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, 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) (Zipcode)
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-30,050,347 shares outstanding as of February 1, 2000
<PAGE>
<TABLE>
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, 1999 and 1998
(In thousands of dollars, except per share data)
<CAPTION>
THREE MONTHS SIX MONTHS
THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 1998 1999 1998
-----------------------------------------------------------------
(In thousands of dollars, except share and per share data)
<S> <C> <C> <C> <C>
Sales and other operating revenues $1,032,453 $1,297,719 $1,815,441 $2,177,004
Costs and expenses
Cost of goods sold 883,805 1,129,187 1,537,334 1,871,888
Selling, general and administrative expenses 89,241 85,670 167,119 163,984
-----------------------------------------------------------------
Operating Income 59,407 82,862 110,988 141,132
Equity in pretax earnings of unconsolidated affiliates (674) 1,212 5,922 1,782
Interest expense 14,764 13,146 26,540 28,688
-----------------------------------------------------------------
Income before income taxes and other items 43,969 70,928 90,370 114,226
Income taxes 15,829 26,243 32,533 42,264
Minority interests 1,992 3,261 2,187 3,481
-----------------------------------------------------------------
Net Income $26,148 $41,424 $55,650 $68,481
============================================================================================================================
Earnings per common share $0.85 $1.23 $1.78 $2.02
============================================================================================================================
Diluted earnings per share $0.85 $1.23 $1.78 $2.01
============================================================================================================================
Cash dividends declared per share $0.31 $0.30 $0.61 $0.58
============================================================================================================================
Retained earnings - Beginning of period $510,123 $508,137
Net income 55,650 68,481
Cash dividends declared (18,656) (19,415)
Purchase of common stock (45,006) (54,004)
--------------------------------
Retained earnings - End of period $502,111 $503,199
============================================================================================================================
See accompanying notes.
<PAGE>
2
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
December 31, June 30,
1999 1999
-------------------- ---------------------
ASSETS
Current
Cash and cash equivalents $ 87,102 $ 92,784
Accounts receivable 365,111 326,055
Advances to suppliers 65,947 72,455
Accounts receivable - unconsolidated affiliates 16,848 17,707
Inventories - at lower of cost or market:
Tobacco 671,370 419,256
Lumber and building products 74,801 85,458
Agri-products 64,023 74,114
Other 29,359 33,218
Prepaid income taxes 9,382 20,993
Deferred income taxes 7,347 6,952
Other current assets 14,971 21,333
------------------------------------------------
Total current assets 1,406,261 1,170,325
Property, plant and equipment - at cost
Land 29,613 29,743
Buildings 241,064 237,054
Machinery and equipment 513,795 491,201
------------------------------------------------
784,472 757,998
Less accumulated depreciation 427,210 409,678
------------------------------------------------
357,262 348,320
Other assets
Goodwill 116,597 117,871
Other intangibles 19,695 20,950
Investments in unconsolidated affiliates 80,484 95,491
Other noncurrent assets 79,417 70,166
------------------------------------------------
296,193 304,478
------------------------------------------------
$2,059,716 $1,823,123
=========================================================================================================================
See accompanying notes.
<PAGE>
3
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
December 31, June 30,
1999 1999
-------------------- ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $ 543,241 $ 497,399
Accounts payable 275,971 235,310
Accounts payable - unconsolidated affiliates 13,438 14,186
Customer advances and deposits 282,024 82,432
Accrued compensation 17,462 24,291
Income taxes payable 13,369 15,836
Current portion of long-term obligations 28,807 29,046
-------------------------------------------------
Total current liabilities 1,174,312 898,500
Long-term obligations 201,450 221,545
Postretirement benefits other than pensions 42,126 42,981
Other long-term liabilities 48,081 45,474
Deferred income taxes 34,507 39,198
Minority interests 35,340 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 30,249,947 shares
(32,090,550 at June 30, 1999) 72,474 75,758
Retained earnings 502,111 510,123
Accumulated other comprehensive income (50,685) (46,845)
-------------------------------------------------
Total shareholders' equity 523,900 539,036
-------------------------------------------------
$ 2,059,716 $ 1,823,123
==========================================================================================================================
See accompanying notes.
<PAGE>
4
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1999 and 1998
(In thousands of dollars)
<CAPTION>
December 31, December 31,
1999 1998
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,650 $ 68,481
Adjustments to reconcile net income to net
cash provided by operating activities 14,000 29,000
Changes in operating assets and liabilities (26,332) 101,163
----------------------------------------------
Net cash provided by operating activities 43,318 198,644
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (30,000) (39,000)
Proceeds from sale of equity investment 22,000 -
----------------------------------------------
Net cash provided (used) in investing activities (8,000) (39,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net 46,000 (61,000)
Repayment of long-term debt (20,000) (23,000)
Purchases of common stock (49,000) (58,000)
Issuance of common stock 1,000 2,000
Dividends paid (19,000) (19,000)
----------------------------------------------
Net cash used in financing activities (41,000) (159,000)
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,682) 644
Cash and cash equivalents at beginning of year 92,784 79,835
----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 87,102 $ 80,479
===================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
5
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
All figures contained herein are unaudited.
1). Universal Corporation, with its subsidiaries (the "Company"), has seasonal
operations in tobacco, lumber and building products, and agri-products.
Therefore, the results of operations for the periods ended December 31, 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. Certain amounts in
prior year statements have been reclassified to conform to the current year's
presentation.
2). Contingent liabilities: At December 31, 1999, total exposure under
guarantees issued for banking facilities of unconsolidated affiliates and
suppliers was approximately $56 million. Other contingent liabilities
approximate $29 million and relate principally to performance bonds and Common
Market guarantees. 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 $25 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). The following table sets forth the computation of earnings per share and
diluted earnings per share.
<TABLE>
<CAPTION>
Three Months Six Months
Periods ended December 31, 1999 1998 1999 1998
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income (in thousands of dollars) $26,148 $41,424 $55,650 $ 68,481
Denominator for earnings per share:
Weighted average shares 30,803,630 33,571,791 31,247,956 33,981,541
Effect of dilutive securities:
Employee stock options 5,521 42,832 10,592 67,693
-------------- -------------- -------------- ---------------
Denominator for diluted earnings per share 30,809,151 33,614,623 31,258,548 34,049,234
Earnings per share $.85 $1.23 $1.78 $2.02
============== ============== ============== ===============
Diluted earnings per share $.85 $1.23 $1.78 $2.01
============== ============== ============== ===============
<PAGE>
6
On December 2, 1999, the Company announced that the Board of Directors had
increased the authorization to repurchase the company's common stock to a total
of $300 million. As of February 1 2000, nearly 5.5 million shares have been
purchased at a total price of approximately $167 million, leaving about 30
million common shares outstanding
4). Comprehensive Income:
<CAPTION>
Three Months Six Months
Periods ended December 31, 1999 1998 1999 1998
-------------- ------------- ----------- ------------
(in thousands of dollars)
Net income $26,148 $41,424 $55,650 $68,481
Foreign currency translation adjustment (4,661) 8,145 (3,840) 9,659
-------------- ------------- ----------- ------------
Comprehensive income $21,487 $49,569 $51,810 $78,140
============== ============= =========== ============
5) Segments are based on product categories. The Company evaluates performance
based on segment operating income and equity in pretax earnings of
unconsolidated affiliates.
<CAPTION>
Three Months Six Months
Period ended December 31 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Sales and other operating revenues
Tobacco $ 767,945 $ 1,024,350 $ 1,277,700 $ 1,630,754
Lumber/building products 138,801 138,762 280,822 278,026
Agri-products 125,707 134,607 256,919 268,225
- ----------------------------------------------------------------------------------------------------------
Total $ 1,032,453 $ 1,297,719 $ 1,815,441 $ 2,177,005
==========================================================================================================
Three Months Six Months
Period ended December 31 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------
Operating income by segment
Tobacco $ 52,964 $ 78,323 $ 102,213 $ 126,031
Lumber/building products 6,724 6,215 15,533 14,031
Agri-products 3,578 4,773 8,636 9,971
- ----------------------------------------------------------------------------------------------------------
Total 63,266 89,311 126,382 150,033
Corporate expenses 4,533 5,237 9,472 7,119
Interest expense 14,764 13,146 26,540 28,688
Income before income taxes and
other items $ 43,969 $ 70,928 $ 90,370 $ 114,226
==========================================================================================================
</TABLE>
6). Short- and Long Term-Debt: Effective December 16, 1999, the Company replaced
its $300 million revolving credit facility with a new $270 million facility
issued in tranches of $180 million and $90 million. In addition, uncommitted
lines of credit available to the Company in the United States were reduced by
$170 million in December 1999 primarily because one major bank exited the bid
line segment of the credit markets.
<PAGE>
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Working capital declined from $272 million at June 30, 1999, to $232
million at December 31, 1999. The components of working capital on a comparative
basis fluctuated to varying degrees compared to June 30th primarily due to the
seasonality of tobacco operations. The majority of the increase in current
assets was reflected in tobacco inventory, which was supported by an increase in
customer advances. The increases primarily represent purchases of crops that
have not been processed and/or shipped due to customer requirements. In the
United States, tobacco inventory at December 31 represent a combination of
processed flue-cured tobacco that has not yet been shipped, and purchases from
the burley crop, for which the season begins in mid-November. A significant
percentage of the U.S. burley crop is purchased in the second quarter of the
fiscal year. Processing begins shortly after purchase of the tobacco and
continues through the beginning of the fourth quarter. June 30th usually
represents the low point of U.S. tobacco inventory and receivables as most of
the current crop has been shipped. Variations may occur quarter to quarter in
the proportion of notes payable and customer advances that support inventories,
depending on the Company's and its customers' borrowing capabilities, interest
rates and exchange rates. The Company generally does not purchase tobacco in the
U.S. on a speculative basis. In some of the foreign sourcing origins, the
Company may advance funds for the purchase of leaf tobacco.
Generally, the Company's 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 with terms of less than six months.
Contracts used to manage foreign currency risks are not material. The Company's
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.
On December 2, 1999, the Company announced that the Board of Directors
had increased the authorization to repurchase the company's common stock to a
total of $300 million. As of February 1, 2000, nearly 5.5 million shares have
been purchased at a total price of approximately $167 million, leaving about 30
million common shares outstanding. The buyback plans have been and are expected
to continue to be funded from operating cash flows.
Effective December 16, 1999, the Company replaced its $300 million
revolving credit facility with a new $270 million facility issued in tranches of
$180 million and $90 million. The new facility is expected to be used as support
for the Company's commercial paper program, which provides flexibility in the
Company's short-term borrowings. In addition, uncommitted lines of credit
available to the Company in the United States were reduced by $170 million in
December 1999 primarily because one major bank exited the bid line segment of
the credit markets. The Company is currently working to replace the borrowing
capacity, and management believes that the Company's liquidity and capital
resources at December 31, 1999, remain adequate to support the Company's
foreseeable operating needs.
<PAGE>
8
In February 2001, $100 million of the Company's long-term debt will
mature; thus it will be reclassified from long-term debt to current liabilities
in the next quarter. The Company intends to maintain its long-term debt
structure.
Results of Operations
- ---------------------
'Sales and Other Operating Revenues' for the second quarter of fiscal
year 2000 were down $265 million or 20% compared to last year. For the six-month
period the decrease was $362 million or 17%. In both periods, the declines
primarily reflect a reduction in volume of leaf tobacco handled and processed
during the periods. Reduced tobacco sales accounted for over 97% of the decline
in each of the respective periods. Revenues for lumber and building products
were comparable for the three and six-month periods while agri-product revenues
were down slightly in both periods. `Operating Income' for the quarter and
six-month periods ended December 31, 1999, declined 29% and 21% respectively
compared to the same periods last year. Tobacco operations performed well under
the difficult conditions that have characterized world tobacco markets in recent
months. The volume of tobacco purchased and processed in the United States was
down significantly in the quarter and the six months in response to much smaller
U. S. flue-cured and burley crops. Flue-cured marketings for 1999 totaled 653
million pounds compared to 814 million pounds a year ago, a decline of almost 20
percent. The burley markets are currently winding down and it now appears that
the volume of marketings could be as much as 10 percent below last year's level
and, due to adverse weather and curing conditions, the quality of the crop is
much lower than normal. In addition, the one-week delay in the opening of U.S.
burley markets has shifted some processing revenues into the third quarter. The
Company's results for the quarter were also negatively affected by a significant
crop shortfall in Tanzania and costs associated with the establishment of an
international customer service office in Europe. In addition, the Company's
earnings suffered in the quarter due to reduced shipments out of a poor quality
dark tobacco crop in Indonesia and lower sales of cigar leaf from the Dominican
Republic. This was partially offset in the quarter and six months by shipments
of oriental leaf that were delayed, by customers, from last year into the
current year.
Non-tobacco operating profits were off in the quarter, but they remain
slightly ahead of last year's pace for the six months. Results in lumber and
building products distribution continue to demonstrate good growth due to
improved volumes despite the continued impact of a strong U.S. dollar on both
revenues and earnings of these Euro-based operations. Agri-products results
lagged last year's excellent performance because of the continuation of adverse
conditions in world markets for tea and rubber, which affected both volumes and
margins. This was partially offset by good results in nuts and in canned and
frozen foods.
The uncertain environment in world tobacco markets has negatively
impacted results in the quarter and for the first six months. Sales of both
manufacturers and leaf merchants have suffered in response to the continuing
economic difficulties in parts of Asia and the former Soviet Union, and higher
cigarette prices and excise taxes in the United States. While these developments
have clearly had an effect on the Company's performance during the first six
months of the year, the Company has performed well under these circumstances.
Management believes that the Company's strategy is working and expects to
achieve satisfactory results for the remainder of the year.
Interest expense is higher in the quarter due to higher interest rates.
However, for the six-month period ended December 31, 1999, interest expense is
below the comparable period last year due to lower borrowing levels during the
first quarter of the current fiscal year.
<PAGE>
10
The Company cautions readers that any forward-looking statements
contained herein are based upon management's current knowledge and assumptions
about future events, including anticipated levels of demand for and supply of
the Company's products and services, costs incurred in providing these products
and services, timing of shipments to customers and general economic, political,
market and weather conditions. Lumber and building products earnings are also
affected by changes in exchange rates between the U.S. dollar and the Euro.
Actual results, therefore, could vary from those expected. For more details on
factors that could affect expectations, see the Management's Discussion and
Analysis section of the Company's Annual Report on Form 10-K for the year ended
June 30, 1999, as filed with the Securities and Exchange Commission.
<PAGE>
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1998, the Company received subpoenas for documents and
information in connection with an investigation of cigarette tobacco leaf
purchases. The investigation was being conducted by the United States Department
of Justice Antitrust Division in the Eastern District of Pennsylvania. Similar
subpoenas were received by cigarette manufacturers and other leaf tobacco
merchants. On February 1, 2000 the Company received notice from the United
States Department of Justice that the investigation was closed and the Company
was relieved of its ongoing obligations under the subpoena.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Universal Corporation 1989 Executive Stock Plan, as amended on
December 2, 1999.
10.2 Universal Corporation 1997 Executive Stock Plan, as amended on
December 2, 1999.
10.3 Form of Universal Corporation 1999 Stock Option and Equity
Accumulation Agreement, with schedule of grants to executive
officers.
10.4 Form of Amendment to Stock Option and Equity Accumulation
Agreements.
12 Ratio of earnings to fixed charges.
27 Financial Data Schedule*
b. Report on Form 8-K.
Form 8-K filed on December 2, 1999, filing the press release
announcing dividend increase and additional shares purchase.
* Filed herewith
<PAGE>
12
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 7, 2000 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)
EXHIBIT 12. RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
(in thousands of dollars)
For the Six
Months ended For the years ended June 30,
Dec. 31, 1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Pretax income from continuing operations $84,448 $ 197,719 $ 231,138 $ 171,941 $ 123,721 $ 55,768
Distribution of earnings from
unconsolidated affiliates - 840 602 1,509 690 738
Fixed charges 26,992 57,744 64,881 65,827 69,543 69,819
---------------------------------------------------------------------------------
Earnings $111,440 $ 256,303 $ 296,621 $ 239,277 $ 193,954 $ 126,325
=================================================================================
Interest $26,540 $ 56,837 $ 63,974 $ 64,886 $ 68,754 $ 69,585
Amortization of premiums and other 452 907 907 941 789 234
---------------------------------------------------------------------------------
Fixed Charges $ 26,992 $ 57,744 $ 64,881 $ 65,827 $ 69,543 $ 69,819
=================================================================================
Ratio of Earnings to Fixed Charges 4.13 4.44 4.57 3.63 2.79 1.81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 87,102
<SECURITIES> 0
<RECEIVABLES> 365,111
<ALLOWANCES> 0
<INVENTORY> 839,553
<CURRENT-ASSETS> 1,406,261
<PP&E> 784,472
<DEPRECIATION> 427,210
<TOTAL-ASSETS> 2,059,716
<CURRENT-LIABILITIES> 1,174,312
<BONDS> 201,450
<COMMON> 72,474
0
0
<OTHER-SE> 451,426
<TOTAL-LIABILITY-AND-EQUITY> 2,059,716
<SALES> 1,815,441
<TOTAL-REVENUES> 1,815,441
<CGS> 1,537,334
<TOTAL-COSTS> 1,537,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,540
<INCOME-PRETAX> 90,370
<INCOME-TAX> 32,533
<INCOME-CONTINUING> 55,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,650
<EPS-BASIC> 1.78
<EPS-DILUTED> 1.78
</TABLE>
