Good afternoon. My name is Jennifer, and I will be your conference operator today. At this time I would like to welcome everyone to the Third Quarter Fiscal Year 2015 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. And Ms. Candace Formacek, you may begin your conference.

Thank you, Jennifer, and thank you for joining us today. George Freeman, our Chairman, President, and CEO; and David Moore, our Chief Financial Officer are here with me today. They will join me in answering questions after these brief remarks. This call is being webcast live and will be available on our website and on telephone taped replay. It will remain on our website through May 5, 2015. If you are listening to this call after that date or if you are reading a transcription, we have not authorized such recording or transcription. It has been made available to you without our permission, review or approval. We take no responsibility for such presentation. Any transcription, inaccuracies or omissions or failures to present available updates are the responsibility of the party who is providing it to you. Before I begin to discuss our results I caution you that we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future. For information on some of the factors that can affect our estimates, I urge you to read our 10-K for the year-ended March 31, 2014, as well as our Form 10-Q for the fiscal year ended December 31, 2014, which was filed with the SEC today. The factors that can affect our estimates include such things as customer-mandated timing of shipments, weather conditions, political and economic environment, changes in currency, industry consolidation and evolution and changes in market structure or sources. Finally, some of the information I have for you today is based on un-audited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures. For details on these measures including reconciliations to the most comparable GAAP measures, please refer to…

[Operator Instructions] And our first question comes from the line of Ann Gurkin with Davenport.

Good evening and congratulations on a very good quarter.

Thank you, kindly.

I want to start with some questions regarding the quarter. In North America, the increased third-party processing in the U.S., can you tell me what's behind that number? Are there any new business wins behind that number?

Well, Ann, we don’t really disclose exactly where that comes from. I mean, you know our group there works hard to improve whenever we have new business, most of the business in the U.S. are with customers that we already have. Now we are pleased to see an increase in that business.

Okay. And the other items, provisions -- lower provision for losses on advances to supplier. Can you give me some more detail behind that statement?

Well, in general, Ann, we have been working on that for the past three years, paying a lot of attention to it because it drives up the cost of leaf. It cost our customers' money as well. So we spent a lot of time looking at relative advances to the farmers, the ratio of those advances to the purchase price of leaf. Going back to ensure that our accounts are clean, and we make every effort to collect monies that can be collected. We have seen a lot of success really over the last three-year period. This year just we have where we would really like to be.

Got it. There has been an emphasis particularly on Brazil is that what I should be understanding.

Well, you see provisions against suppliers in other places as well. You see it Brazil, you see it in the Philippines, Malawi, particularly any place that you have, a lot of competition, a lot of people fighting for leaf. Places where people have additives [ph] to sell tobacco, they have been contracted to other people.

Well, congratulations on the benefit of your hard work there. That's great to see.

Thank you.

The Oriental joint venture, numbers were lower than we're looking for in the quarter and I understand there is some timing of shipments. We're still thinking it would take several years to see a full recovery of that business, is that still the right expectation?

Yes, Ann, I think that, you know, that is a tough business that we are in. I will say, you know, we did see some timing effects that affected the third quarter for that business. Year-to-date they are still up over the prior year, however. We are seeing some benefits on some of the negative currency comparisons they had last year.

Okay. And the leaf production update that you published, the U.S. numbers for crop year 2015 I guess, maybe a little higher than I was expecting. I am hearing that the farmers are looking for reductions in crops. I know it comes down from 14 to 15, but I just was curious your insight into that either flue-cured and barley projected crop production number in the U.S.

Are you talking about--?

220 and 80.

The 220 and 80, yeah, those are down a bit from the current year.

Right. But in terms of November and I just thought that might go down.

And could trend down due to the market forces, I mean, we haven’t given…

It is early.

Right. And market forces will be pushing that down, not lifting that up.

We will have another update for you next quarter.

Okay. And then just in terms of some current trends in the industry. You talk about U.K. implementing plain packaging and the risk to volume, you may see some at and then Obama was proposing increasing federal excise tax, a tax -- federal excise tax on cigarettes. Any comments you can share on either one of those kind of risk to volumes or cigarettes, anything you are hearing or any insight you can share?

I mean, I don’t -- I don’t think any -- this is a super surprise to anybody. And I think the trend is in developed markets that to need to come down. I think that…

And that's consistent…

That's consistent, yeah, we have been seeing it.

Seeing as an outlook, where there maybe other changes in other markets that are mature western market.

Okay. And then large manufacturers looking for global cigarette production to be down may be 1% to 2% more historic levels for 2015 and 2016 and the 3% volume drop we have seen in the past several years. Do you have any comments on that?

I think that is expectation.

I think that's what we are hearing too, but who knows.

Okay. Fair enough. And then just any help you can give me on the direction for SG&A, nice improvement in Q3 and how we should think about that for the balance of the year and for -- fiscal 2016 and then the tax rate always that's the question.

So let's talk about the tax rate, because that's easier. Most of the things that drove our year-to-date tax rate down were one-off items that occurred in the first six months. So that would continue both for fourth quarter, for next year, a year after. I would still think in terms of 34%, 35% sort of the statutory rate of tax.

Ann, on the SG&A, I would say, we don’t really give forward guidance on that. I think what you are seeing this year are some benefits in part to some positive comparisons to negative results that had to do with currency last year. As you know we always had some chunky items. At the same time we have made progress in lower loss provisions for suppliers and lower incentive compensation cost and corporate overhead, these are certainly efforts that we try to maintain on ongoing basis. So you always have to be a little bit cautious though for the future about some of the unpredictable costs such currency movement.

Fair enough. Okay. Great. Thank you all. Congratulations again.

Thank you.

Thank you.

And your next question comes from the line of Steve [indiscernible] with Capital Security.

Good afternoon, folks. Congrats on a good quarter. Ann asked one of the questions I was going to ask about SG&A. And I guess my other question was if the dollar continues to rise against other currencies, what kind of impact do you see that on your business?

Well, Steve, generally, there is not a good general answer for currency movements. We have a lot of different currency situations in different areas. In some ways a stronger dollar can provide benefit to local prices or crops that are priced in local currency. At the same time, depending upon whether we have a local dollar functional entity or local currency functional entity, there can be varying results that have to do with re-measurement. And it does sort of depend on where that is.

Right. Timing is everything.

Yeah.

Okay. All right. Thank you very much.

Thanks.

Thank you.

And your next question comes from the line of Bryan Hunt.

Thank you. I was wondering if you can just talk about your inventory position. You are up over $1 billion. I think last year you ended the year with around $600 million of inventory. Do you think you are capable whittling your inventories for the big shipment quarter back down where they were a year ago, or was that ending your period abnormally low?

No. I think we will approach that number. We have got a lot of inventory which actually was a good thing. It’s committed for sell. It just needs to ship in this fourth quarter. So we naturally would expect it to come down. Absolutely how much tobacco get shipped in the fourth quarter sort of hard to call, but we are not expecting the balance sheet inventory to be that materially different from the year before.

And you had nice expansion in gross margin year-over-year. I mean, anecdotally what we read under the trade press, it says that tobacco, green tobacco prices are down double-digit in Africa. Is that being reflected in this quarter's gross margin expansion? And would you expect that to continue in Q4 as more African tobacco ship?

It will influence by the lower SG&A which is part of that margin. But I also would say, you know, when we had such delayed shipments in the first six months, that's going to drive the margins in the first six months lower. I think it’s probably more accurate to look at our annual results and look at the margins on that basis after we ship a more normal mixture and quantity for whole 12-month period.

Bryan, I would also add to that that you may recall last year in South America, there were volatile markets that pressured our gross margins as well. And so as we reported earlier we are not seeing that same factor affecting the margins this year.

And the pendulum has been swinging back, if you will. There was some verticalization of some of the cigarette companies several years ago, about five years ago and then now it seems like they are getting away from your business model. I mean, is that something you could confirm? Is that a fair statement that you see the cigarette companies wanting to disaggregate the value chain as oppose to vertical integrate?

I can't really comment about that except I would say that what occurred in the U.S. recently was inline with that.

Bryan, we do believe that moves away from vertical integration or recognition. Lead supplier plays a major role in the efficiency of the marketing system. And we do believe that there are opportunities to continue to bring efficiencies to the entire supply chain.

Great. And then my last question is when you look at the -- you are talking about this year you are being slightly oversupply in mixtures, you know, indications of plantings will bring that more balance back to the industry. Can you give us some idea of magnitude, you know, what the level of oversupply might be for this year relative to demand and what you are anticipating in terms of decline in production in flue and barley for 2016?

Bryan, we do post as our estimated leaf production on our website and so the new -- each quarter. So the numbers we have just put out, these are current internal estimates and they do shift and change, still early in the crop season for next year. But we are looking at an estimate of about 6% flue-cured decline for this year and about 7% in barley. The demand is the other side of that equation. However, I think we normally say it takes at least two years to meet out of an oversupply and in this case it’s not early production, it’s also a customer demand related. So I think we are being cautious about next year and the combination of those two factors. It does take usually some time to work out of an oversupply.

And I am sorry. I said last question. This is my last question. There was a report by one of the two suppliers to the industry saying that cigarette companies were trying to whittle down inventories at least in their product category. Do you feel like cigarette companies are carrying some inventory today of tobacco and they are trying to whittle it back or what do you believe the inventory position is kind in the value chain?

We don’t comment about sort of inventory policies of our customers. But clearly with the decrease in demand, it needs that everybody is -- they are buying forward and obviously they have over bought. And so there is an element of sort of doubling down on that correction.

But it’s hard to tell. We have been through a season where production less to half. The industry as a whole has excess inventory which gives the manufacturer selectivity. They have got more choices as to as long as it’s available in the market, do they have to buy now, do they wait to next year. It’s really end of a tale.

Well, thanks for your insight and good luck in Q4.

Thank you.

Thank you.

[Operator Instructions] And there are no further questions.

Very good. Thank you, Jennifer and thank you all for joining us on our call today.

Nice evening.