Universal Corporation
Aug 5, 2008

Universal Corporation Announces Improved First Quarter Earnings

 

 

 

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.

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 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
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)