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Fair Value Measurements
 12 Months Ended
Mar. 31, 2012
Fair Value Measurements [Abstract]  
Fair Value Measurements
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 guarantees of bank loans to tobacco growers. The application of the fair value guidance to nonfinancial assets and liabilities primarily includes assessments of goodwill and long-lived assets for potential impairment.

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 under the guidance is based on a fair value hierarchy that distinguishes between observable inputs (i.e., inputs that are based on market data obtained from independent sources) and unobservable inputs (i.e., inputs that require the Company to make its own assumptions about market participant assumptions 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.

In measuring the fair value of liabilities, the Company considers the risk of non-performance in determining fair value.

At March 31, 2012 and 2011, 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:
 
March 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Money market funds
$
48,546

 
$
—

 
$
—

 
$
48,546

Trading securities associated with deferred compensation plans
19,803

 
—

 
—

 
19,803

Forward foreign currency exchange contracts
—

 
356

 
—

 
356

Total assets
$
68,349

 
$
356

 
$
—

 
$
68,705

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Guarantees of bank loans to tobacco growers
$
—

 
$
—

 
$
5,932

 
$
5,932

Interest rate swap agreements
—

 
1,119

 
—

 
1,119

Forward foreign currency exchange contracts
—

 
1,352

 
—

 
1,352

Total liabilities
$
—

 
$
2,471

 
$
5,932

 
$
8,403

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Money market funds
$
108,832

 
$
—

 
$
—

 
$
108,832

Trading securities associated with deferred compensation plans
20,899

 
—

 
—

 
20,899

Interest rate swap agreements
—

 
10,193

 
—

 
10,193

Forward foreign currency exchange contracts
—

 
3,622

 
—

 
3,622

 Total assets
$
129,731

 
$
13,815

 
$
—

 
$
143,546

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Guarantees of bank loans to tobacco growers
$
—

 
$
—

 
$
20,699

 
$
20,699

Forward foreign currency exchange contracts
—

 
243

 
—

 
243

 Total liabilities
$
—

 
$
243

 
$
20,699

 
$
20,942


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 quoted market prices (Level 1). The fair values of these investments approximate cost due to the short-term maturities and the high credit quality of the issuers of the underlying securities.

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.

Forward foreign currency exchange contracts

The fair values of forward 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 foreign currency exchange contracts are classified within Level 2 of the fair value hierarchy.

Guarantees of bank loans to tobacco growers

The Company guarantees bank loans to tobacco growers in Brazil for crop financing and construction of curing barns or other tobacco producing assets. In the event that the farmers default on their payments to the banks, the Company would be required to perform under the guarantees. The Company regularly evaluates the likelihood of farmer defaults based on an expected loss analysis and records the fair value of its guarantees as an obligation in its consolidated financial statements. The fair value of the guarantees is determined using the expected loss data for all loans outstanding at each measurement date. The present value of the cash flows associated with the estimated losses is then calculated at a risk-adjusted interest rate (6.6% as of March 31, 2012 and 9.5% as of March 31, 2011) that is aligned with the expected duration of the liability and includes an adjustment for nonperformance risk. This approach is sometimes referred to as the “contingent claims valuation method.” Although historical loss data is an observable input, significant judgment is required in applying this information to the portfolio of guaranteed loans outstanding at each measurement date and in selecting a risk-adjusted interest rate. Significant increases or decreases in the risk-adjusted interest rate may result in a significantly higher or lower fair value measurement. The guarantees of bank loans to tobacco growers are therefore classified within Level 3 of the fair value hierarchy.

A reconciliation of the change in the balance of the financial liability for guarantees of bank loans to tobacco growers (Level 3) for the fiscal years ended March 31, 2012 and 2011 is provided below. A significant number of the loans in the portfolio reached their maturity dates during fiscal year 2012. The Company satisfied its obligations under the related guarantees by remitting payment to the banks and taking title to the loans, thereby reducing the guarantee liability.

 
Fiscal Year Ended March 31,
 
2012
 
2011
Balance at beginning of year
$
20,699

 
$
25,997

Transfer to allowance for loss on direct loans to farmers (removal of prior crop year and other loans from portfolio)
(18,305
)
 
(14,724
)
Transfer from allowance for loss on direct loans to farmers (addition of current crop year loans)
4,279

 
7,559

Transfer of guarantees to assignee of farmer contracts (see Note 14)
—

 
(1,110
)
Change in discount rate and estimated collection period
780

 
1,389

Currency remeasurement
(1,521
)
 
1,588

Balance at end of year
$
5,932

 
$
20,699


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.