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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 December 31, 1996
-----------------
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 of (I.R.S. Employer
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 - 35,060,516 shares outstanding as of February 12,
1997
<PAGE>
2
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, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Six Months
1996 1995 1996 1995
------------------------------- ------------------------------
<S> <C>
Sales and other operating revenues ....................... $ 1,337,221 $ 1,035,616 $ 2,158,061 $ 1,875,283
Costs and expenses
Costs of goods sold .................................. 1,185,082 892,008 1,885,383 1,636,833
Selling, general and administrative .................. 77,049 76,750 148,535 141,877
Interest ............................................. 18,344 17,874 34,255 32,312
------------ ------------ ------------ ------------
1,280,475 986,632 2,068,173 1,811,022
------------ ------------ ------------ ------------
Income before income taxes and other items ............... 56,746 48,984 89,888 64,261
Income taxes ......................................... 22,736 19,903 35,955 25,709
Minority interests ................................... 3,341 2,684 3,949 2,865
------------ ------------ ------------ ------------
Income from consolidated operations ...................... 30,669 26,397 49,984 35,687
Equity in net income of unconsolidated affiliates .... 733 1,006 1,440 1,905
------------ ------------ ------------ ------------
Net income ............................................... $ 31,402 $ 27,403 $ 51,424 $ 37,592
============ ============ ============ ============
Earnings per common share ................................ $ .90 $ .78 $ 1.47 $ 1.07
============ ============ ============ ============
Retained earnings - Beginning of period .................. $ 360,273 $ 323,595
Net income ............................................... 51,424 37,592
Cash dividends declared ($.520-1996; $.505-1995) ......... (17,879) (17,693)
------------ ------------
Retained earnings - End of period ........................ $ 393,818 $ 343,494
============ ============
Average common shares outstanding ........................ 35,060,516 35,032,284
</TABLE>
<PAGE>
3
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1996 1996
---------- ----------
ASSETS
Current
Cash and cash equivalents ..................... $ 93,127 $ 214,782
Accounts and notes receivable ................. 515,377 384,278
Accounts receivable - unconsolidated affiliates 10,324 17,843
Inventories - at lower of cost or market:
Tobacco ................................... 762,242 490,557
Lumber and building products .............. 108,254 106,916
Agri-products ............................. 58,695 71,145
Other ..................................... 11,526 15,373
Prepaid income taxes .......................... 4,796 5,867
Deferred income taxes ......................... 5,983 5,984
Other current assets .......................... 12,940 16,215
---------- ----------
Total current assets ...................... 1,583,264 1,328,960
Real estate, plant and equipment - at cost
Land .......................................... 33,212 33,786
Buildings ..................................... 220,621 218,012
Machinery and equipment ....................... 433,649 414,141
---------- ----------
687,482 665,939
Less accumulated depreciation ............. 366,244 345,549
---------- ----------
321,238 320,390
Other assets
Goodwill ...................................... 120,186 122,579
Other intangibles ............................. 25,452 26,726
Investments in unconsolidated affiliates ...... 28,318 27,191
Deferred income taxes ......................... 4,891 13,029
Other noncurrent assets ....................... 68,835 50,638
---------- ----------
247,682 240,163
---------- ----------
$2,152,184 $1,889,513
========== ==========
<PAGE>
4
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
December 31, June 30,
1996 1996
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts ....................... $ 583,039 $ 551,667
Accounts payable ................................... 281,888 222,154
Accounts payable - unconsolidated affiliates ....... 9,251 6,813
Customer advances and deposits ..................... 276,992 122,894
Accrued compensation ............................... 16,065 18,245
Income taxes payable ............................... 21,686 24,061
Current portion long-term obligations .............. 81,063 83,348
----------- -----------
Total current liabilities ...................... 1,269,984 1,029,182
Long - term obligations ................................ 299,696 309,543
Postretirement benefits other than pensions ............ 45,759 46,268
Other long - term liabilities .......................... 39,992 44,920
Deferred income taxes .................................. 17,058 13,846
Minority interests ..................................... 28,871 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 35,060,516 shares
(35,056,357 at June 30,1996) .................... 76,336 76,053
Retained earnings .................................. 393,818 360,273
Foreign currency translation adjustments ........... (19,330) (19,021)
----------- -----------
Total shareholders' equity ..................... 450,824 417,305
----------- -----------
$ 2,152,184 $ 1,889,513
=========== ===========
</TABLE>
<PAGE>
5
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C>
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 51,424 $ 37,592
Adjustments to reconcile net income to net cash provided
by operating activities ................................... 39,200 22,200
Changes in operating assets and liabilities net of effects from
purchase of businesses .................................... (194,959) (4,594)
--------- ---------
Net cash provided by (used in) operating activities ....... (104,335) 55,198
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ..................... (25,300) (17,700)
Purchase of businesses (net of cash acquired) ................. (17,600)
Other ......................................................... (2,300)
--------- ---------
Net cash used in investing activities ..................... (25,300) (37,600)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (repayment) short-term debt - net ................. 31,400 (15,000)
Repayment of long-term debt ................................... (20,000) (21,800)
Issuance of long-term debt .................................... 14,200 16,300
Proceeds from minority investment in a subsidiary ............. 10,000
Issuance of common stock ...................................... 280 50
Dividends paid ................................................ (17,900) (17,500)
--------- ---------
Net cash provided by (used in) financing activities ....... 7,980 (27,950)
--------- ---------
Net decrease in cash and cash equivalents ......................... (121,655) (10,352)
Cash and cash equivalents at beginning of period .................. 214,782 158,093
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 93,127 $ 147,741
========= =========
</TABLE>
<PAGE>
6
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
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 six-month period ended December 31, 1996 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 December 31,
1996, total exposure under guarantees issued for banking facilities of
unconsolidated affiliates was $4 million. Other contingent liabilities
approximate $52 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 December 31, 1996, was $313 million compared to $300
million at June 30, 1996. The net change in working capital was accounted for by
increases in current assets of $254 million offset by an increase in current
liabilities of $241 million. Accounts receivable, tobacco inventory and customer
advances account for the majority of the increases in the respective categories.
The increases primarily represent purchases of crops that have not been
processed and/or not shipped due to customer requirements. In the U.S., tobacco
working capital needs at December 31 represent a combination of unshipped
processed flue-cured tobacco plus burley tobacco purchases from mid-November.
Approximately 70% of the U.S. burley crop is purchased by the dealer industry in
November and December with processing continuing through the spring. Leaf
purchases are normally financed with a combination of customers advances,
accounts payable, and lines of credit. 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. U.S. tobacco inventories are
typically at their lowest point at June 30. Generally, the Company does not
purchase tobacco in the U.S. on a speculative basis; thus the increase in
inventory, related to domestic inventories, 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 December 31, 1996
remain adequate to support its businesses.
Results of Operations
'Sales and Other Operating Revenues' increased $302 million or 29% in
the quarter. As reported in the first quarter the U.S. flue-cured crop was
harvested about two weeks later than normal. The delay resulted in an increase
in the the volume of crop handled in the second quarter. For the six-month
period volume handled increased. Total tobacco revenues were up in the quarter
and six-month period $270 million and $220 million, respectively. In addition to
the higher volumes of U.S. crop handled in the quarter, foreign tobacco sales
were also up. Non-tobacco operating revenues, benefiting from improved market
conditions, were up in both periods.
Operating profits, before interest and income taxes, in the quarter
increased over 12 % to $75 million and increased by 30% to $124 million for the
six months, principally due to improvements realized in foreign tobacco and
lumber operations. Improved foreign tobacco results mitigated a comparative
decline in the U.S. which was due to shipments of old crop inventory last year
as well as a delay in shipments for the current year. For the six months,
foreign tobacco operations improved, with virtually all of the operating regions
<PAGE>
8
reporting improved results. Customer demand remained firm as world flue-cured
and burley production increased, and higher volumes coupled with efficiencies
from the Company's continuing cost reduction efforts led to improved margins.
Lumber and building products operating profits were up in both periods due to
improved softwood prices, good demand from the construction industry and strong
growth in the do-it-yourself sector. Results in agri-products were in line with
expectations. Spices and merchandising registered good gains while pressure on
margins reduced tea earnings in the quarter.
'Selling, General and Administrative Expenses' for the year were up
less than 5% reflecting increased foreign tobacco shipments. Interest expense
was up 6% year-to-date principally reflecting the increased working capital
needs in the first six months of the fiscal year that were supported by
short-term borrowings.
The improved supply and demand situation in world tobacco markets and
strong demand for the American blend cigarette has enabled the company to handle
increased leaf volumes in the current year. The strong performance by the
company for the six month period is a reflection of these market conditions.
Quarterly comparisons continue to be complicated by abnormal crop conditions in
the U.S. (including the effects of two hurricanes) and the timing of shipments
to customers. However, we do anticipate further growth in earnings over the
second half of the fiscal year.
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: February 12, 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>
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
Six Months Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C>
Pretax income from continuing operations ........... $ 89,888 $ 64,261
Pretax income of unconsolidated affiliates ......... 2,091 2,592
Fixed Charges ...................................... 34,590 32,972
-------- --------
Earnings ........................................... $126,569 $ 99,825
======== ========
Interest ........................................... $ 34,255 $ 32,312
Interest of unconsolidated affiliates .............. 167 543
Debt discount amortization ......................... 178 117
-------- --------
Fixed Charges ...................................... $ 34,600 $ 32,972
======== ========
Ratio of Earnings to Fixed Charges ................. 3.7 3.0
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102037
<NAME> UNIVERSAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1997
<CASH> 93,127
<SECURITIES> 0
<RECEIVABLES> 525,701
<ALLOWANCES> 0
<INVENTORY> 940,717
<CURRENT-ASSETS> 1,583,264
<PP&E> 687,482
<DEPRECIATION> 366,244
<TOTAL-ASSETS> 2,152,184
<CURRENT-LIABILITIES> 1,269,984
<BONDS> 299,696
0
0
<COMMON> 76,336
<OTHER-SE> 374,488
<TOTAL-LIABILITY-AND-EQUITY> 2,152,184
<SALES> 2,158,061
<TOTAL-REVENUES> 2,158,061
<CGS> 1,885,383
<TOTAL-COSTS> 1,885,383
<OTHER-EXPENSES> 148,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,255
<INCOME-PRETAX> 89,888
<INCOME-TAX> 35,955
<INCOME-CONTINUING> 51,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,424
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 0
</TABLE>
