RICHMOND, Va., Feb. 6,
2018 /PRNewswire/ -- 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, 2017,
was $75.1 million, or $2.94 per diluted share, compared with
$73.4 million, or $2.63 per diluted share for the same period of
the prior fiscal year. For the third fiscal quarter ended
December 31, 2017, net income was
$45.4 million, or $1.78 per diluted share, compared with net income
for the prior year's third quarter of $53.6
million, or $1.92 per diluted
share. Net income for the nine months and quarter ended
December 31, 2017, included a
one-time reduction in income tax expense of $10.5 million, or $0.41 per diluted share resulting from the
enactment of the Tax Cuts and Jobs Act in December 2017. Operating income for the nine
months ended December 31, 2017, of
$111.2 million, decreased by
$7.3 million compared to the nine
months ended December 31, 2016.
Operating income for the third quarter of fiscal year 2018
decreased to $59.7 million from
$83.2 million for the three months
ended December 31, 2017. Segment
operating income was $117.8 million
for the nine months ended December 31,
2017, a decrease of $10.2
million, and for the quarter ended December 31, 2017, was $66.1 million, a decrease of $21.8 million, both compared to the same periods
last fiscal year. Results in the nine months ended
December 31, 2017, reflected slight
earnings improvements in the Other Regions segment coupled with
declines in the North America and
the Other Tobacco Operations segments. In the quarter ended
December 31, 2017, results were lower
in the Other Regions and Other Tobacco Operations segments, but
increased modestly in the North
America segment. Consolidated revenues increased by
$5.3 million to $1.4 billion for the nine months ended
December 31, 2017, and decreased by
$15.2 million to $653.6 million for the three months ended
December 31, 2017, compared to the
same periods in the prior year. The modest improvement in revenues
for the nine months was primarily a result of increased processing
revenues and slightly higher green tobacco prices largely offset by
lower sales volumes and other revenues. For the quarter ended
December 31, 2017, the decrease in
revenues was driven by lower sales volumes and lower other
revenues, offset in part by higher prices and an improved product
mix.
Mr. Freeman stated, "As expected, our earnings from operations
so far in fiscal year 2018 have been impacted by lower burley crop
volumes in Africa and fewer
carryover crop sales in North
America, offset in part by the return to normal crop volumes
in Brazil, where we continue to
see the benefits of higher volumes and lower factory unit costs.
The burley crop shortfall will predominately affect our third and
fourth fiscal quarters when we typically ship African crops. Last
year's third fiscal quarter reflected the largest quarterly sales
volumes in our recent history and included $13 million of income from the timing of the
receipt of distributions of unconsolidated subsidiaries, both of
which negatively impacted our third quarter comparisons for fiscal
year 2018.
"Our earnings for the quarter and nine-month period ended
December 31, 2017, included a
one-time $10.5 million ($0.41 per share) reduction of income tax expense
from the application of recent U.S. tax legislation. This benefit
mainly reflects an adjustment to deferred tax assets and
liabilities as well as the reduction of the U.S. tax liability on
undistributed foreign earnings. Part of this adjustment is a result
of our accounting practice of recording the full U.S. tax liability
expected to be paid on undistributed earnings of foreign
subsidiaries. I urge you to review footnote 3, included herein,
which describes this adjustment. We estimate that our ongoing
annual tax rate will be somewhat lower than the historic level for
recent fiscal years, and that it will be more volatile, due in part
to potential foreign exchange fluctuations that may affect tax
expense.
"Working capital requirements have been higher this year and
reflect higher current crop purchases on recovered Brazilian crop
levels. At the same time, uncommitted inventories at 16% of total
inventory on December 31, 2017,
remain within our targets and are slightly lower than last year's
level of 17% at December 31, 2016. We
expect our cash balances to remain strong, sustaining our solid
balance sheet and supporting funds required for seasonal crop
purchases and input advances for fiscal year 2019 crops.
"We also anticipate that our volumes for the fourth quarter of
fiscal year 2018 will be lower than those achieved in the fourth
quarter of the prior year, given reduced crop volumes available for
sale in Africa this year, which
typically have strong shipment volumes in the fourth fiscal
quarter. As a result, we continue to believe our total lamina
volumes for fiscal year 2018 will be modestly lower than those
volumes in fiscal year 2017. Looking forward, the next crop cycle,
which will be reflected in our fiscal year 2019 results, has begun
with green tobacco purchases in Brazil. The crop season is off to a good
start, and assuming the recovery of African volumes and overall
market stability, we believe that our fiscal year 2019 total sales
volumes will be higher.
"In January, we celebrated an important milestone -- the
100th anniversary of our Company. For 100 years, we have
been finding innovative solutions to serve our customers and meet
their leaf tobacco needs, and stand today as the leading global
leaf supplier. As we move into our next 100 years, we will build on
our history by seeking opportunities to leverage both our assets
and expertise and to deliver value to our shareholders. We will
continue our commitment to leadership in setting industry
standards, operating with transparency, providing products that are
responsibly-sourced, and investing in and strengthening the
communities where we operate."
FLUE-CURED AND BURLEY LEAF TOBACCO OPERATIONS:
OTHER REGIONS:
Operating income for the Other Regions segment improved by
$2.2 million to $98.6 million for the nine months ended
December 31, 2017, compared to the
nine months ended December 31, 2016.
The improvement was driven by lower selling, general, and
administrative expenses and higher processing revenues largely
offset by lower sales volumes and other revenues from the receipt
of distributions from unconsolidated affiliates. In South America, total lamina sales volumes were
up for the nine months ended December 31,
2017, on higher current crop sales partly offset by reduced
carryover crop sales. The higher current year crop volumes also
increased processing revenues and reduced factory unit costs there.
Results for the Africa region for
the nine months ended December 31,
2017, compared to the same period of the prior year, were
down due to lower African burley production levels this year.
Volumes improved for both the Europe and Asia regions primarily on stronger sales.
Selling, general, and administrative costs for the segment were
lower for the nine-month period, mostly from net foreign currency
remeasurement gains compared with losses in the prior year, mainly
in Africa. That benefit was
partially offset by unfavorable comparisons due to the reversal of
value-added tax reserves in the second quarter of fiscal year 2017.
Revenues for the Other Regions segment for the nine months ended
December 31, 2017, were up
$47.4 million to $1.0 billion compared to the nine months ended
December 31, 2016, as lower sales
volumes and other revenues were offset by higher green tobacco
prices and processing revenues.
Segment operating income for the Other Regions segment for the
quarter ended December 31, 2017,
decreased by $24.0 million to
$57.0 million, compared with the
third quarter of fiscal year 2017, principally on lower sales
volumes and other revenues from the receipt of distributions from
unconsolidated affiliates. These same factors also reduced revenues
for the Other Regions segment for the quarter ended December 31, 2017, to $474.4 million down by $21.6 million, compared to the same period in the
prior fiscal year. Volume declines in the Africa region, on lower burley production
outweighed strong volumes in Asia
and volume improvements in South
America. Selling, general, and administrative costs were
lower in the quarter ended December 31,
2017, compared to quarter ended December 31, 2016, mainly on net foreign currency
remeasurement gains compared with losses in the prior year partly
offset by recoveries on customer receivables in the prior year
quarter.
NORTH AMERICA:
North America segment operating
income of $13.9 million for the nine
months, and $3.6 million for the
quarter ended December 31, 2017, were
down by $7.5 million and up by
$2.6 million, respectively, compared
with the same periods in the previous year. The decline in the nine
months was driven by lower sales volumes. In the United States, volumes were down primarily
due to large prior crop carryover sales last year, while offshore
origin results were affected by lower volumes from later shipment
timing in the current fiscal year and less favorable margins. In
the quarter ended December 31, 2017,
sales volumes were flat on some earlier timing of sales in
the United States and a partial
catch up in the offshore origins of volumes that had shipped
earlier in fiscal year 2017. The segment also benefitted from an
improved product mix in the third quarter of fiscal year 2018
compared to the prior fiscal year. Selling, general and
administrative costs were flat for the nine months and quarter
ended December 31, 2017, compared
with the same periods in the previous fiscal year. Segment revenues
were down, by $35.2 million to
$211.4 million for the nine months on
lower volumes, and up by $6.3 million
to $99.5 million for the third
quarter of fiscal year 2018 mainly on an improved product mix,
compared with the same periods in the prior fiscal year.
OTHER TOBACCO OPERATIONS:
The Other Tobacco Operations segment operating income decreased
by $4.9 million to $5.3 million for the nine months and by
$0.4 million to $5.4 million for the third fiscal quarter ended
December 31, 2017, compared with the
same periods last fiscal year. In both periods, earnings were lower
for the dark tobacco operations mostly driven by lower sales in
Indonesia on lack of wrapper
tobacco availability from the weather damaged crop. Indonesian
wrapper volumes and quality have recovered in the subsequent crop,
which will be available for sale beginning in early fiscal 2019.
Earnings for the oriental joint venture increased for the nine
months and third fiscal quarter, largely from gains on the sale of
idle assets. Benefits from higher sales volumes and a better sales
mix in the joint venture for the nine months ended December 31, 2017, compared to the same period in
fiscal 2017, were heavily offset by higher currency remeasurement
losses from the devaluation of the Turkish lira. Operating results
for the Special Services group were relatively flat for the nine
months and third quarter of fiscal year 2018 compared with the
prior fiscal year periods. Selling, general, and administrative
costs for the segment were flat for the third fiscal quarter but
were higher for the nine months of fiscal year 2018 compared with
fiscal year 2017, primarily on negative currency remeasurement
variances and a value-added tax charge. Revenues for the Other
Tobacco Operations segment for the nine months ended December 31, 2017, of $175.1 million decreased $6.9 million from the comparable prior fiscal
year period mainly due to lower sales volumes from the timing of
shipments of oriental tobaccos into the
United States. Revenues of $79.8
million for the third fiscal quarter of 2018 were flat
compared to the third quarter of fiscal 2017.
OTHER ITEMS:
Cost of goods sold increased by about 2% to $1.2 billion and $545.1
million for the nine months and third quarter of fiscal year
2018, respectively, compared with the same periods in fiscal year
2017. For both periods, the increase reflected slightly higher
green leaf prices and a higher percentage of lamina in the sales
mix. Selling, general, and administrative costs decreased by
$8.9 million and by $3.3 in the nine months and quarter ended
December 31, 2017, respectively,
compared to the prior fiscal year periods. The decrease in both
periods was largely driven by net foreign currency remeasurement
and exchange gains in the current fiscal periods compared with
losses incurred in the prior fiscal year comparable periods,
primarily in Africa, Europe, and Asia. In the nine month period that benefit
was partly offset by the absence of the reversal of value-added tax
reserves in the second quarter of fiscal year 2017 and a
value-added tax charge in Indonesia in the second fiscal quarter of
2018.
The consolidated effective income tax rates for the quarter and
nine months ended December 31, 2017,
respectively were approximately 19% and 24%, and include the
effects from the changes in U.S. corporate income tax law under the
Tax Cuts and Jobs Act of 2017 that were enacted in December 2017. Those effects mainly represent an
adjustment to deferred tax assets and liabilities as well as the
reduction of the U.S. tax liability on undistributed foreign
earnings. For more details, see the attached footnote 3. The
consolidated effective income tax rates were approximately 32% and
33% for the quarter and nine months ended December 31, 2016, respectively. Income taxes for
those periods were lower than the 35% federal statutory rate at
that time, due to a combination of lower net effective tax rates on
income from certain foreign subsidiaries, and effects of changes in
local currency exchange rates on deferred income tax balances.
Results for the nine months and third fiscal quarter ended
December 31, 2016 included
restructuring and impairment costs of $3.9
million ($0.09 per diluted
share) and $0.2 million
($0.00 per diluted share),
respectively.
Additional information
Amounts included in the previous discussion are attributable to
Universal Corporation and exclude earnings related to
non-controlling interests in subsidiaries. In addition, the total
for segment operating income (loss) referred to in this discussion
is a non-GAAP measure. This measure is not a financial measure
calculated in accordance with GAAP and should not be considered as
a substitute for net income (loss), operating income (loss), cash
from operating activities or any other operating performance
measure calculated in accordance with GAAP, and it may not be
comparable to similarly titled measures reported by other
companies. A reconciliation of the total for segment operating
income (loss) to consolidated operating income (loss) is provided
in Note 4. Segment Information, included in this earnings release.
The Company evaluates its segment performance excluding certain
significant charges or credits. The Company believes this measure,
which excludes items that it believes are not indicative of its
core operating results, provides investors with important
information that is useful in understanding its business results
and trends.
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, including the impact of regulations on
tobacco products; product taxation; changes in U.S. federal income
tax rates and legislation; industry consolidation and evolution;
changes in global supply and demand positions for tobacco products;
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,
2017, 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
fiscal year ended March 31, 2017.
At 5:00 p.m. (Eastern Time) on
February 6, 2018, 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 6, 2018. A taped replay
of the call will be available through February 20, 2018, by dialing (855) 859-2056. The
confirmation number to access the replay is 2686739.
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, 2017, were $2.1 billion.
For more information on Universal Corporation, visit its website at
www.universalcorp.com.
UNIVERSAL
CORPORATION CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
December
31,
|
|
Nine Months
Ended
December
31,
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Sales and other
operating revenues
|
|
$
|
653,581
|
|
|
$
|
668,771
|
|
|
$
|
1,426,451
|
|
|
$
|
1,421,188
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
Cost of goods
sold
|
|
545,063
|
|
|
533,318
|
|
|
1,171,000
|
|
|
1,145,694
|
|
Selling, general and
administrative expenses
|
|
48,839
|
|
|
52,068
|
|
|
144,242
|
|
|
153,101
|
|
Restructuring and
impairment costs
|
|
—
|
|
|
178
|
|
|
—
|
|
|
3,860
|
|
Operating
income
|
|
59,679
|
|
|
83,207
|
|
|
111,209
|
|
|
118,533
|
|
Equity in pretax
earnings of unconsolidated affiliates
|
|
6,404
|
|
|
4,495
|
|
|
6,636
|
|
|
5,625
|
|
Interest
income
|
|
166
|
|
|
482
|
|
|
1,362
|
|
|
1,116
|
|
Interest
expense
|
|
4,020
|
|
|
4,051
|
|
|
11,916
|
|
|
12,440
|
|
Income before income
taxes and other items
|
|
62,229
|
|
|
84,133
|
|
|
107,291
|
|
|
112,834
|
|
Income
taxes
|
|
12,010
|
|
|
27,071
|
|
|
25,445
|
|
|
36,778
|
|
Net income
|
|
50,219
|
|
|
57,062
|
|
|
81,846
|
|
|
76,056
|
|
Less: net (income)
loss attributable to noncontrolling interests in
subsidiaries
|
|
(4,819)
|
|
|
(3,415)
|
|
|
(6,702)
|
|
|
(2,621)
|
|
Net income
attributable to Universal Corporation
|
|
45,400
|
|
|
53,647
|
|
|
75,144
|
|
|
73,435
|
|
Dividends on
Universal Corporation convertible perpetual preferred
stock
|
|
—
|
|
|
(3,687)
|
|
|
—
|
|
|
(11,061)
|
|
Earnings available to
Universal Corporation common shareholders
|
|
$
|
45,400
|
|
|
$
|
49,960
|
|
|
$
|
75,144
|
|
|
$
|
62,374
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
attributable to Universal Corporation common
shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.80
|
|
|
$
|
2.17
|
|
|
$
|
2.97
|
|
|
$
|
2.73
|
|
Diluted
|
|
$
|
1.78
|
|
|
$
|
1.92
|
|
|
$
|
2.94
|
|
|
$
|
2.63
|
|
|
See accompanying
notes.
|
UNIVERSAL
CORPORATION CONSOLIDATED BALANCE SHEETS (in
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
March 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
146,578
|
|
|
$
|
411,507
|
|
|
$
|
283,993
|
|
Accounts receivable,
net
|
|
347,175
|
|
|
280,978
|
|
|
439,288
|
|
Advances to
suppliers, net
|
|
108,952
|
|
|
93,175
|
|
|
103,750
|
|
Accounts
receivable—unconsolidated affiliates
|
|
1,799
|
|
|
2,073
|
|
|
2,373
|
|
Inventories—at lower
of cost or net realizable value:
|
|
|
|
|
|
|
Tobacco
|
|
796,165
|
|
|
736,368
|
|
|
565,943
|
|
Other
|
|
69,687
|
|
|
67,638
|
|
|
68,087
|
|
Prepaid income
taxes
|
|
14,459
|
|
|
11,419
|
|
|
16,713
|
|
Other current
assets
|
|
92,959
|
|
|
61,856
|
|
|
81,252
|
|
Total current
assets
|
|
1,577,774
|
|
|
1,665,014
|
|
|
1,561,399
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
|
|
|
|
Land
|
|
22,885
|
|
|
22,760
|
|
|
22,852
|
|
Buildings
|
|
269,670
|
|
|
264,485
|
|
|
266,802
|
|
Machinery and
equipment
|
|
621,051
|
|
|
603,860
|
|
|
597,213
|
|
|
|
913,606
|
|
|
891,105
|
|
|
886,867
|
|
Less
accumulated depreciation
|
|
(596,722)
|
|
|
(569,697)
|
|
|
(569,527)
|
|
|
|
316,884
|
|
|
321,408
|
|
|
317,340
|
|
Other
assets
|
|
|
|
|
|
|
Goodwill and other
intangibles
|
|
98,981
|
|
|
98,869
|
|
|
98,888
|
|
Investments in
unconsolidated affiliates
|
|
86,246
|
|
|
75,574
|
|
|
78,457
|
|
Deferred income
taxes
|
|
21,049
|
|
|
24,266
|
|
|
25,422
|
|
Other noncurrent
assets
|
|
49,033
|
|
|
41,798
|
|
|
41,899
|
|
|
|
255,309
|
|
|
240,507
|
|
|
244,666
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,149,967
|
|
|
$
|
2,226,929
|
|
|
$
|
2,123,405
|
|
|
See accompanying
notes.
|
UNIVERSAL
CORPORATION CONSOLIDATED BALANCE SHEETS (in
thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Notes payable and
overdrafts
|
|
$
|
50,804
|
|
|
$
|
52,052
|
|
|
$
|
59,133
|
|
Accounts payable and
accrued expenses
|
|
138,161
|
|
|
131,925
|
|
|
153,515
|
|
Accounts
payable—unconsolidated affiliates
|
|
16,184
|
|
|
10,522
|
|
|
7,231
|
|
Customer advances and
deposits
|
|
23,939
|
|
|
14,201
|
|
|
11,007
|
|
Accrued
compensation
|
|
19,387
|
|
|
22,800
|
|
|
32,007
|
|
Income taxes
payable
|
|
8,052
|
|
|
7,239
|
|
|
5,103
|
|
Current portion of
long-term debt
|
|
—
|
|
|
—
|
|
|
—
|
|
Total current
liabilities
|
|
256,527
|
|
|
238,739
|
|
|
267,996
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
368,998
|
|
|
368,645
|
|
|
368,733
|
|
Pensions and other
postretirement benefits
|
|
74,577
|
|
|
78,930
|
|
|
80,689
|
|
Other long-term
liabilities
|
|
47,289
|
|
|
30,038
|
|
|
31,424
|
|
Deferred income
taxes
|
|
31,903
|
|
|
29,075
|
|
|
47,985
|
|
Total
liabilities
|
|
779,294
|
|
|
745,427
|
|
|
796,827
|
|
|
|
|
|
|
|
|
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, no shares outstanding (107,418 at
December
31, 2016, and none at March 31, 2017)
|
|
—
|
|
|
104,012
|
|
|
—
|
|
Common stock,
no par value, 100,000,000 shares authorized 25,114,349
shares issued and outstanding (25,270,976 at
December 31, 2016, and
25,274,506 at March 31, 2017)
|
|
321,832
|
|
|
319,509
|
|
|
321,207
|
|
Retained
earnings
|
|
1,058,556
|
|
|
1,090,148
|
|
|
1,034,841
|
|
Accumulated other
comprehensive loss
|
|
(55,444)
|
|
|
(71,723)
|
|
|
(69,559)
|
|
Total Universal
Corporation shareholders' equity
|
|
1,324,944
|
|
|
1,441,946
|
|
|
1,286,489
|
|
Noncontrolling
interests in subsidiaries
|
|
45,729
|
|
|
39,556
|
|
|
40,089
|
|
Total shareholders'
equity
|
|
1,370,673
|
|
|
1,481,502
|
|
|
1,326,578
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders' equity
|
|
$
|
2,149,967
|
|
|
$
|
2,226,929
|
|
|
$
|
2,123,405
|
|
|
See accompanying
notes.
|
UNIVERSAL
CORPORATION CONSOLIDATED
STATEMENTS OF CASH FLOWS (in thousands of
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
December 31,
|
|
|
2017
|
|
2016
|
|
|
(Unaudited)
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
|
Net income
|
|
$
|
81,846
|
|
|
$
|
76,056
|
|
Adjustments to
reconcile net income to net cash provided (used) by operating
activities:
|
|
|
|
|
Depreciation
|
|
26,106
|
|
|
26,107
|
|
Net provision for
losses (recoveries) on advances and guaranteed loans to
suppliers
|
|
4,375
|
|
|
414
|
|
Foreign currency
remeasurement (gain) loss, net
|
|
(3,430)
|
|
|
12,493
|
|
Deferred income
taxes
|
|
(18,967)
|
|
|
(308)
|
|
Restructuring and
impairment costs
|
|
—
|
|
|
3,860
|
|
Other, net
|
|
12,131
|
|
|
7,598
|
|
Changes in operating
assets and liabilities, net
|
|
(151,429)
|
|
|
56,533
|
|
Net cash provided (used) by operating activities
|
|
(49,368)
|
|
|
182,753
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
|
Purchase of property,
plant and equipment
|
|
(23,567)
|
|
|
(28,544)
|
|
Proceeds from sale of
property, plant and equipment
|
|
5,072
|
|
|
665
|
|
Other
|
|
(550)
|
|
|
—
|
|
Net cash
used by investing activities
|
|
(19,045)
|
|
|
(27,879)
|
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
|
Issuance (repayment)
of short-term debt, net
|
|
(12,195)
|
|
|
(11,299)
|
|
Dividends paid to
noncontrolling interests
|
|
(1,260)
|
|
|
(1,260)
|
|
Repurchase of common
stock
|
|
(12,639)
|
|
|
—
|
|
Dividends paid on
convertible perpetual preferred stock
|
|
—
|
|
|
(11,061)
|
|
Dividends paid on
common stock
|
|
(40,886)
|
|
|
(36,181)
|
|
Other
|
|
(2,828)
|
|
|
(2,256)
|
|
Net cash
used by financing activities
|
|
(69,808)
|
|
|
(62,057)
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
|
806
|
|
|
(757)
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
(137,415)
|
|
|
92,060
|
|
Cash and cash
equivalents at beginning of year
|
|
283,993
|
|
|
319,447
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
|
$
|
146,578
|
|
|
$
|
411,507
|
|
|
Non-cash Financing
Transaction - The consolidated financial statements for the nine
months ended December 31, 2016 include a non-cash reclassification
of $107.6 million from preferred stock to common stock to reflect
the conversion of 111,072 shares of the Company's outstanding
Series B 6.75% Convertible Perpetual Preferred Stock into common
stock.
|
|
See accompanying
notes.
|
NOTE 1. BASIS OF PRESENTATION
Universal Corporation, which together with its subsidiaries is
referred to herein as "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. This Form 10-Q 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, 2017.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
December
31,
|
|
Nine Months
Ended
December
31,
|
(in thousands,
except share and per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per
Share
|
|
|
|
|
|
|
|
|
Numerator for
basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
attributable to Universal Corporation
|
|
$
|
45,400
|
|
|
$
|
53,647
|
|
|
$
|
75,144
|
|
|
$
|
73,435
|
|
Less: Dividends on
convertible perpetual preferred stock
|
|
—
|
|
|
(3,687)
|
|
|
—
|
|
|
(11,061)
|
|
Earnings available to
Universal Corporation common shareholders for calculation of basic
earnings per share
|
|
45,400
|
|
|
49,960
|
|
|
75,144
|
|
|
62,374
|
|
|
|
|
|
|
|
|
|
|
Denominator for
basic earnings per share
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
25,230,336
|
|
|
22,982,473
|
|
|
25,323,796
|
|
|
22,831,717
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
$
|
1.80
|
|
|
$
|
2.17
|
|
|
$
|
2.97
|
|
|
$
|
2.73
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings
Per Share
|
|
|
|
|
|
|
|
|
Numerator for
diluted earnings per share
|
|
|
|
|
|
|
|
|
Earnings available to
Universal Corporation common shareholders
|
|
$
|
45,400
|
|
|
$
|
49,960
|
|
|
$
|
75,144
|
|
|
$
|
62,374
|
|
Add: Dividends on
convertible perpetual preferred stock (if conversion
assumed)
|
|
—
|
|
|
3,687
|
|
|
—
|
|
|
11,061
|
|
Earnings available to
Universal Corporation common shareholders for calculation of
diluted earnings per share
|
|
45,400
|
|
|
53,647
|
|
|
75,144
|
|
|
73,435
|
|
|
|
|
|
|
|
|
|
|
Denominator for
diluted earnings per share:
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
25,230,336
|
|
|
22,982,473
|
|
|
25,323,796
|
|
|
22,831,717
|
|
Effect of dilutive
securities (if conversion or exercise assumed)
|
|
|
|
|
|
|
|
|
Convertible
perpetual preferred stock
|
|
—
|
|
|
4,693,155
|
|
|
—
|
|
|
4,816,904
|
|
Employee
share-based awards
|
|
230,073
|
|
|
320,955
|
|
|
222,274
|
|
|
318,594
|
|
Denominator for
diluted earnings per share
|
|
25,460,409
|
|
|
27,996,583
|
|
|
25,546,070
|
|
|
27,967,215
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings
per share
|
|
$
|
1.78
|
|
|
$
|
1.92
|
|
|
$
|
2.94
|
|
|
$
|
2.63
|
|
All outstanding shares of the Company's convertible perpetual
preferred stock were converted for common stock or cash in the
third and fourth quarters of fiscal year 2017, and therefore none
were outstanding for the three- and nine-month periods ended
December 31, 2017.
NOTE 3. INCOME TAXES
On December 20, 2017, the United
States Congress passed legislation making significant changes to
income taxation at the federal level for individuals, pass-through
entities, and corporations. The legislation, known as the Tax Cuts
and Jobs Act, was signed into law by the President on December 22, 2017. For corporations, the changes
include a reduction in the statutory rate on taxable income from
35% to 21%, and a move from a worldwide tax system to a territorial
tax system for companies with foreign operations. Under the
territorial system, except in limited situations or for limited
types of income, earnings from foreign operations will generally no
longer be subject to U.S. taxation. The law accommodates the move
from the previous worldwide tax system by providing for a one-time
transition tax on the undistributed post-1986 earnings of foreign
subsidiaries as of either November 2,
2017 or December 31, 2017,
whichever undistributed earnings amount is greater. Other
provisions of the new law allow for immediate expensing of
investments in property, plant, and equipment, and impose
limitations on the deductibility of interest, executive
compensation, and meals and entertainment expense.
Under the applicable accounting guidance, corporations are
required to account for the effects of changes in income tax law on
their financial statements as a component of taxes provided on
income from continuing operations in the period those changes are
enacted, which for Universal is the fiscal quarter and nine-month
period ended December 31, 2017. Due to the complexities
associated with understanding and applying various aspects of the
new law and quantifying or estimating amounts upon which
calculations required to account for new law are based, the U.S.
Securities and Exchange Commission ("SEC") recognized that it may
be difficult for many companies to complete the determination of
all accounting effects of the new law within the available
timeframe for issuing their financial statements for the period of
enactment. As a result, the SEC provided guidance permitting
corporations to record and report specific items impacted by the
new law on the basis of reasonable estimates if final amounts have
not been determined and designate them as provisional amounts, or
to continue to account for specific items under the previous law if
it is not possible to develop reasonable estimates within the
timeframe for issuance of the financial statements. In subsequent
reporting periods, as the accounting for those items is finalized,
companies are expected to record the appropriate adjustments to the
initial accounting, removing the provisional designation on an item
in the period that the accounting for that item is completed. A
measurement period of no more than one year from the date of
enactment of the new law is provided under the SEC guidance to
complete all such adjustments.
The most significant effects of the new law on Universal's
financial statements for the current reporting periods are:
(1) an adjustment of recorded deferred tax assets and
liabilities to the tax rates at which they are expected to reverse
in the future, including:
- amounts initially recorded in net income, and
- amounts initially recorded in other comprehensive income
(loss).
(2) a reduction of the liability previously recorded for
U.S. income taxes on undistributed foreign earnings to the amounts
expected to be paid under the one-time transition tax provisions of
the new law.
The following table outlines consolidated income tax expense and
the effective tax rates on pretax earnings for the quarter and nine
months ended December 31, 2017, including the effects recorded
for the new law:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December
31, 2017
|
|
Nine Months Ended
December
31, 2017
|
(in thousands of
dollars)
|
|
Amount
|
|
Effective Tax
Rate
|
|
Amount
|
|
Effective Tax
Rate
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
$
|
62,229
|
|
|
|
|
$
|
107,291
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense:
|
|
|
|
|
|
|
|
|
Determined
under previous tax law
|
|
$
|
22,506
|
|
|
36.2%
|
|
$
|
35,941
|
|
|
33.5%
|
|
|
|
|
|
|
|
|
|
Effect of new
law:
|
|
|
|
|
|
|
|
|
Adjustment of deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
- Initially recorded
in net income
|
|
(5,426)
|
|
|
(8.7)%
|
|
(5,426)
|
|
|
(5.1)%
|
- Initially recorded
in other comprehensive income
|
|
9,800
|
|
|
15.7%
|
|
9,800
|
|
|
9.1%
|
Reduction of U.S. tax liability on undistributed foreign
earnings to estimate of one time transition
tax
|
|
(14,528)
|
|
|
(23.4)%
|
|
(14,528)
|
|
|
(13.5)%
|
All other effects
|
|
(342)
|
|
|
(0.5)%
|
|
(342)
|
|
|
(0.3)%
|
Total effect of new
law
|
|
$
|
(10,496)
|
|
|
(16.9)%
|
|
$
|
(10,496)
|
|
|
(9.8)%
|
|
|
|
|
|
|
|
|
|
Total income tax
expense under new law
|
|
$
|
12,010
|
|
|
19.3%
|
|
$
|
25,445
|
|
|
23.7%
|
As noted above, the effect of the new law includes a
$5.4 million net reduction of current
period income tax expense from remeasuring net deferred tax
liabilities to the lower rates at which they are now expected to
reverse, generally the new 21% statutory U.S. tax rate. In
addition, the effect of the new law includes $9.8 million of net current period tax expense
from remeasuring net deferred tax assets attributable to pension
and other post retirement benefit plans, foreign currency
translation adjustments, and other amounts that were initially
recorded through other comprehensive income (loss) to the new lower
rates. Current accounting guidance requires that this $9.8 million net deferred tax asset adjustment be
recorded in income tax expense as part of the effect of the new
law, rather than through other comprehensive income (loss). As a
result, the effective tax rates on the pretax amounts of the items
reported in accumulated other comprehensive income (loss) at
December 31, 2017 are not reflective of the future rates at
which those items will reverse. The Financial Accounting Standards
Board has issued proposed guidance that, if subsequently issued as
a final Accounting Standards Update, will require the adjustment of
the tax effects in accumulated other comprehensive income (loss) to
the appropriate amounts through a reclassification to retained
earnings upon adoption of the guidance.
Prior to the enactment of the new law, under its accounting for
income taxes, the Company had no undistributed earnings of
consolidated foreign subsidiaries that were classified as
permanently reinvested. Accordingly, the Company had recorded the
full tax liability on those earnings, including both the local
country taxes and the U.S. taxes expected to be paid on their
future distribution. The new law replaces the U.S. income tax that
would have been paid on those earnings in the future with the
one-time transition tax, which is allowed to be paid over an
eight-year period. The total liability recorded by the Company for
this transition tax is approximately $21.0
million. The $14.5 million
reduction of income tax expense related to undistributed foreign
earnings reflects the adjustment of the U.S. tax liability
previously recorded on those earnings to the transition tax amount.
The Company continues to assume repatriation of all undistributed
earnings of its consolidated foreign subsidiaries and has therefore
provided for expected local withholding taxes on the distribution
of those earnings where applicable, net of the related U.S. tax
credit attributable to those withholding taxes.
In determining the recorded effect of the new law presented
above, the Company was able to develop what it considers to be
reasonable estimates and make what it considers to be reasonable
interpretations with respect to the application of the law in areas
that may receive future clarification. As a result, the Company has
not continued to account for any specific items under the previous
tax law. The three primary component effects of the new law on the
Company's financial statements for the current reporting periods,
as reflected in the above table, are considered provisional at this
time in order to allow additional time to complete the final
accounting. The Company continues to analyze certain aspects of the
new law, and future treasury regulations, tax law technical
corrections, notices, rulings, and other guidance issued by the
government could result in changes or refinements to amounts
recorded in the current reporting period. These include potential
refinements of the Company's calculations of the adjustments to
deferred tax assets and liabilities and the U.S. tax liability for
undistributed foreign earnings for the effect of the new law. The
amount recorded for the reduction in the tax liability on
undistributed foreign earnings may also be refined and adjusted
based on continuing review of the Company's calculation of the
one-time transition tax, including further analysis of the portion
of the undistributed earnings amounts represented by cash and other
specified assets held by its foreign subsidiaries. As a result, the
provisional amounts recorded may be adjusted in future reporting
periods within the allowed one-year measurement period as the final
accounting is completed, and those adjustments could be
material.
In future reporting periods under the new law, the Company's
consolidated income tax expense will generally be determined by the
aggregation of tax expense recorded in the U.S. and at the local
country level by each foreign subsidiary, rather than through an
adjustment of worldwide earnings to the U.S. statutory tax rate.
The consolidated effective tax rate will be more influenced by the
mix of pretax earnings from the various countries in which the
Company operates than in the past, and changes in currency exchange
rates will also have an impact on the effective tax rate. Although
the Company has not completed its assessment of the estimated level
of its consolidated effective tax rate for future periods, it is
expected to be somewhat lower, but will likely fluctuate more, than
the historical level for recent fiscal years.
As noted in the above table, with the effect of the tax law
changes, the Company's consolidated effective income tax rates were
19.3% and 23.7% for the three and nine months ended
December 31, 2017 respectively. Without the changes in
the tax law, those effective income tax rates would have been 36.2%
and 33.5%, respectively. The effective tax rates for the
three and nine months ended December 31, 2016 were 32.2% and
32.6%, respectively.
NOTE 4. 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 (loss) after
allocated overhead expenses (excluding significant non-recurring
charges or credits), plus equity in the pretax earnings (loss) of
unconsolidated affiliates.
Operating results for the Company's reportable segments for each
period presented in the consolidated statements of income and
comprehensive income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
December
31,
|
|
Nine Months
Ended
December
31,
|
(in thousands of
dollars)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
SALES AND OTHER
OPERATING REVENUES
|
|
|
|
|
|
|
|
|
Flue-Cured and Burley
Leaf Tobacco Operations:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
99,452
|
|
|
$
|
93,198
|
|
|
$
|
211,444
|
|
|
$
|
246,669
|
|
Other Regions
(1)
|
|
474,351
|
|
|
495,982
|
|
|
1,039,927
|
|
|
992,574
|
|
Subtotal
|
|
573,803
|
|
|
589,180
|
|
|
1,251,371
|
|
|
1,239,243
|
|
Other Tobacco
Operations (2)
|
|
79,778
|
|
|
79,591
|
|
|
175,080
|
|
|
181,945
|
|
Consolidated sales
and other operating revenue
|
|
$
|
653,581
|
|
|
$
|
668,771
|
|
|
$
|
1,426,451
|
|
|
$
|
1,421,188
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
|
|
|
|
|
|
Flue-Cured and Burley
Leaf Tobacco Operations:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
3,623
|
|
|
$
|
1,025
|
|
|
$
|
13,887
|
|
|
$
|
21,404
|
|
Other Regions
(1)
|
|
57,029
|
|
|
81,074
|
|
|
98,622
|
|
|
96,399
|
|
Subtotal
|
|
60,652
|
|
|
82,099
|
|
|
112,509
|
|
|
117,803
|
|
Other Tobacco
Operations (2)
|
|
5,431
|
|
|
5,781
|
|
|
5,336
|
|
|
10,215
|
|
Segment operating
income
|
|
66,083
|
|
|
87,880
|
|
|
117,845
|
|
|
128,018
|
|
Deduct: Equity
in pretax earnings of unconsolidated affiliates
(3)
|
|
(6,404)
|
|
|
(4,495)
|
|
|
(6,636)
|
|
|
(5,625)
|
|
Restructuring and impairment costs
(4)
|
|
—
|
|
|
(178)
|
|
|
—
|
|
|
(3,860)
|
|
Consolidated
operating income
|
|
$
|
59,679
|
|
|
$
|
83,207
|
|
|
$
|
111,209
|
|
|
$
|
118,533
|
|
|
|
(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 the
business is accounted for on the equity method and its financial
results consist principally of equity in the pretax earnings of an
unconsolidated affiliate.
|
|
|
(3)
|
Equity in pretax
earnings of unconsolidated affiliates is included in segment
operating income (Other Tobacco Operations segment), but is
reported below consolidated operating income and excluded from that
total in the consolidated statements of income and comprehensive
income.
|
|
|
(4)
|
Restructuring and
impairment costs are excluded from segment operating income, but
are included in consolidated operating income in the consolidated
statements of income and comprehensive income.
|
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SOURCE Universal Corporation