RICHMOND, Va., Nov. 6 /PRNewswire-FirstCall/ -- George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported a 12% increase in earnings per diluted share to $1.38 for the Company's second fiscal quarter, which ended on September 30, 2008. These results represented net income of $41.8 million compared to $39.8 million, or $1.23 per diluted share, last year. The quarter reflected very strong operations in all of the Company's reported segments, but it also included the negative effects of currency remeasurement related to Brazilian net monetary assets that reduced operating income by $25 million. Revenues increased by 20% to $785.6 million, primarily due to increased costs of green leaf that were passed through in sales prices as well as to increased volumes after the very low African crops last year. Similar factors affected the six-month results. Net income for the first half of the year was $62.9 million, or $2.02 per diluted share, up from $58.5 million, or $1.80 per diluted share, reported last year. Revenues increased by 17% during the period.
Mr. Freeman stated, "We are pleased with the performance of our operations during this first half of the fiscal year. The devaluation of the Brazilian currency unfortunately occurred at a time when our net monetary asset position in local currency was at a seasonal peak, hurting a quarter that otherwise showed significant improvement over last year. We continued to strengthen customer relationships, and we reduced the level of our uncommitted inventories. Each region has delivered operating improvements as a result of hard work as well as careful attention to costs. They have done so despite the escalating cost of green leaf as all areas worked to ensure sustainability of supply in the face of competing crops. Volumes recovered in Africa this year, and signs are beginning to point to a very large burley crop there next year. Those expected crop levels could cause world production to approach or exceed the recent peak levels produced in 2004, which would replenish inventories and move worldwide supply to a balanced position or perhaps even a slight oversupply. Flue-cured tobacco supply is also expected to increase and could reach levels produced in the 2005 crop. The overall flue-cured supply is expected to remain mostly balanced, but the increased supply could lead to excess in the market. We continue to work to maintain future production of the type of quality tobacco that our customers require. We have been successfully navigating the current storm in financial markets. We have reached what is normally a peak working capital period during the year, and we believe that our financial resources are adequate to meet our needs."
Results for the flue-cured and burley operations were nearly flat for the quarter at about $67 million, although revenues increased by 25%. North America's revenues and operating income were consistent with last year, although U.S. crop deliveries were later this year and that delay reduced processing volumes. The unit was able to offset that impact with cost savings and sales of old crop tobacco in both Canada and the United States. Operating income for the Other Regions segment was flat for the quarter despite increases in volume from the larger African burley crops and higher shipments in Europe that had been delayed from the first quarter. These improved earnings were offset by lower results from the Company's South American operations due to continued shipment delays and currency remeasurement losses in Brazil, where the local currency weakened by approximately 20% during the quarter. Some of the remeasurement losses were attributable to advances to farmers for crop inputs for the upcoming growing season. Crop inputs were more expensive this year due to increased fertilizer prices and the weaker U.S. dollar at the time they were purchased. Although they are related to production of 2008-09 crop leaf that will be sold next year, these advances are remeasured in U.S. dollars along with all other monetary assets and liabilities each reporting period, and the related remeasurement loss affects operating income this year when the prior 2007-08 crop is being sold. Asian operations saw improved earnings on higher volumes. Revenues for Other Regions increased by 27%, to $686 million.
For the six months, results for flue-cured and burley operations increased by more than 7%, to over $100 million. A significant portion of the improvement was due to stronger performance in North America where cost savings and sales of old crop tobacco boosted income and revenues. In Other Regions, stronger results were driven by better volumes across the African region, as well as reduced charges and write downs there. Results of European operations were higher as well, primarily due to shipment timing benefits and higher volumes in the region's tobacco sheet business. South American results were hampered by shipment delays and the effect of the previously mentioned remeasurement losses. The currency devalued by almost 9% over the six-month period, compared to an 11% strengthening last year. Revenues for this segment were up by 23% to $1.1 billion for the six months.
Results for Other Tobacco Operations more than doubled due to improved performance by the oriental tobacco joint venture reflecting higher volumes, which included one-time trading opportunities, as well as currency gains. Dark tobacco operations also improved, primarily due to increased domestic crop volumes. Special Services, where sales were accelerated last year, showed the expected decline related to the shift of business to the origins, and that change also caused the 33% decline in segment revenue in the quarter. The same factors caused six-month results to improve by over 20%.
Net interest expense increased by $3.7 million in the quarter compared to last year, primarily because of increased cash requirements to fund crop purchases. Universal also made substantial progress on its share repurchase program, spending about $107 million to purchase 2.15 million shares during the six months. The effective tax rate remained near 33% compared to last year's rate of over 36% as management expects to utilize more of the Company's foreign tax credits, which caused the reduction of a valuation allowance for those credits.
This information includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers that any statements contained herein regarding earnings and expectations for its performance are forward-looking statements based upon management's current knowledge and assumptions about future events, including anticipated levels of demand for and supply of its products and services; costs incurred in providing these products and services; timing of shipments to customers; changes in market structure; and general economic, political, market, and weather conditions. Actual results, therefore, could vary from those expected. A further list and description of these risks, uncertainties and other factors can be found in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2008 and in other documents the Company files with the Securities and Exchange Commission. This information should be read in conjunction with the Annual Report on Form 10-K for the year ended March 31, 2008.
At 4:30 p.m. (Eastern Time) on November 6, 2008, the Company will host a conference call to discuss these results. Those wishing to listen to the call may do so by visiting www.universalcorp.com at that time. A replay of the webcast will be available at that site for three months. A taped replay of the call will also be available until November 26, 2008, by dialing (800) 642- 1687. The confirmation number to access the replay is 72249036
Headquartered in Richmond, Virginia, Universal Corporation is one of the world's leading tobacco merchants and processors and conducts business in more than 35 countries. Its revenues from continuing operations for the fiscal year ended March 31, 2008, were $2.1 billion. For more information on Universal Corporation, visit its web site at www.universalcorp.com.
UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (In thousands of dollars, except per share data) Three Months Ended Six Months Ended September 30, September 30, 2008 2007 2008 2007 (Unaudited) (Unaudited) Sales and other operating revenues $785,590 $655,330 $1,291,877 $1,105,547 Costs and expenses Cost of goods sold 630,447 512,614 1,033,700 878,663 Selling, general and administrative expenses 83,948 66,569 148,795 117,676 Restructuring costs - - - 3,304 Operating income 71,195 76,147 109,382 105,904 Equity in pretax earnings (loss) of unconsolidated affiliates 7,583 (2,389) 7,533 (1,246) Interest income 417 4,576 1,367 8,864 Interest expense 10,113 10,569 17,779 21,960 Income before income taxes and other items 69,082 67,765 100,503 91,562 Income taxes 23,115 24,577 33,396 33,733 Minority interests, net of income taxes 4,185 2,715 4,214 (822) Income from continuing operations 41,782 40,473 62,893 58,651 Income from discontinued operations, net of income taxes - (675) - (145) Net income 41,782 39,798 62,893 58,506 Dividends on convertible perpetual preferred stock (3,713) (3,712) (7,425) (7,425) Earnings available to common shareholders $38,069 $36,086 $55,468 $51,081 Basic earnings per common share: From continuing operations $1.50 $1.34 $2.12 $1.88 From discontinued operations - (0.02) - (0.01) Net income $1.50 $1.32 $2.12 $1.87 Diluted earnings per common share: From continuing operations $1.38 $1.25 $2.02 $1.81 From discontinued operations - (0.02) - (0.01) Net income $1.38 $1.23 $2.02 $1.80 See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars) September 30, September 30, March 31, 2008 2007 2008 (Unaudited) (Unaudited) ASSETS Current Cash and cash equivalents $40,765 $381,094 $186,070 Short-term investments 15,950 - 58,889 Accounts receivable, net 284,107 229,687 231,107 Advances to suppliers, net 149,096 100,347 149,376 Accounts receivable - unconsolidated affiliates 34,403 51,559 43,718 Inventories - at lower of cost or market: Tobacco 778,053 638,214 602,945 Other 80,095 47,524 42,562 Prepaid income taxes 10,058 9,227 17,696 Deferred income taxes 32,979 24,739 22,737 Other current assets 90,503 65,632 61,960 Current assets of discontinued operations - 4,564 - Total current assets 1,516,009 1,552,587 1,417,060 Property, plant and equipment Land 16,133 16,684 16,460 Buildings 255,875 245,788 254,737 Machinery and equipment 504,568 509,791 519,695 776,576 772,263 790,892 Less accumulated depreciation (450,946) (432,222) (456,059) 325,630 340,041 334,833 Other assets Goodwill and other intangibles 106,267 104,493 106,647 Investments in unconsolidated affiliates 108,137 105,228 116,185 Deferred income taxes 33,512 79,528 49,632 Other noncurrent assets 96,767 126,243 109,755 344,683 415,492 382,219 Total assets $2,186,322 $2,308,120 $2,134,112 See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars) September September March 31, 30, 2008 30, 2007 2008 (Unaudited) (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Notes payable and overdrafts $260,511 $117,173 $126,229 Accounts payable and accrued expenses 200,310 195,320 210,354 Accounts payable - unconsolidated affiliates 320 125 10,343 Customer advances and deposits 60,326 109,432 21,030 Accrued compensation 17,632 14,733 25,484 Income taxes payable 9,891 13,537 8,886 Current portion of long-term obligations 79,500 154,000 - Current liabilities of discontinued operations - 1,642 - Total current liabilities 628,490 605,962 402,326 Long-term obligations 321,617 399,272 402,942 Pensions and other postretirement benefits 91,562 104,764 88,278 Other long-term liabilities 72,906 77,239 84,958 Deferred income taxes 35,335 39,989 36,795 Total liabilities 1,149,910 1,227,226 1,015,299 Minority interests 7,288 5,119 3,182 Shareholders' equity Preferred stock: Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding - - - Series B 6.75% Convertible Perpetual Preferred Stock, no par value, 5,000,000 shares authorized, 219,999 shares issued and outstanding (219,999 at September 30, 2007, and March 31, 2008) 213,023 213,023 213,023 Common stock, no par value, 100,000,000 shares authorized, 25,026,040 shares issued and outstanding (27,374,956 at September 30, 2007, and 27,162,150 at March 31, 2008) 193,643 198,086 206,436 Retained earnings 653,402 698,340 711,655 Accumulated other comprehensive loss (30,944) (33,674) (15,483) Total shareholders' equity 1,029,124 1,075,775 1,115,631 Total liabilities and shareholders' equity $2,186,322 $2,308,120 $2,134,112 See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) Six Months Ended September 30, 2008 2007 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Net income $62,893 $58,506 Adjustments to reconcile net income to net cash provided (used) by operating activities of continuing operations: Net loss from discontinued operations - 145 Depreciation 22,000 20,585 Amortization 493 1,324 Provisions for losses on advances and guaranteed loans to suppliers 9,972 9,217 Remeasurement loss (gain), net 24,603 (2,907) Restructuring costs - 3,304 Other, net 12,671 10,572 Changes in operating assets and liabilities, net (321,938) (56,531) Net cash provided (used) by operating activities of continuing operations (189,306) 44,215 CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS: Purchase of property, plant and equipment (21,748) (13,365) Purchases of short-term investments (9,658) - Maturities and sales of short-term investments 52,740 - Proceeds from sale of business, less cash of business sold - 25,156 Proceeds from sale of property, plant and equipment, and other 14,298 15,923 Net cash provided by investing activities of continuing operations 35,632 27,714 CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS: Issuance (repayment) of short-term debt, net 144,884 (23,236) Repayment of long-term debt - (10,000) Issuance of common stock 37 16,051 Repurchase of common stock (105,689) - Dividends paid on convertible perpetual preferred stock (7,425) (7,425) Dividends paid on common stock (22,962) (24,103) Other - (907) Net cash provided (used) by financing activities of continuing operations 8,845 (49,620) Net cash provided (used) by continuing operations (144,829) 22,309 CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by operating activities of discontinued operations - 6,495 Net cash used by investing activities of discontinued operations - (17) Net cash used by financing activities of discontinued operations - (4,957) Net cash provided by discontinued operations - 1,521 Effect of exchange rate changes on cash (476) 147 Net increase (decrease) in cash and cash equivalents (145,305) 23,977 Cash and cash equivalents of continuing operations at beginning of year 186,070 358,236 Cash and cash equivalents of discontinued operations at beginning of year - 239 Less: Cash and cash equivalents of discontinued operations at end of period - 1,358 Cash and cash equivalents at end of period $40,765 $381,094 See accompanying notes.
NOTE 1. BASIS OF PRESENTATION
Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is one of the world's leading leaf tobacco merchants and processors. The Company previously had non-tobacco operations, but sold most of them in fiscal year 2007. The remaining non-tobacco businesses, or the assets of those businesses, were sold during fiscal year 2008. Those operations are reported as discontinued operations for all periods in the Company's financial statements.
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. Certain amounts in prior year statements have been reclassified to conform to the current year presentation. This document 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, 2008.
NOTE 2. GUARANTEES AND OTHER CONTINGENT LIABILITIES
Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are industry practice in Brazil and support the farmers' production of tobacco there. At September 30, 2008, the Company's total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was approximately $135 million. About 50% of these guarantees expire within one year, and all of the remainder expire within five years. The subsidiary withholds payments due to the farmers on delivery of tobacco and forwards those payments to the third-party banks. Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover their obligations to third-party banks could result in a liability for the subsidiary under the related guarantee; however, in that case, the subsidiary would have recourse against the farmers. The maximum potential amount of future payments that the Company's subsidiary could be required to make is the face amount including unpaid accrued interest, or $135 million ($200 million as of September 30, 2007, and $218 million at March 31, 2008). The accrual recorded for the fair value of the guarantees was approximately $8 million and $10 million at September 30, 2008 and 2007, respectively, and approximately $13 million at March 31, 2008. The accrual was increased by approximately $1.3 million in the quarter ended June 30, 2008, due to the adoption of SFAS 157. In addition to these guarantees, the Company has other contingent liabilities totaling approximately $52 million, primarily related to a bank guarantee that bonds an appeal of a 2006 fine in the European Union.
Various subsidiaries of the Company are involved in other 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 claims and does not currently expect that any of them will have a material adverse effect on the Company's financial position. However, should one or more of these matters be resolved in a manner adverse to management's current expectations, the effect on the Company's results of operations for a particular fiscal reporting period could be material.
NOTE 3. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share for the periods presented in the consolidated statements of income.
Three Months Ended Six Months Ended September 30, September 30, (in thousands, except per share data) 2008 2007 2008 2007 Basic Earnings Per Share Numerator for basic earnings per share From continuing operations: Income from continuing operations $41,782 $40,473 $62,893 $58,651 Less: Dividends on convertible perpetual preferred stock (3,713) (3,712) (7,425) (7,425) Earnings available to common shareholders from continuing operations 38,069 36,761 55,468 51,226 From discontinued operations: Earnings (loss) available to common shareholders from discontinued operations - (675) - (145) Net income available to common shareholders $38,069 $36,086 $55,468 $51,081 Denominator for basic earnings per share Weighted average shares outstanding 25,404 27,370 26,146 27,249 Basic earnings per share: From continuing operations $1.50 $1.34 $2.12 $1.88 From discontinued operations - (0.02) - (0.01) Net income per share $1.50 $1.32 $2.12 $1.87 Diluted Earnings Per Share Numerator for diluted earnings per share From continuing operations: Earnings available to common shareholders from continuing operations $38,069 $36,761 $55,468 $51,226 Add: Dividends on convertible perpetual preferred stock (if conversion assumed) 3,713 3,712 7,425 7,425 Earnings available to common shareholders from continuing operations for calculation of diluted earnings per share 41,782 40,473 62,893 58,651 From discontinued operations: Earnings (loss) available to common shareholders from discontinued operations - (675) - (145) Net income available to common shareholders $41,782 $39,798 $62,893 $58,506 Denominator for diluted earnings per share: Weighted average shares outstanding 25,404 27,370 26,146 27,249 Effect of dilutive securities (if conversion or exercise assumed) Convertible perpetual preferred stock 4,716 4,710 4,715 4,710 Employee share-based awards 229 350 224 391 Denominator for diluted earnings per share 30,349 32,430 31,085 32,350 Diluted earnings per share: From continuing operations $1.38 $1.25 $2.02 $1.81 From discontinued operations - (0.02) - (0.01) Net income per share $1.38 $1.23 $2.02 $1.80
NOTE 4. SEGMENT INFORMATION
The principal approach used by management to evaluate the Company's performance is by geographic region, although some components of the business are evaluated on the basis of their worldwide operations. The Company evaluates the performance of its segments based on operating income after allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in pretax earnings of unconsolidated affiliates.
Operating results for the Company's reportable segments for each period presented in the consolidated statements of income were as follows:
Three Months Ended Six Months Ended September 30, September 30, (in thousands of dollars) 2008 2007 2008 2007 SALES AND OTHER OPERATING REVENUES Flue-cured and burley leaf tobacco operations: North America $54,866 $53,921 $103,293 $88,685 Other regions (1) 686,276 534,576 1,087,761 877,863 Subtotal 741,142 588,497 1,191,054 966,548 Other tobacco operations (2) 44,448 66,833 100,823 138,999 Consolidated sales and other operating revenues $785,590 $655,330 $1,291,877 $1,105,547 OPERATING INCOME (LOSS) Flue-cured and burley leaf tobacco operations: North America $3,750 $4,154 $3,324 $(1,031) Other regions (1) 62,453 63,654 97,638 95,912 Subtotal 66,203 67,808 100,962 94,881 Other tobacco operations (2) 12,575 5,950 15,953 13,081 Segment operating income 78,778 73,758 116,915 107,962 Less: Equity in pretax earnings (loss) of unconsolidated affiliates (3) 7,583 (2,389) 7,533 (1,246) Restructuring costs (4) - - - 3,304 Consolidated operating income $71,195 $76,147 $109,382 $105,904
(1) Includes South America, Africa, Europe, and Asia regions, as well as inter-region eliminations.
(2) Includes Dark Air-Cured, Special Services, and Oriental, as well as inter-company eliminations. Sales and other operating revenues for this reportable segment include limited amounts for Oriental because its financial results consist principally of equity in the pretax earnings of an unconsolidated affiliate.
(3) Item is included in segment operating income, but not included in consolidated operating income.
(4) Item is not included in segment operating income, but is included in consolidated operating income.
SOURCE Universal Corporation 11/06/2008
Karen M. L. Whelan of Universal Corporation, 1-804-359-9311,
Fax: +1-804-254-3594, email@example.com
Web site: http://www.universalcorp.com (UVV)