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, 1999
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_____
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 - 32,713,684 shares outstanding as of May 7, 1999
<PAGE>
<TABLE>
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, 1999 and 1998
(In thousands of dollars, except per share data)
<CAPTION>
Three Months Nine Months
1999 1998 1999 1998
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Sales and other operating revenues $1,222,814 $1,152,696 $3,399,818 $3,441,009
Costs and expenses
Cost of goods sold 1,080,062 995,291 2,951,950 2,969,702
Selling, general and administrative expenses 87,631 90,952 251,615 256,531
---------------------------------------------------------------------
Operating Income 55,121 66,453 196,253 214,776
Equity in pretax earnings of unconsolidated affiliates 5,239 5,599 7,021 10,856
Interest expense 12,848 16,585 41,536 46,266
---------------------------------------------------------------------
Income before income taxes and other items 47,512 55,467 161,738 179,366
Income taxes 15,962 21,192 58,226 71,189
Minority interests 2,196 2,729 5,677 5,773
---------------------------------------------------------------------
---------------------------------------------------------------------
Net Income $ 29,354 $ 31,546 $ 97,835 $ 102,404
- ----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per share $ .88 $ .89 $ 2.90 $ 2.91
- ----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------
Diluted earnings per share $ .88 $ .89 $ 2.90 $ 2.89
- ----------------------------------------------------------------------------------------------------------------------------------
Retained earnings - Beginning of period $508,137 $424,298
Net income 97,835 102,404
Cash dividends declared ($.88 - 1999; $.825 - 1998) (29,299) (29,079)
Purchase of common stock (65,187)
---------------------------------------------------------------------
Retained earnings - End of period $511,486 $497,623
- ----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
March 31, June 30,
1999 1998
-------------------- ----------------------
ASSETS
Current
Cash and cash equivalents $ 89,466 $ 79,835
Accounts receivable 356,059 392,821
Advances to suppliers 125,191 104,439
Accounts receivable - unconsolidated affiliates 17,413 49,343
Inventories - at lower of cost or market:
Tobacco 518,743 541,822
Lumber and building products 92,841 97,071
Agri-products 73,584 89,990
Other 25,279 33,162
Prepaid income taxes 11,660 18,347
Deferred income taxes 3,786 3,794
Other current assets 13,973 19,665
-------------------------------------------------
Total current assets 1,327,995 1,430,289
Property, plant and equipment - at cost
Land 31,162 29,951
Buildings 240,412 219,594
Machinery and equipment 498,857 466,177
-------------------------------------------------
770,431 715,722
Less accumulated depreciation 415,643 385,967
-------------------------------------------------
354,788 329,755
Other assets
Goodwill 119,908 120,889
Other intangibles 19,045 18,586
Investments in unconsolidated affiliates 91,112 87,052
Other noncurrent assets 89,940 70,134
-------------------------------------------------
320,005 296,661
-------------------------------------------------
$2,002,788 $2,056,705
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
March 31, June 30,
1999 1998
-------------------- ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $ 541,134 $ 586,450
Accounts payable 262,924 285,994
Accounts payable - unconsolidated affiliates 12,586 17,116
Customer advances and deposits 165,547 125,311
Accrued compensation 18,556 24,706
Income taxes payable 28,775 27,693
Current portion of long-term obligations 29,350 34,251
-------------------------------------------------
Total current liabilities 1,058,872 1,101,521
Long-term obligations 242,668 263,140
Postretirement benefits other than pensions 43,675 44,535
Other long-term liabilities 46,640 40,909
Deferred income taxes 18,395 27,065
Minority interests 37,696 31,668
Shareholders' equity
Preferred stock, no par value, authorized 5,000,000
shares none issued or outstanding
Common stock, no par value, authorized 100,000,000
shares, issued and outstanding 32,932,584 shares
(34,866,406 at June 30, 1998) 77,692 80,122
Retained earnings 511,486 508,137
Accumulated other comprehensive income (34,336) (40,392)
-------------------------------------------------
Total shareholders' equity 554,842 547,867
-------------------------------------------------
$ 2,002,788 $ 2,056,705
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months Ended March 31, 1999 and 1998
(In thousands of dollars)
March 31, March 31,
1999 1998
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 97,835 $ 102,404
Adjustments to reconcile net income to net
cash provided by operating activities 33,800 37,500
Changes in operating assets and liabilities net of
effects from purchase of businesses 95,596 (105,381)
----------------------------------------------
Net cash provided by operating activities 227,231 34,523
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (52,400) (72,500)
----------------------------------------------
Net cash used in investing activities (52,400) (72,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net (45,300) 84,200
Repayment of long-term debt (23,000) (20,000)
Purchases of common stock (70,400)
Issuance of common stock 2,800 4,300
Dividends paid (29,300) (29,100)
----------------------------------------------
Net cash provided (used) in financing activities (165,200) 39,400
----------------------------------------------
Net increase in cash and cash equivalents 9,631 1,423
Cash and cash equivalents at beginning of year 79,835 109,070
----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,466 $ 110,493
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
All figures contained herein are unaudited.
1) Universal Corporation, together with its subsidiaries and affiliates, is also
referred to as the Company or Universal. The operations of domestic and foreign
tobacco, lumber and building products, and agri-products segments are seasonal.
Therefore, the results of operations for the periods ended March 31, 1999, are
not necessarily indicative of results to be expected for the year ending June
30, 1999. All adjustments necessary to state fairly the results for such period
have been included and were of a normal recurring nature.
2). Contingent liabilities: At March 31, 1999, total exposure under guarantees
issued for banking facilities of unconsolidated affiliates was approximately $14
million. Other contingent liabilities approximate $41 million and relate
principally to performance bonds, Common Market Guarantees and accounts
receivable sold with recourse. 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 proposed adjustments, including
penalties and interest, approximate $40 million; however, recent currency
fluctuations and possible interest rate changes could affect that amount. The
Company believes the Brazilian tax returns filed were in compliance with the
applicable tax code. The numerous proposed adjustments vary in complexity and
amounts. 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. At March 31, 1999, the Company had
outstanding short-term loans of $43 million and long-term loans of $17 million
to a farmer cooperative in Argentina. The loans are secured by tobacco and liens
on real property, processing machinery and equipment and other assets of the
cooperative. Upon export of the tobacco, which is usually in less than twelve
months, the short-term loans should be recovered. The long-term loans are
scheduled for repayment over the next nine years. Ultimate collection of the
loans is contingent upon the ability of the farmers to produce competitively
priced tobacco suitable for export, the financial management of the cooperative
and the value of the assets pledged as security for the loans.
3) As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130,"Reporting Comprehensive Income" (SFAS 130). The adoption of
this statement had no impact on the Company's net income or shareholders'
equity. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires foreign currency
translation adjustments to be included in other comprehensive income. Amounts in
prior year financial statements have been reclassified to conform to SFAS 130.
<TABLE>
<CAPTION>
Three Months Nine Months
Periods ended March 31, 1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
(in millions of dollars)
<S> <C> <C> <C> <C>
Net income $29 $32 $97 $102
Foreign currency translation adjustment (4) (7) 6 (13)
----------------- ----------------- ----------------- -----------------
Comprehensive income $25 $25 $103 $89
================= ================= ================= =================
4) The following table sets forth the computation of earnings per share and
diluted earnings per share.
<CAPTION>
Three Months Nine Months
Periods ended March 31, 1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
Net income (in thousands of dollars) $29,354 $31,546 $97,835 $102,404
Denominator for earnings per share:
Weighted average shares 33,193,954 35,298,742 33,722,844 35,202,716
Effect of dilutive securities:
Employee stock options 12,244 270,228 49,203 226,151
----------------- ----------------- ----------------- -----------------
Denominator for diluted earnings per share 33,206,198 35,568,970 33,772,047 35,428,867
Earnings per share $.88 $.89 $2.90 $2.91
================= ================= ================= =================
Diluted earnings per share $.88 $.89 $2.90 $2.89
================= ================= ================= =================
</TABLE>
5) The lower estimated effective tax rate in fiscal year 1999 is due to the
anticipated mix of foreign and domestic earnings, realization of tax
benefits and management's current assessment of pending and contested tax
issues.
6) Certain prior year amounts have been reclassified to be reported on a
consistent basis with the current year's presentation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
Working capital at March 31, 1999, was $269 million compared to $329
million at June 30, 1998. The seasonal nature of the Company's tobacco
operations, affects the comparison of the components of working capital.
Although Universal's current assets and liabilities usually reflect seasonal
increases in March, current assets declined $102 million and current liabilities
declined $43 million, respectively. The majority of the decreases occurred in
accounts receivable, inventories, notes and accounts payable. The mix of notes
payable and customer advances supporting inventories is dependent on the
Company's borrowing capabilities, interest rates, and exchange rates as well as
those of its customers, and in aggregate notes payable and customer advances
were comparable to balances at June 30, 1998. The decrease in tobacco
inventories primarily represents lower purchase prices of current year crops as
well as the effect of smaller US flue-cured crops. The Company generally does
not purchase tobacco on a speculative basis. Advances to farmers for
agricultural materials, such as seed and fertilizer, were higher at the end of
March compared to June as advances are made for the upcoming year's crops in
Brazil and Latin America.
Generally, the Company's international tobacco operations conduct
business in U.S. dollars, thereby limiting foreign exchange risk to local
production and overhead costs, which represent the smallest portion of its cost
of sales. The Company's 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 decrease in capital expenditures for the nine months ended March
31, 1999, compared to the last year was due to the acquisition of and subsequent
improvements to processing plants in Tanzania and Poland that occurred in fiscal
year 1998. Through April 15, 1999, the Company had purchased approximately 2.8
million shares of its common stock for $94.7 million. A total of $200 million
has been authorized for the share purchase program. Management believes that the
Universal's liquidity and capital resources at March 31, 1999, remain adequate
to support its businesses.
Results of Operations
'Sales and Other Operating Revenues' for the third quarter of fiscal
year 1999 increased $70 million compared to the same period last year primarily
due to higher volumes of U.S. tobacco processed and exported. For the nine-month
period, `Sales and Other Operating Revenues' decreased by approximately $41
million compared to the nine months ended March 31, 1998. Lower volumes handled
out of the 1998 Brazilian flue-cured and burley crops adversely affected
revenues in the current fiscal year. In addition, revenues have been affected by
the lower cost of green tobacco.
"Operating income" decreased in both the third quarter and the
nine-month period compared to the corresponding periods last year. In the third
quarter, operating income declined by $11 million or 17% compared to the third
quarter of fiscal year 1998. During the nine months ended March 31, operating
income declined by $19 million or 9%. In both the quarter and the nine-month
periods, tobacco earnings comparisons were negatively impacted by a number of
factors including the aforementioned lower volumes handled in Brazil and quality
issues in Argentina. Timing of shipments was also a factor in a number of
regions. Earnings in the United States for the quarter benefited from larger
volumes processed and increased export shipments. For the nine months, however,
U. S. earnings declined, despite larger volumes handled, due to the mix of
business including lower export shipments and a reduction in the quantity of
tobacco processed for the stabilization pools. Shipment timing issues also
reduced quarterly earnings from Africa and delayed recognition of Oriental leaf
sales from a number of origins. Dark tobacco results were down for the quarter
and for the nine months reflecting a slowdown in filler and binder sales and
leaf quality problems in Indonesia and Brazil due to adverse weather. Shipment
delays also impacted these operations in the quarter.
Non-tobacco earnings were up for both the quarter and the nine months
due primarily to improving lumber and building products margins and higher
plywood and hardwood prices. Last year, lumber results were adversely impacted
by simultaneous declines in softwood, hardwood and plywood prices. Sales volumes
continued to be below levels for the comparable periods a year ago due to the
disruption of construction activity in Holland caused by excessive rains over
the past six months. The performance of on-going agri-products operations was
comparable to last year's results .
The Company's earnings for the quarter and the nine months also
benefited from lower borrowing levels, which reduced interest expense, and a
lower tax rate. As of March 31, 1999, total debt, excluding customer advances,
had declined by about $170 million compared to March 31, 1998. The effective tax
rate was 34 percent in the quarter and 36 percent for the nine months reflecting
the expected mix of foreign and domestic earnings, the realization of tax
benefits and management's continuing assessment of outstanding tax issues. The
Company's effective tax rate in fiscal year 1998 was approximately 40 percent.
For the year to date, the Company has continued to perform well despite
considerable market uncertainty. Margins in some areas have been pressured by
excess leaf supply, occasioned by financial and economic conditions in Southeast
Asia and the former Soviet Union, declining consumption in the United States and
a general buildup in uncommitted inventories. However, as a result of its "right
sizing" policy, Universal has held its inventories to appropriate levels and
have not been forced to take significant write-downs in order to dispose of
excess stocks or to reflect the current market values of those stocks. At the
same time, management has continued its efforts to reduce costs, improve
efficiency, and strengthen strategic partnerships. As a result of the success of
these efforts, management continues to expect that 1999 will be a good year for
the Company and that Universal will achieve earnings from ongoing operations in
line with its current projections.
As reported in the Company's 1998 Annual Report on Form 10-K (refer to
Management's Discussion and Analysis of Operations), the Company has developed a
plan to mitigate the effects of the year 2000 problem on its operations. At the
time of the report, it was expected that by December 31, 1998, all of the
Company's business locations would complete the assessment and remediation
phases of the plan's internal aspects. Currently a few business locations are
not expected to complete the remediation phase until June 30, 1999. However,
this delay should not have a material adverse effect on the Company's plan. The
Company is conducting reviews and testing remediated systems. In conjunction
with contingency planning for the year 2000, the Company's operating units have
submitted contingency plans for each of their business units. These iterative
plans identify potential risk areas and the possibility of disruptions to
related business operations. These contingency plans are currently being
reviewed by the Company. The Company's current estimate of costs to address the
year 2000 problem is $7.5 million. Approximately $7.1 million was spent through
March 31, 1999. The Company does not expect the total cost of preparing its
internal technology for the year 2000 to be material to its consolidated
financial condition or results of operations.
On April 27, 1999 a tobacco subsidiary of the Company announced the
rationalization and consolidation of several operations in the United States.
The actions are expected to provide greater efficiencies and yield annual
savings that are at least equal to their cost. The cost of the consolidation is
estimated to be between $3 million and $4 million before taxes. The Company
believes that it will recognize those costs primarily in its fourth fiscal
quarter.
The Company cautions readers that the statements contained herein
regarding expected earnings are forward-looking statements based upon
management's current knowledge and assumptions about future events, including
anticipated levels of demand for the Company's products and services, costs
incurred in providing these products and services, and timing of shipments to
customers. Lumber earnings could also be affected by a number of factors,
including the translation effects of currency rate changes and unusual weather
conditions in the Netherlands. Actual results, therefore, could vary from those
expected. For more details on factors that could affect expectations, see the
Company's Annual Report on Form 10-K for the year ended June 30, 1998, as filed
with the Securities and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule.*
b. Reports on Form 8-K
(i) The Company filed a current report on Form 8-K on February 4,
1999 announcing the Company's Board of Directors approval of
additional repurchase of up to $100 million in common stock
(ii) The Company filed a current report on Form 8-K on February 4,
1999 announcing the Company's earnings for its second quarter
ended December 31, 1998.
* Filed Herewith
<PAGE>
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 12, 1999 UNIVERSAL CORPORATION
--------------------------------------------
(Registrant)
/s/ Hartwell H. Roper
--------------------------------------------
Hartwell H. Roper, Vice President and
Chief Financial Officer
/s/ William J. Coronado
--------------------------------------------
William J. Coronado, Vice President and
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 89,466
<SECURITIES> 0
<RECEIVABLES> 356,059
<ALLOWANCES> 0
<INVENTORY> 710,447
<CURRENT-ASSETS> 1,327,995
<PP&E> 770,431
<DEPRECIATION> 415,643
<TOTAL-ASSETS> 2,002,788
<CURRENT-LIABILITIES> 1,058,872
<BONDS> 242,668
<COMMON> 77,692
0
0
<OTHER-SE> 477,150
<TOTAL-LIABILITY-AND-EQUITY> 2,002,788
<SALES> 3,399,818
<TOTAL-REVENUES> 3,399,818
<CGS> 2,951,950
<TOTAL-COSTS> 2,951,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,536
<INCOME-PRETAX> 161,738
<INCOME-TAX> 58,226
<INCOME-CONTINUING> 97,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,835
<EPS-PRIMARY> 2.90
<EPS-DILUTED> 2.90
</TABLE>
