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 March 31, 1994
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 - 35,001,185 shares outstanding as of May 11, 1994
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three and Nine Months Ended March 31, 1994 and 1993
Three Months Nine Months
1994 1993 1994 1993
Sales and other operating
revenues $749,587 $836,688 $2,304,000 $2,551,563
Costs and expenses
Cost of goods sold 668,942 746,663 1,998,025 2,219,783
Selling, general and
administrative 58,317 50,755 198,947 179,387
Interest 14,809 10,366 45,021 34,976
742,068 807,784 2,241,993 2,434,146
Income before income taxes and
other items 7,519 28,904 62,007 117,417
Income taxes 259 11,565 17,745 42,270
Minority interests 262 (477) 566 (312)
Income from consolidated
operations 6,998 17,816 43,696 75,459
Equity in net income of
unconsolidated affiliates 2,345 1,266 4,316 2,648
Income before cumulative effect
of change in accounting
principle 9,343 19,082 48,012 78,107
Cumulative effect of change in
accounting principle (29,406)
Net income $9,343 $19,082 $18,606 $78,107
Per common share
Income before cumulative
effect of change in
accounting principle $.26 $.58 $1.35 $2.37
Cumulative effect of
change in accounting
principle (.83)
Net income $.26 $.58 $.52 $2.37
Retained earnings - Beginning of
period $341,523 $290,766
Net income 18,606 78,107
Cash dividends declared
($.70-1994; $.64-1993) (24,944) (21,044)
Retained earnings - End of period $335,185 $347,829
Average common shares outstanding 35,631,878 32,923,811
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1994 1993
ASSETS
Current
Cash and cash equivalents 71,273 $119,693
Accounts and notes receivable 384,252 345,766
Accounts receivable - unconsolidated
affiliates 96,325 20,098
Inventories at lower of cost or market:
Tobacco 487,050 431,140
Lumber and building products 77,413 63,386
Agri-products 63,577 56,004
Other 10,751 18,811
Prepaid income taxes 6,963
Deferred income taxes 3,397 3,606
Other current assets 25,140 28,431
Total current assets 1,226,141 1,086,935
Real estate, plant and equipment - at cost
Land 22,561 21,004
Buildings 158,747 155,652
Machinery and equipment 361,394 347,569
542,702 524,225
Less accumulated depreciation 261,606 246,450
281,096 277,775
Other assets
Goodwill 119,502 119,717
Other intangibles 27,808 20,080
Investments in unconsolidated affiliates 30,438 25,745
Deferred income taxes 13,077 2,193
Other noncurrent assets 33,518 31,743
224,343 199,478
$1,731,580 $1,564,188
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts 555,410 $426,251
Accounts payable 214,659 237,574
Accounts payable - unconsolidated affiliates 19,015 25,402
Customer advances and deposits 75,811 52,672
Accrued compensation 13,184 21,017
Income taxes payable 3,936
Current portion long-term obligations 10,287 19,552
Total current liabilities 888,366 786,404
Long - term obligations 301,685 281,807
Postretirement benefits other than pensions 48,650
Other long - term liabilities 48,760 40,592
Deferred income taxes 33,717 35,020
Minority interests 5,484 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 35,604,485 shares
(35,631,485 at June 30, 1993) 86,169 86,672
Retained earnings 335,185 341,523
Foreign currency translation adjustments (16,436) (10,282)
Total shareholders' equity 404,918 417,913
$1,731,580 $1,564,188
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1994 and 1993
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,606 $78,107
Adjustments to reconcile net income to net
cash provided by operating activities 44,000 24,400
Cumulative effect of change in accounting principle 29,406
Changes in operating assets and liabilities net
of effects from purchase of businesses (219,032) 11,865
Net cash provided by (used in) operating activities (127,020) 114,372
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (19,000) (29,800)
Purchase of businesses (net of cash acquired) (15,200) (84,900)
Increase in other intangibles (10,600)
Proceeds from long-term investment 14,100
Other (3,500) 6,200
Net cash used in investing activities (34,200) (108,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt - net 122,600 (15,200)
Repayment of short-term debt classified as
long-term June 30, 1993 (100,000)
Repayment of long-term debt (24,000)
Issuance of long-term debt 115,000
Issuance (purchase) of common stock (600) 70,900
Dividends paid (24,200) (20,400)
Net cash provided by financing activities 112,800 11,300
Net increase (decrease) in cash and cash equivalents (48,420) 17,172
Cash and cash equivalents at beginning of period 119,693 82,674
CASH AND CASH EQUIVALENTS AT END OF PERIOD $71,273 $99,846
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
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 nine-month period ended March 31, 1994 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 March 31, 1994, total exposure under guarantees issued
for banking facilities of unconsolidated affiliates was $18
million. Other contingent liabilities approximate $160 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 reduction
in the effective tax rate for the nine months to 29% was
primarily attributable to prior years' non-repatriated earnings
that have been deemed permanently reinvested in the current
year, a greater proportion of earnings taxed at less than the
full statutory rate and amendments of prior years' income tax
returns.
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 nine months ended March 31, 1994, the effect
of adopting SFAS 106 was a decrease in 'Income Before Cumulative
Effect Of Change In Accounting Principle' of approximately $1.4
million. The after-tax cost for the nine months ended March 31,
1993 was approximately $450 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 nine months ended March 31, 1993 as though Casalee had been
acquired at July 1, 1992 are: Gross revenues - $2.7 billion;
Net income $64.2 million or $1.80 per common share. Prior year
balance sheet amounts have been reclassified to reflect the
allocation of the purchase price of Casalee.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
In August 1993 the Company in a private placement issued $100
million of 6.14% notes with a final maturity in the year 2000.
The proceeds 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 $139 million
and $102 million, respectively, at March 31, 1994 compared to
June 30, 1993, primarily due to the seasonal requirements of the
Company's tobacco operations and advances made to purchase
tobacco from affiliates. The June 30 balance sheet generally
reflects the low point of working capital needs in the U.S.
while those for South and Central America start to expand. At
March 31 the reverse is true, with the domestic operations
carrying unshipped current crops. Inventories and accounts
receivable are generally supported by trade payables, lines of
credit, and customer advances.
Results of Operations
'Sales and Other Operating Revenues' declined $87 million and
$248 million in the quarter and nine-month periods respectively,
primarily due to short-term adverse conditions in the world
markets, as well as from an unsettled domestic tobacco
situation. Domestic purchases and sales were down in the U.S.,
reflecting high support prices and the poor quality of the
flue-cured crop. Processing volumes in the U.S. were comparable
to last year due to higher volumes of stabilization tobaccos, as
the cooperatives purchased a higher proportion of the crop
marketed. Foreign tobacco revenues were up year-to-date due to
the inclusion of Casalee's operations in the current fiscal
year. Lumber and building product revenues were down
year-to-date due primarily to exchange rates, while agri-product
revenues were up in the quarter and year-to-date due to
increased nut and sunflower seed volumes.
Gross profits in the quarter and nine-month periods declined $9
million and $26 million respectively. Domestic tobacco results
reflect reduced orders related in part to uncertainty over
pending excise tax legislation. Processing volume was similar
to last year's due to increased processing of tobacco purchased
by the stabilization cooperative, but higher costs of handling
the poor quality flue-cured crop and lower yields overall
adversely affected processing earnings. Foreign tobacco results
were adversely affected by a combination of U.S. legislation
restricting foreign leaf content in U.S. made cigarettes, and a
worldwide supply/demand imbalance. In recognition of the
effects of world prices on its inventories, the Company recorded
a $3.5 million pre-tax writedown of its foreign source inventory
in the third quarter of the current fiscal year. In addition,
results for last year's nine months benefited from profits on
shipments that were accelerated at the request of customers.
There are encouraging signs of improvement in the worldwide
tobacco supply situation with production declines in virtually
all market areas. Excluding the operating results of a
laminating division sold last year, lumber and building product
gross profits were up in the quarter and comparable year-to-date
on improved margins. Agri-product results were adversely
effected by losses in coffee trading which are not expected to
recur. Nut and sunflower seed operations improved during the
quarter and year-to-date while other products reported mixed
results due to varying market conditions.
'Selling, general and administrative expenses' increased $7.6
million and $19.6 million for the quarter and nine-month
periods, respectively, primarily due to the inclusion of
Casalee's operations. Included in those operations are the
costs of developing markets in both Eastern Europe and China,
which will lay the basis for significant opportunities in the
long-term but adversely affect current earnings. Fiscal year
1994 includes an increase in expense of approximately $2.4
million year-to date related to the adoption of SFAS 106
"Employers' Accounting for Postemployment Benefits Other Than
Pensions." 'Interest expense' reflects increased inventory,
working capital needs of Casalee and the financing cost related
to the acquisition of Casalee not covered by the issuance of
common stock.
'Income Taxes' for the nine months ended March 31, 1994,
reflect the combined effects of new tax legislation in the
United States, non-repatriated earnings that have been deemed
permanently reinvested, a greater proportion of earnings taxed
at less than the full statutory rate and amendments of prior
years' income tax returns. In aggregate the Company's effective
tax rate in the nine months was 29% compared to 36% 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.
As previously reported, the world supply situation appears to
be improving. However, the industry must continue to deal with
U.S. legislative uncertainties as well as with higher than
optimum inventory levels held by the trade. We cautiously
expect a gradual return to a more normal operating environment
in fiscal year 1995 and beyond. In the meantime we are
implementing efficiencies throughout the organization, which are
expected to result in a leaner and more focused company for the
future.
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: May 11, 1994
