Restructuring Costs

12 Months Ended

Mar. 31, 2019

RESTRUCTURING AND IMPAIRMENT COSTS

During the fiscal years ended March 31, 2019 and 2017, Universal recorded restructuring and impairment costs related to business changes and various initiatives to adjust certain operations and reduce costs. Those costs primarily related to operations that are part of the Other Regions reportable segment of the Company's flue-cured and burley leaf tobacco operations. There were no restructuring or impairment costs recorded for the fiscal year ended March 31, 2018.

Fiscal Year Ended March 31, 2019

Universal began sourcing tobacco from Tanzania through third parties in the 1950’s. As the country became a more significant and important origin for tobacco exports, the Company established an operating subsidiary there in 1968 to enable direct procurement and, in 1997, acquired the only leaf tobacco processing facility in the country at that time through a government privatization initiative. Significant investments were made to upgrade, expand, and modernize the processing facility over the years following that acquisition. The expansion of the Company’s buying operations and the factory investments were instrumental in promoting and accommodating significant growth in Tanzanian tobacco production. Total production peaked in 2011, but has since declined more than 60%, reflecting reduced customer demand for the leaf styles grown in Tanzania, primarily due to increased costs and prices for those tobaccos in the field relative to other markets, together with declining global tobacco consumption and initiatives by major multinational cigarette manufacturers to streamline their supply chains. Given the decline in customer demand over recent crop years, 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 reduced contracted leaf purchase volumes and took specific steps to reduce operating costs going into the upcoming crop year, including actions to substantially discontinue a year-round workforce. As a result of that initiative, the subsidiaries recorded a $4.0 million restructuring charge for termination benefits paid to employees whose permanent positions were eliminated. The subsidiaries have hired employees on a seasonal basis to handle the buying, processing, and shipment of the upcoming crop.

In addition to the actions taken with respect to the workforce in Tanzania, based on its review, 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, due to the estimated decrease in production volumes, profitability, and net cash flows for the upcoming crop year, expected further reductions in subsequent crop years, and increased prospects for discontinuing processing operations or potentially exiting the Tanzania market entirely within the next several years. 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 was 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. All of the property, plant and equipment assets will continue to be used in buying, processing, and shipping the upcoming crop, and they remain classified as “held and used” at this time as provided for under the accounting guidance. Should the expected cash flows from the 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. In addition to the property, plant and equipment, the Company 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.

Additional restructuring costs of approximately $0.9 million were incurred in connection with downsizing efforts at other locations around the Company during fiscal year 2019.

Fiscal Year Ended March 31, 2017

In fiscal year 2017, the Company recorded restructuring and impairment costs totaling $4.4 million, primarily related to the Company's decision to close its tobacco processing facility in Hungary. The Company now processes tobaccos sourced from Hungary in its factories in Italy. The costs incurred for the change in operations in Hungary included statutory employee termination benefits and impairment charges related to certain property and equipment. Restructuring costs were also incurred in connection with downsizing efforts at other locations around the Company.

A summary of the restructuring and impairment costs incurred during the fiscal years ended March 31, 2019 and 2017, is as follows:



	Fiscal Years Ended March 31,
	2019		2017
Restructuring Costs:
Employee termination benefits	$	4,608	$	2,083
Other restructuring costs	223		—
	4,831		2,083
Impairment Costs:
Property, plant, and equipment and farmer loans	14,584		2,276
Goodwill	889		—
	$	15,473	$	2,276
Total restructuring and impairment costs	$	20,304	$	4,359

A reconciliation of the Company’s liability for employee termination benefits and other restructuring costs for fiscal years 2017 through 2019 is as follows:



	Employee Termination Benefits			Other Costs			Total
Balance at April 1, 2016	$	79		$	202		$	281
Fiscal Year 2017 Activity:
Costs charged to expense	2,083			—			2,083
Payments	(1,861		)	(159		)	(2,020		)
Balance at March 31, 2017	301			43			344
Fiscal Year 2018 Activity:
Payments	(272		)	(43		)	(315		)
Balance at March 31, 2018	29			—			29
Fiscal Year 2019 Activity:
Costs charged to expense	4,608			223			4,831
Payments	(4,014		)	—			(4,014		)
Balance at March 31, 2019	$	623		$	223		$	846

The restructuring liability at March 31, 2019 is expected to be paid during fiscal year 2020. Universal continually reviews its business for opportunities to realize efficiencies, reduce costs, and realign its operations in response to business changes. The Company may incur additional restructuring and impairment costs in future periods as business changes occur and additional cost savings initiatives are implemented.