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Press release from PR Newswire

Universal Corporation Reports Solid Annual Results

Monday, May 23, 2011

Universal Corporation Reports Solid Annual Results16:00 EDT Monday, May 23, 2011RICHMOND, Va., May 23, 2011 /PRNewswire/ --HIGHLIGHTSFiscal Year 2011Diluted earnings per share decreased 5% to $5.42, compared to last year's record $5.68.Revenues up 3%, to $2.6 billion.Operating income down slightly, to $254.6 million. Operating income includes net benefit from non-recurring items of $5.3 million.Previously announced 40th annual increase in dividends and repurchased 4.6% of outstanding sharesFourth Fiscal QuarterDiluted earnings per share increased to $0.95, compared to $0.90 last year.Operating income up 9%, to $46.3 million, including $7.5 million in restructuring charges. Revenues increased 20%, to $680 million.George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), announced that for the fiscal year ended March 31, 2011, diluted earnings per share were $5.42, down about 5% from last year's record earnings of $5.68 per diluted share. Net income attributable to Universal Corporation for fiscal year 2011 was $156.6 million, a decrease of 7% compared to $168.4 million last year, primarily due to lower results for the Company's South American operations and Oriental tobacco joint venture. Revenues for fiscal year 2011 were $2.6 billion, a 3% increase compared to last year, reflecting higher selling prices on lower volumes shipped during the period. The price increases were generally related to higher green leaf costs and the effects of a weak U.S. dollar. Results for fiscal year 2011 also include the effects of several non-recurring items, which provided a net pretax benefit of $5.3 million, or about $0.12 per diluted share. During the third fiscal quarter, the Company recorded a net gain of $19.4 million before taxes, or $0.44 per diluted share, to recognize the assignment of tobacco production contracts with approximately 8,100 farmers in Brazil, along with the sale of related assets, to a subsidiary of Philip Morris International ("PMI"). In addition, the second fiscal quarter included a benefit of $7.4 million before taxes, or $0.17 per diluted share, for the reversal of a portion of a previously recorded European Commission fine after a favorable court ruling. These gains were largely offset by the effects of combined restructuring and impairment charges associated with initiatives to adjust various operations and reduce costs, including a significant portion related to the closure of the Company's Simcoe operations in Canada. Most of the restructuring costs represent accruals for employee termination benefits at operating locations in North America, South America, Africa, and Europe and at corporate headquarters. Total restructuring and impairment costs for the fiscal year ended March 31, 2011, were $21.5 million, or $0.49 per diluted share, of which about $5.6 million are noncash charges. For the fourth quarter of fiscal year 2011, net income was $27.1 million, or $0.95 per diluted share, compared to last year's net income of $26.4 million, or $0.90 per diluted share.  Results were improved over the prior period as the effects of higher volumes and margins in most regions were reduced by the accrual of additional restructuring and impairment costs of $7.5 million, or $0.17 per diluted share.  Revenues for the quarter increased by about 20% to $680 million due largely to increased volumes in Africa on the completion of some of the shipments delayed earlier in the year.Mr. Freeman stated, "We achieved strong results for fiscal year 2011, particularly in light of the challenging market conditions that we faced. Recent customer efforts to obtain leaf directly from farmers have changed parts of our business. In the last two years, both Japan Tobacco and Philip Morris International have taken steps to purchase more of their leaf needs directly from farmers. As we have said, we believe we have already experienced the effects of Japan Tobacco's increase in direct leaf procurement on our volumes in fiscal year 2011 in the United States, Malawi, and Brazil. Philip Morris International's assumption of farmer contracts will reduce our purchases of Brazilian leaf in fiscal year 2012. We continue to expect that, after contracts expire this month, our processing volumes in the United States will decline significantly. As we noted last year, we estimate that reduction will cause a decrease of about $30 million in operating income. We have had some success in broadening our customer base and expanding the services we offer our customers. However, in the near term, we will not be able to replace all the processing volumes in the United States."At the same time, we are experiencing the effects of leaf oversupply that we have been predicting, and we expect to see the financial impact of lower leaf prices and tighter margins that typify such cycles in fiscal year 2012. We believe that during the two prior fiscal years of higher than normal demand, a number of customers increased their leaf inventory levels. Those higher inventories, combined with softer cigarette sales in some markets, have led to reduced leaf demand for current crops, evidenced by slower than normal purchasing in major markets."Periodic cycles of under- and oversupply of leaf are not unusual in our business, and we have successfully navigated oversupplied markets throughout the history of the company. Although dealer unsold inventories are currently not excessive, we expect them to grow significantly during this season. Our uncommitted inventories are still at a manageable level, and we are working aggressively to avoid accumulating excess inventories during the oversupply period. However, we will not be able to avoid some accumulation of unsold inventory or the inevitable pressure on margins that comes with an oversupply. "We believe that our discipline and conservative capital structure will stand us in good stead during this period. In addition, our cost-saving restructuring initiatives are well underway, and we will continue to review our operations to control or reduce costs. We have continued to assert the value that the dealer industry adds to the system, both to the manufacturer and the farmer, and that is especially important in today's markets."FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:Fiscal Year 2011For the fiscal year ended March 31, 2011, operating income for the flue-cured and burley tobacco operations was about $229 million, a 4% decrease compared to the prior year's record $240 million results. The decrease was caused primarily by reduced volumes and margins in some operations within the Other Regions segment. Revenues for the group were relatively flat as reduced volumes for the year in South America, Europe, and North America, were balanced by higher volumes in Africa and Asia.Operating income of $170 million for the Other Regions segment was down about 7% compared to the prior year. Earnings in Africa increased over the previous year on higher sales volumes as well as additional third party processing. The region also benefited from net gains on foreign currency remeasurement and exchange compared to net losses in the prior year. Asia results were improved for the year as well, primarily due to higher volumes from larger crops in the Philippines and better margins related to lower unit costs on those volumes. South America results were down significantly, affected by lower volumes sold from both Brazil and Argentina. A smaller Brazilian crop due to weather conditions, significantly lower customer demand for Argentine leaf, and the effects of customer inventory corrections all reduced volumes. Margins also declined on higher unit production costs and higher green leaf prices. Earnings in Europe were also down for the fiscal year on lower volumes and margins, lower exchange gains this year, and the translation effects of a stronger dollar against the Euro and other European currencies. Overall results for this segment benefited from lower selling, general, and administrative expenses caused by the previously mentioned currency gains as well as lower overhead expenses, in part related to FCPA and employment costs in the prior year. Although overall volumes for the Other Regions segment were down, cost of sales increased on higher leaf costs, in part due to the weaker dollar. Overall segment revenues were up as those higher costs of leaf were reflected in selling prices.The North America segment reported improved operating income of $59 million as lower U.S. volumes from the fiscal year 2011 crop were offset by sales of carryover crops, additional third-party processing business in the United States, and lower overhead charges. Revenues for the segment were down by about 5% on reduced sales volumes despite improved product mix. Cost of sales for this segment was lower on overall lower volumes sold, while selling, general and administrative costs benefited from overhead reductions.Fourth QuarterIn the fourth quarter ended March 31, 2011, operating income for flue-cured and burley operations increased by nearly 22% to $48.4 million compared to the same period last year.  The improvement was mainly due to increased volumes in Africa on the completion of some of the shipments previously delayed, as well as currency remeasurement gains.  Improved results for the quarter were also achieved in Europe from the later timing of crop shipments this year, and in South America where earnings increased due to a gain on the sale of a storage facility and net benefits from foreign currency remeasurement and exchange.  North America segment results declined on lower volumes, as a larger portion of last year's shipments occurred in the fourth quarter.  Revenues for the quarter were up nearly 16% to $572.5 million, as volume increases in Africa and Europe outweighed declines in North America.OTHER TOBACCO OPERATIONS:In the Other Tobacco Operations segment, operating income for fiscal year 2011 declined by 28% to about $29 million, due primarily to significantly lower results from the oriental tobacco joint venture on reduced sales volumes on customer inventory adjustments as well as lower margins and smaller currency remeasurement gains. Dark tobacco results were flat compared with the prior fiscal year as the effects of increased volumes and reductions in domestic overhead costs were reduced by lower earnings resulting from the weather-damaged Indonesian crop, which is also expected to affect next fiscal year's results. Revenues for this segment increased by 20% to $287 million, primarily related to higher sales in the just-in-time services group, increased dark tobacco shipments after a soft beginning to the prior year, and higher imports of oriental tobacco into the United States. Those higher volumes also caused an increase in cost of sales while selling general and administrative costs were flat.For the fourth quarter, Other Tobacco Operations segment operating results increased by $4.9 million to $13.2 million influenced primarily by the effects of the timing of sales of oriental tobacco shipments into the United States that had been delayed in the comparable prior year period.  Dark tobacco results were also up slightly as the overall effect of improved domestic volumes and lower factory costs was offset in part by the decline in Indonesian results.  Revenues for this segment also increased substantially to $107.8 million largely due to the oriental shipment timing previously mentioned.OTHER ITEMS:Cost of goods sold increased by nearly 6% due to the influence on leaf prices of a weaker U.S. dollar and higher farm input costs, as well as a lower proportion of stem in the sales mix.  Selling, general, and administrative expenses decreased by more than $33 million, or 12%, compared to last year. Predominant factors in the reduced expense for the year included the $7.4 million reversal of the European Commission fine, an $11 million comparative benefit from net currency remeasurement and exchange gains in the current year compared with net losses in the prior year, last year's accruals for costs associated with the Foreign Corrupt Practices Act ("FCPA") matter, and lower compensation expense. Interest expense for the year decreased by $1.2 million as the impact of higher average debt balances was outweighed by lower average effective interest rates. Interest income increased by $1.5 million compared to last year primarily due to the recognition of interest income on the return of funds escrowed to bond the appeal of the European Commission fine. The consolidated effective income tax rate for the twelve months ended March 31, 2011, was approximately 32% versus nearly 34% for fiscal year 2010. In both cases, the full year rate was lower than the 35% U.S. federal statutory rate due to the recognition of foreign tax credits and to the reversal of previously recorded liabilities for uncertain tax positions based on favorable resolution or expiration of statutes of limitations for the related tax years. Additional informationAmounts 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; government regulation; product taxation; industry consolidation and evolution; 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, 2010, 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, 2010.At 5:00 p.m. (Eastern Time) on May 23, 2011, the Company will host a conference call to discuss these results.  Those wishing to listen to the call may do so by visiting www.universalcorp.com at that time.  A replay of the webcast will be available at that site through August 3, 2011.  A taped replay of the call will be available through June 13, 2011, by dialing (800) 642-1687.  The confirmation number to access the replay is 68712029.Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco merchant and processor and conducts business in more than 30 countries.  Its revenues for the fiscal year ended March 31, 2011, were $2.6 billion. For more information on Universal Corporation, visit its web site at www.universalcorp.com.UNIVERSAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands of dollars, except per share data)Three Months EndedMarch 31,Fiscal Year EndedMarch 31,2011201020112010Sales and other operating revenues$ 680,215$ 566,503$ 2,571,527$ 2,491,738Costs and expenses    Cost of goods sold561,437455,6092,063,1941,949,473    Selling, general and administrative expenses64,93968,267251,597285,056    Other income??(19,368)?    Restructuring and impairment costs7,540?21,504?Operating income46,29942,627254,600257,209    Equity in pretax earnings of unconsolidated affiliates7,6815,3478,63422,376    Interest income1093272,7231,253    Interest expense5,8133,92323,05824,210Income before income taxes48,27644,378242,899256,628    Income taxes19,51220,98378,34986,283Net income28,76423,395164,550170,345Less:  net (income) loss attributable to noncontrolling interests in subsidiaries(1,648)3,046(7,985)(1,948)Net income attributable to Universal Corporation27,11626,441156,565168,397Dividends on Universal Corporation convertible perpetual preferred stock(3,713)(3,713)(14,850)(14,850)Earnings available to Universal Corporation common shareholders$   23,403$   22,728$    141,715$    153,547Earnings per share attributable to Universal Corporation common shareholders:    Basic$       1.00$       0.93$          5.94$          6.21    Diluted$       0.95$       0.90$          5.42$          5.68See accompanying notes.UNIVERSAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands of dollars)March 31,20112010ASSETSCurrent assets    Cash and cash equivalents$    141,007$    245,953    Accounts receivable, net335,575266,960    Advances to suppliers, net160,616167,400    Accounts receivable - unconsolidated affiliates10,43311,670    Inventories - at lower of cost or market:        Tobacco742,422812,186        Other48,64752,952    Prepaid income taxes18,66113,514    Deferred income taxes47,00947,074    Other current assets73,86475,367        Total current assets1,578,2341,693,076Property, plant and equipment    Land14,85116,036    Buildings257,380266,350    Machinery and equipment555,316532,824827,547815,210        Less accumulated depreciation(510,844)(485,723)316,703329,487Other assets    Goodwill and other intangibles99,546105,561    Investments in unconsolidated affiliates115,478106,336    Deferred income taxes18,17730,073    Other noncurrent assets99,729106,507332,930348,477        Total assets$ 2,227,867$ 2,371,040UNIVERSAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS--(Continued)(In thousands of dollars)March 31,20112010LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities    Notes payable and overdrafts$    149,291$    177,013    Accounts payable and accrued expenses213,014259,576    Accounts payable - unconsolidated affiliates4,1546,464    Customer advances and deposits8,426107,858    Accrued compensation30,20130,097    Income taxes payable12,26518,991    Current portion of long-term obligations95,00015,000           Total current liabilities512,351614,999Long-term obligations320,193414,764Pensions and other postretirement benefits102,85896,888Other long-term liabilities50,21369,886Deferred income taxes42,84746,128           Total liabilities1,028,4621,242,665Shareholders' 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 March 31, 2010)213,023213,023    Common stock, no par value, 100,000,000 shares authorized, 23,240,503       shares issued and outstanding (24,325,228 at March 31, 2010) 191,608195,001    Retained earnings825,751767,213    Accumulated other comprehensive loss(44,776)(52,667)           Total Universal Corporation shareholders' equity1,185,6061,122,570  Noncontrolling interests in subsidiaries13,7995,805           Total shareholders' equity1,199,4051,128,375           Total liabilities and shareholders' equity$ 2,227,867$ 2,371,040See accompanying notes. UNIVERSAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of dollars)Fiscal Year Ended March 31,20112010CASH FLOWS FROM OPERATING ACTIVITIES:   Net income$ 164,550$ 170,345   Adjustments to reconcile net income to net cash provided by operating activities:      Depreciation43,65441,288      Amortization1,6182,208      Provisions for losses on advances and guaranteed loans to suppliers18,66618,514      Foreign currency remeasurement (gain) loss, net(4,424)9,309      Gain on assignment of farmer contracts and sale of related assets(19,368)?      Restructuring and impairment costs21,504?      Other, net4,59316,254      Changes in operating assets and liabilities, net(176,575)(95,684)        Net cash provided by operating activities54,218162,234CASH FLOWS FROM INVESTING ACTIVITIES:    Purchase of property, plant and equipment(39,129)(57,577)    Proceeds from assignment of farmer contracts and sale of related assets34,946?    Proceeds from sale of property, plant and equipment, and other5,5755,019    Other260536        Net cash provided (used) by investing activities1,652(52,022)CASH FLOWS FROM FINANCING ACTIVITIES:    Issuance (repayment) of short-term debt, net(39,350)(5,250)    Issuance of long-term debt?99,208    Repayment of long-term debt(15,000)(79,500)    Dividends paid to noncontrolling interests(100)(104)    Issuance of common stock?729    Repurchase of common stock(46,929)(32,194)    Dividends paid on convertible perpetual preferred stock(14,850)(14,850)    Dividends paid on common stock(45,321)(45,882)    Other?(1,193)        Net cash used by financing activities(161,550)(79,036)Effect of exchange rate changes on cash7342,151Net increase (decrease) in cash and cash equivalents(104,946)33,327Cash and cash equivalents at beginning of year245,953212,626Cash and cash equivalents at end of year$ 141,007$ 245,953See accompanying notes.NOTE 1.   BASIS OF PRESENTATION Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is the leading global 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. These financial statements 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, 2010. NOTE 2.   GUARANTEES AND OTHER CONTINGENT LIABILITIESGuarantees 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 March 31, 2011, the Company's total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was approximately $52 million, ($73 million including unpaid accrued interest, less $21 million recorded for the fair value of the guarantees).  About 92% 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 March 31, 2011, was the face amount, $73 million including unpaid accrued interest ($112 million at March 31, 2010).  The fair value of the guarantees was a liability of approximately $21 million at March 31, 2011 ($26 million at March 31, 2010).  In addition to these guarantees, the Company has other contingent liabilities totaling approximately $54 million, primarily related to a bank guarantee that bonds an appeal of a 2006 fine in the European Union.Various subsidiaries of the Company are involved in other litigation and tax examinations incidental to their business activities.  While the outcome of these matters cannot be predicted with certainty, management is vigorously defending the matters and does not currently expect that any of them will have a material adverse effect on the Company's financial position.  However, should one or more of these matters be resolved in a manner adverse to management's current expectation, the effect on the Company's results of operations for a particular fiscal reporting period could be material.NOTE 3.   EARNINGS PER SHAREThe following table sets forth the computation of earnings per share for the periods presented in the consolidated statements of income.Three Months EndedMarch 31,Fiscal Year EndedMarch 31,(in thousands, except per share data)2011201020112010Basic Earnings Per ShareNumerator for basic earnings per share   Net income attributable to Universal Corporation$ 27,116$ 26,441$ 156,565$ 168,397   Less:  Dividends on convertible perpetual preferred stock(3,713)(3,713)(14,850)(14,850)   Earnings available to Universal Corporation common shareholders      for calculation of basic earnings per share23,40322,728141,715153,547 Denominator for basic earnings per share    Weighted average shares outstanding23,40024,45523,85924,732 Basic earnings per share$     1.00$     0.93$       5.94$       6.21Diluted Earnings Per ShareNumerator for diluted earnings per share   Earnings available to Universal Corporation common shareholders$ 23,403$ 22,728$ 141,715$ 153,547   Add:  Dividends on convertible perpetual preferred stock (if      conversion assumed)3,7133,71314,85014,850   Earnings available to Universal Corporation common shareholders      for calculation of diluted earnings per share27,11626,441156,565168,397Denominator for diluted earnings per share:    Weighted average shares outstanding23,40024,45523,85924,732    Effect of dilutive securities (if conversion or exercise assumed)       Convertible perpetual preferred stock4,7584,7394,7504,733       Employee share-based awards327270279197    Denominator for diluted earnings per share28,48429,46428,88829,662Diluted earnings per share$     0.95$     0.90$       5.42$       5.68NOTE 4.   SEGMENT INFORMATIONThe 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 March 31,Fiscal Year Ended March 31,(in thousands of dollars) 2011201020112010SALES AND OTHER OPERATING REVENUES   Flue-cured and burley leaf tobacco operations:        North America$   96,376$ 169,887$    340,366$    357,195        Other regions (1)476,084324,8561,944,4101,895,829             Subtotal572,460494,7432,284,7762,253,024   Other tobacco operations (2)107,75571,760286,751238,714   Consolidated sales and other operating revenues$ 680,215$ 566,503$ 2,571,527$ 2,491,738OPERATING INCOME   Flue-cured and burley leaf tobacco operations:        North America$   16,895$   24,926$      59,278$      57,006        Other regions (1)31,45914,807169,989182,513             Subtotal48,35439,733229,267239,519   Other tobacco operations (2)13,1668,24128,65840,066   Segment operating income61,52047,974257,925279,585   Deduct: Equity in pretax (earnings) loss of unconsolidated affiliates (3)(7,681)(5,347)(8,634)(22,376)                Restructuring and impairment costs (4)(7,540)?(21,504)?   Add:     Other income (4)??19,368?                Reversal of European Commission fines (4)??7,445?   Consolidated operating income$   46,299$   42,627$    254,600$    257,209(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 CorporationFor further information: Karen M. L. Whelan, +1-804-359-9311, Fax: +1-804-254-3584, investor@universalleaf.com