UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended December 31, 1993
OR
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From_________________to____________________
Commission file number 1-652
UNIVERSAL CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization-VIRGINIA
I.R.S. Employer Identification Number - 54-0414210
Address of principal executive offices - 1501 NORTH HAMILTON STREET
RICHMOND, VIRGINIA 23230
Registrant's telephone number, including area code - (804) 359-9311
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No
Common Stock, No par value - 35,633,585 shares outstanding as of February 9,
1994
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three and Six Months Ended December 31, 1993 and 1992
<TABLE>
Three Months Six Months
1993 1992 1993 1992
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Sales and other operating revenues $863,674 $888,294 $1,554,413 $1,714,875
Costs and expenses
Cost of goods sold 753,803 765,256 1,329,083 1,473,120
Selling, general and administrative 66,903 59,207 140,630 128,632
Interest 14,343 12,319 30,212 24,610
-------- -------- ---------- ----------
835,049 836,782 1,499,925 1,626,362
-------- -------- ---------- ----------
Income before income taxes
and other items 28,625 51,512 54,488 88,513
Income taxes 9,568 17,288 17,486 30,705
Minority interests 391 106 304 165
-------- -------- ---------- ----------
Income from consolidated operations 18,666 34,118 36,698 57,643
Equity in net income of
unconsolidated affiliates 1,544 1,131 1,971 1,382
-------- -------- ---------- ----------
Income before cumulative effect
of change in accounting principle 20,210 35,249 38,669 59,025
Cumulative effect of change in
accounting principle (29,406)
-------- -------- ---------- ----------
Net income $20,210 $35,249 $9,263 $59,025
======== ======== ========== ==========
Per common share
Income before cumulative effect
of change in accounting principle $ .57 $1.08 $1.09 $1.80
Cumulative effect of change in
accounting principle (.83)
-------- -------- ---------- ----------
Net income $ .57 $1.08 $ .26 $1.80
======== ======== ========== ==========
Retained earnings - Beginning of
period $341,523 $290,766
Net income 9,263 59,025
Cash dividends declared
($.46-1993; $.42-1992) (16,392) (13,809)
--------- ----------
Retained earnings - End of period $334,394 $335,982
========= ==========
Average common shares outstanding 35,632,238 32,865,543
</TABLE>
<PAGE>
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1993 1993
------------ ---------
ASSETS
Current
Cash and cash equivalents $66,170 $119,693
Accounts and notes receivable 414,496 345,766
Accounts receivable - unconsolidated affiliates 94,618 20,098
Inventories at lower of cost or market:
Tobacco 531,028 431,140
Lumber and building products 70,475 63,386
Agri-products 75,364 56,004
Other 13,740 18,811
Deferred income taxes 3,320 3,606
Other current assets 16,739 28,431
--------- ---------
Total current assets 1,285,950 1,086,935
Real estate, plant and equipment - at cost
Land 22,294 21,004
Buildings 159,561 155,652
Machinery and equipment 351,955 347,569
--------- ---------
533,810 524,225
Less accumulated depreciation 257,974 246,450
--------- ---------
275,836 277,775
Other assets
Goodwill 118,612 119,717
Other intangibles 18,391 20,080
Investments in unconsolidated affiliates 26,785 25,745
Deferred income taxes 15,344 2,193
Other noncurrent assets 42,292 31,743
--------- ---------
221,424 199,478
--------- ---------
$1,783,210 $1,564,188
========== ==========
<PAGE>
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1993 1993
------------ ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $568,157 $426,251
Accounts payable 222,861 237,574
Accounts payable - unconsolidated affiliates 15,218 25,402
Customer advances and deposits 115,124 52,672
Accrued compensation 14,668 21,017
Income taxes payable 959 3,936
Current portion long-term obligations 10,616 19,552
---------- ---------
Total current liabilities 947,603 786,404
Long - term obligations 294,965 281,807
Postretirement benefits other than pensions 49,860
Other long - term liabilities 50,090 40,592
Deferred income taxes 28,519 35,020
Minority interests 5,491 2,452
Shareholders' equity
Preferred stock $100 par, 8% cumulative,
authorized 75,000 shares, issued and
outstanding 4 shares
Additional preferred stock, no par value,
authorized 5,000,000 shares, none issued
or outstanding
Common stock, no par value, authorized
50,000,000 shares, issued and outstanding
35,633,585 shares (35,631,485 at
June 30, 1993) 86,723 86,672
Retained earnings 334,394 341,523
Foreign currency translation adjustments (14,435) (10,282)
---------- ---------
Total shareholders' equity 406,682 417,913
---------- ---------
$1,783,210 $1,564,188
========== ==========
<PAGE>
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1993 and 1992
1993 1992
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,263 $59,025
Adjustments to reconcile net income to net
cash provided by operating activities 30,500 11,500
Cumulative effect of change in accounting
principle 29,406
Changes in operating assets and liabilities
net of effects from purchase of businesses (227,592) 29,915
---------- ---------
Net cash provided by (used in) operating
activities (158,423) 100,440
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (13,300) (21,300)
Purchase of businesses (net of cash acquired) (8,700)
Other (3,500)
---------- ---------
Net cash used in investing activities (25,500) (21,300)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt - net 131,100 (53,500)
Repayment of short-term debt classified as
long-term June 30,1993 (100,000)
Repayment of long-term debt (21,700)
Issuance of long-term debt 115,000
Issuance of common stock 500
Dividends paid (15,700) (13,100)
---------- ---------
Net cash provided by (used in) financing
activities 130,400 (87,800)
---------- ---------
Net decrease in cash and cash equivalents (53,523) (8,660)
Cash and cash equivalents at beginning of period 119,693 82,674
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $66,170 $74,014
========== =========
<PAGE>
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
All figures contained herein are unaudited and stated in thousands of dollars
1) The Company's major operating segments of domestic and foreign tobacco,
lumber and building products and agri-products are seasonal by nature.
Therefore, the results of operations for the six-month period ended December 31,
1993 are not necessarily indicative of results to be expected for the year
ending June 30, 1994. All adjustments necessary to fairly state the results for
such period have been included and were of a normal recurring nature.
2) At December 31, 1993, total exposure under guarantees issued for banking
facilities of unconsolidated affiliates was $22 million. Other contingent
liabilities approximate $168 million and relate principally to Common Market
guarantees, joint venture overdraft and other guarantees.
3) In August, 1993, Congress passed the "Omnibus Budget Reconciliation Act of
1993" which, among other things, increased the corporate tax rate from 34% to
35% retroactive to January 1, 1993. The cumulative impact was to increase tax
expense approximately $1.5 million in the first quarter. The lower effective
rate of 32%, compared to the six-month period last year, was primarily
attributable to prior years non-repatriated earnings that have been deemed
permanently reinvested in the current year and a greater proportion of earnings
taxed at less than the full statutory rate.
4) The Company provides postemployment health and life insurance benefits for
eligible U.S. employees attaining specific age and service requirements. The
plans contain cost-sharing features such as deductibles and coinsurance. In the
past the Company has made changes to the plans that have reduced benefits. The
Company reserves the right to amend or discontinue the plans at any time.
Effective July 1, 1993, the Company adopted SFAS 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires that the estimated
costs of these benefits be expensed over the employee's active service period
rather than as paid. The standard permits an employer to recognize the
unrecorded postretirement obligation as a one-time charge to earnings or to be
amortized over a period of up to 20 years. In the first quarter of the current
fiscal year, the Company elected to recognize the obligation as a one-time
charge of approximately $29 million or $.83 per share (net of $18 million in
taxes). For the six months ended December 31, 1993, the effect of adopting SFAS
106 was a decrease in 'Income Before Cumulative Effect Of Change In Accounting
Principle' of approximately $1.5 million. The after-tax cost for the six months
ended December 31, 1992 was approximately $300 thousand recorded on a cash
basis.
The accumulated postretirement benefit obligation was determined using an
assumed health care cost trend rate of 15% as of July 1, 1993 decreasing
gradually to 6.5% by fiscal year 2005. A one percentage point increase in the
assumed health care cost trend rate would increase the accumulated benefit
obligation by approximately $8 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit expense for the
fiscal year by approximately $1 million. The assumed discount rate used in
determining the benefit obligation at July 1, 1993 was 8%.
Effective January 1, 1994, the Company amended the aforementioned medical
benefit plan for future retirees. The change reduces the Company's
postretirement obligation by approximately $14 million (net of tax benefits).
For reporting periods subsequent to January 1, the change is expected to
substantially offset the impact on pre-tax earnings resulting from the adoption
of SFAS 106.
5) Unaudited pro forma consolidated results of operations for the six months
ended December 31, 1992 as though Casalee had been acquired at July 1, 1992 are:
Gross revenues - $1.8 billion; Net income $52.2 million or $ 1.47 per common
share.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the prior fiscal year the Company completed the acquisition of The
Casalee Group SA. To partially finance this acquisition and to provide working
capital, the Company issued approximately 2.7 million shares of common stock,
receiving net proceeds of approximately $71 million. In the current year the
Company in a private placement issued $100 million of 6.14% notes with a final
maturity in the year 2000. The proceeds of the private placement were used to
reduce short-term borrowings that had been classified as long-term. The
Company also replaced its $100 million revolving credit facility and with a more
favorable facility. The Company's liquidity and strong capital structure have
been supported by these actions.
Current assets and current liabilities increased $199 million and $161 million,
respectively, at December 31 compared to June 30, 1993, primarily due to the
seasonal requirements of the Company's domestic tobacco operations and advances
made to purchase tobacco from affiliates. The seasonal expansion in the U.S. is
reflected in the balance sheet as higher receivables and inventory which are
normally funded with short-term lines of credit, trade payables and advances by
customers. The consolidated cash flow statement reflects the aforementioned
issuance of long-term debt utilized to reduce short-term borrowings and support
the net cash used in operating activities.
Results of Operations
'Sales and Other Operating Revenues' declined $25 million and $160 million in
the quarter and six-month periods respectively, primarily due to a continuation
of short-term adverse conditions in the trade, with lower demand and poor
quality in the 1993 U.S. flue-cured crop adversely impacting domestic tobacco
results. Purchases in the U.S. burley crop were substantially lower than the
prior year, but overall processing results were comparable due to significantly
larger volumes processed for the stabilization cooperatives. In addition, the
comparison with last year's six months suffers from customer mandated hold-over
shipments from previous crops made in last year's first quarter. Foreign tobacco
revenues in both periods were up due to the inclusion of Casalee's operations in
the current fiscal year. Lumber and building product revenues were down in both
periods due to phasing out slow-moving products, closing unprofitable outlets
and exchange rate changes, while agri-product revenues increased, reflecting
favorable results from nuts, tea and sunflower seed operations.
Gross profits in the quarter and six-month periods declined $13 million and $16
million respectively. U.S. and foreign tobacco results reflect short-term
adverse conditions in the trade, with the general world surplus affecting
margins worldwide. Results were adversely affected by reduced demand, pressure
on prices and delayed shipments . The Company's worldwide unsold inventories
are being disposed of at a satisfactory rate under these circumstances and for
upcoming crops, growers in the major tobacco exporting countries appear to be
reducing production. Although overall gross profits of lumber and building
products declined in both periods, gross margins increased, reflecting generally
higher price levels. Agri-product gross profits increased in the current year
due to improved margins in the aforementioned trading operations.
'Selling, general and administrative expenses' increased $7.7 million and $12
million for the quarter and six- month periods respectively, primarily due to
the inclusion of Casalee's results. Substantial resources are being committed
to develop markets in Eastern Europe and China, and the Company is aggressively
pursuing consolidation and cost reductions made possible by the acquisition of
Casalee. Fiscal year 1994 includes an increase in expense of approximately
$1.3 million in the quarter and $2.6 million in the six months related to the
adoption of SFAS 106 "Employers' Accounting for Postemployment Benefits Other
Than Pensions." 'Interest expense' reflects increases from inventory carrying
costs and the acquisition of Casalee. Lower interest rates partially offset the
impact on interest expense of higher average borrowings outstanding during the
current year.
'Income Taxes' for the six months ended December 31, 1993, reflect the combined
effects of new tax legislation in the United States, non-repatriated earnings
that have been deemed permanently reinvested, and a greater proportion of
earnings taxed at less than the full statutory rate. In aggregate the Company's
effective tax rate in the six months was 32% compared to 35% in the prior year.
See note 3 for additional information. As previously mentioned (see note 4),
the Company has adopted SFAS 106 which required a one-time charge of $29.4
million in the first quarter of the current fiscal year.
The tobacco industry faces a number of uncertainties in the near term,
largely related to and affecting the U.S. domestic situation. In the
United States, cigarette manufacturers are currently operating under
recently effective legislation requiring that cigarettes made in the U.S.
contain at least 75% domestic tobacco. This legislation obviously
negatively affects the volume of imports into the United States, but demand
for the domestic crops has been moderated by large surpluses in the
stabilization cooperatives, which are available for purchase and use. The
domestic content legislation is being challenged as illegal under GATT.
The proposed increase in excise tax on tobacco products is also a source of
uncertainty in terms of its effect on demand for tobacco products, and will
remain so until this situation is clarified.
The world oversupply is a third contributor to mixed signals from the tobacco
markets. Oversupply generally results in more cautious purchases by
manufacturers, as well as margin pressures. Because of a significant
decrease in projected worldwide tobacco production, the Company believes
that the current oversupply situation will moderate in the coming year.
The Company remains confident about the long-term prospects for the industry
and is cautiously optimistic that market conditions will begin to improve
as surplus conditions abate.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 4
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, registrant
agrees to furnish to the commission upon request a copy of the
Revolving Credit Agreement dated as of December 1, 1993, with
respect to long-term debt not registered.
(b) Reports on Form 8-K
None filed during the quarter ended December 31, 1993.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL CORPORATION
(Registrant)
/ s / Hartwell H. Roper
Hartwell H. Roper, Vice President and
Chief Financial Officer
/ s / William J. Coronado
William J. Coronado, Controller
(Principal Accounting Officer)
Date: February 9, 1994
