Universal Corporation Reports Nine-Month Earnings PR Newswire RICHMOND, Va., Feb. 5, 2013 RICHMOND, Va., Feb.5, 2013 /PRNewswire/ -- HIGHLIGHTS Nine Months Diluted earnings per share of $3.75. Segment operating income of $186 million, up 6% on shipment timing. Uncommitted inventory levels reduced by $66 million. Third Quarter Segment operating income of $63 million, down $20 million from prior year. Revenues up 1% to $680 million. Uncommitted inventory levels remain very low. George C. Freeman, III, Chairman, President, and Chief Executive Officer of Universal Corporation (NYSE: UVV), reported that net income for the nine months ended December 31, 2012, was $106.6 million, or $3.75 per diluted share, compared with last year's net income of $66.3 million, or $2.34 per diluted share for the same period. The comparison of the current and prior year periods is affected by several unusual items, which are described below, and amount to net pretax charges of $3.7 million ($0.05 per diluted share) for the nine months ended December 31, 2012, and $38.6 million ($1.39 per diluted share) for the same period last year. For the three months ended December 31, 2012, net income of $35.5 million, or $1.25 per diluted share, compared with net income for the prior year's third quarter of $58.5 million, or $2.06 per diluted share, which included unusual items amounting to a net pretax benefit of $10.7 million ($0.25 per diluted share). Segment operating income, which excludes those unusual items, was $185.9 million for the nine-month period, an increase of $11.3 million over the prior year, as improved results in the Other Regions and Other Tobacco Operations segments were partly offset by a decline in the North America segment. Revenues increased by 1% to $1.8 billion for the first nine months of fiscal year 2013, mostly as a result of higher volumes from carryover crop sales from the prior year and accelerated shipments of current crop tobaccos. Segment operating income declined by 24% to $63.3 million for the three months ended December 31, 2012, compared with the prior year on lower volumes and margins in all segments. Revenues increased for the quarter by 1% to $680 million on those lower volumes at higher average prices. The following table sets forth the unusual items included in reported results: Three Months Ended Nine Months Ended December 31, December 31, (in millions, except per share amounts) 2012 2011 2012 2011 (Charges) and gains Charge for European Commission fine in $ — $ — $ — $ (49.1) Italy (1) Restructuring costs (2) — (0.4) (3.7) (10.2) Gain on fire loss insurance settlement — — — 9.6 in Europe (3) Gain on sale of facility in Brazil (4) — 11.1 — 11.1 Total effect on operating income $ — $ 10.7 $ (3.7) $ (38.6) Total effect on net income $ — $ 7.0 $ (1.5) $ (39.4) Total effect on diluted earnings per $ — $ 0.25 $ (0.05) $ (1.39) share Fines and accumulated interest from the September 9, 2011, decision by the (1) General Court of the European Union rejecting an Italian subsidiary's application to reinstate immunity related to infringements of European Union antitrust law in the Italian raw tobacco market. Restructuring charges, primarily related to (2) workforce reductions in the United States, South America, Europe, and Africa. The fire loss insurance settlement related to a (3) plant fire in Europe in 2010. The operating assets have been replaced. Sale of land and (4) storage buildings in Brazil in November 2011. Mr. Freeman stated, "I am very pleased with our results so far this year. The hard work and depth of local market knowledge from our teams on the ground around the world enabled us to deliver good results to our customers and shareholders. Despite our success thus far, we still face challenges for the remainder of the fiscal year. We anticipate lower shipments in the fourth quarter. Last year, we began shipping tobacco later compared to the current year, and crops were larger. These factors caused volumes to be skewed toward the second half of last year. Larger volumes of uncommitted inventories were also available for sale last year, and we have sold a significant amount of those stocks. Our uncommitted stocks were only 10% of total inventory at December 31, 2012, and remain at very low levels. "On a positive note, sales of uncommitted inventories, smaller crops, and earlier shipments in the current year have reduced our working capital requirements and provided strong cash generation through the third quarter of fiscal year 2013. We returned more than $50 million to shareholders in the nine months ended December 31, 2012 through dividends and share repurchases and have a strong balance sheet position to support the requirements of the upcoming crop cycle. Our improved financial position will serve us well, as we expect to return to more normal crop sizes in the next fiscal year." FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS: Nine Months Operating income for the flue-cured and burley tobacco operations, which include the North America and Other Regions segments, increased by 4.2% to $177.8 million for the nine months ended December 31, 2012, as improved results in the Other Regions segment were partially offset by a decline in the North America segment. Revenues for the group of about $1.7 billion were relatively flat compared with the previous year. Earnings for the Other Regions segment were $168.1 million for the nine months ended December 31, 2012, an increase of about 15% compared with earnings of $146.7 million for the comparable prior year period. The improvement was driven primarily by higher sales volumes in South America and Africa, mainly as a result of carryover shipments from last year's large crops, as well as accelerated shipment timing this year compared to slower deliveries last year. Those results were partly offset by decreased earnings in Europe because of the absence of last year's insurance recoveries, lower results in some origins due to the timing of shipments, and unfavorable exchange rates. Selling, general, and administrative expenses for the segment were reduced, mostly due to currency remeasurement and exchange gains and lower provisions for suppliers. Revenues for the Other Regions segment were up by about 3% to $1.5 billion, reflecting increased overall leaf volumes, offset in part by lower average prices on carryover shipments of African tobaccos. Operating income for the North America segment decreased by $14.1 million to $9.8 million, mainly due to lower shipment volumes and fewer carryover and old crop sales in the current period. Similarly, revenues for this segment were down by 13% to $205.4 million on those volume declines, offset in part by higher tobacco processing volumes. Third Quarter Operating income for the flue-cured and burley tobacco operations decreased by $18.1 million to $64.5 million for the third quarter of fiscal year 2013, compared to the same period last year on lower volumes and margins in most origins. Revenues for the group of $637.4 million were flat versus the prior year, on decreased volumes at higher average prices. Operating income for the Other Regions segment was down by 15% to $59.3 million compared with the prior year. Although South America's results benefited from higher shipments of carryover crops in Brazil, that improvement was more than offset by lower results in Africa from reduced volumes and higher unit costs due to the smaller crops, as well as a less favorable product mix. Selling, general, and administrative expenses for the Other Regions segment were down for the quarter due primarily to lower provisions for suppliers and favorable currency remeasurement and exchange comparisons to the same period last year. In addition, segment results were reduced by the absence of $6.3 million in dividend income from unconsolidated subsidiaries recorded in the third quarter of fiscal year 2012. Revenues for the Other Regions segment increased by 4% to $551.9 million as higher average prices outweighed lower volumes. Operating income for the North America segment was $5.2 million, down by $8.0 million, on reduced volumes, fewer domestic old crop sales due to depleted inventories, and product mix. Those factors also decreased revenues for this segment, which declined by 22% to $85.5 million. OTHER TOBACCO OPERATIONS: The Other Tobacco Operations segment operating income increased by $4.0 million to $8.1 million for the nine months ended December 31, 2012, compared with the same period for the previous fiscal year. Results for the dark tobacco business improved for both the quarter and the nine months, due in part to recovery from the Indonesian crop shortages affecting last year's comparable results. Results for the oriental joint venture also improved for the nine-month period versus the prior year on lower operating expenses due to the effects of a stronger U.S. dollar. Operating income for the segment for the third quarter of fiscal year 2013 was a loss of $1.3 million, down $2.1 million compared with the prior year, as benefits from a favorable product mix for the dark tobacco business were outweighed by volume reductions for the oriental joint venture due to earlier shipments this fiscal year. Revenues for this segment increased for the nine months ended December 31, 2012, by 12%, to $149.8 million, and for the third fiscal quarter by 28% to $42.6 million. The increases in both periods reflected the higher sales for the dark tobacco business but were largely attributable to the timing of shipments of oriental tobaccos into the United States. OTHER ITEMS: Cost of goods sold increased by about 2% to $1.5 billion for the nine months ended December 31, 2012, consistent with higher revenues for the period, and was up about 6%, to $554.6 million, for the third quarter of fiscal year 2013 due to higher unit costs on reduced volumes in some origins. Selling, general, and administrative costs declined by $14.6 million for the nine-month period and by $3.8 million in the third fiscal quarter, compared with the respective prior periods. The decrease for the quarter was mainly due to lower provisions for suppliers, while the nine-month period also included favorable comparisons from currency remeasurement and exchange gains, partially offset by higher compensation and benefit accruals and the previous year's reversal of non-income tax provisions due to a favorable tax ruling in South America. Interest expense for the nine months ended December 31, 2012, of $17.8 million was relatively flat compared to the prior year. Interest expense for the third quarter decreased about 8% to $5.7 million mostly due to reduced average debt levels in the current fiscal year. The consolidated effective income tax rate for both the quarter and nine months ended December 31, 2012, was approximately 31%. The effective income tax rates for the quarter and nine months ended December 31, 2011, were approximately 30% and 41%, respectively. The nine-month rate in the prior period was significantly higher than normal because the Company did not record an income tax benefit on the non-deductible fine portion of the charge for the European Commission fine and interest in Italy. Without that item, the effective income tax rate would have been approximately 29%. The rates in all periods were lower than the 35% federal statutory rate because of the effect of changes in exchange rates on deferred income tax assets and liabilities as well as lower effective rates on income from certain foreign subsidiaries. In September 2011, the Company announced that the General Court of the European Union issued a decision rejecting the appeal of Deltafina, S.p.A, its Italian subsidiary. That appeal related to the European Commission's revocation of Deltafina's immunity from a fine of €30 million (about $41 million on September 9, 2011) assessed against Deltafina and Universal jointly for actions in connection with Deltafina's purchase and processing of tobacco in the Italian raw tobacco market between 1995 and 2002. Deltafina has appealed the decision of the General Court to the European Court of Justice. Effective with the September 9, 2011 General Court decision, the Company recorded a charge for the full amount of the fine (€30 million) plus accumulated interest (€5.9 million). The charge totaled $49.1 million at the exchange rate in effect on the date of the General Court decision. The appeal process is likely to be concluded within fifteen months. During the first quarter of fiscal year 2012, an insurance settlement was received for replacement cost recovery on the factory and equipment destroyed in a fire at the Company's sheet tobacco operations in Europe in 2010. The settlement generated a gain of $9.6 million. In the third quarter of fiscal year 2012, the Company sold land and storage buildings in Brazil in exchange for other property and $9.4 million in cash. The transaction resulted in a gain of $11.1 million. Both of these gains are reported in other income in the consolidated statements of income. 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; 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, 2012, 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, 2012. At 5:00 p.m. (Eastern Time) on February 5, 2013, 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 May 5, 2013. A taped replay of the call will be available through February 19, 2013, by dialing (855) 859-2056. The confirmation number to access the replay is 96220109. Headquartered in Richmond, Virginia, Universal Corporation is the leading global leaf tobacco supplier and conducts business in more than 30 countries. Its revenues for the fiscal year ended March 31, 2012, were $2.4 billion. For more information on Universal Corporation, visit its web site at www.universalcorp.com. UNIVERSAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in thousands of dollars, except per share data) Three Months Ended Nine Months Ended December 31, December 31, 2012 2011 2012 2011 (Unaudited) (Unaudited) Sales and other operating $ 680,029 $ 672,420 $ 1,816,607 $ 1,792,911 revenues Costs and expenses Cost of goods sold 554,588 525,315 1,461,087 1,432,022 Selling, general and 60,928 64,747 169,406 183,985 administrative expenses Other income — (11,111) — (20,703) Restructuring costs — 399 3,687 10,220 Charge for European Commission — — — 49,091 fine in Italy Operating income 64,513 93,070 182,427 138,296 Equity in pretax earnings (loss) of unconsolidated (1,241) 1,072 (192) (2,264) affiliates Interest income 183 519 410 1,240 Interest expense 5,670 6,175 17,778 17,373 Income before income taxes and 57,785 88,486 164,867 119,899 other items Income taxes 18,070 26,884 50,633 48,972 Net income 39,715 61,602 114,234 70,927 Less: net income attributable to noncontrolling interests in (4,173) (3,149) (7,586) (4,625) subsidiaries Net income attributable to 35,542 58,453 106,648 66,302 Universal Corporation Dividends on Universal Corporation convertible (3,712) (3,712) (11,137) (11,137) perpetual preferred stock Earnings available to Universal $ 31,830 $ 54,741 $ 95,511 $ 55,165 Corporation common shareholders Earnings per share attributable to Universal Corporation common shareholders: Basic $ 1.36 $ 2.36 $ 4.09 $ 2.38 Diluted $ 1.25 $ 2.06 $ 3.75 $ 2.34 See accompanying notes. UNIVERSAL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands of dollars) December 31, December 31, March 31, 2012 2011 2012 (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 341,572 $ 152,368 $ 261,699 Accounts receivable, net 351,655 406,541 390,790 Advances to suppliers, net 118,380 94,732 135,317 Accounts receivable—unconsolidated 5,673 912 7,370 affiliates Inventories—at lower of cost or market: Tobacco 742,895 862,991 682,095 Other 60,067 57,261 53,197 Prepaid income taxes 15,734 13,661 20,819 Deferred income taxes 36,591 52,766 51,025 Other current assets 68,999 71,121 88,317 Total current assets 1,741,566 1,712,353 1,690,629 Property, plant and equipment Land 17,151 16,976 17,087 Buildings 232,780 225,010 228,982 Machinery and equipment 553,383 531,183 537,031 803,314 773,169 783,100 Less accumulated depreciation (509,913) (469,414) (479,908) 293,401 303,755 303,192 Other assets Goodwill and other intangibles 99,118 99,293 99,266 Investments in unconsolidated 92,775 84,306 93,312 affiliates Deferred income taxes 21,227 13,683 23,634 Other noncurrent assets 52,638 56,249 56,886 265,758 253,531 273,098 Total assets $ 2,300,725 $ 2,269,639 $ 2,266,919 See accompanying notes. UNIVERSAL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands of dollars) December 31, December 31, March 31, 2012 2011 2012 (Unaudited) (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and overdrafts $ 87,423 $ 130,165 $ 128,016 Accounts payable and accrued expenses 164,831 199,408 187,790 Accounts payable—unconsolidated 54 7,207 295 affiliates Customer advances and deposits 60,537 45,061 16,832 Accrued compensation 25,870 20,638 30,659 Income taxes payable 18,727 12,085 12,866 Current portion of long-term 210,000 15,000 16,250 obligations Total current liabilities 567,442 429,564 392,708 Long-term obligations 185,000 395,000 392,500 Pensions and other postretirement 139,105 95,656 140,529 benefits Other long-term liabilities 86,938 87,147 90,609 Deferred income taxes 45,791 50,941 44,583 Total liabilities 1,024,276 1,058,308 1,060,929 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, 220,000 shares authorized, 219,999 shares 213,023 213,023 213,023 issued and outstanding (219,999 at December 31, 2011 and March 31, 2012) Common stock, no par value, 100,000,000 shares authorized, 23,324,880 shares issued and 197,805 194,806 196,135 outstanding (23,245,254 at December 31, 2011, and 23,257,175 at March 31, 2012) Retained earnings 910,454 844,150 854,654 Accumulated other comprehensive loss (73,305) (58,880) (80,361) Total Universal Corporation 1,247,977 1,193,099 1,183,451 shareholders' equity Noncontrolling interests in 28,472 18,232 22,539 subsidiaries Total shareholders' equity 1,276,449 1,211,331 1,205,990 Total liabilities and shareholders' $ 2,300,725 $ 2,269,639 $ 2,266,919 equity See accompanying notes. UNIVERSAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) Nine Months Ended December 31, 2012 2011 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 114,234 $ 70,927 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 32,418 31,496 Amortization 1,278 1,277 Provision for losses on advances and guaranteed 2,834 10,432 loans to suppliers Foreign currency remeasurement loss (gain), net (10,433) 4,812 Equity in net loss (income) of unconsolidated (181) 18,769 affiliates, net of dividends Gain on fire loss insurance settlement — (9,592) Gain on sales of property in Brazil — (11,111) Restructuring costs 3,687 10,220 Charge for European Commission fine in Italy — 49,091 Other, net 13,467 16,289 Changes in operating assets and liabilities, 44,405 (132,623) net Net cash provided by operating activities 201,709 59,987 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (23,596) (30,251) Proceeds from sale of property, plant and 3,363 18,650 equipment Proceeds from fire loss insurance settlement — 9,933 Other 1,004 — Net cash used by investing activities (19,229) (1,668) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance (repayment) of short-term debt, net (36,878) (11,336) Issuance of long-term obligations — 100,000 Repayment of long-term obligations (13,750) (95,000) Dividends paid to noncontrolling interests (1,945) (94) Issuance of common stock 493 134 Repurchase of common stock (5,053) (4,004) Dividends paid on convertible perpetual (11,137) (11,137) preferred stock Dividends paid on common stock (34,334) (33,320) Proceeds from termination of interest rate swap — 13,388 agreements Other — (3,539) Net cash used by financing activities (102,604) (44,908) Effect of exchange rate changes on cash (3) (2,050) Net increase in cash and cash equivalents 79,873 11,361 Cash and cash equivalents at beginning of year 261,699 141,007 Cash and cash equivalents at end of period $ 341,572 $ 152,368 See accompanying notes. NOTE 1. BASIS OF PRESENTATION Universal Corporation, with its subsidiaries ("Universal" or the "Company"), is the leading global leaf tobacco supplier. 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, 2012. NOTE 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended December 31, December 31, (in thousands, except per share data) 2012 2011 2012 2011 Basic Earnings Per Share Numerator for basic earnings per share Net income attributable to Universal $ 35,542 $ 58,453 $ 106,648 $ 66,302 Corporation Less: Dividends on convertible (3,712) (3,712) (11,137) (11,137) perpetual preferred stock Earnings available to Universal Corporation common shareholders for 31,830 54,741 95,511 55,165 calculation of basic earnings per share Denominator for basic earnings per share Weighted average shares outstanding 23,406 23,238 23,361 23,220 Basic earnings per share $ 1.36 $ 2.36 $ 4.09 $ 2.38 Diluted Earnings Per Share Numerator for diluted earnings per share Earnings available to Universal $ 31,830 $ 54,741 $ 95,511 $ 55,165 Corporation common shareholders Add: Dividends on convertible perpetual preferred stock (if 3,712 3,712 11,137 11,137 conversion assumed) Earnings available to Universal Corporation common shareholders for 35,542 58,453 106,648 66,302 calculation of diluted earnings per share Denominator for diluted earnings per share Weighted average shares outstanding 23,406 23,238 23,361 23,220 Effect of dilutive securities (if conversion or exercise assumed) Convertible perpetual preferred stock 4,800 4,775 4,794 4,769 Employee share-based awards 311 368 315 320 Denominator for diluted earnings per 28,517 28,381 28,470 28,309 share Diluted earnings per share $ 1.25 $ 2.06 $ 3.75 $ 2.34 NOTE 3. SEGMENT INFORMATION The principal approach used by management to evaluate the Company's performance is by geographic region, although the dark air-cured and oriental tobacco businesses are each 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 the 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 Nine Months Ended December 31, December 31, (in thousands of dollars) 2012 2011 2012 2011 SALES AND OTHER OPERATING REVENUES Flue-cured and burley leaf tobacco operations: North America $ 85,521 $ 109,743 $ 205,377 $ 236,101 Other regions ^ (1) 551,903 529,476 1,461,417 1,423,275 Subtotal 637,424 639,219 1,666,794 1,659,376 Other tobacco operations ^ (2) 42,605 33,201 149,813 133,535 Consolidated sales and other $ 680,029 $ 672,420 $ 1,816,607 $ 1,792,911 operating revenues OPERATING INCOME Flue-cured and burley leaf tobacco operations: North America $ 5,235 $ 13,234 $ 9,764 $ 23,864 Other regions ^ (1) 59,292 69,382 168,068 146,732 Subtotal 64,527 82,616 177,832 170,596 Other tobacco operations ^ (2) (1,255) 814 8,090 4,044 Segment operating income 63,272 83,430 185,922 174,640 Deduct: Equity in pretax (earnings) loss of 1,241 (1,072) 192 2,264 unconsolidated affiliates ^(3) Restructuring costs ^(4) — (399) (3,687) (10,220) Charge for European Commission — — — (49,091) fine in Italy ^(4) Add: Other income ^ (4) — 11,111 — 20,703 Consolidated operating income $ 64,513 $ 93,070 $ 182,427 $ 138,296 (1) Includes South America, Africa, Europe, and Asia regions, as well as inter-region eliminations. Includes Dark Air-Cured, Special Services, and Oriental, as well as inter-company eliminations. Sales and other operating revenues for this (2) 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 is 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 Website: http://www.universalcorp.com Contact: Candace C. Formacek, +1-804-359-9311, Fax: +1-804-254-3584, firstname.lastname@example.org
Universal Corporation Reports Nine-Month Earnings
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