Universal Corporation
Nov 6, 2008

Universal Corporation Announces 12% Increase in Earnings per Share

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.

Additional information

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
CONTACT:
Karen M. L. Whelan of Universal Corporation, 1-804-359-9311,
Fax: +1-804-254-3594, investor@universalleaf.com
Web site: http://www.universalcorp.com (UVV)