Restructuring and Impairment Costs

9 Months Ended

Dec. 31, 2019

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 costs are periodically incurred in connection with those activities.

The Company did not incur any restructuring and impairment costs during the nine months ended December 31, 2019 .

Three and Nine Months Ended December 31, 2018

Due to the decline in customer demand for tobaccos from Tanzania, as well as regulatory, tax, and other business and operating considerations, the Company undertook a formal review of the Tanzania leaf tobacco market and its operations there in the third quarter of fiscal year 2019. Based on that review, the Company’s operating subsidiaries in Tanzania took steps to reduce operating costs going forward, including discontinuation of a year-round workforce. The Company recorded $4.0 million of termination benefit costs as a restructuring charge in the quarter and nine months ended December 31, 2018. All amounts related to termination benefit costs were paid by the end of fiscal year 2019.

In addition, as a result of the decrease in production volumes of Tanzania tobaccos and the associated reduced profitability, the Company determined that indicators of impairment in the carrying value of the property, plant and equipment comprising the Tanzania operations were present at December 31, 2018. Accordingly, based on the applicable accounting guidance, the Company tested the recoverability of those long-lived assets using undiscounted estimates of the future cash flows from the use of those assets and their eventual disposition. The property, plant and equipment were evaluated for recoverability using two distinct asset groups: (1) the land, building, and equipment comprising the processing facility, and (2) all remaining assets, which are substantially devoted to buying and receiving delivery of unprocessed leaf from farmers and marketing and shipping the processed tobacco to customers. The recoverability tests indicated that both asset groups were impaired at December 31, 2018. As a result, the Company determined the fair value of each asset group based principally on a probability-weighting of the discounted cash flows expected under multiple operating and disposition scenarios. An impairment charge of approximately $14.6 million was recorded to reduce the carrying value of the assets to their indicated fair values. The Company has made no decisions with respect to operations as of December 31, 2019. Should the expected cash flows from future use and/or disposition of the assets change from the estimates on which their fair values were determined, additional impairment charges could be required, or gains or losses on any disposition of the assets could be recorded. The Company also had goodwill related to the Tanzanian operations of approximately $0.9 million which was separately tested for recoverability and fully written off based on the results of that test during the quarter ended December 31, 2018.

A summary of the restructuring and impairment costs recorded in the quarter and nine ended December 31, 2018 related to the Company’s operations in Tanzania is as follows:



(in thousands)		Three Months Ended December 31, 2018

Restructuring costs:
	Employee termination benefits	$	3,974
Impairment costs:
	Property, plant and equipment	14,584
	Goodwill	889
		15,473
	Total restructuring and impairment costs	$	19,447

The Tanzania operations are part of the Other Regions reportable operating segment within the Company’s flue-cured and burley leaf tobacco operations. The Company recognized an income tax benefit on the charge that is less than the benefit determined at the statutory tax rate in Tanzania, primarily because the reduced profitability of the operations is expected to limit utilization of the charge as a deductible expense for income tax return purposes. For the quarter and nine months ended December 31, 2018, the restructuring and impairment costs reduced operating income and income before income taxes by $19.4 million, net income attributable to Universal Corporation by $15.8 million, and diluted earnings per share by $0.62.