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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended September 30, 2000
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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
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UNIVERSAL CORPORATION
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(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0414210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1501 North Hamilton Street, Richmond, Virginia 23230
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code - (804) 359-9311
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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_____
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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 - 27,519,565 shares outstanding as of October 27,
2000
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Universal Corporation and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
----------------------
(In thousands of dollars, except share and per share data)
<S> <C> <C>
Sales and other operating revenues $650,765 $787,006
Costs and expenses
Cost of goods sold 529,182 661,051
Selling, general and administrative expenses 69,647 74,374
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Operating Income 51,936 51,581
Equity in pretax earnings of unconsolidated affiliates 1,349 6,596
Interest expense 14,829 11,776
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Income before income taxes and other items 38,456 46,401
Income taxes 14,998 16,704
Minority interests (1,507) 195
----------------------
Net Income $ 24,965 $ 29,502
==============================================================================================================
======================
Earnings per common share $ 0.89 $ 0.93
==============================================================================================================
======================
Diluted earnings per share $ 0.89 $ 0.93
==============================================================================================================
Retained earnings - beginning of period $499,490 $510,123
Net income 24,965 29,502
Cash dividends declared ($.31 - 2000, $.30 - 1999) (8,421) (9,313)
Purchase of common stock (9,573) (24,333)
----------------------
Retained earnings - end of period $506,461 $505,979
</TABLE>
See accompanying notes.
2
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Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 64,767 $ 61,395
Accounts receivable 353,307 358,897
Advances to suppliers 59,900 52,383
Accounts receivable - unconsolidated affiliates 5,480 12,573
Inventories - at lower of cost or market:
Tobacco 551,906 379,504
Lumber and building products 80,638 77,096
Agri-products 70,818 73,024
Other 33,907 33,068
Prepaid income taxes 5,829 9,283
Deferred income taxes 8,475 9,008
Other current assets 25,795 21,919
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Total current assets 1,260,822 1,088,150
Property, plant and equipment - at cost
Land 27,832 27,377
Buildings 243,941 245,570
Machinery and equipment 516,527 505,323
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788,300 778,270
Less accumulated depreciation 440,673 430,925
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347,627 347,345
Other assets
Goodwill 112,729 113,498
Other intangibles 16,648 17,145
Investments in unconsolidated affiliates 78,023 77,046
Deferred income taxes 33,176 33,606
Other noncurrent assets 67,750 71,314
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308,326 312,609
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$1,916,775 $1,748,104
======================================================================================================
</TABLE>
See accompanying notes.
3
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Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $ 456,969 $ 356,283
Accounts payable 263,752 256,666
Accounts payable - unconsolidated affiliates 5,228 10,169
Customer advances and deposits 167,355 91,414
Accrued compensation 12,321 20,997
Income taxes payable 41,716 26,682
Current portion of long-term obligations 100,960 121,023
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Total current liabilities 1,048,301 883,234
Long-term obligations 223,067 223,262
Postretirement benefits other than pensions 41,800 41,295
Other long-term liabilities 55,514 53,948
Deferred income taxes 8,719 11,749
Minority interests 35,339 36,837
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 27,737,797 shares
(28,146,697 at June 30, 2000) 65,333 66,274
Retained earnings 506,461 499,490
Accumulated other comprehensive income (67,759) (67,985)
--------------------------
Total shareholders' equity 504,035 497,779
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$1,916,775 $1,748,104
========================================================================================================
</TABLE>
See accompanying notes.
4
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Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 2000 and 1999
(In thousands of dollars)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,965 $ 29,502
Adjustments to reconcile net income to net
cash provided by operating activities 9,500 6,700
Changes in operating assets and liabilities (76,893) 45,826
--------------------------
Net cash provided (used) by operating activities (42,428) 82,028
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (16,000) (14,000)
Proceeds from sale of equity investment 22,000
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Net cash provided (used) in investing activities (16,000) 8,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net 100,700 (45,000)
Repayment of long-term debt (20,000) (20,000)
Purchases of common stock (10,500) (25,700)
Dividends paid (8,400) (9,300)
--------------------------
Net cash provided (used) in financing activities 61,800 (100,000)
Net increase in cash and cash equivalents 3,372 (9,972)
Cash and cash equivalents at beginning of year 61,395 92,784
--------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,767 $ 82,812
==================================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
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 September 30, 2000,
are not necessarily indicative of results to be expected for the year ending
June 30, 2001. 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: the Company provides guarantees for seasonal pre-
export crop financing for some of its subsidiaries and unconsolidated
affiliates. In addition, certain subsidiaries provide guarantees that ensure
that value-added taxes will be repaid if the crops are not exported. At
September 30, 2000, total exposure under guarantees issued for banking
facilities of unconsolidated affiliates and suppliers was approximately $58
million. Other contingent liabilities approximate $19 million. 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
proposed adjustments, including penalties and interest, approximate $23 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). On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities". The adoption of this standard did not have a material impact on the
quarterly consolidated financial position or results of operations for the
Company.
4). In the fourth quarter of fiscal year 2000, plans were approved to reduce the
Company's U. S. cost structure including the consolidation of tobacco processing
facilities and a corresponding reduction in the number of employees. The
consolidated statement of income included an $11 million pretax charge related
to the plan in fiscal year 2000. The charge includes $7 million of severance
costs related to 108 employees in purchasing, processing and sales. In the first
quarter of fiscal year 2001, $2.8 million in cash payments were made to 105
employees. The remaining severance payments will be made in fiscal year 2001. No
additional restructuring costs were recorded during the quarter.
5). The following table sets forth the computation of earnings per share and
diluted earnings per share.
6
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<TABLE>
<CAPTION>
Three months ended September 30, 2000 1999
---- ----
<S> <C> <C>
Net income (in thousands of dollars) $ 24,965 $ 29,502
Denominator for earnings per share:
Weighted average shares 28,055,105 31,692,282
Effect of dilutive securities:
Employee stock options 5,460 15,662
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Denominator for diluted earnings per share 28,060,565 31,707,944
Earnings per share $ 0.89 $ 0.93
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Diluted earnings per share $ 0.89 $ 0.93
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</TABLE>
6). Comprehensive Income:
<TABLE>
<CAPTION>
Three Months Ended September 30,
(In thousands of dollars) 2000 1999
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<S> <C> <C>
Net income $ 24,965 $ 29,502
Foreign currency translation adjustment 226 821
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Comprehensive income $ 25,191 $ 30,323
=========== ============
</TABLE>
7). Segments are based on product categories. The Company evaluates performance
based on segment operating income and equity in pretax earnings of
unconsolidated affiliates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands of dollars) 2000 1999
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<S> <C> <C>
SALES AND OTHER OPERATING REVENUES
Tobacco $ 402,245 $ 513,773
Lumber/building products 129,662 142,021
Agri-products 118,858 131,212
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Consolidated total $ 650,765 $ 787,006
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OPERATING INCOME
Tobacco $ 46,780 $ 48,606
Lumber/building products 7,650 8,810
Agri-products 3,757 5,058
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Total 58,187 62,474
Less:
Corporate expenses 4,902 4,297
Equity in pretax earnings of unconsolidated affiliates 1,349 6,596
----------------------------------
Consolidated total $ 51,936 $ 51,581
=============================================================================================================================
</TABLE>
7
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7). Short- and Long-Term-Debt: Subsequent to the end of the quarter, the Company
issued in the public market $63 million in 8% medium-term notes due on October
2, 2003.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
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Working capital at September 30, 2000 was $213 million compared to $205
million at June 30, 2000. The slight increase in working capital was the net
result of an increase in current assets of $173 million, primarily from a
seasonal increase in tobacco inventories, which was offset by an increase in
current liabilities of $165 million. The working capital accounts fluctuate
between September and June primarily due to seasonality. 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 United States flue-cured tobacco
markets open and tobacco is purchased and shipped to factories for processing.
This is reflected at September 30 in increased tobacco inventories of $172
million along with increases in the total of notes payable and customer advances
of $177 million. 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 respective increase in United
States inventory represents tobacco that has been committed to customers.
Generally, the company's international tobacco operations conduct business
in United States dollars, thereby limiting foreign exchange risk to local
production and overhead costs. Agri-product and lumber operations enter into
foreign exchange contracts to hedge firm purchase and sales commitments for
terms of less than six months. Interest rate risk is limited because customers
in the tobacco business usually pre-finance purchases or pay market rates of
interest for inventory purchased for their accounts.
The company continues its share purchase programs, which have been in
progress since 1998. As of October 24, 2000, the company had purchased 8.5
million shares of Universal common stock at a total price of approximately $227
million. The programs provide for purchases of up to $300 million. Currently,
about 27.5 million shares are outstanding.
During the quarter, Universal registered with the Securities and Exchange
Commission $400 million in debt securities. The securities are intended to be
issued over time as medium-term notes as an additional source of liquidity for
general corporate purposes. Pursuant to that medium-term note program, on
October 2, 2000, the company issued $63 million in 8% notes due October 2, 2003.
The proceeds were used to retire short-term debt. The liquidity and capital
resources of the company at September 30, 2000 remain adequate to support the
company's foreseeable operating needs.
Results of Operations
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`Sales and Other Operating Revenues' decreased $136 million or 17% in the
first quarter of fiscal year 2001. A decline in tobacco revenues accounted for
$112 million of the decrease while lumber and building products revenues were
down $12 million and agri-products revenues declined $12 million. The lower
tobacco revenues resulted from a smaller flue-cured crop in the United States
and corresponding reduced customer orders and high carryover shipments of
African and dark tobaccos from fiscal year 1999 into the first quarter of last
year. The reduction
9
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in lumber and building products revenues was primarily related to the stronger
U.S. dollar.
Fiscal year 2001 segment operating income in the first quarter was down 7%
to $58 million compared to the same period last year at $62 million, however,
fiscal 2000 included a one-time gain of $4 million from the sale of an interest
in a tobacco joint venture. Tobacco segment operating income (excluding the
gain) was up almost 5% to $47 million. Volumes in South American and Western
Europe were ahead of last year's pace in the quarter. Shipments of African
tobacco and dark tobaccos were higher in the first quarter of fiscal 2000,
reflecting carryover shipments from the prior fiscal year. The company expects
shipments from Zimbabwe's large crop to take place late in this fiscal year. In
addition, fiscal year 2001 earnings from an oriental tobacco joint venture
declined due to similar customer requested shipment changes last year. Lumber
and building products operating income declined 13% in the first quarter
compared to the same period last year as the sharp decline in the Euro/guilder
exchange rate more than offset improved local currency sales. Construction
activity in the Netherlands continues to be strong although there are some
indications that capacity constraints, particularly a shortage of skilled labor,
may affect future growth. Operating income for the agri-products business was
down 26% in the first quarter. Intense competition in confectionery sunflower
seeds and cashew nuts continued to negatively influence results, while tea
volumes and margins were somewhat improved.
Interest expense increased in the first quarter primarily due to higher
short-term rates as a result of the Federal Reserve policy of raising interest
rates over the past year. The company's estimated effective tax rate in fiscal
year 2001 is approximately 39% compared to 36% last year due to a combination of
reduced domestic income and higher effective tax rates on foreign income.
World leaf markets appear to be improving as cigarette sales recover in a
number of areas and surplus leaf inventories move into the market. The company
continues to be concerned about the situation in the United States where
declining crops and non-competitive prices are affecting sales volumes. Despite
the evident flaws in the leaf tobacco support price program, no clear consensus
for change has yet emerged and it is doubtful that meaningful reforms will be
enacted in time to reverse the current United States leaf market decline. The
company generally expects the lower U.S. volumes to be offset by increased
business in international markets. It is likely that movement of volumes from
the United States to international operations will affect quarterly comparisons
in the future and volatility, resulting from particular crop conditions and
shipment timing issues, will continue to make prediction of quarterly earnings
difficult. A move to direct contracting with tobacco farmers in the United
States is appearing increasingly likely, which could lead to the end of the U.
S. auction system and create new difficulties for export customers. The company
is well prepared for this outcome should it occur. The company continues to
pursue its fundamental strategy and despite challenging conditions, particularly
in the United States, expects solid performance for the remainder of the fiscal
year.
Readers are cautioned that the statements contained herein regarding the
Company's future business opportunities and prospects, including 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, timing of shipments to customers and market
structure. 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
10
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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 Annual Report on Form 10-K for the fiscal
year ended June 30, 2000, regarding important factors that could 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.
11
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Company held its annual meeting of shareholders on October 24, 2000, to
elect four directors to serve three-year terms and one director to serve a two-
year term. The names of the five directors and the number of votes cast for them
are listed below:
Name of Director Votes for Votes Withheld
---------------- --------- --------------
Joseph C. Farrell (three year) 24,007,093 136,162
Henry H. Harrell (three year) 23,984,934 158,321
Walter A. Stosch (three year) 23,991,231 152,024
Eugene P. Trani (three year) 23,982,458 160,797
Eddie N. Moore, Jr. (two year) 24,000,281 142,974
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 William W. Berry, Ronald E. Carrier, Hubert R. Stallard, Charles H. Foster,
Jr., Richard G. Holder, Allen B. King and Jeremiah J. Sheehan.
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.
Report on Form 8-K dated July 27, 2000 filing press
release announcing earnings expectations.
Report on Form 8-K/A dated August 11, 2000
filing press release reporting fiscal year earnings
and press release announcing quarterly dividend.
Report on Form 8-K dated September 6, 2000
filing Distribution Agreement dated September 6,
2000.
* Filed herewith
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SIGNATURES
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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 1 , 2000 UNIVERSAL CORPORATION
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(Registrant)
/s/ Hartwell H. Roper
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Hartwell H. Roper, Vice President and
Chief Financial Officer
/s/ William J. Coronado
-------------------------------------
William J. Coronado, Vice President
and Controller
(Principal Accounting Officer)
13
