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RICHMOND, Va., Nov. 5 /PRNewswire-FirstCall/ --
HIGHLIGHTS
Six Months
Diluted earnings per share increased to $3.23 versus $2.02 last year.
Revenues flat as pricing and mix offset effect of shipment delays.
Operating income up 33%, to $146 million on lower currency costs and better product mix.
Quarter
Diluted earnings per share increased to $1.77 versus $1.38 last year.
Revenues down 18% to $648 million on lower volumes due to shipment timing.
Operating income up 7%, to $76 million on lower currency costs.
George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), announced that net income for the first six months of fiscal year 2010, which ended on September 30, 2009, was $96.3 million, or $3.23 per diluted share. Results were above last year's net income of $62.9 million, or $2.02 per diluted share, mostly because of a $17 million decline in currency-related costs, better margins, and a favorable tax rate related to the reversal of provisions for uncertain tax positions due to expiration of the time period during which those positions could be challenged by the tax authorities. Revenues for the six months of about $1.3 billion were flat, as lower volumes due to later shipments and reduced old crop tobacco sales were offset by a better mix of business and higher prices in some areas.
For the second quarter of fiscal year 2010, net income was $52.5 million, or $1.77 per diluted share, compared to last year's net income of $41.8 million, or $1.38 per diluted share. The increase was primarily due to a $25 million decline in currency-related costs and the tax provision reversal. Revenues for the quarter of about $648 million were down significantly, as some shipments were either accelerated into the first quarter or delayed until later in the year.
Mr. Freeman stated, "We are very pleased with our performance so far this year. All of our operations continue to perform well, benefitting from continued cost controls and global coordination. Earlier shipments of Brazilian and European tobacco boosted results in our first fiscal quarter, so we expected lower volumes this period. In addition, some African shipments will be later this year than last. Our costs were lower this quarter, especially those related to currency movement, and that factor has offset the effect of reduced shipments.
"We do not foresee an oversupply of flue-cured tobacco in the coming year. In fact, rains in Brazil during the season could reduce the crop there. Although African burley crops were very large this year, they were smaller than we anticipated, and it appears that the supply has been absorbed by the market. We would not expect to see any significant increase in worldwide dealer inventories for flue-cured and burley tobacco. However, looking at the current worldwide situation, the U.S. dollar has weakened in recent weeks, which could increase costs as we enter the next purchasing season.
"As we look ahead in the intermediate term, we will maintain our relationship with Japan Tobacco Inc. ("JTI"), one of our largest customers, as they work on their previously announced steps to enhance direct leaf procurement capabilities in some origins by acquiring and entering joint ventures with smaller leaf merchants. They have made certain announcements in recent weeks regarding their progress toward that goal, and we believe that it is likely that our U.S. flue-cured and burley volumes for JTI as well as our Malawi burley volumes for them will be reduced or eliminated over time, although we expect these actions will have no effect on volumes this fiscal year. We remain focused on measuring the business impact of these volume reductions and believe that we will continue to sell them significant volumes of processed tobacco outside these two countries."
FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:
First Six Months
Operating income for the flue-cured and burley tobacco operations, which comprise the North America and Other Regions segments, increased by more than 30% to $134 million for the first half of this fiscal year, largely on the strength of lower currency-related costs and better margins. Revenues were flat, primarily because a better mix of business and higher prices in some areas offset the effect of lower volumes from shipment delays and lower old crop shipments. In North America, operating income increased by nearly $5 million due to higher prices and improved experience with farmer advances in some areas, although revenues declined on lower sales of old crop leaf and lower Canadian volumes. Earnings for the Other Regions segment were up by 28%, primarily due to lower currency-related costs in Brazil. Volumes improved in Asia and South America, although shipment delays in some areas limited that improvement. African shipments were substantially lower this year because the current crop will be shipped later and first quarter shipments of old crop were reduced. Earnings in Africa improved because of a better product mix and additional processing income. In Europe, lower margins and a weaker local currency reduced reported results. Revenues for Other Regions were nearly flat for the six months as lower volumes, especially in Africa, were offset by improved mix.
Second Quarter
In the second quarter of fiscal year 2010, operating income for flue-cured and burley operations increased by 5% to $69 million, compared to the same period last year. Revenues for the group at $597 million were markedly lower as improvements in product mix overall did not offset the impact of lower volumes, primarily related to late shipments in Africa and accelerated shipments from Brazil and Europe in the first quarter of fiscal year 2010. Operating income for the North America segment increased by $4 million, largely reflecting some pricing improvements and lower costs, which more than offset the effects of lower volumes shipped. Revenues for North America were down on lower volumes. Results for the Other Regions segment were flat on lower volumes, as operating margins improved mostly because of lower currency losses this year. Although average sales prices in the Other Regions segment were slightly higher in the quarter, that increase was not sufficient to offset the effect on segment revenues of lower shipments from Africa.
OTHER TOBACCO OPERATIONS:
The Other Tobacco Operations segment performed well during the first six months of fiscal year 2010. The dark tobacco group saw an improved mix of business that more than offset slightly lower volumes and costs of rationalizing their U.S. operations. Despite an improvement in product mix that benefited current year results, the oriental tobacco joint venture earnings were flat due to the absence of currency gains in the first half of this year. For the second quarter of fiscal year 2010, the segment was flat. Improvement in the dark tobacco business volumes and margin were offset by lower results from the oriental tobacco group where currency gains last year were not repeated. Revenues for the segment were higher in both the quarter and the six months ended September 30, 2009, on higher volumes in the quarter and flat volumes for the six months. Dark tobacco revenues, which are normally the predominant factor in this segment's revenues, were higher in the quarter due to higher prices caused by increased leaf costs during last year's purchasing season and a more favorable product mix. Revenues for dark tobacco were flat for the six months.
OTHER ITEMS:
Cost of sales decreased by 21% to about $500 million in the quarter ended September 30, 2009, on the lower volumes shipped, and lower costs, as the U.S. dollar had strengthened against the currencies of many origins during the leaf purchasing season. Selling, general, and administrative costs decreased by 15%, reflecting lower currency remeasurement losses this year. For the six months, the pattern was similar with somewhat lower volumes combining with lower costs to reduce cost of sales by about 5% and selling, general, and administrative expenses falling by 5% in response to lower currency remeasurement losses. Interest expense was about $3 million lower than that of fiscal year 2009 in the quarter and the six months because of lower average borrowing combined with lower average interest rates. The effective income tax rate at 30% for the six months is lower than that of last year because of the reversal of some taxes provided on uncertain tax positions due to expiration of the time period during which those positions could be challenged by the tax authorities. Absent that reversal, the rate would be lower than the U.S. statutory income tax rate due to the relative size of earnings in regions with lower statutory tax rates.
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 November 5, 2009, 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, 2009, by dialing (800) 642-1687. The confirmation number to access the replay is 39756293.
Headquartered in Richmond, Virginia, Universal Corporation is the world's leading 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
(In thousands of dollars, except per share data)
Three Months Ended Six Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
(Unaudited) (Unaudited)
Sales and other operating
revenues $647,918 $785,590 $1,264,030 $1,291,877
Costs and expenses
Cost of goods sold 500,575 630,447 977,323 1,033,700
Selling, general and
administrative expenses 71,478 83,948 141,070 148,795
------ ------ ------- -------
Operating income 75,865 71,195 145,637 109,382
Equity in pretax earnings
of unconsolidated
affiliates 5,605 7,583 9,246 7,533
Interest income 231 417 796 1,367
Interest expense 6,694 10,113 14,849 17,779
----- ------ ------ ------
Income before income taxes
and other items 75,007 69,082 140,830 100,503
Income taxes 20,335 23,115 42,354 33,396
------ ------ ------ ------
Net income 54,672 45,967 98,476 67,107
Less: net income attributable
to noncontrolling interests
in subsidiaries (2,157) (4,185) (2,216) (4,214)
------ ------ ------ ------
Net income attributable
to Universal Corporation 52,515 41,782 96,260 62,893
Dividends on Universal
Corporation convertible
perpetual preferred stock (3,713) (3,713) (7,425) (7,425)
------ ------ ------ ------
Earnings available to
Universal Corporation
common shareholders $48,802 $38,069 $88,835 $55,468
======= ======= ======= =======
Earnings per share
attributable to
Universal Corporation
common shareholders:
Basic $1.97 $1.50 $3.57 $2.12
===== ===== ===== =====
Diluted $1.77 $1.38 $3.23 $2.02
===== ===== ===== =====
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, September 30, March 31,
2009 2008 2009
---- ---- ----
(Unaudited) (Unaudited)
ASSETS
Current
Cash and cash equivalents $61,991 $40,765 $212,626
Short-term investments - 15,950 -
Accounts receivable, net 293,985 284,107 263,383
Advances to suppliers, net 89,169 169,342 214,282
Accounts receivable -
unconsolidated affiliates 39,199 34,403 20,371
Inventories - at lower of
cost or market:
Tobacco 919,842 778,053 586,136
Other 66,039 80,095 60,712
Prepaid income taxes 23,544 10,058 13,181
Deferred income taxes 48,503 32,979 68,264
Other current assets 74,236 90,503 64,964
------ ------ ------
Total current assets 1,616,508 1,536,255 1,503,919
Property, plant and equipment
Land 16,188 16,133 15,773
Buildings 259,596 255,875 251,875
Machinery and equipment 523,380 504,568 492,214
------- ------- -------
799,164 776,576 759,862
Less accumulated
depreciation (476,256) (450,946) (447,575)
-------- -------- --------
322,908 325,630 312,287
Other assets
Goodwill and other intangibles 106,036 106,267 106,097
Investments in
unconsolidated affiliates 120,608 108,137 103,987
Deferred income taxes 15,080 33,512 17,376
Other noncurrent assets 115,342 96,767 94,510
------- ------ ------
357,066 344,683 321,970
------- ------- -------
Total assets $2,296,482 $2,206,568 $2,138,176
========== ========== ==========
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, September 30, March 31,
2009 2008 2009
---- ---- ----
(Unaudited) (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $301,376 $260,511 $168,608
Accounts payable and accrued
expenses 214,729 205,166 236,837
Accounts payable - unconsolidated
affiliates 6,988 320 19,191
Customer advances and deposits 70,089 60,326 14,162
Accrued compensation 22,581 17,632 24,710
Income taxes payable 11,574 9,891 6,867
Current portion of long-term
obligations - 79,500 79,500
-- ------ ------
Total current liabilities 627,337 633,346 549,875
Long-term obligations 331,905 321,617 331,808
Pensions and other
postretirement benefits 86,888 91,562 91,248
Other long-term liabilities 73,845 88,296 79,159
Deferred income taxes 55,035 35,335 52,842
------ ------ ------
Total liabilities 1,175,010 1,170,156 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 September 30,
2008, and March 31, 2009) 213,023 213,023 213,023
Common stock, no par value,
100,000,000 shares authorized,
24,715,901 shares issued and
outstanding (25,026,040 at
September 30, 2008, and
24,999,127 at March 31, 2009) 195,227 193,643 194,037
Retained earnings 743,922 653,402 686,960
Accumulated other comprehensive loss (36,745) (30,944) (64,547)
------- ------- -------
Total Universal Corporation
shareholders' equity 1,115,427 1,029,124 1,029,473
Noncontrolling interests in subsidiaries 6,045 7,288 3,771
----- ----- -----
Total shareholders' equity 1,121,472 1,036,412 1,033,244
--------- --------- ---------
Total liabilities and
shareholders' equity $2,296,482 $2,206,568 $2,138,176
========== ========== ==========
See accompanying notes.
UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Six Months Ended
September 30,
-------------
2009 2008
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $98,476 $67,107
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation 20,524 20,451
Amortization 1,020 493
Provisions for losses on advances and guaranteed
loans to suppliers 8,827 9,972
Remeasurement loss (gain), net 8,562 24,603
Other, net 8,562 10,006
Changes in operating assets and liabilities, net (279,720) (321,938)
-------- --------
Net cash used by operating activities (133,749) (189,306)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (26,429) (21,748)
Purchases of short-term investments - (9,658)
Maturities and sales of short-term investments - 52,740
Proceeds from sale of property, plant and
equipment, and other 2,134 14,298
----- ------
Net cash provided (used) by investing
activities (24,295) 35,632
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt, net 125,997 144,884
Repayment of long-term obligations (79,500) -
Issuance of common stock 72 37
Repurchase of common stock (10,947) (105,689)
Dividends paid on convertible perpetual
preferred stock (7,425) (7,425)
Dividends paid on common stock (22,950) (22,962)
------- -------
Net cash provided by financing activities 5,247 8,845
----- -----
Effect of exchange rate changes on cash 2,162 (476)
----- ----
Net decrease in cash and cash equivalents (150,635) (145,305)
Cash and cash equivalents at beginning of year 212,626 186,070
------- -------
Cash and cash equivalents at end of period $61,991 $40,765
======= =======
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. 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, 2009.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
Effective April 1, 2009, Universal adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160"). SFAS 160 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 include the amounts attributable to both the company's interest and the noncontrolling interest in the subsidiary, identified separately in the financial statements. The new guidance requires certain disclosures about noncontrolling interests in the consolidated financial statements. Adoption of SFAS 160 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 September 30, 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 $154 million ($176 million face amount including unpaid accrued interest, less $22 million recorded for the fair value of the guarantees). About 70% 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 September 30, 2009, was the face amount, $176 million including unpaid accrued interest ($163 million as of September 30, 2008, and $139 million at March 31, 2009). The fair value of the guarantees was a liability of approximately $22 million at September 30, 2009 ($28 million at September 30, 2008, and $35 million at March 31, 2009). In addition to these guarantees, the Company has other contingent liabilities totaling approximately $56 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 Ended Six Months Ended
September 30, September 30,
------------- -------------
(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 $52,515 $41,782 $96,260 $62,893
Less: Dividends on convertible
perpetual preferred stock (3,713) (3,713) (7,425) (7,425)
------ ------ ------ ------
Earnings available to Universal
Corporation common shareholders
for calculation of basic
earnings per share 48,802 38,069 88,835 55,468
------ ------ ------ ------
Denominator for basic earnings per share
Weighted average shares
outstanding 24,801 25,404 24,892 26,146
------ ------ ------ ------
Basic earnings per share $1.97 $1.50 $3.57 $2.12
===== ===== ===== =====
Diluted Earnings Per Share
--------------------------
Numerator for diluted earnings per share
Earnings available to Universal
Corporation common shareholders $48,802 $38,069 $88,835 $55,468
Add: Dividends on convertible
perpetual preferred stock (if
conversion assumed) 3,713 3,713 7,425 7,425
----- ----- ----- -----
Earnings available to Universal
Corporation common shareholders
for calculation of diluted
earnings per share 52,515 41,782 96,260 62,893
------ ------ ------ ------
Denominator for diluted earnings per share:
Weighted average shares
outstanding 24,801 25,404 24,892 26,146
Effect of dilutive securities
(if conversion or exercise assumed)
Convertible perpetual
preferred stock 4,732 4,716 4,730 4,715
Employee share-based awards 162 229 147 224
--- --- --- ---
Denominator for diluted earnings
per share 29,695 30,349 29,769 31,085
------ ------ ------ ------
Diluted earnings per share $1.77 $1.38 $3.23 $2.02
===== ===== ===== =====
For the three- and six-month periods ended September 30, 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 725,201 shares at a weighted-average exercise price of $50.33 for the quarter and six months ended September 30, 2009, and 404,800 shares at a weighted-average exercise price of $58.96 for the quarter and six months ended September 30, 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 Ended Six Months Ended
September 30, September 30,
------------- -------------
(in thousands of dollars) 2009 2008 2009 2008
---- ---- ---- ----
SALES AND OTHER OPERATING REVENUES
Flue-cured and burley leaf
tobacco operations:
North America $49,874 $54,866 $86,006 $103,293
Other regions (1) 547,177 686,276 1,068,349 1,087,761
------- ------- --------- ---------
Subtotal 597,051 741,142 1,154,355 1,191,054
Other tobacco
operations (2) 50,867 44,448 109,675 100,823
------ ------ ------- -------
Consolidated sales and
other operating
revenues $647,918 $785,590 $1,264,030 $1,291,877
======== ======== ========== ==========
OPERATING INCOME
Flue-cured and burley leaf
tobacco operations:
North America $7,948 $3,750 $8,254 $3,324
Other regions (1) 61,477 62,453 125,386 97,638
------ ------ ------- ------
Subtotal 69,425 66,203 133,640 100,962
Other tobacco
operations (2) 12,045 12,575 21,243 15,953
------ ------ ------ ------
Segment operating income 81,470 78,778 154,883 116,915
Less:
Equity in pretax
earnings of
unconsolidated
affiliates (3) 5,605 7,583 9,246 7,533
----- ----- ----- -----
Consolidated operating
income $75,865 $71,195 $145,637 $109,382
======= ======= ======== ========
(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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