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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
--------------
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)
VIRGINIA 54-0414210
- ----------------------------------- --------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1501 North Hamilton Street, Richmond, Virginia 23230
- ---------------------------------------------------- --------------
(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 - 35,085,332 shares outstanding as of May 7, 1997
<PAGE>
2
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, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Nine Months
1997 1996 1997 1996
----------------- ----------------- --------------- ---------------
<S> <C>
Sales and other operating revenues $1,013,715 $942,587 $3,171,776 $2,817,870
Costs and expenses
Costs of goods sold 871,895 811,723 2,757,278 2,448,556
Selling, general and administrative 83,123 77,258 231,658 219,135
Interest 15,243 19,474 49,498 51,786
----------------- ----------------- --------------- --------------
970,261 908,455 3,038,434 2,719,477
----------------- ----------------- --------------- --------------
Income before income taxes and other items 43,454 34,132 133,342 98,393
Income taxes 17,381 13,639 53,336 39,348
Minority interests 1,694 2,752 5,643 5,617
----------------- ----------------- --------------- --------------
Income from consolidated operations 24,379 17,741 74,363 53,428
Equity in net income of unconsolidated 3,235 686 4,675 2,591
affiliates
----------------- ----------------- --------------- --------------
Net income $27,614 $ 18,427 $79,038 $56,019
================= ================= =============== ==============
Earnings per common share $.79 $.53 $2.25 $1.60
================= ================= =============== ==============
Retained earnings - Beginning of period $360,273 $323,595
Net income 79,038 56,019
Cash dividends declared ($.785-1997; $.760-1996) (27,176) (26,629)
--------------- --------------
Retained earnings - End of period $412,135 $352,985
=============== ==============
Average common shares outstanding 35,068,788 35,035,516
</TABLE>
<PAGE>
3
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
---------------- -----------------
<S> <C>
ASSETS
Current
Cash and cash equivalents $133,366 $214,782
Accounts and notes receivable 597,352 384,278
Accounts receivable - unconsolidated affiliates 15,156 17,843
Inventories - at lower of cost or market:
Tobacco 621,617 490,557
Lumber and building products 109,368 106,916
Agri-products 64,364 71,145
Other 13,100 15,373
Prepaid income taxes 2,539 5,867
Deferred income taxes 5,993 5,984
Other current assets 20,664 16,215
---------------- -----------------
Total current assets 1,583,519 1,328,960
Real estate, plant and equipment - at cost
Land 33,775 33,786
Buildings 220,202 218,012
Machinery and equipment 431,334 414,141
---------------- -----------------
685,311 665,939
Less accumulated depreciation 370,019 345,549
---------------- -----------------
315,292 320,390
Other assets
Goodwill 118,523 122,579
Other intangibles 24,887 26,726
Investments in unconsolidated affiliates 30,224 27,191
Deferred income taxes 13,440 13,029
Other noncurrent assets 74,893 50,638
---------------- -----------------
261,967 240,163
---------------- -----------------
$2,160,778 $1,889,513
================ =================
</TABLE>
<PAGE>
4
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------------- ---------------
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $595,092 $551,667
Accounts payable 305,157 222,154
Accounts payable - unconsolidated affiliates 11,564 6,813
Customer advances and deposits 276,496 122,894
Accrued compensation 14,659 18,245
Income taxes payable 20,201 24,061
Current portion long-term obligations 32,592 83,348
--------------- ---------------
Total current liabilities 1,255,761 1,029,182
Long - term obligations 296,735 309,543
Postretirement benefits other than pensions 45,504 46,268
Other long - term liabilities 42,475 44,920
Deferred income taxes 27,755 13,846
Minority interests 30,294 28,449
Shareholders' equity
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 35,085,332 shares
(35,056,357 at June 30,1996) 76,336 76,053
Retained earnings 412,135 360,273
Foreign currency translation adjustments (26,217) (19,021)
--------------- ---------------
Total shareholders' equity 462,254 417,305
--------------- ---------------
$2,160,778 $1,889,513
=============== ===============
</TABLE>
<PAGE>
5
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- ----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $79,038 $56,019
Adjustments to reconcile net income to net cash provided
by operating activities 51,000 34,600
Changes in operating assets and liabilities net of effects from
purchase of businesses (133,934) (21,257)
------------- ----------------
Net cash provided by (used in) operating activities (3,896) 69,362
------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (35,700) (25,500)
Purchase of businesses (net of cash acquired) (17,600)
Other (2,100)
------------- ----------------
Net cash used in investing activities (35,700) (45,200)
------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (repayment) short-term debt - net 43,400 (80,300)
Repayment of long-term debt (76,900) (27,400)
Issuance of long-term debt 18,600 117,200
Proceeds from minority investment in a subsidiary 10,000
Issuance of common stock 280 50
Dividends paid (27,200) (26,500)
------------- ----------------
Net cash provided by (used in) financing activities (41,820) (6,950)
------------- ----------------
Net decrease in cash and cash equivalents (81,416) 17,212
Cash and cash equivalents at beginning of period 214,782 158,093
------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $133,366 $175,305
============= ================
</TABLE>
<PAGE>
6
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
All figures contained herein are unaudited and stated in thousands of dollars,
except per share data and the number of average common shares outstanding.
1) The operations of segments; domestic and foreign tobacco, lumber and building
products and agri-products are seasonal. Therefore, the results of operations
for the nine-month period ended March 31, 1997 are not necessarily indicative of
results to be expected for the year ending June 30, 1997. All adjustments
necessary to fairly state the results for such period have been included and
were of a normal recurring nature.
2) The Company provides guarantees for seasonal pre-export crop financing for
some of its subsidiaries and unconsolidated affiliates. In addition, certain
subsidiaries provide guarantees that ensure that Common Market subsidies and
value-added taxes will be repaid if the crops are not exported or if the
subsidies are not properly distributed to Common Market farmers. At March 31,
1997, total exposure under guarantees issued for banking facilities of
unconsolidated affiliates was $6 million. Other contingent liabilities
approximate $48 million and relate principally to Common Market guarantees. The
Company considers the possibility of loss on any of these guarantees to be
remote.
3) Amounts in the prior year's statement have been reclassified to be reported
on a consistent basis with the current year's presentation.
4) In the first quarter of fiscal year 1997 the Company adopted Statement of
Financial Accounting Standard No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The adoption of
this standard did not and is not expected to have a material impact on results
of operations or financial position.
<PAGE>
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at March 31, 1997, was $328 million compared to $300
million at June 30, 1996. The net change in working capital was accounted for by
increased tobacco inventory and accounts receivable, net of higher customer
deposits and accounts payable supporting the increase in current assets. Within
domestic tobacco operations, the June 30 balance sheet normally reflects the low
point in the annual operating cycle. At March 31, domestic tobacco inventories
represent processed tobacco awaiting shipment to customers. Inventory levels
fluctuate from quarter to quarter depending on customer requirements. While the
inventory of domestic tobacco operations is normally higher at March compared to
June, major foreign tobacco origins such as Africa and Brazil are lower.
However, a portion of the increase in accounts receivable represents advances of
funds to farmers for fertilizer and seeds that will be recovered when the
farmers deliver their crops in the upcoming quarter. Generally, the Company does
not purchase tobacco in the U.S. on a speculative basis; thus the increase in
inventory, related to domestic inventories, for the most part 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 March 31, 1997
remain adequate to support its businesses. In January 1997, the Company repaid
at maturity $50 million of medium term notes that carried an average interest
rate of 7.3%.
Results of Operations
'Sales and Other Operating Revenues' increased $71 million or 7.5% in
the quarter. In the quarter higher tobacco sales were partially offset by
lower lumber and building product sales that reflected cold weather in
Holland, an unfavorable economic climate in Belgium and a stronger U.S.
dollar. Year-to-date revenues were up $354 million or over 12.5% compared to
last year. All three operating segments had higher year-to-date sales, with
tobacco operations accounting for over 85% of the increase in the current
year. Tobacco sales continue to reflect improved market conditions, while
lumber and building product sales showed improvement in regional and
industrial sales.
Operating profits, before interest, in the quarter increased almost 10%
to $59 million, principally due to improvements realized in foreign tobacco.
The year-to-date operating profit increase of over 20% to $183 million benefited
from both improved foreign tobacco and lumber operations. Foreign tobacco
operating results were strong due to a combination of higher volumes and margins
plus benefits from the company's continuing cost reduction plan. Dark tobacco
operations reported improved operating results on increased sales and margins.
Demand for dark air-cured tobacco exceeds supply as manufacturers seek to keep
pace with the significant increase in cigar consumption in the U.S. and, to a
lesser extent, abroad. Agri-product earnings comparisons were flat for both the
quarter and for the nine-month period. While tea results were lower on margin
pressure and an inadequate supply of higher grade teas, confectionery sunflower
seeds and spices performed well.
<PAGE>
8
'Selling, General and Administrative Expenses' for the year were up
less than 6% reflecting increased foreign tobacco shipments. Interest expense
was down slightly year-to-date reflecting increased financing by customer
advances. In the quarter interest expense includes a reclassification of
approximately $2.7 million, which reduced both revenues and interest expense but
had no effect on earnings.
The outlook for next year is positive. Customer interest appears to be
strong for tobaccos in Brazil and Africa where marketing of the 1996/97 crops is
currently in progress. The results from these crops will be reflected in fiscal
year 1998. Larger flue-cured and burley crops are anticipated in the United
States, which should enable the company to purchase and process larger leaf
volumes and improve profitability for the coming fiscal year. The lumber
distribution and agri-products segments continue to perform well, and
company-wide efforts to reduce costs and improve efficiency are producing
positive results.
Reference is made to Items 1 and 7 and the Notes to the Consolidated
Financial Statements in Item 8 of the Company's Form 10-K for the fiscal year
ended June 30, 1996 and to Item 2 "Forward Looking Statements" on pages 8
through 11 of the Company's Form 10-Q for the first quarter ended September 30,
1996, regarding important factors that would cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company, including forward-looking statements contained in Item 2
of this Form 10-Q.
<PAGE>
9
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: May 7, 1997 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)
<PAGE>
10
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
12. Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
EXHIBIT 12.
Universal Corporation and Subsidiaries
RATIO OF EARNINGS TO FIXED CHARGES
Nine Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------------------- ------------------
<S> <C>
Pretax income from continuing operations $133,342 $98,393
Pretax income of unconsolidated affiliates 6,386 3,875
Fixed Charges 50,154 52,454
--------------------- ------------------
Earnings $189,449 $154,722
===================== ==================
Interest $49,498 $51,786
Interest of unconsolidated affiliates 400 493
Debt discount amortization 256 175
--------------------- ------------------
Fixed Charges $50,154 $52,454
===================== ==================
Ratio of Earnings to Fixed Charges 3.8 2.9
===================== ==================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102037
<NAME> UNIVERSAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1997
<CASH> 133,366
<SECURITIES> 0
<RECEIVABLES> 612,508
<ALLOWANCES> 0
<INVENTORY> 808,449
<CURRENT-ASSETS> 1,583,519
<PP&E> 685,311
<DEPRECIATION> 370,019
<TOTAL-ASSETS> 2,160,778
<CURRENT-LIABILITIES> 1,255,761
<BONDS> 296,735
0
0
<COMMON> 76,336
<OTHER-SE> 385,918
<TOTAL-LIABILITY-AND-EQUITY> 2,160,778
<SALES> 3,171,776
<TOTAL-REVENUES> 3,171,776
<CGS> 2,757,278
<TOTAL-COSTS> 2,757,278
<OTHER-EXPENSES> 231,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,498
<INCOME-PRETAX> 133,342
<INCOME-TAX> 53,336
<INCOME-CONTINUING> 79,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,038
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 0
</TABLE>
