Universal Corporation Reports Increased Nine-Month Results
Richmond, VA, Feb. 4 /PRNewswire-FirstCall/ --
HIGHLIGHTS
Nine Months
Diluted earnings per share increased to $4.78 versus $3.78 last year.
Revenues down 3% as pricing and mix reduce effect of shipment delays.
Operating income up 15%, to $215 million on lower currency costs, partially offset by shipment delays.
Quarter
Diluted earnings per share decreased to $1.54 versus $1.78 last year.
Shipment timing is primary factor reducing results.
Revenues lower by 5%, to $661 million.
Operating income reduced by $8.5 million, to $69 million.
George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), announced that net income for the nine months ended December 31, 2009, was $142.0 million, or $4.78 per diluted share, 22% above last year's results of $116.0 million, or $3.78 per diluted share. Last year's strong performance was overshadowed by the recognition of $45 million in currency-related costs due to the rapid strengthening of the U.S. dollar, and the current year has benefited from a $42 million reduction in those costs. That benefit was partially offset by delays in shipments from Africa and North America this year. Those shipment delays also caused a 3% reduction in revenues for the nine months and contributed to a modest decline in third quarter results this year. For the third quarter of fiscal year 2010, net income was about $45.7 million, or $1.54 per diluted share, compared to last year's net income of $53.1 million, or $1.78 per diluted share. Revenues for the quarter of about $661 million were down by 5%.
Mr. Freeman stated, "Our operations continue to perform well as we look at them over the crop cycle. Timing differences are a normal part of our business whether caused by farmer deliveries that affect inventory levels or by shipments that affect both inventory and income recognition. This year is no exception as both North American and African shipments have been delayed. We currently expect the shipments to be substantially completed by our fiscal year end. We are benefiting from continued cost controls and global coordination, and we are pleased with our performance so far this year.
"Looking ahead to crops that will be sold in fiscal year 2011, Brazilian crops are now expected to be lower than originally estimated because of excess rainfall, while dry conditions have reduced the Malawi burley crop. However, these changes should not have a substantial effect on worldwide production. In recent months, some of our customers have announced that the combined impact of increased excise taxes and the recessionary economy has reduced demand somewhat for tobacco products in more developed markets. Although such decreases could shift future demand for some types of leaf, we expect the overall export markets will remain largely in balance because export production appears stable and worldwide uncommitted dealer inventories remain near historical December lows."
FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:
Nine Months
Operating income for the flue-cured and burley tobacco operations, which comprise the North America and Other Regions segments, increased by more than 14% to nearly $200 million for the first nine months of this fiscal year, largely on lower currency-related costs. Revenues were down by 4%, primarily due to shipment delays in North America and Africa that were partly offset by higher sales from Asia and South America. In North America, operating income increased by nearly $5 million as higher prices and improved experience with farmer advances in some areas outweighed the effect of lower U.S. shipments. Revenues for the North America unit declined on shipment delays, lower sales of old crop leaf, and lower Canadian volumes. Earnings for the Other Regions segment were up by nearly 14%, primarily due to large currency-related costs in Brazil last year. African volumes were substantially lower because the current crop is being shipped later and because first quarter shipments of old crop tobacco were lower this year. The later timing of current crop shipments from Africa was due to customer delays, a late start to the purchasing season, and logistical issues. In Europe, lower margins and the effect of currency translation reduced reported results. Volumes improved in Asia on increased trading business, and currency effects were favorable in that region as well. Revenues for Other Regions were nearly flat for the nine months as lower volumes from the shipment delays in Africa were offset by higher sales in Asia and South America.
Third Quarter
In the third quarter of fiscal year 2010, operating income for flue-cured and burley operations was $66 million, 10% lower than the same period last year. Revenues for the group, at $604 million, were lower due to the decrease in volumes caused by the delayed shipments from North America and Africa. Sales increases in South America offset part of the reduction from shipment timing. Despite lower volumes, operating income for the North America segment was flat, largely reflecting additional processing business and improved margins in some areas. Results for the Other Regions segment were down 15%, primarily due to lower African volumes. Although results benefited from the absence of currency losses in Brazil this year, the benefit was reduced by several other factors in the quarter, including higher pension settlement costs and higher provisions against direct and guaranteed farmer loans in Brazil. Revenues for the Other Regions segment revenue increased by 4% in the quarter compared to last year as the effect of African shipment delays was mitigated by higher volumes in Asia, coupled with higher prices in some areas to recover increased costs of green tobacco.
OTHER TOBACCO OPERATIONS:
The Other Tobacco Operations segment performed well during the first nine months of fiscal year 2010 with a 27% improvement in operating income compared to last year. The dark tobacco group benefited from a better currency environment and improvements related to mix of business, which more than offset slightly lower volumes and costs of rationalizing their U.S. operations. Despite a decrease in overall volumes, the oriental tobacco joint venture earnings increased by $4 million for the nine months due to a better sales mix and cost savings, as well as lower interest and currency costs. The latter factors also benefited the third quarter, driving segment performance up 17% for that period. Dark tobacco business results lagged the prior year primarily due to some one-time sales last year and shipment timing differences, which also reduced revenues for the quarter. The facility upgrade and expansion in Lancaster, Pennsylvania, was near completion in December, and the factory is now operating. Segment revenues were higher in both the quarter and the nine months ended December 31, 2009, as higher volumes of oriental leaf in each period were sold through the consolidated group.
OTHER ITEMS:
Selling, general, and administrative costs decreased by about $13 million, or 14%, in the quarter and $21 million, or 9%, in the nine months ended December 31, 2009, compared to the same periods last year. The reductions were primarily due to lower currency remeasurement and exchange losses, which were down $25 million for the quarter and $42 million for the nine months, offset partially by higher pension settlement costs and an increase in provisions on direct and guaranteed farmer loans in Brazil. Compared to last year, interest expense was about $6 million lower in the quarter and $9 million lower in the nine-month period primarily because of lower average borrowings combined with lower average interest rates.
The consolidated effective income tax rates on pre-tax earnings for the quarter and nine months ended December 31, 2009, were approximately 32% and 31%, respectively. During both the second and third quarters, management reversed income taxes previously provided for uncertain tax positions because the statutes of limitations expired for the related tax years in the applicable tax jurisdictions. In addition, forecast current year earnings of subsidiaries in the African region have resulted in the recognition of foreign tax credits on historical unremitted earnings. The favorable impact of these items was partially offset by additional U.S. taxes provided for certain foreign income taxes that are not eligible as foreign tax credits when the related earnings are repatriated in future periods. The effect of these items reduced the consolidated effective tax rate below the 35% U.S. statutory rate for the quarter and nine months.
The consolidated effective income tax rates for the quarter and nine months ended December 31, 2008, were approximately 26% and 30%, respectively. During the quarter ended December 31, 2008, management reversed income taxes previously provided for uncertain tax positions due to the expiration of the related statute of limitations. In addition, changes in Universal's overall tax position allowed the Company to utilize foreign tax credit carryforwards and reverse a valuation allowance that had previously been recorded on those carryforwards. The effect of these items reduced the consolidated effective tax rate below the 35% U.S. statutory rate for both the quarter and the nine months.
Additional information
Amounts included in the previous discussion are attributable to Universal Corporation and exclude earnings related to non-controlling interests in subsidiaries.
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, 2009, 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, 2009.
At 5:00 p.m. (Eastern Time) on February 4, 2010, 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 through February 25, 2010, by dialing (800) 642-1687. The confirmation number to access the replay is 54399037.
Headquartered in Richmond, Virginia, Universal Corporation is the world's leading leaf tobacco merchant and processor and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2009, were $2.6 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 Nine Months Ended
December 31, December 31,
----------- -----------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
Sales and other operating
revenues 661,205 $699,144 $1,925,235 $1,991,021
Costs and expenses
Cost of goods sold 516,541 533,176 1,493,864 1,566,876
Selling, general and
administrative expenses 75,719 88,556 216,789 237,351
------ ------ ------- -------
Operating income 68,945 77,412 214,582 186,794
Equity in pretax earnings
of unconsolidated
affiliates 7,783 5,259 17,029 12,792
Interest income 130 195 926 1,562
Interest expense 5,438 11,435 20,287 29,214
----- ------ ------ ------
Income before income
taxes and other items 71,420 71,431 212,250 171,934
Income taxes 22,946 18,638 65,300 52,034
------ ------ ------ ------
Net income 48,474 52,793 146,950 119,900
Less: net (income) loss
attributable to noncontrolling
interests in subsidiaries (2,778) 291 (4,994) (3,923)
------ --- ------ ------
Net income attributable to
Universal Corporation 45,696 53,084 141,956 115,977
Dividends on Universal
Corporation convertible
perpetual preferred
stock (3,712) (3,712) (11,137) (11,137)
------ ------ ------- -------
Earnings available to
Universal Corporation
common shareholders $41,984 $49,372 $130,819 $104,840
======= ======= ======== ========
Earnings per share attributable
to Universal Corporation common
shareholders:
Basic $1.70 $1.98 $5.27 $4.07
===== ===== ===== =====
Diluted $1.54 $1.78 $4.78 $3.78
===== ===== ===== =====
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
December December March
31, 31, 31,
2009 2008 2009
-------- -------- ----
(Unaudited) (Unaudited)
ASSETS
Current
Cash and cash equivalents $164,170 $87,971 $212,626
Short-term investments - 5,939 -
Accounts receivable, net 255,847 342,595 263,383
Advances to suppliers,
net 134,209 170,440 214,282
Accounts receivable -
unconsolidated
affiliates 26,550 35,234 20,371
Inventories - at lower of
cost or market:
Tobacco 770,708 613,597 586,136
Other 50,716 67,000 60,712
Prepaid income taxes 14,632 20,270 13,181
Deferred income taxes 48,711 36,799 68,264
Other current assets 64,234 65,630 64,964
------ ------ ------
Total current assets 1,529,777 1,445,475 1,503,919
Property, plant and equipment
Land 16,147 15,978 15,773
Buildings 259,912 252,846 251,875
Machinery and equipment 535,278 503,993 492,214
------- ------- -------
811,337 772,817 759,862
Less accumulated
depreciation -483,349 -453,288 -447,575
-------- -------- --------
327,988 319,529 312,287
Other assets
Goodwill and other
intangibles 106,000 106,137 106,097
Investments in
unconsolidated
affiliates 124,503 110,166 103,987
Deferred income taxes 13,961 35,562 17,376
Other noncurrent assets 122,057 97,020 94,510
------- ------ ------
366,521 348,885 321,970
------- ------- -------
Total assets $2,224,286 $2,113,889 $2,138,176
========= ========= =========
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
December December March
31, 31, 31,
2009 2008 2009
-------- -------- ----
(Unaudited) (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $151,252 $140,677 $168,608
Accounts payable and accrued expenses 196,126 208,805 236,837
Accounts payable - unconsolidated
affiliates 17,398 28,880 19,191
Customer advances and deposits 38,032 27,344 14,162
Accrued compensation 25,143 16,646 24,710
Income taxes payable 11,753 10,087 6,867
Current portion of long-term
obligations 15,000 79,500 79,500
------ ------ ------
Total current liabilities 454,704 511,939 549,875
Long-term obligations 414,222 333,943 331,808
Pensions and other postretirement benefits 90,662 86,609 91,248
Other long-term liabilities 71,607 76,586 79,159
Deferred income taxes 41,608 54,156 52,842
------ ------ ------
Total liabilities 1,072,803 1,063,233 1,104,932
Shareholders' equity
Universal Corporation:
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 December 31, 2008, and
March 31, 2009) 213,023 213,023 213,023
Common stock, no par value, 100,000,000
shares authorized, 24,617,987 shares
issued and outstanding (24,987,055 at
December 31, 2008, and 24,999,127 at
March 31, 2009) 195,679 193,020 194,037
Retained earnings 770,103 688,015 686,960
Accumulated other comprehensive loss (36,084) (50,263) (64,547)
------- ------- -------
Total Universal Corporation
shareholders' equity 1,142,721 1,043,795 1,029,473
Noncontrolling interests in
subsidiaries 8,762 6,861 3,771
----- ----- -----
Total shareholders' equity 1,151,483 1,050,656 1,033,244
--------- --------- ---------
Total liabilities and
shareholders' equity $2,224,286 $2,113,889 $2,138,176
========= ========= =========
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Nine Months Ended
December 31,
------------
2009 2008
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $146,950 $119,900
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation 30,888 31,651
Amortization 1,791 736
Provisions for losses on advances and
guaranteed loans to suppliers 19,148 14,427
Remeasurement loss (gain), net 7,219 42,432
Other, net (2,841) 27,325
Changes in operating assets and
liabilities, net (148,345) (243,274)
-------- --------
Net cash provided (used) by
operating activities 54,810 (6,803)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (42,923) (28,900)
Purchases of short-term investments - (9,658)
Maturities and sales of short-term
investments - 62,833
Proceeds from sale of property, plant and
equipment, and other 3,356 14,530
----- ------
Net cash provided (used) by
investing activities (39,567) 38,805
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt,
net (23,935) 28,288
Issuance of long-term obligations 99,208 -
Repayment of long-term obligations (79,500) -
Dividends paid to noncontrolling
interests (105) (105)
Issuance of common stock 205 37
Repurchase of common stock (15,342) (111,072)
Dividends paid on convertible perpetual
preferred stock (11,137) (11,137)
Dividends paid on common stock (34,315) (34,623)
Other (943) -
---- ---
Net cash used by financing
activities (65,864) (128,612)
------- --------
Effect of exchange rate changes on cash 2,165 (1,489)
----- ------
Net decrease in cash and cash equivalents (48,456) (98,099)
Cash and cash equivalents at beginning of
year 212,626 186,070
------- -------
Cash and cash equivalents at end of period $164,170 $87,971
======= ======
See accompanying notes.
NOTE 1. BASIS OF PRESENTATION
Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is the world's leading leaf tobacco merchant and processor. 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. As part of the process of preparing its financial statements, the Company performed an evaluation of subsequent events occurring from December 31, 2009, the date of the consolidated balance sheet included in this report, through February 5, 2010, the date its financial statements were issued. 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, 2009.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
Effective April 1, 2009, Universal adopted FASB Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51" ("SFAS 160"). SFAS 160, which is now set forth in Topic 810 of the Codification, requires that noncontrolling interests in subsidiaries that are included in a company's consolidated financial statements, commonly referred to as "minority interests," be reported as a component of shareholders' equity in the balance sheet. It also requires that a company's consolidated net income and comprehensive income include the amounts attributable to both the company's interest and the noncontrolling interest in the subsidiary, identified separately in the financial statements. Finally, the new guidance requires certain disclosures about noncontrolling interests in the consolidated financial statements. Adoption of this guidance did not have a material impact on the Company's financial statements.
NOTE 3. 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 December 31, 2009, the Company's total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was approximately $129 million ($155 million face amount including unpaid accrued interest, less $26 million recorded for the fair value of the guarantees). About 80% 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 the third-party banks could result in a liability for the subsidiary under the related guarantees; 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 at December 31, 2009, was the face amount, $155 million including unpaid accrued interest ($133 million as of December 31, 2008, and $139 million at March 31, 2009). The fair value of the guarantees was a liability of approximately $26 million at December 31, 2009 ($26 million at December 31, 2008, and $35 million at March 31, 2009). In addition to these guarantees, the Company has other contingent liabilities totaling approximately $62 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 4. 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 Nine Months
Ended Ended
December 31, December 31,
------------ ------------
(in thousands, except per share data) 2009 2008 2009 2008
-------------------------------------------------------------------------
Basic Earnings Per Share
------------------------
Numerator for basic earnings per share
Net income attributable to
Universal Corporation $45,696 $53,084 $141,956 $115,977
Less: Dividends on convertible
perpetual preferred stock (3,712) (3,712) (11,137) (11,137)
------ ------ ------- -------
Earnings available to Universal
Corporation common shareholders
for calculation of basic earnings
per share 41,984 49,372 130,819 104,840
------ ------ ------- -------
Denominator for basic earnings per share
Weighted average shares
outstanding 24,684 24,989 24,823 25,759
------ ------ ------ ------
Basic earnings per share $1.70 41.98 $5.27 $4.07
==== ==== ==== ====
Diluted Earnings Per Share
--------------------------
Numerator for diluted earnings per share
Earnings available to Universal
Corporation common shareholders $41,984 $49,372 $130,819 $104,840
Add: Dividends on convertible
perpetual preferred stock (if
conversion assumed) 3,712 3,712 11,137 11,137
----- ----- ------ ------
Earnings available to Universal
Corporation common shareholders for
calculation of diluted earnings per
share 45,696 53,084 141,956 115,977
------ ------ ------- -------
Denominator for diluted earnings per share:
Weighted average shares
outstanding 24,684 24,989 24,823 25,759
Effect of dilutive securities (if
conversion or exercise assumed)
Convertible perpetual preferred
stock 4,735 4,719 4,731 4,717
Employee share-based awards 226 142 173 196
--- --- --- ---
Denominator for diluted
earnings per share 29,645 29,850 29,727 30,672
------ ------ ------ ------
Diluted earnings per share $1.54 $1.78 $4.78 $3.78
==== ==== ==== ====
For the three- and nine-month periods ended December 31, 2009 and 2008, certain employee share-based awards were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive. These awards included stock appreciation rights and stock options totaling 507,801 shares at a weighted-average exercise price of $56.52 for the quarter and nine months ended December 31, 2009, and 704,972 shares at a weighted-average exercise price of $50.92 for the quarter and nine months ended December 31, 2008.
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 Nine Months
Ended Ended
December 31, December 31,
-------------- ---------------
(in thousands of dollars) 2009 2008 2009 2008
---------------- ---- ---- ---- ----
SALES AND OTHER OPERATING REVENUES
Flue-cured and burley leaf
tobacco operations:
North America $101,302 $160,979 $187,308 $264,272
Other regions(1) 502,624 482,538 1,570,973 1,570,299
------ ------- --------- ---------
Subtotal 603,926 643,517 1,758,281 1,834,571
Other tobacco operations(2) 57,279 55,627 166,954 156,450
------ ------ ------- -------
Consolidated sales and
other operating revenues $661,205 $699,144 $1,925,235 $1,991,021
======= ======= ========= =========
OPERATING INCOME
Flue-cured and burley leaf
tobacco operations:
North America $23,826 $23,894 $32,080 $27,218
Other regions(1) 42,320 49,747 167,706 147,385
------ ------ ------- -------
Subtotal 66,146 73,641 199,786 174,603
Other tobacco operations(2) 10,582 9,030 31,825 24,983
------ ----- ------ ------
Segment operating income $76,728 $82,671 $231,611 $199,586
Less:
Equity in pretax
earnings of
unconsolidated
affiliates(3) 7,783 5,259 17,029 12,792
----- ----- ------ ------
Consolidated operating income $68,945 $77,412 $214,582 $186,794
====== ====== ======= =======
(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.
SOURCE Universal Corporation
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