UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT # 1
[ x ] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended September 30, 1995
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
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(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0414210
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1501 North Hamilton Street, Richmond, Virginia 23230
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(Address of principal executive offices) (Zip code)
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-35,042,051 shares outstanding as of February 2, 1996
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PART 1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at September 30, 1995, was $245 million compared to
$265 million at June 30, 1995. The 7.5% decline in working capital was accounted
for by increases in current assets of $144 million offset by an increase in
current liabilities of $164 million. The most significant increases were
accounted for by tobacco inventory (up $177 million) and customer advances (up
$144 million). These increases primarily relate to the Company's domestic
tobacco operations. Within the U.S., tobacco working capital needs are normally
at their lowest point at June 30. In mid to late July the U.S. flue-cured
tobacco markets open and the Company's working capital needs increase. As
tobacco is purchased and shipped to factories for processing, inventories
generally rise. This increase in inventories is offset by increases in notes
payable and/or customer advances. The mix of notes payable and customer advances
is dependent on both the Company's and its customers' borrowing capabilities,
interest rates and exchange rates. The Company does not purchase tobacco in the
United States on a speculative basis; thus the increase in inventory represents
tobacco that has been committed to customers.
Generally the Company's international tobacco operations conduct
business in U.S. dollars, thereby limiting foreign exchange risk to local
production and overhead costs. Agri-product and lumber operations enter into
foreign exchange contracts to hedge firm purchase and sales commitments for
terms of less than six months. Interest rate risk is limited because customers
in the tobacco business usually pre-finance purchases or pay market rates of
interest for inventory purchased for their accounts.
The liquidity and capital resources of the Company at September 30,
1995 remain adequate. Over the past two years the Company has announced
restructuring plans related to the consolidation of certain tobacco operations
and a reduction in the number of employees. These efforts will lead to increased
efficiency and streamlined operations. Through the quarter ended September 30,
1995, approximately $2.2 million of severance payments related to the fiscal
year 1995 restructuring had been paid.
In the first quarter of fiscal 1996, the Company made some minor
structural changes in its U.S. tobacco operations. The $10 million of "Proceeds
from minority investment in a subsidiary" in the Statement of Cash Flows
represents cash proceeds from the issuance of stock in a newly formed
subsidiary. The Company treated the issuance of these shares as an equity
transaction and no gain or loss was recognized.
Results of Operations
'Sales and Other Operating Revenues' increased $181 million or 27% in
the quarter. Tobacco operations accounted for $159 million of the increases
primarily due to increased domestic flue-cured and dark tobacco orders. The
balance of the increase was attributable to the inclusion of Heuvelman, which
was acquired in the second quarter last year, in lumber and building product
operations.
Gross profits in the quarter increased almost 10% to $104 million due
to the acquisition of Heuvelman, which accounted for $6.7 million of the
increase. The balance of the gross profit improvement was realized in domestic
and dark tobacco operations. In the quarter the total volume of domestic tobacco
purchased and processed was up over 40% primarily due to larger flue-cured
marketings and increased orders from domestic and export customers; however, as
expected, processing volumes for the Flue-cured Stabilization Cooperative (Pool)
were down in the quarter, as crop surpluses have been reduced in the past year.
The Pool is a grower cooperative which operates under the supervision of the
U.S. Department of Agriculture (USDA) to provide price support to the U.S.
flue-cured market. Crop quota and price support levels are set by the USDA in
accordance with formulas established in legislation. When tobacco is not
purchased at auction prices equal to or exceeding the support price levels, the
Pool acquires the tobacco, which it then holds for resale until market
conditions improve. The Pool contracts with tobacco dealers to process the
tobacco so that it can be stored in a redried state. The volume of tobacco
acquired by the Pool annually is dependent principally on the supply and demand
for the crop and its quality. Charges for processing Pool tobacco are negotiated
with tobacco dealers such as Universal Leaf. While the volume of Pool business
fluctuates from year to year, revenues from the Pool in each of the past five
fiscal years were not greater than 1% of consolidated tobacco revenues.
Foreign tobacco operating profits improved $5.3 million in the quarter
principally due to improved contributions from Central American and European
operations. African tobacco results were lower due to old crop shipments carried
over into the first quarter of last year. Similarly, Brazilian results were down
in the quarter due to shipments delayed to subsequent quarters in the current
fiscal year. The carryover of shipments in Africa in the preceding year and
delay in Brazilian shipments in the current year were mandated by changes in
customers' shipping schedules. Profits in dark air-cured tobacco rose on strong
sales to the U.S. cigar industry, as worldwide consumption of cigars, and
resulting demand for leaf, continues to increase. Lumber and building product
operating profits were up approximately $2 million benefiting from the inclusion
of Heuvelman, while some erosion of margins and volumes in regional outlets was
more than offset by increased sales to the wholesale and professional markets.
In late fiscal 1995 softwood prices began to decline due to high inventory
levels in Western European markets. This led to increasing pressure on prices
(20-year lows) and reduced margins. The erosion of softwood margins in the
regional outlets was not material to the Company's consolidated results of
operations. Subsequently inventory levels have been reduced; however strong
competition continues in the building industry, and customers generally are only
buying for their short-term needs. Recently the decline in softwood margins has
stabilized. Lower purchase prices for raw lumber are expected to lead to
improvement in softwood margins in the near term. Agri-product results in fiscal
year 1996 benefited from improved market conditions for both tea and
confectionery sunflower seeds.
Selling and General and Administrative Expenses' in the quarter
increased by 1% compared to last year, reflecting the realization of benefits
from restructuring efforts of the past two years. Interest expense was flat
year-to-year as increased borrowing requirements related to higher volumes were
offset by reductions in inventory carried over from the prior fiscal year. The
higher effective tax rate in the prior fiscal year's first quarter was due to
the lack of tax benefits on certain foreign subsidiaries' losses.
The improved tobacco world supply and demand relationship is expected
to lead to better results for the current fiscal year. Although there are
factors beyond management's control, such as fiscal policies in Brazil, the
Company's balance and strength in the major tobacco origins provides a firm base
for growth. The Brazilian government has reduced inflation rates to 20-year lows
through fiscal policies included in its Plano Real economic plan, which entails
financial control of items such as interest rates and exchange rates. In
addition, the Brazilian government exercises control over taxation, trade
policies, foreign investment and banking. Although there have been benefits
realized from enacting the Plano Real, the long term viability of the
government's plan is dependent on various factors, including whether the current
administration can continue to hold office in the future, the level of foreign
currency reserves and the confidence of the Brazilian business sector. There
were no significant changes in Brazil's fiscal policies during the quarter ended
September 30, 1995, and none have been announced that would lead the Company to
believe there would be a significant impact for the Company's fiscal year ending
June 30, 1996.
Lumber and agri-products activities continue to perform well and have
good potential for the future. As reported in the 1995 annual report to
shareholders, the Company adopted a restructuring plan for its tobacco
operations. As of the date of this report there have been no material changes to
the plan or its underlying assumptions.
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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.
Date: February 2, 1996 UNIVERSAL CORPORATION
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(Registrant)
/ s / Hartwell H. Roper
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Hartwell H. Roper, Vice President and
Chief Financial Officer
/ s / William J. Coronado
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William J. Coronado, Controller
(Principal Accounting Officer)
