Universal Corporation Logo
P.O. Box 25099 Richmond, VA 23260 o phone: (804) 359-9311 o fax (804) 254-3594
PRESS RELEASE
CONTACT RELEASE
Karen M. L. Whelan Immediately
Phone: (804) 359-9311
Fax: (804) 254-3594
Email: investor@universalleaf.com
Universal Corporation Reports Second Quarter Earnings Increase
Richmond, VA, February 7, 2002 / PRNEWSWIRE
Henry H. Harrell, Chairman and Chief Executive Officer of Universal
Corporation, announced today that the Company's earnings per diluted share
increased almost 8% in the second quarter, driven by strong shipments of tobacco
and lower interest expense. Net income for the three-month period ended December
31, 2001, was $29.1 million, or $1.09 per share, compared to $27.9 million, or
$1.01 per share, for the second quarter of fiscal year 2001. Net earnings were
$57.4 million, or $2.13 per share, for the first six months of fiscal year 2002,
compared to $52.8 million, or $1.90 per share, in the prior year. Revenues were
$744 million in the quarter and $1.4 billion in the first six months of fiscal
year 2002, compared to $995 million and $1.6 billion, respectively, for the same
periods a year ago. Last year's revenues included the value of tobacco purchased
at auction in the United States; a number of U. S. manufacturers are now buying
tobacco directly from farmers.
At the end of December 2001, a total of 10.2 million shares had been
repurchased under the Company's ongoing share repurchase program, leaving 26.4
million shares outstanding. A total of $167 million remained available of the
total $450 million authorized by the Board of Directors for future share
purchases.
Tobacco earnings were higher for the quarter and for the six-month
period before recognizing a $4.7 million charge related to the re-denomination
of value added tax receivables in Argentina. Increased leaf shipments from South
America, Africa, and Europe more than compensated for continued weakness in the
United States. Acceleration of South American shipments in the second quarter
and carryover shipments from Africa in the first quarter also benefited earnings
during the period. Shipment volumes from those origins are expected to be lower
during the remainder of fiscal year 2002. U. S. operations continued to
experience higher costs incurred in staffing both contract receiving stations
and the auction system, as well as a decline in green market service income,
compared to the same period last year. Dark tobacco results were lower in the
quarter and for the six months, reflecting reduced leaf volumes handled in the
United States due to consolidation of manufacturers and a poor Connecticut
wrapper crop. This was partially offset by higher volumes from Indonesia and
Brazil due to favorable timing of shipments.
Results of the Company's lumber and building products distribution
operations in the quarter and for the six-month period were comparable to those
of the prior year. Construction activity in the Netherlands appears to be
slowing in concert with a deteriorating economic environment there. However, the
Company is unable to determine at this time the effect, if any, on future
earnings, nor can it predict the euro/dollar exchange rate, which may affect
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translation of euro earnings into dollars. Agri-products results were lower in
both periods as the improved performance of the confectionery seeds and nut
import businesses did not completely offset weaknesses in tea, rubber, and
canned meat markets. Management continues to believe that the Company's
non-tobacco operations will perform well for the fiscal year.
Universal has achieved excellent results for the first half of fiscal
year 2002. However, the operating environment continues to be extremely
challenging. Smaller Brazilian and Zimbabwean crops have impacted the quantities
of tobacco handled in those origins, which will lower the volumes of leaf
shipped during the remainder of the fiscal year. The outlook appears brighter in
Brazil for the coming year with the prospect of a record flue-cured harvest.
This should provide increased sales opportunities in fiscal year 2003. The
situation in Zimbabwe continues to be of great concern, with reports of violence
and land invasions in advance of the presidential elections scheduled in March
2002. The flue-cured crop, which is now being harvested, is expected to be
smaller than last year's. Currently, projections are for a flue-cured crop of
165 to 175 million kilos, compared to 202 million kilos last year and a normal
base customer requirement of 180 to 190 million kilos. There is no certainty
that such quantity will be successfully brought to market. However, assuming
this quantity is successfully marketed, the modest shortfall in Zimbabwe should
be offset by larger crops in other African origins and in Brazil. In addition,
it is unclear at this time how evolving government policies in Argentina may
continue to affect the collectibility of the Company's receivables there;
however, currency devaluation could make Argentine leaf more attractive in world
markets.
The operating environment in the United States remains difficult as a
result of reduced crops, uncompetitive leaf prices, and a high-cost marketing
system. Unfortunately, the U. S. outlook will not improve without major changes
in the price support program, which do not appear likely. Therefore, the Company
is moving to reduce costs, and to improve efficiency through the significant
investments in facilities and advanced technology announced last spring.
Mr. Harrell stated that management is "pleased with the results
achieved during the first six months of fiscal year 2002 and continues to expect
earnings of approximately $100 million for the full year."
The Company cautions readers that any forward-looking statements
contained herein are based upon management's current knowledge and assumptions
about future events, including anticipated levels of demand for and supply of
the Company's 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. Lumber and building
products earnings are also affected by changes in exchange rates between the U.
S. dollar and the euro. Actual results, therefore, could vary from those
expected. For more details on factors that could affect expectations, see the
Management's Discussion section of the Company's Annual Report on Form 10-K for
the year ended June 30, 2001, as filed with the Securities and Exchange
Commission.
At 9:00 a.m. (Eastern Time) on February 8, 2002, 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 call
will also be available for seven days at this web site or by dialing
888-203-1112, pass code 798209.
Universal Corporation is a diversified company with operations in
tobacco, lumber, and agri-products. Universal Corporation's gross revenues for
the fiscal year that ended on June 30, 2001, were approximately $3.0 billion.
For more information on Universal Corporation, visit its web site at
www.universalcorp.com.
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UNIVERSAL CORPORATION
UNAUDITED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands, except per-share amounts)
Three Months
2001 2000
---- ----
Sales and other operating revenues $744,275 $995,062
Costs and expenses
Cost of goods sold 610,590 863,292
Selling, general and administrative 73,362 68,615
-------- --------
Operating income 60,323 63,155
Equity in pretax earnings of unconsolidated affiliates 230 523
Interest expense 12,359 17,279
-------- --------
Income before income taxes and other items 48,194 46,399
Income taxes 16,868 15,550
Minority interests 2,235 2,987
-------- --------
Net income $29,091 $27,862
======== ========
Earnings per share $1.09 $1.02
Diluted earnings per share $1.09 $1.01
Denominator for earnings per share (weighted average shares)
Basic 26,628,969 27,428,352
Diluted 26,691,414 27,528,106
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UNIVERSAL CORPORATION
UNAUDITED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 2001 AND 2000
(Dollars in thousands, except per-share amounts)
Six Months
2001 2000
---- ----
Sales and other operating revenues $1,360,652 $1,645,827
Costs and expenses
Cost of goods sold 1,110,501 1,400,647
Selling, general and administrative 135,006 130,089
---------- ----------
Operating income 115,145 115,091
Equity in pretax earnings of unconsolidated affiliates 1,543 1,872
Interest expense 25,918 32,108
---------- ----------
Income before income taxes and other items 90,770 84,855
Income taxes 31,770 30,548
Minority interests 1,580 1,480
---------- ----------
Net income $ 57,420 $ 52,827
========== ==========
Earnings per share $2.14 $1.90
Diluted earnings per share $2.13 $1.90
Denominator for earnings per share (weighted average shares)
Basic 26,869,729 27,741,728
Diluted 26,993,679 27,794,335
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NOTES
1. The Company's operations are seasonal; therefore, the results of
operations for the three- and six-month periods ended December 31, 2001,
are not necessarily indicative of results to be expected for the year
ending June 30, 2002. All adjustments necessary to state fairly the
results for such period have been included and were of a normal recurring
nature. Certain amounts in prior year's financial statements have been
reclassified to conform to the current year's presentation.
2. Contingent liabilities: The Company provides guarantees for seasonal
pre-export crop financing for some of its subsidiaries. In addition,
certain subsidiaries provide guarantees that ensure that value-added taxes
will be repaid if the crops are not exported. At December 31, 2001, total
exposure under guarantees issued for banking facilities of Brazilian
farmers was approximately $57 million. Other contingent liabilities
approximate $14 million. The Company considers the possibility of loss on
any of these guarantees to be remote. The Company's Brazilian subsidiaries
have been notified by the tax authorities of proposed adjustments to
income tax returns filed in prior years. The total proposed adjustments,
including penalties and interest, approximate $18 million. The Company
believes the Brazilian tax returns filed were in compliance with the
applicable tax code. The numerous proposed adjustments vary in complexity
and amount. While it is not feasible to predict the precise amount or
timing of each proposed adjustment, the Company believes that the ultimate
disposition will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Although the Company does not expect any significant impact on fiscal year
2002 earnings, if the political situation in Zimbabwe were to deteriorate
significantly, the Company's ability to recover its assets there could be
impaired. The Company's equity in the net assets of its subsidiaries in
Zimbabwe was approximately $40 million at December 31, 2001.
The Company exports tobacco from Argentina through one or more
subsidiaries and the recent government actions there could affect its
operations in the future. The currency devaluation should provide benefits
to exporters; however it, along with evolving governmental policies, could
further jeopardize collection of value added tax receivables from the
Argentine government. A Company subsidiary has an 11.5 million peso value
added tax receivable that has been adjusted to a market value of $6.8
million after being re-denominated from U.S. dollars to pesos by the
Argentine government. In addition, as of December 31, 2001, the Company's
subsidiaries have provided long-term loans to a supplier. The loans are
secured by liens on real property, processing machinery and equipment and
other assets of the supplier. Short-term export financing, which is
secured by tobacco, is provided annually to suppliers. This financing is
repaid through the export of tobacco. If U.S. dollar loans, which
approximated $25 million at December 31, 2001, were to be re-denominated
into Argentine pesos, they would be revalued quarterly at market exchange
rates. For current year advances, such a change could affect the timing of
the Company's results from quarter to quarter and between its fiscal
years.
The Directorate General Competition of the European Commission ("DG IV")
is investigating the buying practices of Spanish tobacco processors with
the stated aim of determining to what extent the tobacco processing
companies have jointly agreed on raw tobacco qualities and prices offered
to Spanish tobacco growers. After conducting an investigation, the Company
believes that Spanish tobacco processors, including the Company's Spanish
subsidiary, Tabacos Espanoles, S.A. ("TAES"), have jointly agreed to the
terms of sale of green tobacco and quantities to be purchased from
associations of farmers and have held joint negotiations with those
associations.
TAES is cooperating fully with the DG IV in its investigation and believes
that there are unusual, mitigating circumstances peculiar to the
highly-structured market for green tobacco in Spain. Although the fine, if
any, that the DG IV may assess on TAES could be material to the Company's
earnings, the Company is not able to make an accurate assessment of the
amount of any such fine at this time. The investigation is ongoing.
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- -------------------------------------------------------------------------------------------------------------------------
Sales and other operating revenues Three months Six months
- -------------------------------------------------------------------------------------------------------------------------
Periods ended December 31, 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Tobacco $491,379 $758,076 $826,637 $1,160,321
Lumber and building products 140,628 123,038 266,817 252,700
Agri-products 112,268 113,948 267,198 232,806
- -------------------------------------------------------------------------------------------------------------------------
Total $744,275 $995,062 $1,360,652 $1,645,827
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Operating income Three months Six months
- -------------------------------------------------------------------------------------------------------------------------
Periods ended December 31, 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Tobacco $57,024 $58,411 $106,005 $105,191
Lumber and building products 5,757 6,100 13,693 13,750
Agri-products 3,131 4,053 7,328 7,810
----------------------------------------------------------------
Total segments 65,912 68,564 127,026 126,751
Less: Corporate expenses 5,359 4,886 10,338 9,788
Equity in pretax earnings of
unconsolidated affiliates 230 523 1,543 1,872
- -------------------------------------------------------------------------------------------------------------------------
Operating income $60,323 $63,155 $115,145 $115,091
- -------------------------------------------------------------------------------------------------------------------------
4. Other Data (in thousands)
- -------------------------------------------------------------------------------------------------------------------------
Three months Six months
- -------------------------------------------------------------------------------------------------------------------------
Periods ended December 31, 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Depreciation $12,330 $10,345 $23,477 $21,118
Amortization $1,309 $2,230 $2,553 $3,840
- -------------------------------------------------------------------------------------------------------------------------
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