RICHMOND, Va., Aug. 5 /PRNewswire-FirstCall/ -- George C. Freeman, III, President and Chief Executive Officer of Universal Corporation (NYSE: UVV), announced that net income for the first quarter of fiscal year 2009, which ended on June 30, 2008, was $21.1 million, or $0.64 per diluted share. Those results represented a significant improvement over last year's income from continuing operations of $18.2 million, or $0.52 per diluted share, which included about $3.3 million in restructuring costs ($0.08 per diluted share), primarily related to Canadian and African operations. The year-to-year improvement in first quarter results was due to higher shipments in several countries, a lower effective income tax rate, and the absence of write-downs in Africa and restructuring charges. Net income last year was $18.7 million, or $0.54 per diluted share, including the results of discontinued operations. Revenues for the quarter were about $506 million, a 12% increase over last year due to increases in tobacco prices related to higher prices paid to farmers and the weak U.S. dollar, as well as higher volumes.
Mr. Freeman stated, "The year has begun on a positive note. Our operations continue to be strong, and we have made significant operating improvements in Africa since last year. Although we have more work to do and the improvements have not yet shown up in income, it is gratifying to see the results of the hard work of so many people. To be sure, we have our usual complement of timing differences in the quarter compared to last year. Although some shipments from South America are later this year, we enjoyed the benefits of carryover sales of leaf in other areas. Looking ahead, we are continuing to work with our customers and suppliers to ensure security of supply, a key issue for the industry. We do not expect that current low levels of inventory available for sale will be drastically increased after this season's crops are complete, despite significantly larger burley crops in Africa. The tight markets, combined with the weak U.S. dollar and competition from alternative crops for farm acreage, make controlling the cost of leaf a continuing and extraordinary challenge for us. We have been working to find the delicate balance between controlling cost and providing the required incentives to farmers. We are on solid financial footing. By June 30, 2008, we had purchased about 1.4 million shares of our common stock for a total of $71 million. We continue to return funds to shareholders through dividends and share repurchases, and we believe that we have been taking the necessary actions to improve our performance for the long term."
The North America segment of the flue-cured and burley operations reported a small loss in the quarter, which is a seasonally low operating period. Their performance was significantly better than last year primarily because of increased volumes of old crop tobacco in the United States and Canada. Those shipments also caused revenues for this segment to increase by nearly 40% to $48 million.
The Other Regions segment of the flue-cured and burley operations earned $35 million, compared to $32 million in the same quarter in fiscal year 2008. The primary reason for the improvement was the absence of charges in Africa related to the Company's exit from flue-cured growing projects in Malawi. In the first quarter last year, Africa operations recognized $5 million in write-downs, which were more than offset by higher shipments of old crop burley tobacco. Although no carryover burley tobacco was available this year, the region benefited from sales of old crop flue-cured tobacco, which largely offset the absence of burley sales. In South America, results were hampered by delayed shipments, lower currency-related gains on local currency assets and forward contracts, and an unfavorable variance on loss provisions on farmer receivables and guarantees. Results of European operations improved primarily on higher volumes in its tobacco sheet business. Revenues for the Other Regions segment increased by about 17% to about $400 million due to higher local currency prices paid to farmers in most areas and the weak U.S. dollar, as well as higher volumes in several countries.
Earnings for Other Tobacco Operations segment were much lower in the quarter because, as the Company noted last year, a major portion of the volumes of the Special Services group were absorbed by other operating units and certain customers discontinued just-in-time services. These changes caused acceleration of shipments last year. Further purchases by affected customers will be reflected in results as the crops in each region are sold in their normal seasonal pattern. Segment operating earnings were $3.4 million compared to $7.1 million last year. Revenues were $56 million, down $16 million from last year, largely related to Special Services.
The Company's effective income tax rate on pre-tax earnings from continuing operations for the quarter ended June 30, 2008, and expected for fiscal year 2009, was approximately 33%. That rate is significantly below last year's rate for the quarter of 38.5%. The reasons for the change are described in the accompanying financial statements.
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 5:00 p.m. (Eastern Time) on August 5, 2008, the Company will host a conference call to discuss these results. Those wishing to listen to the call may do so by visiting http://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 4, 2008, by dialing (800) 642-1687. The confirmation number to access the replay is 58923101.
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 http://www.universalcorp.com.
UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars, except per share data) Three Months Ended June 30, 2008 2007 (Unaudited) Sales and other operating revenues $506,287 $450,217 Costs and expenses Cost of goods sold 403,253 366,049 Selling, general and administrative expenses 64,847 51,107 Restructuring costs - 3,304 Operating income 38,187 29,757 Equity in pretax earnings (loss) of unconsolidated affiliates (50) 1,143 Interest income 950 4,288 Interest expense 7,666 11,391 Income before income taxes and other items 31,421 23,797 Income taxes 10,281 9,156 Minority interests, net of income taxes 29 (3,537) Income from continuing operations 21,111 18,178 Income from discontinued operations, net of income taxes 0 530 Net income 21,111 18,708 Dividends on convertible perpetual preferred stock (3,712) (3,713) Earnings available to common shareholders $17,399 $14,995 Basic earnings per common share: From continuing operations $0.65 $0.53 From discontinued operations - 0.02 Net income $0.65 $0.55 Diluted earnings per common share: From continuing operations $0.64 $0.52 From discontinued operations - 0.02 Net income $0.64 $0.54 See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars) June 30, June 30, March 31, 2008 2007 2008 (Unaudited) (Unaudited) ASSETS Current Cash and cash equivalents $141,805 $320,764 $186,070 Short-term investments 28,939 - 58,889 Accounts receivable, net 224,854 213,100 231,107 Advances to suppliers, net 116,254 66,717 149,376 Accounts receivable - unconsolidated affiliates 16,183 47,343 43,718 Inventories - at lower of cost or market: Tobacco 965,244 814,564 602,945 Other 63,766 45,713 42,562 Prepaid income taxes 13,005 9,036 17,696 Deferred income taxes 24,281 22,824 22,737 Other current assets 93,216 54,099 61,960 Current assets of discontinued operations - 8,295 - Total current assets 1,687,547 1,602,455 1,417,060 Property, plant and equipment Land 16,516 16,795 16,460 Buildings 256,470 242,966 254,737 Machinery and equipment 517,272 519,097 519,695 790,258 778,858 790,892 Less accumulated depreciation (463,345) (422,401) (456,059) 326,913 356,457 334,833 Other assets Goodwill and other intangibles 106,413 104,371 106,647 Investments in unconsolidated affiliates 115,744 105,931 116,185 Deferred income taxes 50,164 78,285 49,632 Other noncurrent assets 92,922 130,343 109,755 365,243 418,930 382,219 Total assets $2,379,703 $2,377,842 $2,134,112 See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars) June 30, June 30, March 31, 2008 2007 2008 (Unaudited) (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current Notes payable and overdrafts $260,590 $124,221 $126,229 Accounts payable and accrued expenses 233,493 259,117 210,354 Accounts payable - unconsolidated affiliates 119 27 10,343 Customer advances and deposits 165,945 132,434 21,030 Accrued compensation 19,128 15,874 25,484 Income taxes payable 7,133 12,863 8,886 Current portion of long-term obligations - 164,000 - Current liabilities of discontinued operations - 2,757 - Total current liabilities 686,408 711,293 402,326 Long-term obligations 399,496 398,122 402,942 Pensions and other postretirement benefits 91,776 103,218 88,278 Other long-term liabilities 81,828 86,728 84,958 Deferred income taxes 44,072 30,663 36,795 Total liabilities 1,303,580 1,330,024 1,015,299 Minority interests 3,171 2,286 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 June 30, 2007, and March 31, 2008) 213,023 213,023 213,023 Common stock, no par value, 100,000,000 shares authorized, 26,095,635 shares issued and outstanding (27,356,307 at June 30, 2007, and 27,162,150 at March 31, 2008) 200,763 196,809 206,436 Retained earnings 671,322 674,303 711,655 Accumulated other comprehensive loss (12,156) (38,603) (15,483) Total shareholders' equity 1,072,952 1,045,532 1,115,631 Total liabilities and shareholders' equity $2,379,703 $2,377,842 $2,134,112 See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) Three Months Ended June 30, 2008 2007 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Net income $21,111 $18,708 Adjustments to reconcile net income to net cash used by operating activities of continuing operations: Net loss (income) from discontinued operations - (530) Depreciation 10,292 10,813 Amortization 249 393 Provisions for losses on advances and guaranteed loans to suppliers 3,766 780 Restructuring costs - 3,304 Other, net 10,003 (2,469) Changes in operating assets and liabilities, net (182,739) (73,597) Net cash used by operating activities of continuing operations (137,318) (42,598) CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS: Purchase of property, plant and equipment (6,126) (6,851) Purchases of short-term investments (9,658) - Maturities and sales of short-term investments 39,608 - Proceeds from sale of business, less cash of business sold - 25,156 Proceeds from sale of property, plant and equipment, and other 3,866 110 Net cash provided by investing activities of continuing operations 27,690 18,415 CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS: Issuance (repayment) of short-term debt, net 127,318 (13,761) Issuance of common stock 37 15,773 Repurchase of common stock (47,229) - Dividends paid on convertible perpetual preferred stock (3,712) (3,713) Dividends paid on common stock (11,729) (12,054) Other - (1) Net cash provided (used) by financing activities of continuing operations 64,685 (13,756) Net cash used by continuing operations (44,943) (37,939) CASH FLOWS FROM DISCONTINUED OPERATIONS: Net cash provided by operating activities of discontinued operations - 3,149 Net cash used by investing activities of discontinued operations - (5) Net cash used by financing activities of discontinued operations - (2,443) Net cash provided by discontinued operations - 701 Effect of exchange rate changes on cash 678 65 Net decrease in cash and cash equivalents (44,265) (37,173) 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 - 538 Cash and cash equivalents at end of period $141,805 $320,764 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 operations in lumber and building products and in agri-products. The lumber and building products businesses, along with a portion of the agri-products operations, were sold during fiscal year 2007. The remaining agri-products businesses, or the assets of those businesses, were sold during fiscal year 2008. The lumber and building products operations and the agri-products 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 press release 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 June 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 $180 million. About 57% of these guarantees expire within one year, and nearly 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, $180 million, and any unpaid accrued interest ($170 million plus unpaid accrued interest as of June 30, 2007, and $218 million plus unpaid accrued interest at March 31, 2008). The accrual recorded for the fair value of the guarantees was approximately $14 million and $9 million at June 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, "Fair Value Measurements." In addition to these guarantees, the Company has other contingent liabilities totaling approximately $59 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 expectation, 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 June 30, (in thousands, except per share data) 2008 2007 Basic Earnings Per Share Numerator for basic earnings per share From continuing operations: Income from continuing operations $21,111 $18,178 Less: Dividends on convertible perpetual preferred stock (3,712) (3,713) Earnings available to common shareholders from continuing operations 17,399 14,465 From discontinued operations: Earnings available to common shareholders from discontinued operations - 530 Net income available to common shareholders $17,399 $14,995 Denominator for basic earnings per share Weighted average shares outstanding 26,897 27,126 Basic earnings per share: From continuing operations $0.65 $0.53 From discontinued operations - 0.02 Net income per share $0.65 $0.55 Diluted Earnings Per Share Numerator for diluted earnings per share From continuing operations: Earnings available to common shareholders from continuing operations $17,399 $14,465 Add: Dividends on convertible perpetual preferred stock (if conversion assumed) - - Earnings available to common shareholders from continuing operations for calculation of diluted earnings per share 17,399 14,465 From discontinued operations: Earnings available to common shareholders from discontinued operations - 530 Net income available to common shareholders $17,399 $14,995 Denominator for diluted earnings per share: Weighted average shares outstanding 26,897 27,126 Effect of dilutive securities (if conversion or exercise assumed) Convertible perpetual preferred stock - - Employee share-based awards 218 433 Denominator for diluted earnings per share 27,115 27,559 Diluted earnings per share: From continuing operations $0.64 $0.52 From discontinued operations - 0.02 Net income per share $0.64 $0.54 NOTE 4. INCOME TAXES
The Company's consolidated effective income tax rate on pre-tax earnings from continuing operations for the quarter ended June 30, 2008, and expected for fiscal year 2009, was approximately 33%. The rate was lower than the 35% U.S. federal statutory rate, primarily due to anticipated utilization in the current fiscal year of foreign tax credit carryforwards, for which a valuation allowance had previously been established. This anticipated utilization is due to the impact on the Company's overall tax position of the continued weakness of the U.S. dollar relative to the Brazilian currency and expected effects of tax planning. Under accounting guidance for income taxes, the reversal of the valuation allowance is treated as an adjustment to the effective tax rate for the year in which the determination is made to the extent the change is due to current fiscal year income. The impact of reversing the allowance is a reduction in income tax expense for the year of approximately $3 million. Another important factor contributing to the lower effective tax rate is the expected improvement in earnings in the African region where income tax rates are generally below the U.S. rate because of the structure of the ownership of the region. This factor more than offsets the impact of state taxes on income projected to be earned in the United States.
For the quarter ended June 30, 2007, the effective income tax rate was approximately 38.5%. The rate was higher than the U.S. federal statutory income tax rate primarily because of excess foreign taxes recorded in countries where the tax rates exceed the U.S. rates. In addition, the restructuring charges provided tax benefits at a rate that was lower than the statutory rate, which increased the effective tax rate for the quarter.
NOTE 5. 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 June 30, (in thousands of dollars) 2008 2007 SALES AND OTHER OPERATING REVENUES Flue-cured and burley leaf tobacco operations: North America $48,427 $34,764 Other regions (1) 401,485 343,287 Subtotal 449,912 378,051 Other tobacco operations (2) 56,375 72,166 Consolidated sales and other operating revenues $506,287 $450,217 OPERATING INCOME (LOSS) Flue-cured and burley leaf tobacco operations: North America $(426) $(5,185) Other regions (1) 35,185 32,258 Subtotal 34,759 27,073 Other tobacco operations (2) 3,378 7,131 Segment operating income 38,137 34,204 Less: Equity in pretax earnings (loss) of unconsolidated affiliates (3) (50) 1,143 Restructuring costs (4) - 3,304 Consolidated operating income $38,187 $29,757 (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 08/05/2008
Karen M. L. Whelan of Universal Corporation, 1-804-359-9311, Fax: 1-804-254-3594, firstname.lastname@example.org
Web site: http://www.universalcorp.com (UVV)