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, 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 -30,981,947 shares outstanding as of November 3, 1999
<PAGE>
<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, 1999 and 1998
(In thousands of dollars, except per share data)
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
Sales and other operating revenues $782,988 $879,285
Costs and expenses
Cost of goods sold 653,529 742,701
Selling, general and administrative expenses 77,878 78,314
--------------------------------
Operating Income 51,581 58,270
Equity in pretax earnings of unconsolidated affiliates 6,596 570
Interest expense 11,776 15,542
--------------------------------
Income before income taxes and other items 46,401 43,298
Income taxes 16,704 16,021
Minority interests 195 220
--------------------------------
Net income $ 29,502 $27,057
==================================================================================================
Earnings per share $ .93 $ .79
==================================================================================================
Diluted earnings per share $ .93 $ .78
==================================================================================================
Retained earnings - Beginning of period $510,123 $508,137
Net income 29,502 27,057
Cash dividends declared ($.30 - 1999; $.28 - 1998) (9,313) (9,448)
Purchase of common stock (24,333) (33,012)
--------------------------------
Retained earnings - End of period $505,979 $492,734
</TABLE>
See accompanying notes.
<PAGE>
2
<TABLE>
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
September 30, June 30,
1999 1999
-------------------- ---------------------
ASSETS
<S> <C> <C>
Current
Cash and cash equivalents $ 82,812 $ 92,784
Accounts receivable 340,921 326,055
Advances to suppliers 51,678 72,455
Accounts receivable - unconsolidated affiliates 12,032 17,707
Inventories - at lower of cost or market:
Tobacco 570,608 419,256
Lumber and building products 81,213 85,458
Agri-products 71,736 74,114
Other 35,275 33,218
Prepaid income taxes 4,000 20,993
Deferred income taxes 461 6,952
Other current assets 25,328 21,333
------------------------------------------------
Total current assets 1,276,064 1,170,325
Property, plant and equipment - at cost
Land 30,062 29,743
Buildings 240,990 237,054
Machinery and equipment 504,925 491,201
------------------------------------------------
775,977 757,998
Less accumulated depreciation 419,766 409,678
------------------------------------------------
356,211 348,320
Other assets
Goodwill 116,992 117,871
Other intangibles 20,387 20,950
Investments in unconsolidated affiliates 75,997 95,491
Other noncurrent assets 75,710 70,166
------------------------------------------------
289,086 304,478
$1,921,361 $1,823,123
=========================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
3
<TABLE>
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
September 30, June 30,
1999 1999
-------------------- ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current
Notes payable and overdrafts $ 452,395 $ 497,399
Accounts payable 249,966 235,310
Accounts payable - unconsolidated affiliates 12,998 14,186
Customer advances and deposits 253,025 82,432
Accrued compensation 13,872 24,291
Income taxes payable 17,846 15,836
Current portion of long-term obligations 29,013 29,046
-------------------------------------------------
Total current liabilities 1,029,115 898,500
Long-term obligations 201,518 221,545
Postretirement benefits other than pensions 43,437 42,981
Other long-term liabilities 47,855 45,474
Deferred income taxes 28,448 39,198
Minority interests 36,596 36,389
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 31,174,304 shares
(32,090,550 at June 30, 1999) 74,437 75,758
Retained earnings 505,979 510,123
Accumulated other comprehensive income (46,024) (46,845)
-------------------------------------------------
Total shareholders' equity 534,392 539,036
-------------------------------------------------
$ 1,921,361 $ 1,823,123
==========================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
4
<TABLE>
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 1999 and 1998
(In thousands of dollars)
<CAPTION>
1999 1998
----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $29,502 $27,057
Adjustments to reconcile net income to net
cash provided by operating activities 6,700 5,600
Changes in operating assets and liabilities 45,826 105,929
----------------------------------------------
Net cash provided by operating activities 82,028 138,586
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (14,000) (20,000)
Proceeds from sale of equity investment 22,000
----------------------------------------------
Net cash provided (used) in investing activities 8,000 (20,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt, net (45,000) (43,000)
Repayment of long-term debt (20,000) (23,000)
Purchases of common stock (25,700) (35,300)
Dividends paid (9,300) (9,500)
----------------------------------------------
Net cash used in financing activities (100,000) (110,800)
Net increase (decrease) in cash and cash equivalents (9,972) 7,786
Cash and cash equivalents at beginning of year 92,784 79,835
----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 82,812 $ 87,621
===================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
5
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 September 30, 1999,
are not necessarily indicative of results to be expected for the year ending
June 30, 2000. 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 September 30, 1999, total exposure under
guarantees issued for banking facilities of unconsolidated affiliates and
suppliers was approximately $39 million. Other contingent liabilities
approximate $33 million and relate principally to performance bonds, Common
Market subsidies 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 $30 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. At September 30, 1999, the Company had approximately
$23 million of loans 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. Although management expects to recover amounts
represented by these loans, ultimate collection is contingent upon the ability
of the farmers to produce competitively priced tobacco suitable for export, the
financial condition and management of the cooperative, and the value of the
assets pledged as security for the loans.
3) Comprehensive Income:
For the three months ended September 30, 1999 1998
---------------- -----------------
(in thousands of dollars)
Net income $29,502 $27,057
Foreign currency translation adjustment
821 1,514
------------------------------------
Comprehensive income $30,323 $28,571
====================================
<PAGE>
6
4) The following table sets forth the computation of earnings per share and
diluted earnings per share.
For the three months ended September 30, 1999 1998
-----------------------------------
Net income (in thousands of dollars) $29,502 $27,057
-----------------------------------
Denominator for earnings per share:
Weighted average shares 31,692,282 34,391,290
Effect of dilutive securities:
Employee stock options 15,662 92,553
-----------------------------------
Denominator for diluted earnings per share 31,707,944 34,483,843
-----------------------------------
Earnings per share $.93 $.79
===================================
Diluted earnings per share $.93 $.78
===================================
The Company has purchased 992 thousand shares during the quarter.
5) Segments are based on product categories. The Company evaluates performance
based on segment operating income, which includes equity in pretax earnings
of unconsolidated affiliates.
For the three months ended September 30,
<TABLE>
<CAPTION>
SALES AND OTHER OPERATING REVENUES OPERATING INCOME
1999 1998 1999 1998
--------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Tobacco $ 509,755 $ 606,402 $ 48,606 $ 49,463
Lumber and building products 142,021 139,264 8,810 7,816
Agri-products. 131,212 133,619 5,058 5,197
- ---------------------------------------------------------------------------------------------------------------
Total segments 782,988 879,285 62,474 62,476
Corporate expenses (4,297) (3,636)
Equity in pretax earnigns of
unconsolidated affiliates (6,596) (570)
-----------------------------------------------------------------------
Consolidated total $ 782,988 $ 879,285 $ 51,581 $ 58,270
=======================================================================
</TABLE>
6) Certain prior year amounts have been reclassified to be reported on a
consistent basis with the current year's presentation.
<PAGE>
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at September 30, 1999 was $247 million compared to $272
million at June 30, 1999. The decline in working capital was due to a
combination of increased current assets, which were up $106 million (primarily
from an increase in tobacco inventories), offset by an increase in current
liabilities of $131 million. The components of working capital fluctuate between
June and September. In the United States, tobacco working capital needs are
normally at their lowest point at June 30. In the first quarter of the fiscal
year, the U.S. flue-cured tobacco markets open and tobacco is purchased and
shipped to factories for processing. Tobacco inventories generally are financed
by notes payable and 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
material quantities of tobacco in the United States on a speculative basis; thus
the increase in tobacco 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. 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.
<PAGE>
8
The Company continues its share purchase program, which has been in
progress since May 6, 1998. As of October 26, 1999, the Company had purchased
4.5 million shares of Universal common stock at a total price of approximately
$143 million. The program provides for purchases of up to $200 million.
Currently, about 31 million shares are outstanding. The liquidity and capital
resources of the Company at September 30, 1999, remain adequate to support the
Company's short-term and long-term operating needs.
Results of Operations
- ---------------------
'Sales and Other Operating Revenues' decreased $96 million or 11% in
the first quarter of fiscal year 2000. The decline in tobacco revenues accounted
for nearly all of the decrease; however a small increase in lumber and building
products revenues was virtually offset by a decline in agri-products sales. The
lower tobacco revenues were the result of the smaller flue-cured crop in the
United States and lower tobacco prices in Brazil caused by lower currency
values. Although tobacco in Brazil is purchased and sold in dollars, the
devaluation of the Brazilian real reduced the component costs of the tobacco as
well as the price to customers.
Fiscal year 2000 segment operating income in the first quarter was
comparable to the same period last year at $62 million, however, fiscal year
2000 includes a one-time gain of $4 million from the sale of an interest in a
tobacco joint venture. Tobacco operating income (excluding the gain) was down
almost 10% or $5 million. One factor in those results was the reduction of U.S.
crops in response to increased U.S. stabilization inventories and lower demand
by manufacturers. Although the effect of flooding from Hurricane Floyd has not
yet been fully tallied, it is not expected to cause any significant further
reductions in current marketings. Volumes of Brazilian tobacco shipped were also
lower than those in the first quarter of fiscal year 1999, despite the large
Brazilian crop, because of benefits from shipment timing last year. However,
shipments of African tobacco and dark tobaccos were up in the quarter,
reflecting shipments that customers delayed from fiscal year 1999. Earnings from
an oriental tobacco joint venture improved significantly due to similar customer
requested shipment changes. Despite the adverse effect of the stronger U.S.
<PAGE>
9
dollar, lumber and building products operating income improved $1 million or 13
percent compared to the same period last year. Improved weather led to a high
level of activity in the construction sector after a protracted period of poor
conditions. Higher world prices for hardwood further benefited margins.
Operating income for the agri-products business was slightly down as strong
results from rubber, nuts, and canned and frozen foods partially mitigated the
effects of weather and economic difficulties in tea markets.
Interest expense decreased in the quarter due to reduced debt. The
Company's estimated effective tax rate in fiscal year 2000 is approximately 36%.
As reported in the Company's 1999 Annual Report on Form 10-K (refer to
Management's Discussion and Analysis of Operations), Universal has developed a
plan to mitigate the effects of the year 2000 problem on its operations. As of
November 1, 1999, the Company's business units have completed the internal
aspects of the Company's year 2000 plan with regard to all mission critical
information systems and other computerized technology. The Company's business
units have also completed their assessment of key suppliers and have implemented
contingency plans where required. During the remainder of the calendar year,
each business unit will continue to monitor its key suppliers and any changes in
their respective year 2000 status. Universal's year 2000 task force has
completed its scheduled reviews of material business units' compliance with the
Company's year 2000 plan. The task force's mission for the remainder of the year
is to keep various business units informed of any developments on the year 2000
problem. The Company has spent approximately $8 million to address the year 2000
problem through September 30, 1999, and does not expect to spend additional
significant amounts.
<PAGE>
10
As Universal begins fiscal year 2000, management believes its strategy
is proving itself in the face of what have been, and continue to be, very
difficult market conditions. The Company expects that uncommitted flue-cured and
burley tobacco inventories in the hands of the trade and the U.S. stabilization
cooperatives will continue to increase during the fiscal year from the current
levels, which are estimated at about 270 thousand tons. However, the Company
believes that tobacco leaf inventory levels should begin to moderate during
fiscal year 2001 as crops are further reduced. During this two-year period, the
Company expects to continue to show strong performance, underlining the
fundamental strength of its strategy.
Readers are cautioned that the statements contained herein regarding
expected earnings and expectations for the Company's performance are
forward-looking statements based upon management's current knowledge and
assumptions about future events, including anticipated levels of production of
tobacco and demand for tobacco and 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. 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, 1999, 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>
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Company held its annual meeting of shareholders on October 26,
1999, to elect three directors to serve three-year terms each, one director to
serve a two-year term and one director to serve a one-year term and to approve
the Universal Corporation Executive Officer Annual Incentive Plan. The names of
the five directors and the number of votes cast for them are listed below:
Name of Director Votes for Votes withheld
- ---------------- --------- --------------
William W. Berry (three year) 27,463,121 192,374
Dr. Ronald E. Carrier (three year) 27,463,840 191,655
Hubert R. Stallard (three year) 27,456,893 198,602
Richard G. Holder (two year) 27,463,458 192,037
Lawrence S. Eagleburger (one year) 26,402,338 1,253,157
No broker non-votes were recorded with regard to the election of any of
the five directors listed above. The directors whose terms continued after the
meeting were Charles H. Foster, Jr., Joseph C. Farrell, Henry H. Harrell, Allen
B. King, and Jeremiah J. Sheehan.
The number of shares voted for the approval of the Universal
Corporation Executive Officer Annual Incentive Plan was as follows:
For Abstained Against
- --- --------- -------
26,495,956 223,673 935,866
No broker non-votes were recorded with regard to the approval of the
Universal Corporation Executive Officer Annual Incentive Plan.
<PAGE>
12
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
--------
12 Ratio of earnings to Fixed Charges.*
27 Financial Data Schedule.*
b. Reports on Form 8-K
-------------------
(i) Form 8-K filed on September 22, 1999, filing the press release
announcing flood damage caused by Hurricane Floyd.
(ii) Form 8-K filed on October 27, 1999, filing the press release
announcing first quarter results.
* Filed Herewith
<PAGE>
13
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 10, 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>
EXHIBIT 12. RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
(in thousands of dollars)
For the three
months ended For the years ended June 30,
Sept. 30, 1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Pretax income from continuing operations $ 39,805 $ 197,719 $ 231,138 $ 171,941 $ 123,721 $ 55,768
Distribution of earnings from
unconsolidated affiliates
- 840 602 1,509 690 738
Fixed charges
12,002 57,744 64,881 65,827 69,543 69,819
---------------------------------------------------------------------------------
Earnings $ 51,807 $ 256,303 $ 296,621 $ 239,277 $ 193,954 $ 126,325
Interest $ 11,776 $ 56,837 $ 63,974 $ 64,886 $ 68,754 $ 69,585
Amortization of premiums and other 226 907 907 941 789 234
---------------------------------------------------------------------------------
Fixed Charges $ 12,002 $ 57,744 $ 64,881 $ 65,827 $ 69,543 $ 69,819
Ratio of Earnings to Fixed Charges 4.32 4.44 4.57 3.63 2.79 1.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102037
<NAME> UNIVERSAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 82,812
<SECURITIES> 0
<RECEIVABLES> 340,921
<ALLOWANCES> 0
<INVENTORY> 758,832
<CURRENT-ASSETS> 1,276,064
<PP&E> 775,977
<DEPRECIATION> 419,766
<TOTAL-ASSETS> 1,921,361
<CURRENT-LIABILITIES> 1,029,115
<BONDS> 201,518
<COMMON> 74,437
0
0
<OTHER-SE> 459,955
<TOTAL-LIABILITY-AND-EQUITY> 1,921,361
<SALES> 782,988
<TOTAL-REVENUES> 782,988
<CGS> 653,529
<TOTAL-COSTS> 653,529
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,776
<INCOME-PRETAX> 46,401
<INCOME-TAX> 16,704
<INCOME-CONTINUING> 29,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,502
<EPS-BASIC> .93
<EPS-DILUTED> .93
</TABLE>
