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 September 30, 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 of (I.R.S. Employer
ncorporation 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
--------- ----------
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Common Stock, No par value - 35,140,537 shares outstanding as of November 7,
1997
<PAGE>
2
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended September 30, 1997 and 1996
(In thousands of dollars, except per share data)
<CAPTION>
September 30, September 30,
1997 1996
------------ ------------
<S> <C>
Sales and other operating revenues .................. $ 1,023,156 $ 820,840
Costs and expenses
Costs of goods sold ............................. 880,921 700,301
Selling, general and administrative ............. 78,437 71,486
Interest ........................................ 13,802 15,911
------------ ------------
973,160 787,698
------------ ------------
Income before income taxes and other items .......... 49,996 33,142
Income taxes .................................... 20,000 13,219
Minority interests .............................. (338) 608
------------ ------------
Income from consolidated operations ................. 30,334 19,315
Equity in net income of unconsolidated affiliates 2,439 707
------------ ------------
Net income .......................................... $ 32,773 $ 20,022
============ ============
Earnings per common share ........................... $ .93 $ .57
============ ============
Retained earnings - Beginning of period ............. $ 424,298 $ 360,273
Net income .......................................... 32,773 20,022
Cash dividends declared ($.265-1997; $.255-1996) .... (9,312) (8,940)
------------ ------------
Retained earnings - End of period ................... $ 447,759 $ 371,355
============ ============
Average common shares outstanding ................... 35,139,137 35,056,357
See accompanying notes.
<PAGE>
3
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
September 30, June 30,
1997 1997
---------- ----------
ASSETS
Current
Cash and cash equivalents ..................... $ 97,602 $ 109,070
Accounts and notes receivable ................. 343,127 428,430
Advances to suppliers ......................... 105,335 79,499
Accounts receivable - unconsolidated affiliates 4,266 7,768
Inventories - at lower of cost or market:
Tobacco ................................... 687,788 570,650
Lumber and building products .............. 107,973 105,567
Agri-products ............................. 76,116 80,812
Other ..................................... 16,303 12,444
Prepaid income taxes .......................... 5,744 7,665
Deferred income taxes ......................... 7,338 7,064
Other current assets .......................... 17,999 22,270
---------- ----------
Total current assets ...................... 1,469,591 1,431,239
Real estate, plant and equipment - at cost
Land .......................................... 29,444 30,887
Buildings ..................................... 212,471 214,605
Machinery and equipment ....................... 438,055 430,360
---------- ----------
679,970 675,852
Less accumulated depreciation ............. 370,045 366,200
---------- ----------
309,925 309,652
Other assets
Goodwill ...................................... 121,841 117,483
Other intangibles ............................. 22,354 22,703
Investments in unconsolidated affiliates ...... 34,463 33,413
Deferred income taxes ......................... 1,784 1,509
Other noncurrent assets ....................... 62,657 65,980
---------- ----------
243,099 241,088
---------- ----------
$2,022,615 $1,981,979
========== ==========
See accompanying notes.
<PAGE>
4
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
September 30, June 30,
1997 1997
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts ....................... $ 574,040 $ 589,648
Accounts payable ................................... 251,161 275,980
Accounts payable - unconsolidated affiliates ....... 8,553 10,204
Customer advances and deposits ..................... 225,789 144,175
Accrued compensation ............................... 15,257 19,296
Income taxes payable ............................... 14,366 16,166
Current portion long-term obligations .............. 29,862 28,228
----------- -----------
Total current liabilities ...................... 1,119,028 1,083,697
Long - term obligations ................................ 280,521 291,637
Postretirement benefits other than pensions ............ 46,635 45,553
Other long - term liabilities .......................... 41,244 42,273
Deferred income taxes .................................. 22,473 18,527
Minority interests ..................................... 26,547 30,699
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 35,139,137 shares 77,040 77,040
Retained earnings .................................. 447,759 424,298
Foreign currency translation adjustments ........... (38,632) (31,745)
----------- -----------
Total shareholders' equity ..................... 486,167 469,593
----------- -----------
$ 2,022,615 $ 1,981,979
=========== ===========
<PAGE>
5
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1997
(In thousands of dollars)
<CAPTION>
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $ 32,773 $ 20,022
Adjustments to reconcile net income to net cash provided
by operating activities ................................... 15,400 18,300
Changes in operating assets and liabilities net of effects from
purchase of businesses .................................... (1,641) (159,408)
--------- ---------
Net cash provided by (used in) operating activities ....... 46,532 (121,086)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ..................... (13,100) (13,000)
Other ......................................................... (100)
--------- ---------
Net cash used in investing activities ..................... (13,100) (13,100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of (repayment) short-term debt - net ................. (15,600) 28,600
Repayment of long-term debt ................................... (20,000) (20,000)
Dividends paid ................................................ (9,300) (8,900)
--------- ---------
Net cash provided by (used in) financing activities ....... (44,900) (300)
--------- ---------
Net decrease in cash and cash equivalents ......................... (11,468) (134,486)
Cash and cash equivalents at beginning of period .................. 109,070 214,782
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 97,602 $ 80,296
========= =========
</TABLE>
See accompanying notes.
<PAGE>
6
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 company's 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 three-month period ended September 30, 1997, are
not necessarily indicative of results to be expected for the year ending June
30, 1998. All adjustments necessary to fairly state the results for such period
have been included and were of a normal recurring nature.
2) Contingent liabilities: At September 30, 1997, total exposure under
guarantees issued for banking facilities of unconsolidated affiliates was $4
million. Other contingent liabilities approximate $50 million and relate
principally to performance bonds and Common Market guarantees. The Company
considers the possibility of loss on any of these guarantees to be remote. The
company's Brazilian subsidiaries have been notified by the tax authorities of
proposed adjustments to the income tax returns filed in prior years. The total
adjustments, including penalties and interest, approximate $55 million. The
company believes the Brazilian tax returns filed were in compliance with the
applicable tax code. The numerous proposed adjustments vary in complexity and
amount. While it is not feasible to predict the precise amount or timing of each
proposed adjustment, the company believes that the ultimate disposition will not
have a material adverse effect on the company's consolidated financial position
or results of operations.
3) Amounts in the three-month period for the last year have been reclassified to
be reported on a consistent basis with the current year's presentation.
4) In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which
is required to be adopted in the quarter ending December 31, 1997. SFAS 128
simplifies the calculation of earnings per share and changes the calculation
related to dilution. The impact of SFAS 128 on the calculation of earnings per
share for the company is not expected to be material due to the company's simple
capital structure.
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes standards for reporting and display of comprehensive income
and its components. SFAS 130 is effective for fiscal years beginning after
December 15, 1997, and will be adopted by the Company for fiscal year 1999.
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 is effective for fiscal years
beginning after December 15, 1997, and will be adopted by the Company for fiscal
year 1999. The Company is currently evaluating the provisions of SFAS 131.
<PAGE>
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Working capital at September 30, 1997, was $351 million compared to $348 million
at June 30, 1997. The net change in working capital was accounted for by
increases in current assets of $38 million offset by increases in current
liabilities of $35 million. Advances to suppliers, tobacco inventory and
customer advances account for the majority of the growth in the respective
categories. 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 capital needs increase. As tobacco is purchased and
shipped to factories for processing, the Company's inventories 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 the
Company's borrowing capabilities, interest rates and exchange rates, as well as
those of its customers. In addition to the increases related to domestic
tobacco operations, accounts receivable dropped $85 million compared to the
balance at June 30, 1997, due to collections in Brazil.
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. Contracts used to manage foreign currency risks
are not material. 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,
1997, remain adequate to support its businesses.
Results of Operations
'Sales and Other Operating Revenues' and 'Cost of Goods Sold' for
the first quarter of fiscal year 1998 increased $202 million and $181 million
respectively, over the comparable period last year. Both domestic and foreign
tobacco operations contributed to the increases in the quarter, due to strong
demand. Lumber and building products revenues were lower due to the effect of a
stronger U.S. dollar. The U.S. dollar appreciated on average 15 percent
against the Dutch guilder since the first quarter of last year.
Before interest and income taxes, in the quarter increased over compared to the
first quarter of 1997 to, principally due to improvements realized in both
domestic and foreign tobacco operations. Foreign tobacco operations were
positively impacted by the operating results from Brazil. An increase in the
combined 1997 Brazilian flue-cured and burley crops of 36% contributed to the
improved volume and earnings. A high proportion of the Brazilian crop is
traditionally shipped in the Company's first and second quarters. Domestic
tobacco earnings benefited from increased shipments of old crop tobaccos in
the quarter, although the volume of current
<PAGE>
8
crop purchases in the quarter were down compared to last year because of a later
harvest. Lumber and building products operating profits were down due to the
aforementioned effect of a strong U.S. dollar. Agri product operating profits
improved due to improved results in tea and rubber trading.
'Selling, General and Administrative Expenses' for the first quarter of
fiscal year 1998 were up about 10% reflecting increased foreign tobacco
shipments. Interest expense was down 13% from the comparable period last year
principally reflecting lower borrowing levels.
Increased leaf production in a number of areas and strong demand in
world markets has enabled the Company to handle increased leaf volumes in the
current year. The strong performance by the Company for the three month period
is a reflection of these market conditions. Quarterly comparisons continue to be
complicated by the timing of shipments to customers.
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, 1997, 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
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
1). (12) Ratio of Earnings to Fixed Charges
2). (27) Financial Data Schedule
(b) Reports on Form 8-K
1). Form 8-K filed on July 17, 1997. The form reports a press release
issued by the Company on July 9, 1997. The press release announced
the purchase of Tanzania's only leaf processing facility, located in
Morogoro.
2). Form 8-K filed on July 17, 1997. The form reports a press release
issued by the Company on July 9, 1997. The press release announced
that a subsidiary of the Company had reached an agreement to acquire
a processing plant and agronomy and leaf buying units located in the
Grudziadz region of Poland.
3). Form 8-K filed on August 21, 1997. The form reports a press release
issued by the Company on August 6, 1997. The press release announced
that the Company had signed a letter of intent with Socotab Leaf
Tobacco Company, Inc. to combine both company's oriental leaf tobacco
operations into a partnership.
<PAGE>
10
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: November 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)
EXHIBIT 12.
Universal Corporation and Subsidiaries
RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C>
Pretax income from continuing operations . $49,996 $33,142
Pretax income of unconsolidated affiliates 3,745 1,879
Fixed Charges ............................ 14,001 16,110
------- -------
Earnings ................................. $67,742 $51,131
======= =======
Interest ................................. $13,802 $15,911
Interest of unconsolidated affiliates .... 110 110
Debt discount amortization ............... 89 89
------- -------
Fixed Charges ............................ $14,001 $16,110
======= =======
Ratio of Earnings to Fixed Charges ....... 4.8 3.2
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 97,602
<SECURITIES> 0
<RECEIVABLES> 452,727
<ALLOWANCES> 0
<INVENTORY> 888,180
<CURRENT-ASSETS> 1,469,591
<PP&E> 679,970
<DEPRECIATION> 370,045
<TOTAL-ASSETS> 2,022,615
<CURRENT-LIABILITIES> 1,119,028
<BONDS> 280,521
<COMMON> 77,040
0
0
<OTHER-SE> 409,127
<TOTAL-LIABILITY-AND-EQUITY> 2,022,615
<SALES> 1,023,156
<TOTAL-REVENUES> 1,023,156
<CGS> 880,921
<TOTAL-COSTS> 880,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,802
<INCOME-PRETAX> 49,996
<INCOME-TAX> 19,661
<INCOME-CONTINUING> 30,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,773
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0
</TABLE>
