in Future Periods

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions related to contract modifications and hedge accounting to address the transitions from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. ASU 2020-04 also temporarily allows hedge relationships to continue without de-designation upon changes due to reference rate reform. The standard is effective upon issuance and can be applied as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact that the guidance will have on its consolidated financial statements.

NOTE 3.   BUSINESS COMBINATION

Acquisition of Silva International, Inc.

On October 1, 2020 the Company acquired 100% of the capital stock of Silva International, Inc. (“Silva”), a natural, specialty dehydrated vegetable, fruit, and herb processing company serving global markets, for approximately $164 million in cash and $5.9 million of additional working capital on-hand at the date of acquisition. The acquisition of Silva diversifies the Company's product offerings and generates new opportunities for its plant-based ingredients platform.

The Company continues to employ one of Silva's selling shareholders and as stipulated in the Silva purchase agreement has transferred $6 million to a third-party escrow account that may ultimately be earned by the selling shareholder upon completion of a post-combination service period. Since the compensation agreement for the selling shareholder who remains employed with the Company includes a post-combination service period, the Company has excluded the entire $6 million in the

7

purchase price to be allocated. The $6 million in escrow is recognized as restricted cash in other noncurrent assets on the consolidated balance sheet at June 30, 2021. The contingent consideration arrangement for the selling shareholder includes a post-combination service requirement and forfeitable payment provisions, therefore under ASC Topic 805, "Business Combinations," must be treated as compensation expense. This expense is being recognized ratably over the requisite service period in selling, general, and administrative expense on the consolidated statements of income.

The following preliminary allocation of the purchase price was based on third-party valuations and assumptions. At June 30, 2021, the Company is finalizing the fair value assigned to income tax related assets and liabilities. The final purchase price allocation is expected to be completed in the second quarter of fiscal year 2022. The following table summarizes the preliminary purchase price allocation of the assets acquired and liabilities assumed on October 1, 2020.

(in thousands of dollars)
Assets
Cash and cash equivalents	$	8,126
Accounts receivable, net	17,885
Advances to suppliers, net	3,011
Inventory	33,162
Other current assets	833
Property, plant and equipment (net)	24,437
Intangibles
Customer relationships	53,000
Trade names	7,800
Goodwill	46,144
Total assets acquired	194,398
Liabilities
Accounts payable and accrued expenses	11,683
Accrued compensation	3,350
Income taxes payable	946
Deferred income taxes	14,419
Total liabilities assumed	30,398
Total assets acquired and liabilities assumed	$	164,000

A portion of the goodwill recorded as part of the acquisition was attributable to the assembled workforce of Silva. The goodwill recognized for the Silva acquisition is not deductible for U.S. income tax purposes. The tax basis of the assets acquired and liabilities assumed did not result in a step-up of tax basis. The Company determined the Silva operations are not material to the Company’s consolidated results. Therefore, pro forma information is not presented.

NOTE 4.  RESTRUCTURING AND IMPAIRMENT COSTS

Universal continually reviews its business for opportunities to realize efficiencies, reduce costs, and realign its operations in response to business changes. Restructuring and impairment costs are periodically incurred in connection with those activities.

Tobacco Operations

In the three months ended June 30, 2021, the Company incurred and paid $1.5 million of termination costs associated with restructuring of tobacco processing and administrative operations in Africa.

Ingredients Operations

In the three months ended June 30, 2021, the Company incurred $0.5 million of impairment costs on property, plant, and equipment associated with the wind-down of the Carolina Innovative Food Ingredients, Inc. ("CIFI") operations that was announced in fiscal year 2021.

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There were no restructuring and impairment costs incurred for the three months ended June 30, 2020.

NOTE 5.  REVENUE FROM CONTRACTS WITH CUSTOMERS

The majority of the Company’s consolidated revenue consists of sales of processed leaf tobacco to customers. The Company also earns revenue from processing leaf tobacco owned by customers and from various other services provided to customers. The Company also has fruit and vegetable processing operations that provide customers with a range of food ingredient products. Payment terms with customers vary depending on customer creditworthiness, product types, services provided, and other factors. Contract durations and payment terms for all revenue categories generally do not exceed one year. Therefore, the Company has applied a practical expedient to not adjust the transaction price for the effects of financing components, as the Company expects that the period from the time the revenue for a transaction is recognized to the time the customer pays for the related good or service transferred will be one year or less. Below is a description of the major revenue-generating categories from contracts with customers.

Tobacco Sales

The majority of the Company’s business involves purchasing leaf tobacco from farmers in the origins where it is grown, processing and packing the tobacco in its factories, and then transferring ownership and control of the tobacco to customers. On a much smaller basis, the Company also sources processed tobacco from third-party suppliers for resale to customers. The contracts for tobacco sales with customers create a performance obligation to transfer tobacco to the customer. Transaction prices for the sale of tobaccos are primarily based on negotiated fixed prices, but the Company does have a small number of cost-plus contracts with certain customers. Cost-plus arrangements provide the Company reimbursement of the cost to purchase and process the tobacco, plus a contractually agreed-upon profit margin. The Company utilizes the most likely amount methodology under the accounting guidance to recognize revenue for cost-plus arrangements with customers. Shipping and handling costs under tobacco sales contracts with customers are treated as fulfillment costs and included in the transaction price. Taxes assessed by government authorities on the sale of leaf tobacco products are excluded from the transaction price. At the point in time that the customer obtains control over the tobacco, which is typically aligned with physical shipment under the contractual terms with the customer, the Company completes its performance obligation and recognizes the revenue for the sale.

Ingredient Sales

In recent fiscal years, the Company has diversified operations through acquisition of established companies that offer customers a wide range of both liquid and dehydrated fruit and vegetable ingredient products. These operations procure raw materials from domestic and international growers and suppliers and through a variety of processing steps including sorting, cleaning, pressing, mixing, and blending to manufacture finished goods utilized in both human and pet food. The contracts for food ingredients with customers create a performance obligation to transfer the manufactured finished goods to the customer. Transaction prices for the sale of food ingredients are primarily based on negotiated fixed prices. At the point in time that the customer obtains control over the finished product, which is typically aligned with physical shipment under the contractual terms with the customer, the Company completes its performance obligation and recognizes the revenue for the sale.

Processing Revenue

Processing and packing of customer-owned tobacco and ingredients is a short-duration process. Processing charges are primarily based on negotiated fixed prices per unit of weight processed. Under normal operating conditions, customer-owned raw materials that are placed into the production line exits as processed and packed product and is then later transported to customer-designated transfer locations. The revenue for these services is recognized when the performance obligation is satisfied, which is generally when processing is completed. The Company’s operating history and contract analyses indicate that customer requirements for processed tobacco and food ingredients products are consistently met upon completion of processing.

Other Operating Sales and Revenue

From time to time, the Company enters into various arrangements with customers to provide other value-added services that may include blending, chemical and physical testing of products, storage, and tobacco cutting services for select manufacturers. These other arrangements and operations are a much smaller portion of the Company’s business, and are separate and distinct contractual agreements from the Company’s tobacco and food ingredients sales or third-party processing arrangements with customers. The transaction prices and timing of revenue recognition of these items are determined by the specifics of each contract.

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Disaggregation of Revenue from Contracts with Customers

The following table disaggregates the Company’s revenue by significant revenue-generating category:

	Three Months Ended June 30,
(in thousands of dollars)	2021		2020
Tobacco sales	$	270,264	$	275,142
Ingredient sales	51,888		16,356
Processing revenue	16,696		16,300
Other sales and revenue from contracts with customers	10,765		7,602
Total revenue from contracts with customers	349,613		315,400
Other operating sales and revenues	416		411
Consolidated sales and other operating revenues	$	350,029	$	315,811

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

NOTE 6. OTHER CONTINGENT LIABILITIES AND OTHER MATTERS

Other Contingent Liabilities

Other Contingent Liabilities (Letters of credit)

The Company had other contingent liabilities totaling approximately $1 million at June 30, 2021, primarily related to outstanding letters of credit.

Value-Added Tax Assessments in Brazil

As further discussed below, the Company’s local operating subsidiaries pay significant amounts of value-added tax (“VAT”) in connection with their operations, which generate tax credits that they normally are entitled to recover through offset, refund, or sale to third parties. In Brazil, VAT is assessed at the state level when green tobacco is transferred between states. The Company’s operating subsidiary there pays VAT when tobaccos grown in the states of Santa Catarina and Parana are transferred to its factory in the state of Rio Grande do Sul for processing. The subsidiary has received assessments for additional VAT plus interest and penalties from tax authorities for the states of Santa Catarina and Parana based on audits of the subsidiary’s VAT filings for specified periods. In June 2011, tax authorities for the state of Santa Catarina issued assessments for tax, interest, and penalties for periods from 2006 through 2009 totaling approximately $9 million. In September 2014, tax authorities for the state of Parana issued an assessment for tax, interest, and penalties for periods from 2009 through 2014 totaling approximately $11 million. Those amounts are based on the exchange rate for the Brazilian currency at June 30, 2021. Management of the operating subsidiary and outside counsel believe that errors were made by the tax authorities for both states in determining all or significant portions of these assessments and that various defenses support the subsidiary’s positions.

With respect to the Santa Catarina assessments, the subsidiary took appropriate steps to contest the full amount of the claims. As of June 30, 2021, a portion of the subsidiary’s arguments had been accepted, and the outstanding assessment had been reduced. The reduced assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $9 million (at the June 30, 2021 exchange rate). The subsidiary is continuing to contest the full remaining amount of the assessment. While the range of reasonably possible loss is zero up to the full $9 million remaining assessment with interest, based on the strength of the subsidiary’s defenses, no loss within that range is considered probable at this time and no liability has been recorded at June 30, 2021.

With respect to the Parana assessment, management of the subsidiary and outside counsel challenged the full amount of the claim. A significant portion of the Parana assessment was based on positions taken by the tax authorities that management and outside counsel believe deviate significantly from the underlying statutes and relevant case law. In addition, under the law, the subsidiary’s tax filings for certain periods covered in the assessment were no longer open to any challenge by the tax authorities. In December 2015, the Parana tax authorities withdrew the initial claim and subsequently issued a new assessment covering the same tax periods, reflecting a substantial reduction from the original assessment. In fiscal year 2020, the Parana tax authorities acknowledged the statute of limitations related to claims prior to December 2010 had expired and reduced the assessment to $3 million (at the June 30, 2021 exchange rate). Notwithstanding the reduced assessment, management and outside counsel continue to believe that the new assessment is not supported by the underlying statutes and relevant case law and have challenged the full amount of the claim. The range of reasonably possible loss is considered to be zero up to the full $3 million

10

assessment. However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at June 30, 2021.

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

Other Legal and Tax Matters

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

Advances to Suppliers

In many sourcing origins where the Company operates, it provides agronomy services and seasonal advances of seed, seedlings, fertilizer, and other supplies to tobacco farmers for crop production, or makes seasonal cash advances to farmers for the procurement of those inputs. These advances are short term, are repaid upon delivery of tobacco to the Company, and are reported in advances to suppliers in the consolidated balance sheets. In several origins, the Company has made long-term advances to tobacco farmers to finance curing barns and other farm infrastructure. In some years, due to low crop yields and other factors, individual farmers may not deliver sufficient volumes of tobacco to fully repay their seasonal advances, and the Company may extend repayment of those advances into future crop years. The long-term portion of advances is included in other noncurrent assets in the consolidated balance sheets. Both the current and the long-term portions of advances to suppliers are reported net of allowances recorded when the Company determines that amounts outstanding are not likely to be collected. Short-term and long-term advances to suppliers totaled $92 million at June 30, 2021, $83 million at June 30, 2020, and $144 million at March 31, 2021. The related valuation allowances totaled $18 million at June 30, 2021, $16 million at June 30, 2020, and $18 million at March 31, 2021, and were estimated based on the Company’s historical loss information and crop projections. The allowances were reduced by net recoveries of approximately $0.3 million and increased by net provisions of approximately $0.1 million in the three-month periods ended June 30, 2021 and 2020, respectively. These net recoveries and provisions are included in selling, general, and administrative expenses in the consolidated statements of income. Interest on advances is recognized in earnings upon the farmers’ delivery of tobacco in payment of principal and interest.

Recoverable Value-Added Tax Credits

In many foreign countries, the Company’s local operating subsidiaries pay significant amounts of VAT on purchases of unprocessed and processed tobacco, crop inputs, packing materials, and various other goods and services. In some countries, VAT is a national tax, and in other countries it is assessed at the state level. Items subject to VAT vary from jurisdiction to jurisdiction, as do the rates at which the tax is assessed. When tobacco is sold to customers in the country of origin, the operating subsidiaries generally collect VAT on those sales. The subsidiaries are normally permitted to offset their VAT payments against the collections and remit only the incremental VAT collections to the tax authorities. When tobacco is sold for export, VAT is normally not assessed. In countries where tobacco sales are predominately for export markets, VAT collections generated on downstream sales are often not sufficient to fully offset the subsidiaries’ VAT payments. In those situations, unused VAT credits can accumulate. Some jurisdictions have procedures that allow companies to apply for refunds of unused VAT credits from the tax authorities, but the refund process often takes an extended period of time and it is not uncommon for refund applications to be challenged or rejected in part on technical grounds. Other jurisdictions may permit companies to sell or transfer unused VAT credits to third parties in private transactions, although approval for such transactions must normally be obtained from the tax authorities, limits on the amounts that can be transferred may be imposed, and the proceeds realized may be heavily discounted from the face value of the credits. Due to these factors, local operating subsidiaries in some countries can accumulate significant balances of VAT credits over time. The Company reviews these balances on a regular basis and records valuation allowances on the credits to reflect amounts that are not expected to be recovered, as well as discounts anticipated on credits that are expected to be sold or transferred. At June 30, 2021, the aggregate balance of recoverable tax credits held by the Company’s subsidiaries totaled approximately $61 million ($54 million at June 30, 2020, and $49 million at March 31, 2021), and the related valuation allowances totaled approximately $19 million ($17 million at June 30, 2020, and $19 million at March 31, 2021). The net balances are reported in other current assets and other noncurrent assets in the consolidated balance sheets.

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Long-Term Debt

In December 2020, the Company repaid $150 million of revolving credit borrowings used to finance the purchase of Silva with term loans under its existing senior unsecured bank credit facility. The Company increased the borrowings of the senior unsecured five-year and seven-year term loans by $75 million each. At June 30, 2021, the five-year term loan maturing December 2023 and the seven-year term loan maturing December 2025 had outstanding borrowings of $225 million and $295 million, respectively. Under the senior unsecured bank credit facility, the additional $150 million of terms loans bear interest at variable rates plus a margin based on the Company's credit metrics and interest payments remained unhedged at June 30, 2021. The Company maintains receive-floating/pay-fixed interest rates swap agreements for a portion of the outstanding five and seven-year term loans. See Note 11 for additional information on outstanding interest rate swap agreements.

Shelf Registration and Stock Repurchase Plan

In November 2020, the Company filed an undenominated automatic universal shelf registration statement with the U.S. Securities and Exchange Commission to provide for the future issuance of an undefined amount of securities as determined by the Company and offered in one or more prospectus supplements prior to issuance.

A stock repurchase plan, which was authorized by the Company's Board of Directors, became effective and was publicly announced on November 5, 2020. This stock repurchase plan authorizes the purchase of up to $100 million in common and/or preferred stock in open market or privately negotiated transactions through November 15, 2022 or when funds for the program have been exhausted, subject to market conditions and other factors. The program had $100 million of remaining capacity for repurchases of common and/or preferred stock at June 30, 2021.

NOTE 7.   EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,
(in thousands, except share and per share data)	2021		2020
Basic Earnings Per Share
Numerator for basic earnings per share
Net income attributable to Universal Corporation	$	6,357	$	7,274
Denominator for basic earnings per share
Weighted average shares outstanding	24,694,489		24,602,610
Basic earnings per share	$	0.26	$	0.30
Diluted Earnings Per Share
Numerator for diluted earnings per share
Net income attributable to Universal Corporation	$	6,357	$	7,274
Denominator for diluted earnings per share:
Weighted average shares outstanding	24,694,489		24,602,610
Effect of dilutive securities
Employee and outside director share-based awards	157,662		100,969
Denominator for diluted earnings per share	24,852,151		24,703,579
Diluted earnings per share	$	0.26	$	0.29

NOTE 8.   INCOME TAXES

    The Company operates in the United States and many foreign countries and is subject to the tax laws of many jurisdictions. Changes in tax laws or the interpretation of tax laws can affect the Company’s earnings, as can the resolution of

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pending and contested tax issues. The Company's consolidated effective income tax rate is affected by a number of factors, including the mix and timing of domestic and foreign earnings, discrete items, and the effect of exchange rate changes on taxes.     

    The consolidated effective income tax rate for the three months ended June 30, 2021 was 24% . There were no discrete items that impacted the income tax provision for the three months ended June 30, 2021.

    The consolidated effective income tax rate for the three months ended June 30, 2020 was a benefit of $5.0 million. The Company's consolidated effective income tax rate for the three months ended June 30, 2020 was affected by a $4.4 net tax benefit for final U.S. tax regulations issued for hybrid dividends paid by foreign subsidiaries. Without this discrete item for the final U.S. tax regulations, the consolidated effective income tax rate for the three months ended June 30, 2020 would have been a benefit of approximately 24%. Additionally, for the three months ended June 30, 2020 the Company recognized $1.8 million as a component of interest expense related to a settlement of an uncertain tax position at foreign subsidiary.

NOTE 9.   GOODWILL AND OTHER INTANGIBLES

The Company's changes in goodwill at June 30, 2021 and 2020 consisted of the following:

(in thousands of dollars)	Three Months Ended June 30,
	2021		2020
Balance at beginning of fiscal year	$	173,051	$	126,826
Foreign currency translation adjustment	(10)		36
Balance at end of period	$	173,041	$	126,862

The Company's intangible assets primarily consist of capitalized customer-related intangibles, trade names, proprietary developed technology and noncompetition agreements. The Company's intangible assets subject to amortization consisted of the following at June 30, 2021 and 2020:

(in thousands, except useful life)				June 30,
				2021						2020
	Useful Life (years)			Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Customer relationships(1)	11	—	13	$	62,500	$	(4,710)	$	57,790	$	9,500	$	(365)	$	9,135
Trade names(1)		5		11,100		(2,160)		8,940		3,300		(330)		2,970
Developed technology(1)		3		4,800		(2,400)		2,400		4,800		(800)		4,000
Noncompetition agreements(1)		5		1,000		(300)		700		1,000		(100)		900
Other		5		777		(703)		74		734		(625)		109
Total intangible assets				$	80,177	$	(10,273)	$	69,904	$	19,334	$	(2,220)	$	17,114

(1) On October 1, 2020 the Company acquired 100% of the capital stock of Silva for approximately $164.0 million in cash and $5.9 million of working capital on-hand at the date of acquisition. The Silva acquisition resulted in $60.8 million of intangibles. See Note 3 for additional information.

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

The Company's amortization expense for intangible assets for the three months ended June 30, 2021 and 2020 was:

(in thousands of dollars)	Three Months Ended June 30,
	2021		2020
Amortization Expense	$	2,403	$	808

Amortization expense for the developed technology intangible asset is recorded in cost of goods sold in the consolidated income statements of income. The amortization expense for the other intangible assets is recorded in selling, general, and administrative expenses in the consolidated statements of income.

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As of June 30, 2021, the expected future amortization expense for intangible assets is as follows:

Fiscal Year (in thousands of dollars)
2022 (excluding the three months ended June 30, 2021)	$	7,216
2023	9,204
2024	7,969
2025	8,534
2026 and thereafter	36,981
Total expected future amortization expense	$	69,904

NOTE 10.   LEASES

The Company, as a lessee, enters into operating leases for land, buildings, equipment, and vehicles. For all operating leases with terms greater than 12 months and with fixed payment arrangements, a lease liability and corresponding right-of-use asset are recognized in the balance sheet for the term of the lease by calculating the net present value of future lease payments. On the date of lease commencement, the present value of lease liabilities is determined by discounting the future lease payments by the Company’s collateralized incremental borrowing rate, adjusted for the lease term and currency of the lease payments. If a lease contains a renewal option that the Company is reasonably certain to exercise, the Company accounts for the original lease term and expected renewal term in the calculation of the lease liability and right-of-use asset.

The following table sets forth the right-of-use assets and lease liabilities for operating leases included in the Company’s consolidated balance sheet:

(in thousands of dollars)	June 30, 2021		June 30, 2020		March 31, 2021
Assets
Operating lease right-of-use assets	$	31,281	$	37,576	$	31,230
Liabilities
Current portion of operating lease liabilities	$	7,998	$	9,914	$	7,898
Long-term operating lease liabilities	20,826		24,040		19,725
Total operating lease liabilities	$	28,824	$	33,954	$	27,623

The following table sets forth the location and amount of operating lease costs included in the Company's consolidated statement of income:

	Three Months Ended June 30,
(in thousands of dollars)	2021		2020
Income Statement Location
Cost of goods sold	$	2,578	$	2,911
Selling, general, and administrative expenses	2,305		2,190
Total operating lease costs(1)	$	4,883	$	5,101

(1)Includes variable operating lease costs.

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The following table reconciles the undiscounted cash flows to the operating lease liabilities in the Company’s consolidated balance sheet:

(in thousands of dollars)	June 30, 2021
Maturity of Operating Lease Liabilities
2022 (excluding the three months ended June 30, 2021)	$	6,889
2023	7,279
2024	5,461
2025	4,560
2026	2,656
2027 and thereafter	5,805
Total undiscounted cash flows for operating leases	$	32,650
Less: Imputed interest	(3,826)
Total operating lease liabilities	$	28,824

As of June 30, 2021, the Company had no leases that did not yet commence.

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

	Three Months Ended June 30,
(in thousands, except lease term and incremental borrowing rate)	2021			2020
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,777		$	3,028
Right-of-use assets obtained in exchange for new operating leases	2,741			1,023
Weighted Average Remaining Lease Term (years)	5.54			5.55
Weighted Average Collateralized Incremental Borrowing Rate	4.12		%	4.04		%

NOTE 11.   DERIVATIVES AND HEDGING ACTIVITIES

Universal is exposed to various risks in its worldwide operations and uses derivative financial instruments to manage two specific types of risks – interest rate risk and foreign currency exchange rate risk. Interest rate risk has been managed by entering into interest rate swap agreements, and foreign currency exchange rate risk has been managed by entering into forward and option foreign currency exchange contracts. However, the Company’s policy also permits other types of derivative instruments. In addition, foreign currency exchange rate risk is also managed through strategies that do not involve derivative instruments, such as using local borrowings and other approaches to minimize net monetary positions in non-functional currencies. The disclosures below provide additional information about the Company’s hedging strategies, the derivative instruments used, and the effects of these activities on the consolidated statements of income and comprehensive income and the consolidated balance sheets. In the consolidated statements of cash flows, the cash flows associated with all of these activities are reported in net cash provided by operating activities.

Cash Flow Hedging Strategy for Interest Rate Risk

In February 2019, the Company entered into receive-floating/pay-fixed interest rate swap agreements that were designated and qualify as hedges of the exposure to changes in interest payment cash flows created by fluctuations in variable interest rates on two outstanding non-amortizing bank term loans that were funded as part of a new bank credit facility in December 2018. Although no significant ineffectiveness is expected with this hedging strategy, the effectiveness of the interest rate swaps is evaluated on a quarterly basis. At June 30, 2021, the total notional amount of the interest rate swaps was $370 million, which corresponded with the former original outstanding balance of the term loans. During the third quarter of fiscal year 2021, the Company converted $150 million from the balance in its revolving credit line into the existing term loans, splitting the balance equally between them. At June 30, 2021, the Company is not hedging the interest payments on the additional $150 million of term loans. The increase to the principal balance of the term loans does not have an impact to the effectiveness analysis of the interest rate swap agreements.

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Previously, the Company had receive-floating/pay-fixed interest rate swap agreements that were designated and qualified as cash flow hedges for two outstanding non-amortizing bank loans that were repaid concurrent with closing on the new bank credit facility. Those swap agreements were subsequently terminated in February 2019 concurrent with the inception of the new swap agreements. The fair value of the previous swap agreements, approximately $5.4 million, was received from the counterparties upon termination and is being amortized from accumulated other comprehensive loss into earnings as a reduction of interest expense through the original maturity dates of those agreements. As of June 30, 2021, $0.7 million remained in accumulated other comprehensive loss to be amortized through December 31, 2021.

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

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

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

	Three Months Ended June 30,
(in millions of dollars)	2021		2020
Tobacco purchases	$	42.0	$	30.2
Processing costs	10.2		8.0
Crop input sales	20.8		23.5
Total	$	73.0	$	61.7

Variations in exchange rates and in the amount and timing of fixed-price orders from customers for their purchases from individual crop years routinely cause variations in the U.S. dollar notional amount of forward contracts entered into from one year to the next. All contracts related to tobacco purchases and crop input sales were designated and qualified as hedges of the future cash flows associated with the forecast purchases of tobacco. As a result, changes in fair values of the forward contracts have been recognized in comprehensive income as they occurred, but only recognized in earnings as a component of cost of goods sold upon sale of the related tobacco to third-party customers. In fiscal year 2022, only non-deliverable forward contracts were utilized for the sale of 2022 crop year inputs. Premium payments for option contracts entered into for the sale of crop inputs in fiscal year 2021 were expensed into earnings as incurred.

The table below presents the expected timing of when the remaining accumulated other comprehensive gains and losses as of June 30, 2021 for cash flows hedges of tobacco purchases and crop input sales will be recognized in earnings.

Hedging Program	Crop Year	Geographic Location(s)	Fiscal Year Earnings
Tobacco purchases	2022	Brazil	2023
Tobacco purchases	2021	Brazil, Africa	2022
Tobacco purchases	2020	Brazil	2022
Crop input sales	2022	Brazil	2023
Crop input sales	2021	Brazil	2022

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

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

Most of the Company’s foreign subsidiaries transact the majority of their sales in U.S. dollars and finance the majority of their operating requirements with U.S. dollar borrowings, and therefore use the U.S. dollar as their functional currency. These subsidiaries normally have certain monetary assets and liabilities on their balance sheets that are denominated in the local currency. Those assets and liabilities can include cash and cash equivalents, accounts receivable and accounts payable, advances to farmers and suppliers, deferred income tax assets and liabilities, recoverable value-added taxes, operating lease liabilities, and other items. Net monetary assets and liabilities denominated in the local currency are remeasured into U.S. dollars each reporting period, generating gains and losses that the Company records in earnings as a component of selling, general, and administrative expenses. The level of net monetary assets or liabilities denominated in the local currency normally fluctuates throughout the year based on the operating cycle, but it is most common for monetary assets to exceed monetary liabilities, sometimes by a significant amount. When this situation exists and the local currency weakens against the U.S. dollar, remeasurement losses are generated. Conversely, remeasurement gains are generated on a net monetary asset position when the local currency strengthens against the U.S. dollar. To manage a portion of its exposure to currency remeasurement gains and losses, the Company enters into forward contracts to buy or sell the local currency at future dates coinciding with expected changes in the overall net local currency monetary asset position of the subsidiary. Gains and losses on the forward contracts are recorded in earnings as a component of selling, general, and administrative expenses for each reporting period as they occur, and thus directly offset the related remeasurement losses or gains in the consolidated statements of income for the notional amount hedged. The Company does not designate these contracts as hedges for accounting purposes. The contracts are generally arranged to hedge the subsidiary's projected exposure to currency remeasurement risk for specified periods of time, and new contracts are entered as necessary throughout the year to replace previous contracts as they mature. The Company is currently using forward currency contracts to manage its exposure to currency remeasurement risk in Brazil.  The total notional amounts of contracts outstanding at June 30, 2021 and 2020, and March 31, 2021, were approximately $16.7 million, $11.8 million, and $16.6 million, respectively. To further mitigate currency remeasurement exposure, the Company’s foreign subsidiaries may utilize short-term local currency financing during certain periods. This strategy, while not involving the use of derivative instruments, is intended to minimize the subsidiary’s net monetary position by financing a portion of the local currency monetary assets with local currency monetary liabilities, thus hedging a portion of the overall position.

Several of the Company’s foreign subsidiaries transact the majority of their sales and finance the majority of their operating requirements in their local currency, and therefore use their respective local currencies as the functional currency for reporting purposes. From time to time, these subsidiaries sell tobacco to customers in transactions that are not denominated in the functional currency. In those situations, the subsidiaries routinely enter into forward exchange contracts to offset currency risk for the period of time that a fixed-price order and the related trade account receivable are outstanding with the customer. The contracts are not designated as hedges for accounting purposes.

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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 June 30,
(in thousands of dollars)	2021		2020
Cash Flow Hedges - Interest Rate Swap Agreements
Derivative
Effective Portion of Hedge
Gain (loss) recorded in accumulated other comprehensive loss	$	(1,396)	$	(3,697)
Gain (loss) reclassified from accumulated other comprehensive loss into earnings	$	(2,223)	$	(1,838)
Gain on terminated interest rate swaps amortized from accumulated other comprehensive loss into earnings	$	353	$	354
Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings	Interest expense
Ineffective Portion of Hedge
Gain (loss) recognized in earnings	$	—	$	—
Location of gain (loss) recognized in earnings	Selling, general and administrative expenses
Hedged Item
Description of hedged item	Floating rate interest payments on term loan
Cash Flow Hedges - Foreign Currency Exchange Contracts
Derivative
Effective Portion of Hedge
Gain (loss) recorded in accumulated other comprehensive loss	$	8,233	$	(1,447)
Gain (loss) reclassified from accumulated other comprehensive loss into earnings	$	(516)	$	(734)
Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings	Cost of goods sold
Ineffective Portion and Early De-designation of Hedges
Gain (loss) recognized in earnings	$	668	$	—
Location of gain (loss) recognized in earnings	Selling, general and administrative expenses
Hedged Item
Description of hedged item	Forecast purchases of tobacco in Brazil and Africa
Derivatives Not Designated as Hedges - Foreign Currency Exchange Contracts
Gain (loss) recognized in earnings	$	4,604	$	(144)
Location of gain (loss) recognized in earnings	Selling, general and administrative expenses

For the interest rate swap agreements, the effective portion of the gain or loss on the derivative is recorded in accumulated other comprehensive loss and any ineffective portion is recorded in selling, general and administrative expenses.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil and Africa and the crop input sales in Brazil, a net hedge gain of approximately $7.3 million remained in accumulated other comprehensive loss at June 30, 2021. That balance reflects gains and losses on contracts related to the 2022, 2021, and 2020 Brazil crops, the 2021 Africa crop, and the 2022 and 2021 Brazil crop input sales, less the amounts reclassified to earnings related to tobacco sold through June 30, 2021. Based on the hedging strategy, as the gain or loss is recognized in earnings, it is expected

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

Effect of Derivative Financial Instruments on the Consolidated Balance Sheets

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets at June 30, 2021 and 2020, and March 31, 2021:

	Derivatives in a Fair Value Asset Position							Derivatives in a Fair Value Liability Position
	Balance Sheet Location	Fair Value as of						Balance Sheet Location	Fair Value as of
(in thousands of dollars)		June 30, 2021		June 30, 2020		March 31, 2021			June 30, 2021		June 30, 2020		March 31, 2021
Derivatives Designated as Hedging Instruments
Interest rate swap agreements	Other non-current assets	$	—	$	—	$	—	Other long-term liabilities	$	24,892	$	39,022	$	25,719
Foreign currency exchange contracts	Other current assets	5,423		571		1,137		Accounts payable and accrued expenses	2,063		1,390		1,031
Total		$	5,423	$	571	$	1,137		$	26,955	$	40,412	$	26,750
Derivatives Not Designated as Hedging Instruments
Foreign currency exchange contracts	Other current assets	$	3,124	$	149	$	435	Accounts payable and accrued expenses	$	88	$	702	$	791
Total		$	3,124	$	149	$	435		$	88	$	702	$	791

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

NOTE 12.   FAIR VALUE MEASUREMENTS

Universal measures certain financial and nonfinancial assets and liabilities at fair value based on applicable accounting guidance. The financial assets and liabilities measured at fair value include money market funds, trading securities associated with deferred compensation plans, interest rate swap agreements, forward foreign currency exchange contracts and acquisition-related contingent consideration obligations. The application of the fair value guidance to nonfinancial assets and liabilities primarily includes the determination of fair values for goodwill and long-lived assets when indicators of potential impairment are present.

    Under the accounting guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The framework for measuring fair value is based on a fair value hierarchy that distinguishes between observable inputs and unobservable inputs. Observable inputs are based on market data obtained from independent sources. Unobservable inputs require the Company to make its own assumptions about the value placed on an asset or liability by market participants because little or no market data exists.

There are three levels within the fair value hierarchy:

Level	Description
1	quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date;
2	quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and
3	unobservable inputs for the asset or liability.

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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 June 30, 2021 and 2020, and at March 31, 2021, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis. These assets and liabilities are listed in the tables below and are classified based on how their values were determined under the fair value hierarchy or the NAV practical expedient:

	June 30, 2021
			Fair Value Hierarchy
(in thousands of dollars)	NAV		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	1,992	$	—	$	—	$	—	$	1,992
Trading securities associated with deferred compensation plans	—		15,735		—		—		15,735
Interest rate swap agreements	—		—		—		—		—
Foreign currency exchange contracts	—		—		8,547		—		8,547
Total financial assets measured and reported at fair value	$	1,992	$	15,735	$	8,547	$	—	$	26,274
Liabilities
Acquisition-related contingent consideration obligations - short term	$	—	$	—	$	—	$	2,532	$	2,532
Interest rate swap agreements	—		—		24,892		—		24,892
Foreign currency exchange contracts	—		—		2,151		—		2,151
Total financial liabilities measured and reported at fair value	$	—	$	—	$	27,043	$	2,532	$	29,575

	June 30, 2020
			Fair Value Hierarchy
(in thousands of dollars)	NAV		Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	4,013	$	—	$	—	$	—	$	4,013
Trading securities associated with deferred compensation plans	—		13,963		—		—		13,963
Foreign currency exchange contracts	—		—		720		—		720
Total financial assets measured and reported at fair value	$	4,013	$	13,963	$	720	$	—	$	18,696
Liabilities
Acquisition-related contingent consideration obligations - long term	$	—	$	—	$	—	$	2,532	2,532
Interest rate swap agreements	—		—		39,022		—		39,022
Foreign currency exchange contracts	—		—		2,092		—		2,092
Total financial liabilities measured and reported at fair value	$	—	$	—	$	41,114