Exhibit 99.1
LOGO
Universal Corporation
P.O. Box 25099 Richmond, VA 23260 - phone: (804) 359-9311 - fax (804) 254-3594
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PRESS RELEASE
CONTACT RELEASE
Karen M. L. Whelan 2:15 p.m. Eastern Time
Phone: (804) 359-9311
Fax: (804) 254-3594
Email: investor@universalleaf.com
Universal Corporation Reports Solid First Quarter Earnings
Richmond, VA, October 28, 2003 / PRNEWSWIRE
Allen B. King, President and Chief Executive Officer of Universal
Corporation (NYSE:UVV), announced today that the Company's net income for the
quarter ended September 30, 2003, was $34.4 million, or $1.37 per diluted share,
compared to $28.5 million, or $1.09 per diluted share, in the first quarter of
fiscal year 2003. Last year's first quarter included a restructuring charge of
$13.5 million before taxes related to the consolidation and streamlining of U.S.
operations. Operating income increased by $8.7 million to $59.7 million.
Revenues were $787 million in the quarter compared to $657 million a year ago,
an increase of $130 million or nearly 20%.
Revenues for the tobacco segment increased by about $55 million due to
increased volume shipped from Europe, sales of African tobacco carried over from
last year, and the impact of the strong euro on local European Union sales.
Tobacco segment operating income decreased somewhat in the quarter compared to a
very strong first quarter last year. The decrease was primarily caused by a
change in sales mix in Brazil as well as the effect of a poor Indonesian crop.
These effects were partially offset by the impact of carryover sales from Africa
and by our oriental tobacco joint venture. Argentine operations also continued
to perform well as shipment volumes were more than double last year's levels.
Lumber and building products revenues were up 37% to $196.3 million,
and earnings were up 14% to $8.0 million in the quarter due to the inclusion of
JeWe, which was acquired in January 2003, and the on-going benefit from a
stronger euro. The euro was up 21% in the first quarter of fiscal year 2004
compared to the same quarter a year ago. However, euro sales and earnings for
the group, excluding JeWe, were lower, as volume and margin pressures continued
in The Netherlands, reflecting the stagnant economy and a slowdown in
construction activity.
Agri-products revenues were up in the quarter primarily due to minor
acquisitions made during fiscal year 2003 and higher tea sales, but earnings
were below last year's levels as difficult market conditions continued in tea,
rubber, and canned foods, and results from nuts and dried fruit distribution
lagged last year's record levels. Confectionery seeds showed good improvement in
the quarter.
Mr. King noted, "Fiscal year 2004 is off to a good start, and we are
optimistic about the outlook for the year. Conditions remain difficult in
Zimbabwe where the economic and political situation continues to deteriorate. We
Universal Corporation
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currently expect about 85 million kilos of flue-cured tobacco to be marketed
this year, down from 166 million kilos a year ago. And, the crop that will be
marketed in our fiscal year 2005 is projected to be only 50 million kilos. We
have moved to replace the lost Zimbabwe volumes by encouraging increased
production in South America and in a number of African countries, and we believe
that the availability of flue-cured and burley tobacco in fiscal year 2004 will
remain adequate to meet our customers' requirements.
"We have been pleased with the early results from our new processing
center in Nash County, North Carolina, which began operations in August of this
year. U.S. flue-cured and burley crops continued to suffer from the effects of
an antiquated federal program that supports U.S. leaf prices at noncompetitive
levels. Discussions continue in the U.S. Congress on legislative alternatives
for changes in the federal tobacco program and a buyout of quota. However,
consensus remains elusive, and it does not seem likely that needed legislation
to make U.S. leaf competitive in the world market will be taken in the few
legislative days remaining in the current session.
"Difficult economic conditions in Europe continued to adversely effect
our lumber and building products distribution operations. However, we have moved
to control costs and remain hopeful that economic forecasts of improved
conditions in the first half of 2004 will prove to be correct. The strength of
the euro continues to benefit the translation of the earnings of this segment
into U.S. dollars. International markets remain unsettled for many of the
products included in our agri-products segment; however, prospects for our
confectionery seed business have improved, and our nut and dried fruit
distribution businesses are performing well.
"As we announced in August, the Company will be changing its fiscal
year end to March 31 from June 30 for fiscal year 2004, which will align all our
worldwide operations to the same reporting date and better match our reporting
dates with the crop and operating cycles of our largest operations. We are
pleased that fiscal year 2004 is off to a good start and expect that earnings
for the nine months ending March 31, 2004, which will be our transitional
period, will be in the range of $85 million to $95 million compared to $79
million for the first nine months of fiscal year 2003."
The Company cautions readers that any statements contained herein
regarding earnings and expectations for our 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 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 important factors that could cause actual results
to differ from our expectations, see Item 1, Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7, and Notes
to the Consolidated Financial Statements in Item 8 of the Company's Annual
Report on Form 10-K for the year ended June 30, 2003, as filed with the
Securities and Exchange Commission.
Universal Corporation
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At 4:00 p.m. (Eastern Time) on October 28, 2003, 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
888-707-8786.
Universal Corporation (NYSE: UVV) is a diversified company with operations in
tobacco, lumber, and agri-products. Its gross revenues for the fiscal year that
ended on June 30, 2003, were approximately $2.6 billion. For more information,
visit Universal's web site at www.universalcorp.com.
Universal Corporation
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UNIVERSAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 2003 and 2002
(In thousands of dollars, except share and per share data)
THREE MONTHS
2003 2002
-------- --------
Sales and other operating revenues $786,601 $657,276
Costs and expenses
Cost of goods sold 647,008 525,571
Selling, general and administrative expenses 79,939 67,199
Restructuring costs - 13,498
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Operating income 59,654 51,008
Equity in pretax earnings of unconsolidated affiliates 3,776 1,542
Interest expense 11,076 10,484
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Income before income taxes and other items 52,354 42,066
Income taxes 18,847 14,935
Minority interests (921) (1,346)
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Net income $34,428 $28,477
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Earnings per common share - basic $1.38 $1.09
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Earnings per common share - diluted $1.37 $1.09
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Denominator for earnings per share (weighted average shares)
Basic: 24,941,340 26,062,038
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Diluted: 25,135,042 26,106,372
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Cash dividends declared $0.36 $0.34
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See accompanying notes.
Universal Corporation
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UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, September 30, June 30,
2003 2002 2003
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(Unaudited) (Unaudited)
ASSETS
Current
Cash and cash equivalents $57,183 $84,355 $44,659
Accounts receivable 408,213 377,245 370,784
Advances to suppliers 137,608 109,589 115,928
Accounts receivable - unconsolidated affiliates 5,622 1,359 7,595
Inventories - at lower of cost or market:
Tobacco 609,431 540,591 529,736
Lumber and building products 140,299 86,840 140,647
Agri-products 76,748 74,129 82,527
Other 35,878 26,278 30,377
Prepaid income taxes 5,819 10,511 12,375
Deferred income taxes 5,995 6,008 6,168
Other current assets 34,893 24,165 34,201
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Total current assets 1,517,689 1,341,070 1,374,997
Property, plant and equipment - at cost
Land 51,692 28,336 51,110
Buildings 306,092 257,991 303,916
Machinery and equipment 695,450 590,553 679,556
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1,053,234 876,880 1,034,582
Less accumulated depreciation 524,234 456,231 521,201
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529,000 420,649 513,381
Other assets
Goodwill and other intangibles 132,472 125,984 132,903
Investments in unconsolidated affiliates 93,559 85,235 90,119
Deferred income taxes 45,436 45,990 45,466
Other noncurrent assets 91,631 80,237 86,208
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363,098 337,446 354,696
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$2,409,787 $2,099,165 $2,243,074
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See accompanying notes.
Universal Corporation
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UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
September 30, September 30, June 30,
2003 2002 2003
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(Unaudited) (Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $253,423 $204,200 $265,742
Accounts payable 366,818 282,094 361,058
Accounts payable - unconsolidated affiliates 3,375 7,721 2,073
Customer advances and deposits 193,202 155,172 42,093
Accrued compensation 23,780 15,437 31,959
Income taxes payable 23,958 22,457 20,969
Current portion of long-term obligations 102,413 120,370 100,387
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Total current liabilities 966,969 807,451 824,281
Long-term obligations 609,939 511,982 614,994
Postretirement benefits other than pensions 40,491 38,882 40,305
Other long-term liabilities 97,780 86,354 96,522
Deferred income taxes 12,392 21,769 12,348
Minority interests 33,416 26,719 34,346
Shareholders' equity
Preferred stock, no par value, authorized 5,000,000
shares, none issued or outstanding
Common stock, no par value, authorized 100,000,000
shares, 24,983,745 issued and outstanding shares
(24,920,083 at June 30, 2003) 95,169 89,372 90,665
Retained earnings 614,844 577,548 592,673
Accumulated other comprehensive income (loss) (61,213) (60,912) (63,060)
---------- ---------- ----------
Total shareholders' equity 648,800 606,008 620,278
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$2,409,787 $2,099,165 $2,243,074
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See accompanying notes.
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Universal Corporation
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UNIVERSAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 2003 and 2002
(In thousands of dollars)
THREE MONTHS
2003 2002
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $34,428 $28,477
Depreciation 11,892 11,917
Amortization 792 1,188
Other adjustments to reconcile net income to net
cash provided by operating activities (4,354) 22,695
Changes in operating assets and liabilities 9,866 (132,325)
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Net cash provided (used) by operating activities 52,624 (68,048)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (19,500) (35,300)
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Net cash used in investing activities (19,500) (35,300)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net (12,300) 77,400
Issuance of long-term debt 2,900 73,000
Repayment of long-term debt (3,400) -
Issuance of common stock 4,700 -
Purchases of common stock (3,500) (11,900)
Dividends paid (9,000) (8,800)
---------------------------
Net cash provided (used) in financing activities (20,600) 129,700
Net increase in cash and cash equivalents 12,524 26,352
Cash and cash equivalents at beginning of year 44,659 58,003
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $57,183 $84,355
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See accompanying notes.
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Universal Corporation
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Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
All figures contained herein are unaudited.
1). Universal Corporation, with its subsidiaries (the "Company" or
"Universal"), has operations in tobacco, lumber and building products,
and agri-products. Because of the seasonal nature of these businesses,
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.
Universal has decided to change its fiscal year-end to March 31 from
June 30 effective for the current fiscal year. This change will bring
all consolidated subsidiaries to the same reporting date and will
better match the fiscal reporting period with the crop and operating
cycles of the Company's largest operations. The Company plans to file a
Transitional Report on Form 10-K for the nine months ending March 31,
2004.
2). 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, 2003, total
exposure under subsidiaries' guarantees issued for banking facilities
of Brazilian farmers was approximately $68.7 million. About 45% of
these guarantees expire within one year, and the remainder expire
within 5 years. The Company withholds payments due to the farmer on
delivery of tobacco and forwards those payments to the third-party
bank. Failure of farmers to deliver sufficient quantities of tobacco to
the Company to cover their obligations to third-party banks could
result in a liability for the Company; however, in that case, the
Company would have recourse against the farmers.
Other contingent liabilities total approximately $12.6 million and
include value-added tax payments that would be required in certain
countries if subsidiaries fail to export tobacco. They also include bid
and performance bonds.
The Company considers the possibility of a material loss on any of the
guarantees and other contingencies to be remote, and the accrual
recorded for the value of the guarantees was not material at September
30, 2003.
In recent years, economic and political changes in Zimbabwe have led to
a significant decline in tobacco production in that country. Universal
and other leaf tobacco merchants operating in Zimbabwe have been able
to offset this decline with increased production in other countries and
growing regions. If the political situation in Zimbabwe were to further
deteriorate significantly, the Company's ability to recover its assets
there could be impaired. The Company's equity in its net assets of
subsidiaries in Zimbabwe was $59 million at September 30, 2003.
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Universal Corporation
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3). On February 26, 2001, Universal Leaf Tobacco Company, Incorporated,
J.P. Taylor Company, Incorporated, and Southwestern Tobacco Company,
Incorporated, which are subsidiaries of Universal Corporation (the
"Company Subsidiaries"), were served with the Third Amended Complaint,
naming them and other leaf tobacco merchants as defendants in DeLoach,
et al. v. Philip Morris Inc., et al., a suit originally filed against
U.S. cigarette manufacturers in the United States District Court for
the District of Columbia and subsequently moved to the United States
District Court for the Middle District of North Carolina, Greensboro
Division (Case No. 00-CV-1235) (the "DeLoach Suit"). The DeLoach Suit
is a class action brought on behalf of U.S. tobacco growers and quota
holders that alleges that defendants violated antitrust laws by
bid-rigging at tobacco auctions and by conspiring to undermine the
tobacco quota and price support program administered by the federal
government.
In May 2003, the Company Subsidiaries, along with several other
domestic cigarette manufacturers and tobacco-leaf dealers, entered into
a settlement agreement with the plaintiffs. Under the settlement
agreement, the Company Subsidiaries agreed to pay $12 million for
distribution to members of the class. The total amount to be paid by
all the settling defendants, of which there are five in addition to the
Company Subsidiaries, to the class is approximately $212 million, plus
commitments by the three settling cigarette manufacturers (i) to
purchase certain volumes of domestic flue-cured and burley tobacco for
at least ten years and (ii) to pay the fees of plaintiffs' counsel when
approved by the court. The court approved the settlement agreement in
October 2003, and Universal completed its payment on October 20, 2003.
4). The Competition Directorate-General of the European Commission ("DG
Comp") 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 jointly negotiated with those associations. TAES is
cooperating fully with the DG Comp in its investigation and believes
that there are unusual, mitigating circumstances peculiar to the highly
structured market for green tobacco in Spain. At this time, no estimate
can be made of the amount or timing of the fine, if any, that the DG
Comp may assess on TAES.
5). During fiscal year 2003, the Company recorded about $33.0 million in
restructuring charges associated with continued consolidation of U.S.
and African tobacco operations. Approximately $28 million of the
charges were to record the severance cost associated with approximately
941 hourly production employees associated with tobacco processing
operations and 366 salaried employees. The severance costs included
$13.5 million recorded in the first quarter related to the U.S.
operations. During the quarter ended September 30, 2003, the Company
paid approximately $1.5 million associated with the plan, to 77
employees.
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Changes in severance liabilities are shown below:
Three months Three months Fiscal year
ended ended ended
September 30, September 30, June 30,
Severance Liabilities (in thousands of dollars) 2003 2002 2003
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Beginning balance $13,399 $2,079 $2,079
Restructuring charges - 13,498 27,981
Payments (1,464) (1,672) (16,661)
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Ending balance $11,935 $13,905 $13,399
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6). As permitted under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company applies the
provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," to stock options granted to employees.
Under Statement No 123, as amended by Statement No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure," the Company
discloses pro forma net income and basic and diluted earnings per share
as if the fair value-based method had been applied to all awards.
THREE MONTHS
Periods ended September 30, 2003 2002
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Net income (in thousands of dollars) $34,428 $28,477
Stock-based employee compensation cost,
net of tax effect, under fair value accounting (978) (962)
-----------------------
Pro forma net income under fair value method $33,450 $27,515
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Earnings per share - basic $1.38 $1.09
Per share stock-based employee compensation
cost, net of tax effect, under fair value accounting (0.04) (0.04)
-----------------------
Pro forma earnings per share - basic $1.34 $1.05
-----------------------
Earnings per share - diluted $1.37 $1.09
Per share stock-based employee compensation
cost, net of tax effect, under fair value accounting (0.04) (0.04)
-----------------------
Pro forma earnings per share - diluted $1.33 $1.05
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Universal Corporation
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7). The following table sets forth the computation of basic and diluted
earnings per share.
THREE MONTHS
Periods ended September 30, 2003 2002
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Net income (in thousands of dollars) $34,428 $28,477
-------------------------
Denominator for basic earnings per share:
Weighted average shares 24,941,340 26,062,038
Effect of dilutive securities:
Employee stock options 193,702 44,334
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Denominator for diluted earnings per share 25,135,042 26,106,372
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Earnings per share - basic $1.38 $1.09
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Earnings per share - diluted $1.37 $1.09
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8). Comprehensive Income:
THREE MONTHS
Periods ended September 30, 2003 2002
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(in thousands of dollars)
Net income $34,428 $28,477
Foreign currency translation adjustment 1,847 10,309
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Comprehensive income $36,275 $38,786
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9). Segments are based on product categories. The Company evaluates
performance based on segment operating income, which includes equity in
pretax earnings of unconsolidated affiliates.
THREE MONTHS
Periods ended September 30, 2003 2002
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(in thousands of dollars)
SALES AND OTHER OPERATING REVENUES
Tobacco $456,689 $401,777
Lumber and building products distribution 196,331 142,904
Agri-products 133,581 112,595
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Consolidated total $786,601 $657,276
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OPERATING INCOME
Tobacco $58,229 $60,519
Lumber and building products distribution 7,963 6,970
Agri-products 2,843 3,800
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Total segment operating income 69,035 71,289
Less:
Corporate expenses 5,605 5,241
Restructuring costs - 13,498
Equity in pretax earnings of unconsolidated
affiliates 3,776 1,542
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Consolidated total $59,654 $51,008
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