Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________

FORM 8-K
____________________________________________

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 6, 2019
____________________________________________

UNIVERSAL CORPORATION
(Exact name of registrant as specified in its charter)
____________________________________________


Virginia
 
001-00652
 
54-0414210
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
 
 
9201 Forest Hill Avenue, Richmond, Virginia
 
 
 
23235
(Address of principal executive offices)
 
 
 
(Zip Code)

Registrant’s telephone number, including area code
(804) 359-9311

Not applicable
(Former name or former address, if changed since last report)
____________________________________________


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company    ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             ¨






Item 2.02.
Results of Operations and Financial Condition.

Universal Corporation (the “Company”) issued a press release on February 7, 2019, discussing its results for the quarter ended December 31, 2018. The press release is attached as Exhibit 99.1 and is incorporated by reference into this Item 2.02.

Item 8.01.
Other Events.

On February 7, 2019, the Company issued a press release announcing a quarterly dividend for the Company’s common stock. The press release is attached as Exhibit 99.2 and is incorporated by reference into this Item 8.01.

On February 6, 2019, the Company issued a press release announcing an agreement with Philip Morris International, Inc. regarding the supply of Philippines tobacco.  The press release is attached as Exhibit 99.3 and is incorporated by reference into this Item 8.01.






Item 9.01.
Financial Statements and Exhibits.

(d)
Exhibits
 
 
 
 
 
 
 
No.
 
Description
 
 
 
 
 
99.1
 
 
 
 
 
 
99.2
 
 
 
 
 
 
99.3
 







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
UNIVERSAL CORPORATION
 
 
(Registrant)
 
 
 
 
 
Date:
February 7, 2019
By:
/s/ Preston D. Wigner
 
 
 
 
Preston D. Wigner
 
 
 
 
Vice President, General Counsel, and Secretary








Exhibit Index
Exhibit
 
 
Number
 
Document
 
 
 
99.1
 
 
 
 
99.2
 
 
 
 
99.3
 

 


Exhibit
Exhibit 99.1
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12683405&doc=5
P.O. Box 25099 ~ Richmond, VA 23260 ~ Phone: (804) 359-9311 ~ Fax: (804) 254-3584
______________________________________________________________________________________________________
P R E S S R E L E A S E
CONTACT:
Candace C. Formacek
RELEASE:
4:16 p.m. ET
 
Phone: (804) 359-9311
 
 
 
Fax: (804) 254-3584
 
 
 
Email: investor@universalleaf.com
 
 
Universal Corporation Reports Nine Month Results
Richmond, VA February 7, 2019/ PRNEWSWIRE
___________________________________________________________________________________

George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE:UVV), reported net income for the nine months ended on December 31, 2018, of $72.8 million, or $2.87 per diluted share, compared with $75.1 million, or $2.94 per diluted share, for the same period of the prior fiscal year. Those results included certain non-recurring items, detailed in Other Items below, which decreased diluted earnings per share by $0.32 and increased diluted earnings per share by $0.41 for the nine months ended December 31, 2018 and December 31, 2017, respectively. Excluding those non-recurring items, net income and earnings per share increased by $16.2 million and $0.66, respectively, for the nine-month period compared to the prior fiscal year. Operating income of $100.4 million for the nine months ended December 31, 2018, which included restructuring and impairment charges of $19.4 million in Tanzania detailed in Other Items below, decreased by $10.3 million, compared to operating income of $110.7 million for the nine months ended December 31, 2017. Segment operating income was $125.3 million for the nine months ended December 31, 2018, an increase of $8.0 million, compared to segment operating income of $117.3 million for the nine months ended December 31, 2017. Results reflected earnings improvements in the North America and Other Tobacco Operations segments and flat results for the Other Regions segment for the nine months ended December 31, 2018. Consolidated revenues increased by $129.0 million to $1.6 billion for the nine months ended December 31, 2018, compared to the same period in the prior fiscal year, primarily due to higher sales and processing volumes.

For the third fiscal quarter ended December 31, 2018, net income was $28.1 million, or $1.11 per diluted share, compared with net income of $45.4 million, or $1.78 per diluted share, for the prior year’s third fiscal quarter. Those results included certain non-recurring items, detailed in Other Items below, which decreased diluted earnings per share by $0.62 and increased diluted earnings per share by $0.41 for the

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quarters ended December 31, 2018 and December 31, 2017, respectively. Excluding those non-recurring items, net income and earnings per share increased by $9.1 million and $0.36, respectively, for the third fiscal quarter of 2019 compared to the prior year. Operating income for the third quarter of fiscal year 2019, which included restructuring and impairment charges of $19.4 million in Tanzania detailed in Other Items below, decreased to $37.7 million from $59.5 million for the three months ended December 31, 2017. Segment operating income was $62.6 million for the quarter ended December 31, 2018, a decrease of $3.3 million, compared to segment operating income of $65.9 million for the quarter ended December 31, 2017. For the quarter ended December 31, 2018, consolidated revenues decreased by $17.5 million to $636.1 million compared to $653.6 million for the three months ended December 31, 2017, on lower sales prices and a less favorable product mix.

Mr. Freeman stated, “As we have moved into the seasonally stronger back half of our fiscal year, we have continued to perform well. In the nine months ended December 31, 2018, we have increased our volumes and revenues and expanded services to our customers, and we forecast that our volumes for this fiscal year will be higher than the prior year. Our balance sheet also remains strong, and we successfully refinanced our $800 million bank credit agreement in December, which we believe positions us to meet the future financial needs of our business.

“As the leading global leaf supplier, we remain committed to strengthening our market share and investing for growth in our core tobacco business. As we recently announced, we are expanding our leaf purchasing, processing, and grower support services in the Philippines, as part of a new leaf supply arrangement with one of our major customers, who had previously purchased and processed their own tobacco. This arrangement will increase the efficiency of the supply chain in that origin by providing procurement synergies and economies of scale.

“Another aspect of improving efficiencies and reducing costs in the supply chain is ensuring that our operations and footprint support and reflect global market demand for leaf. Customer demand over recent years for tobacco sourced from Tanzania has declined. As a result, we have undertaken a review of the Tanzanian leaf tobacco market and our operations there. The review is ongoing, and we have decided to substantially reduce our permanent workforce and have incurred an impairment charge on certain assets there. This move and the expansion of services in the Philippines are consistent with our continued focus on effective rationalization of global leaf procurement supply chains, appropriate with changes in our customers’ leaf tobacco requirements to maintain strong and stable markets into the future.

“Looking forward, we expect that our fourth quarter shipments will be strong. We are, however, continuing to monitor container and vessel availability, particularly in Brazil, which may shift some shipments into the first quarter of fiscal year 2020.
 
“As we close out the celebration of our 100th anniversary year, we want to express our sincere thanks to our employees, customers, and investors for their long-standing support. Our mission remains to continue our role as the leading global leaf supplier. We are also focused on our capital allocation strategy that reflects the strength of our balance sheet and demonstrates our commitment to sustainable shareholder value creation.”

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FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:
OTHER REGIONS:

Operating income for the Other Regions segment decreased by $1.4 million to $96.8 million for the nine months and by $3.6 million to $53.3 million for the quarter ended December 31, 2018, compared with the same periods for fiscal year 2018, as benefits from stronger sales and processing volumes were outweighed by higher selling, general and administrative costs. In both periods, volumes increased in Africa, mainly from higher carryover crop sales and increased burley production volumes there this fiscal year. In South America, lamina volumes declined due to delayed receipt of shipping instructions from customers, while third-party processing volumes increased. Results for Asia reflected higher sales and trading volumes for the nine months ended December 31, 2018, while Europe saw improvements in processing volumes and sheet sales for the period. Selling, general, and administrative costs were higher for the nine months and quarter ended December 31, 2018, primarily from negative foreign currency remeasurement and exchange variances, higher compensation and incentive accruals, higher customer claim costs, partially offset by higher net recoveries on advances to suppliers, compared with the same periods in the prior fiscal year. Revenues for the Other Regions segment of $1.1 billion for the nine months and $483.2 million for the quarter ended December 31, 2018, were up $49.3 million and $8.8 million, respectively, compared to the same period last year, on higher volumes and processing revenues, offset in part by lower prices and a less favorable mix.

NORTH AMERICA:
Operating income for the North America segment of $20.4 million for the nine months and $3.1 million for the quarter ended December 31, 2018, was up by $6.6 million and down by $0.4 million, respectively, compared to the same periods for the prior fiscal year. The improvement in the nine months ended December 31, 2018, was mainly driven by higher carryover crop sales volumes on shipments delayed from the fourth quarter of fiscal 2018 due to reduced transportation availability in the United States. Results for both the nine months and quarter ended December 31, 2018, included higher shipment volumes from Guatemala and Mexico, compared to the same periods in fiscal year 2018. Results for the quarter ended December 31, 2018, were negatively impacted by later processing and shipment timing in the United States compared to the same quarter in the prior fiscal year. Selling, general, and administrative costs for the North America segment for the nine months ended December 31, 2018, were flat, though declined as a percentage of sales, and for the quarter ended December 31, 2018 were up slightly, both compared to the same periods in the prior fiscal year. Revenues for this segment increased by $49.9 million to $261.3 million for the nine months ended December 31, 2018, compared to the same period in the prior fiscal year, on the higher sales volumes and green leaf prices, partly offset by lower processing revenues. For the quarter ended December 31, 2018, revenues for the North America segment were down $21.4 million to $78.0 million on lower sales volumes and processing revenues, partly mitigated by a more favorable sales mix.

OTHER TOBACCO OPERATIONS:
The Other Tobacco Operations segment operating income increased by $2.8 million to $8.1 million for the nine months and by $0.8 million to $6.2 million for the quarter ended December 31, 2018, compared with the same periods for the prior fiscal year. In both periods, results for the dark tobacco operations reflected higher sales of wrapper tobacco, and higher processing and other revenues. Those improvements were partly offset by declines in the oriental joint venture on lower sales volumes in the nine months, a less favorable sales mix in the quarter, and the absence of gain on the sale of idle assets compared to last year’s third fiscal quarter, offset in part by favorable currency remeasurement variances in both the nine months and quarter, compared to those periods in fiscal year 2018. Selling, general, and administrative costs for the segment were up for both the nine months and quarter ended December 31, 2018, compared with the same periods

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in the prior fiscal year, as higher value-added tax charges were only partly offset by favorable currency remeasurement comparisons. Revenues for the segment increased by $29.8 million to $204.9 million for the nine months ended December 31, 2018, compared to the same period in the prior fiscal year, largely as a result of the higher wrapper tobacco sales volumes and increased processing and other revenues. For the quarter ended December 31, 2018, revenues for the segment decreased by $4.8 million to $74.9 million mainly on lower sales volumes from the timing of shipments of oriental tobaccos into the United States.

OTHER ITEMS:
Cost of goods sold increased by 8% to $1.3 billion for the nine months and decreased by 4% to $0.5 billion for the quarter ended December 31, 2018, respectively, both compared with the same periods in the prior fiscal year, and consistent with similar percentage changes in revenues. The decline in the third quarter of fiscal 2019 also reflected a higher mix of by-products. Selling, general, and administrative costs for the nine months ended December 31, 2018, increased by $22.5 million to $167.2 million, mainly driven by negative foreign currency remeasurement and exchange variances of about $9 million, primarily in Africa, Europe, and South America, higher compensation and incentive accruals, and higher value-added tax charges, partly offset by higher net recoveries on advances to suppliers, compared with the same period in the prior year. Selling, general, and administrative costs were up $9.3 million for the three months ended December 31, 2018, compared to the same period in the prior year, on higher compensation and incentive accruals and higher value-added tax charges.

For the nine months ended December 31, 2018, the Company’s consolidated effective income tax rate on pretax earnings was 19%. For the three months ended December 31, 2018, the effective income tax rate was 20%. Income tax expense for the nine months includes a $7.8 million ($0.30 per diluted share) benefit from reversing a portion of a liability previously recorded for dividend withholding taxes on the cumulative retained earnings of a foreign subsidiary. Without the dividend withholding tax reversal, the consolidated effective income tax rate would have been 27%. The effective tax rates for both the quarter and nine months ended December 31, 2018 include the benefit of various tax planning opportunities, as well as the net effect of items accounted for on a discrete basis in the respective reporting periods. For the nine months and quarter ended December 31, 2017, the Company’s consolidated effective income tax rates were 24% and 19%, respectively. Income tax expense for those periods included a one-time reduction of $10.5 million ($0.41 per diluted share) from the enactment of major changes to U.S. corporate income tax law in December 2017. Excluding that reduction, the effective tax rates for the nine months and quarter ended December 31, 2017, would have been 34% and 36%, respectively.

Results for the nine months and third fiscal quarter ended December 31, 2018, included restructuring and impairment charges of $19.4 million ($0.62 per diluted share) recorded to reflect the cost of workforce reductions and impairment in the carrying value of property, plant, and equipment assets as a result of changes in the Company’s business in Tanzania. Please see Note 4 to the attached financial statements for more details.

On December 20, 2018, we entered into a new bank credit agreement that replaced our existing bank credit agreement dated December 30, 2014. The terms of the new agreement are substantially similar to the terms of the prior agreement, and like the prior agreement, the new agreement established a five-year committed revolving credit facility of $430 million, a funded $150 million five-year term loan, and a funded $220 million seven-year term loan. The new revolving credit facility replaced a $430 million revolving credit facility that would have matured in December 2019 and a $150 million five-year term loan and a $220 million seven-year term loan that would have matured in December 2019 and December 2021, respectively. The financial covenants under the new revolving credit facility are substantially similar to those of the previous facility and require us to maintain certain levels of tangible net worth and leverage. Under applicable

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accounting guidance, a significant portion of the replacement of the term loans was accounted for as a debt modification rather than a debt extinguishment.


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Additional information

Amounts included in the previous discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries. In addition, the total for segment operating income (loss) referred to in this discussion is a non-GAAP measure. This measure is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute for net income (loss), operating income (loss), cash from operating activities or any other operating performance measure calculated in accordance with GAAP, and it may not be comparable to similarly titled measures reported by other companies. A reconciliation of the total for segment operating income (loss) to consolidated operating income (loss) is provided in Note 3. Segment Information, included in this earnings release. The Company evaluates its segment performance excluding certain significant charges or credits. The Company believes this measure, which excludes items that it believes are not indicative of its core operating results, provides investors with important information that is useful in understanding its business results and trends.

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; government regulation, including the impact of regulations on tobacco products; product taxation; changes in the U.S. federal income tax rates and legislation; industry consolidation and evolution; changes in global supply and demand positions for tobacco products; 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, 2018, 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 fiscal year ended March 31, 2018.

At 5:00 p.m. (Eastern Time) on February 7, 2019, 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 through May 7, 2019. A taped replay of the call will be available through February 21, 2019, by dialing (855) 859-2056. The confirmation number to access the replay is 2691856.

Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco supplier and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2018, were $2.0 billion. For more information on Universal Corporation, visit its website at www.universalcorp.com.







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UNIVERSAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share data)


 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
(Unaudited)
 
(Unaudited)
Sales and other operating revenues
 
$
636,107

 
$
653,581

 
$
1,555,430

 
$
1,426,451

Costs and expenses
 
 
 
 
 
 
 
 
Cost of goods sold
 
520,677

 
545,063

 
1,268,319

 
1,171,000

Selling, general and administrative expenses
 
58,302

 
49,017

 
167,244

 
144,768

Restructuring and impairment costs
 
19,447

 

 
19,447

 

Operating income
 
37,681

 
59,501

 
100,420

 
110,683

Equity in pretax earnings of unconsolidated affiliates
 
5,512

 
6,404

 
5,437

 
6,636

Other non-operating income (expense)
 
163

 
178

 
549

 
526

Interest income
 
233

 
166

 
1,044

 
1,362

Interest expense
 
4,732

 
4,020

 
13,274

 
11,916

Income before income taxes and other items
 
38,857

 
62,229

 
94,176

 
107,291

Income taxes
 
7,768

 
12,010

 
17,734

 
25,445

Net income
 
31,089

 
50,219

 
76,442

 
81,846

Less: net income attributable to noncontrolling interests in subsidiaries
 
(2,954
)
 
(4,819
)
 
(3,682
)
 
(6,702
)
Net income attributable to Universal Corporation
 
28,135

 
45,400

 
72,760

 
75,144

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
1.12

 
$
1.80

 
$
2.90

 
$
2.97

Diluted
 
$
1.11

 
$
1.78

 
$
2.87

 
$
2.94


See accompanying notes.



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UNIVERSAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

 
 
December 31,
 
December 31,
 
March 31,
 
 
2018
  
2017
 
2018
 
 
(Unaudited)
 
(Unaudited)
 
 
ASSETS
 
 
 
 
 
 
Current assets
 
 
  
 
 
 
Cash and cash equivalents
 
$
138,358

  
$
146,578

 
$
234,128

Accounts receivable, net
 
336,564

  
347,175

 
377,119

Advances to suppliers, net
 
98,942

  
108,952

 
122,786

Accounts receivable—unconsolidated affiliates
 
77,543

  
1,799

 
2,040

Inventories—at lower of cost or net realizable value:
 
 
  
 
 
 
Tobacco
 
867,181

  
796,165

 
679,428

Other
 
74,360

  
69,687

 
69,301

Prepaid income taxes
 
21,170

  
14,459

 
16,032

Other current assets
 
70,309

  
92,959

 
88,209

Total current assets
 
1,684,427

  
1,577,774

 
1,589,043

 
 
 
 
 
 
 
Property, plant and equipment
 
 
  
 
 
 
Land
 
23,018

  
22,885

 
23,180

Buildings
 
253,150

  
269,670

 
271,757

Machinery and equipment
 
603,752

  
621,051

 
634,660

 
 
879,920

  
913,606

 
929,597

Less accumulated depreciation
 
(572,634
)
  
(596,722
)

(605,803
)
 
 
307,286

  
316,884

 
323,794

Other assets
 
 
  
 
 
 
Goodwill and other intangibles
 
98,008

  
98,981

 
98,927

Investments in unconsolidated affiliates
 
80,558

  
86,246

 
89,302

Deferred income taxes
 
13,959

  
21,049

 
17,118

Other noncurrent assets
 
44,378

  
49,033

 
50,448

 
 
236,903

  
255,309

 
255,795

 
 
 
 
 
 
 
Total assets
 
$
2,228,616

  
$
2,149,967

 
$
2,168,632


See accompanying notes.






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UNIVERSAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)

 
 
December 31,
 
December 31,
 
March 31,
 
 
2018
  
2017
 
2018
 
 
(Unaudited)
  
(Unaudited)
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
Current liabilities
 
 
  
 
 
 
Notes payable and overdrafts
 
$
129,316

 
$
50,804

 
$
45,421

Accounts payable and accrued expenses
 
144,107

 
138,161

 
163,763

Accounts payable—unconsolidated affiliates
 
1,470

 
16,184

 
16,072

Customer advances and deposits
 
56,355

 
23,939

 
7,021

Accrued compensation
 
23,989

 
19,387

 
27,886

Income taxes payable
 
3,090

 
8,052

 
7,557

Current portion of long-term debt
 

 

 

Total current liabilities
 
358,327

  
256,527

 
267,720

 
 
 
 
 
 
 
Long-term debt
 
368,438

 
368,998

 
369,086

Pensions and other postretirement benefits
 
41,601

 
74,577

 
64,843

Other long-term liabilities
 
38,467

 
47,289

 
45,955

Deferred income taxes
 
32,000

 
31,903

 
35,726

Total liabilities
 
838,833

 
779,294

 
783,330

 
 
 
 
 
 
 
Shareholders’ equity
 
 
  
 
 
 
Universal Corporation:
 
 
 
 
 
 
Preferred stock:
 
 
  
 
 
 
Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding
 

  

 

Common stock, no par value, 100,000,000 shares authorized 24,968,799 shares issued and outstanding (25,114,349 at December 31, 2017, and 24,930,725 at March 31, 2018)
 
326,323

 
321,832

 
321,559

Retained earnings
 
1,093,829

  
1,058,556

 
1,080,934

Accumulated other comprehensive loss
 
(75,667
)
  
(55,444
)
 
(60,064
)
Total Universal Corporation shareholders' equity
 
1,344,485

  
1,324,944

 
1,342,429

Noncontrolling interests in subsidiaries
 
45,298

 
45,729

 
42,873

Total shareholders' equity
 
1,389,783

 
1,370,673

 
1,385,302

 
 
 
 
 
 
 
Total liabilities and shareholders' equity
 
$
2,228,616

  
$
2,149,967

 
$
2,168,632


See accompanying notes.




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UNIVERSAL CORPORATION     
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
 
 
Nine Months Ended December 31,
 
 
2018
 
2017
 
 
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
76,442

 
$
81,846

Adjustments to reconcile net income to net cash used by operating activities:
 
 
 
 
Depreciation
 
27,651

 
26,106

Net provision for losses (recoveries) on advances and guaranteed loans to suppliers
 
(3,045
)
 
4,375

Foreign currency remeasurement (gain) loss, net
 
1,790

 
(3,430
)
Deferred income taxes
 
(5,471
)
 
(18,967
)
Restructuring and impairment costs, net of payments
 
18,685

 

Other, net
 
12,283

 
12,131

Changes in operating assets and liabilities, net
 
(225,648
)
 
(151,429
)
Net cash used by operating activities
 
(97,313
)
 
(49,368
)
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchase of property, plant and equipment
 
(28,370
)
 
(23,567
)
Proceeds from sale of property, plant and equipment
 
1,377

 
5,072

Other
 
2,000

 
(550
)
Net cash used by investing activities
 
(24,993
)
 
(19,045
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Issuance (repayment) of short-term debt, net
 
85,893

 
(12,195
)
Issuance of long-term debt
 
41,147

 

Repayment of long-term debt
 
(41,147
)
 

Dividends paid to noncontrolling interests
 
(1,260
)
 
(1,260
)
Repurchase of common stock
 
(1,443
)
 
(12,639
)
Dividends paid on common stock
 
(51,156
)
 
(40,886
)
Debt issuance costs and other
 
(4,946
)
 
(2,828
)
Net cash provided (used) by financing activities
 
27,088

 
(69,808
)
 
 
 
 
 
Effect of exchange rate changes on cash
 
(552
)
 
806

Net decrease in cash and cash equivalents
 
(95,770
)
 
(137,415
)
Cash and cash equivalents at beginning of year
 
234,128

 
283,993

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
138,358

 
$
146,578

See accompanying notes.

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NOTE 1. BASIS OF PRESENTATION

Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is the leading global leaf tobacco supplier. 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 Form 10-Q 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, 2018.

NOTE 2.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
(in thousands, except share and per share data)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Basic Earnings Per Share
 
 
 
 
 
 
 
 
Numerator for basic earnings per share
 
 
 
 
 
 
 
 
Net income attributable to Universal Corporation
 
$
28,135

 
$
45,400

 
$
72,760

 
$
75,144

 
 
 
 
 
 
 
 
 
Denominator for basic earnings per share
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
25,162,268

 
25,230,336

 
25,126,595

 
25,323,796

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
1.12

 
$
1.80

 
$
2.90

 
$
2.97

 
 
 
 
 
 
 
 
 
Diluted Earnings Per Share
 
 
 
 
 
 
 
 
Numerator for diluted earnings per share
 
 
 
 
 
 
 
 
Net income attributable to Universal Corporation
 
28,135

 
45,400

 
72,760

 
75,144

 
 
 
 
 
 
 
 
 
Denominator for diluted earnings per share:
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
25,162,268

 
25,230,336

 
25,126,595

 
25,323,796

Effect of dilutive securities
 
 
 
 
 
 
 
 
Employee share-based awards
 
203,498

 
230,073

 
202,878

 
222,274

Denominator for diluted earnings per share
 
25,365,766

 
25,460,409

 
25,329,473

 
25,546,070

 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
1.11

 
$
1.78

 
$
2.87

 
$
2.94



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Universal Corporation
Page 12

NOTE 3. SEGMENT INFORMATION

The principal approach used by management to evaluate the Company’s performance is by geographic region, although the dark air-cured and oriental tobacco businesses are each 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 the pretax earnings (loss) of unconsolidated affiliates.

Operating results for the Company’s reportable segments for each period presented in the consolidated statements of income and comprehensive income were as follows:

 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
(in thousands of dollars)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
SALES AND OTHER OPERATING REVENUES
 
 
 
 
 
 
 
 
Flue-Cured and Burley Leaf Tobacco Operations:
 
 
 
 
 
 
 
 
   North America
 
$
78,009

   
$
99,452

   
$
261,347

   
$
211,444

   Other Regions (1)
 
483,161

   
474,351

   
1,089,180

   
1,039,927

      Subtotal
 
561,170

 
573,803

 
1,350,527

 
1,251,371

Other Tobacco Operations (2)
 
74,937

   
79,778

   
204,903

   
175,080

Consolidated sales and other operating revenue
 
$
636,107

 
$
653,581

 
$
1,555,430

 
$
1,426,451

 
 
 
 
 
 
 
 
 
OPERATING INCOME
 
 
 
 
 
 
 
 
Flue-Cured and Burley Leaf Tobacco Operations:
 
 
 
 
 
 
 
 
   North America
 
$
3,147

   
$
3,588

   
$
20,395

   
$
13,784

   Other Regions (1)
 
53,283

   
56,895

   
96,828

   
98,225

      Subtotal
 
56,430

 
60,483

 
117,223

 
112,009

Other Tobacco Operations (2)
 
6,210

   
5,422

   
8,081

   
5,310

Segment operating income
 
62,640

 
65,905

 
125,304

 
117,319

Deduct: Equity in pretax earnings of unconsolidated affiliates (3)
 
(5,512
)
 
(6,404
)
 
(5,437
)
 
(6,636
)
              Restructuring and impairment costs (4)
 
(19,447
)
 

 
(19,447
)
 

Consolidated operating income
 
$
37,681

 
$
59,501

 
$
100,420

 
$
110,683


(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 the business is accounted for on the equity method and its financial results consist principally of equity in the pretax earnings of an unconsolidated affiliate.
(3) 
Equity in pretax earnings of unconsolidated affiliates is included in segment operating income (Other Tobacco Operations segment), but is reported below consolidated operating income and excluded from that total in the consolidated statements of income and comprehensive income.
(4) 
Restructuring and impairment costs are excluded from segment operating income, but are included in consolidated operating income in the consolidated statements of income and comprehensive income.




-- M O R E --



Universal Corporation
Page 13

NOTE 5.   RESTRUCTURING AND IMPAIRMENT COSTS

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. Based on that review, which is still in process at this time, the Company’s operating subsidiaries in Tanzania have taken specific steps to reduce operating costs going into the upcoming crop year, including actions currently being implemented to substantially discontinue a year-round workforce. As a result of that initiative, the subsidiaries have paid or will pay termination benefits totaling approximately $4.0 million to employees whose permanent positions are being eliminated. The total initiative is expected to be completed and all termination benefits paid before the end of February 2019. The subsidiaries will hire employees on a seasonal basis to handle the buying, processing, and shipment of the upcoming crop. The Company recorded the full $4.0 million cost of the termination benefits as a restructuring charge in the quarter ended December 31, 2018.
In addition to the actions being 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. The Company has not concluded its review of the Tanzanian operations, and no decisions have been made with respect to operations following the upcoming crop year. 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. 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.
A summary of the restructuring and impairment costs recorded in the quarter ended December 31, 2018 related to the Company’s operations in Tanzania is as follows:
(in thousands, except share and per share data)
 
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


-- M O R E --



Universal Corporation
Page 14

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 expects to realize 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 in the current and future years’ tax returns. 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.
A reconciliation of the liability for termination benefits through December 31, 2018 is as follows:
(in thousands, except share and per share data)
 
Three Months Ended December 31, 2018
 
 
 
 
 
Costs charged to expense
 
$
3,974

Payments
 
(734
)
Balance at December 31, 2018
 
$
3,240




###


Exhibit


Exhibit 99.2
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12683405&doc=5
P.O. Box 25099 ~ Richmond, VA 23260 ~ phone: (804) 359-9311 ~ fax (804) 254-3584
_____________________________________________________________________________________
P R E S S R E L E A S E
CONTACT:
Candace C. Formacek
RELEASE:
4:15 p.m. ET
 
Phone: (804) 359-9311
 
 
 
Fax: (804) 254-3584
 
 
 
Email: investor@universalleaf.com
 
 

Universal Corporation Announces Quarterly Dividend
Richmond, VA February 7, 2019 / PRNEWSWIRE

George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE:UVV), announced today that the Company's Board of Directors declared a quarterly dividend of seventy-five cents ($0.75) per share on the common shares of the Company, payable May 6, 2019, to common shareholders of record at the close of business on April 8, 2019.

Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco supplier and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2018, were $2.0 billion. For more information on Universal Corporation, visit its website at www.universalcorp.com.


# # #



Exhibit


Exhibit 99.3
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12683405&doc=5
P.O. Box 25099 ~ Richmond, VA 23260 ~ Phone: (804) 359-9311 ~ Fax: (804) 254-3584

PRESS RELEASE

CONTACT:     Candace C. Formacek            RELEASE:    Immediately
Phone:    (804) 359-9311
Fax:    (804) 254-3584
Email:    investor@universalleaf.com

Universal Corporation Announces Agreement with Philip Morris International Inc. to Supply Philippine Tobaccos
Richmond, VA, February 6, 2019 / PRNEWSWIRE

George C. Freeman, III, Chairman, President and Chief Executive Officer of Universal Corporation (NYSE:UVV) (“Universal”), announced today that the Company’s subsidiary, Universal Leaf Philippines, Inc. (“ULPI”) will be increasing its purchases of leaf tobaccos in the Philippines, as part of a new leaf supply arrangement for the Philippines with Philip Morris International Management SA (“PMIMSA”). Previously, PMFTC, Inc. (“PMFTC”), an affiliate of PMIMSA, purchased certain quantities of leaf tobaccos produced by their own contracted grower base and processed that tobacco in their own facility. Starting with the 2019 crop, PMFTC will purchase processed grades of tobacco from ULPI. The new arrangement is expected to provide important supply chain efficiencies and is indicative of PMIMSA’s and Universal’s strong commitment to the grower communities in the Philippines and PMIMSA’s intent to remain a major purchaser of Philippine-grown leaf tobacco. Universal initiated operations in the Philippines in the late 1960s.
 
Mr. Freeman stated, “We are very excited about this new opportunity to continue to meet the evolving needs of one of our long-standing global business partners, while expanding our leaf purchasing and grower support services in the Filipino grower communities. The expansion of direct contracting by ULPI will provide procurement synergies and economies of scale that will promote efficient leaf utilization of tobaccos supplied to PMFTC and our other customers, and will support the competitiveness of Philippine tobaccos in the global leaf markets. In addition, this new arrangement exemplifies our commitment to prioritize investments for the growth of our core tobacco business consistent with our capital allocation strategy.

“As the global leader in the supply of leaf tobacco, we are committed to the sustainability of our grower communities. We are well positioned to continue our support of the high standards of Good Agricultural Practices in the Philippines, including our commitment to our Agricultural Labor Practices (“ALP”) program. ALP is designed to further our corporate goals and the goals of our customers of progressively addressing and eliminating concerns found in agriculture with child and other labor issues, and achieving safe and fair working conditions on all farms from which we source tobacco. We are proud to improve the strength, efficiency, and security of the supply chain which is vital to our success and to the success of our customers.”

Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco supplier and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2018, were $2.0 billion. For more information on Universal Corporation, visit its website at www.universalcorp.com.



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