-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IbfBduNgWLQzhOIDyD6SEo0KEsnv+jFoq73IMce2a6c30xtmPh4Xmp5utuU4HRQk LouaYExlSWPppzu8Brfn+w== 0000916641-98-000558.txt : 19980511 0000916641-98-000558.hdr.sgml : 19980511 ACCESSION NUMBER: 0000916641-98-000558 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980508 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL CORP /VA/ CENTRAL INDEX KEY: 0000102037 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [5150] IRS NUMBER: 540414210 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00652 FILM NUMBER: 98614412 BUSINESS ADDRESS: STREET 1: P O BOX 25099 STREET 2: 1501 N HAMILTON ST CITY: RICHMOND STATE: VA ZIP: 23230 BUSINESS PHONE: 8043599311 MAIL ADDRESS: STREET 1: PO BOX 25099 CITY: RICHMOND STATE: VA ZIP: 23260 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL LEAF TOBACCO CO INC DATE OF NAME CHANGE: 19880314 10-Q 1 THIRD QUARTER REPORT 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, 1998 --------------- 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 - 35,313,742 shares outstanding as of May 3, 1998 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, 1998 and 1997 (In thousands of dollars, except per share data)
Three Months Nine Months 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Sales and other operating revenues ....... $1,152,696 $1,013,715 $3,441,009 $3,171,776 Costs and expenses Cost of goods sold ................... 996,853 871,895 2,981,402 2,757,278 Selling, general and administrative .. 89,390 83,123 244,831 231,658 Interest ............................. 16,585 15,243 46,266 49,498 ---------- ---------- ---------- ---------- 1,102,828 970,261 3,272,499 3,038,434 ---------- ---------- ---------- ---------- Income before income taxes and other items 49,868 43,454 168,510 133,342 Income taxes ......................... 19,767 17,381 67,404 53,336 Minority interests ................... 2,729 1,694 5,773 5,643 ---------- ---------- ---------- ---------- Income from consolidated operations ...... 27,372 24,379 95,333 74,363 Equity in net income of unconsolidated affiliates 4,174 3,235 7,071 4,675 ---------- ---------- ---------- ---------- Net income ............................... $ 31,546 $ 27,614 $ 102,404 $ 79,038 ========== ========== ========== ========== Earnings per share ....................... $ .90 $ .79 $ 2.91 $ 2.25 ========== ========== ========== ========== Diluted earnings per share ............... $ .89 $ .78 $ 2.89 $ 2.25 ========== ========== ========== ========== Retained earnings - Beginning of period.... $424,298 $360,273 Net income................................. 102,404 79,038 Cash dividends declared ($.825-1998; $.785-1997)............................ (29,079) (27,177) ---------- ---------- Retained earnings - End of period.......... $497,623 $412,134 ========== ========== See accompanying notes. Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) March 31, June 30, 1998 1997 ---------- ---------- ASSETS Current Cash and cash equivalents ..................... $ 110,493 $ 109,070 Accounts and notes receivable ................. 454,703 428,430 Advances to suppliers ......................... 121,553 79,499 Accounts receivable - unconsolidated affiliates 9,956 7,768 Inventories - at lower of cost or market: Tobacco ................................... 656,681 570,650 Lumber and building products .............. 100,915 105,567 Agri-products ............................. 88,636 80,812 Other ..................................... 31,368 12,444 Prepaid income taxes .......................... 7,284 7,665 Deferred income taxes ......................... 7,258 7,064 Other current assets .......................... 15,705 22,270 ---------- ---------- Total current assets ...................... 1,604,552 1,431,239 Property, plant and equipment - at cost Land .......................................... 30,305 30,887 Buildings ..................................... 219,629 214,605 Machinery and equipment ....................... 466,390 430,360 ---------- ---------- 716,324 675,852 Less accumulated depreciation ............. 382,618 366,200 ---------- ---------- 333,706 309,652 Other assets Goodwill ...................................... 120,429 117,483 Other intangibles ............................. 20,502 22,703 Investments in unconsolidated affiliates ...... 42,792 33,413 Deferred income taxes ......................... 1,613 1,509 Other noncurrent assets ....................... 72,773 65,980 ---------- ---------- 258,109 241,088 ---------- ---------- $2,196,367 $1,981,979 ========== ========== See accompanying notes. Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands of dollars) March 31, June 30, 1998 1997 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Notes payable and overdrafts ....................... $ 673,871 $ 589,648 Accounts payable ................................... 275,044 275,980 Accounts payable - unconsolidated affiliates ....... 15,060 10,204 Customer advances and deposits ..................... 197,409 144,175 Accrued compensation ............................... 20,620 19,296 Income taxes payable ............................... 30,011 16,166 Current portion long-term obligations .............. 29,504 28,228 ----------- ----------- Total current liabilities ...................... 1,241,519 1,083,697 Long-term obligations .................................. 280,722 291,637 Postretirement benefits other than pensions ............ 45,798 45,553 Other long-term liabilities ............................ 40,640 42,273 Deferred income taxes .................................. 17,388 18,527 Minority interests ..................................... 34,171 30,699 Shareholders' equity Additional preferred stock, no par value, authorized 5,000,000 shares, none issued or outstanding Common stock, no par value, authorized 50,000,000 shares, issued and outstanding 35,313,742 shares (35,139,137 at June 30,1997) .................... 82,964 77,040 Retained earnings .................................. 497,623 424,298 Foreign currency translation adjustments ........... (44,458) (31,745) ----------- ----------- Total shareholders' equity ..................... 536,129 469,593 ----------- ----------- $ 2,196,367 $ 1,981,979 =========== =========== Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1998 and 1997 (In thousands of dollars) 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................. $ 102,404 $ 79,038 Adjustments to reconcile net income to net cash provided by operating activities ............................ 37,500 51,000 Changes in operating assets and liabilities ............ (106,981) (133,934) --------- --------- Net cash provided by (used in) operating activities 32,923 (3,896) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment .............. (72,500) (35,700) --------- --------- Net cash used in investing activities .............. (72,500) (35,700) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of short-term debt - net ...................... 84,200 43,400 Repayment of long-term debt ............................ (20,000) (76,900) Issuance of long-term debt ............................. 0 18,600 Issuance of common stock ............................... 5,900 280 Dividends paid ......................................... (29,100) (27,200) --------- --------- Net cash provided (used) by financing activities ... 41,000 (41,820) --------- --------- Net increase (decrease) in cash and cash equivalents ....... 1,423 (81,416) Cash and cash equivalents at beginning of period ........... 109,070 214,782 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 110,493 $ 133,366 ========= =========
6 Universal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 All figures contained herein are unaudited. 1) The operations of segments of domestic and foreign tobacco, lumber and building products, and agri-products are seasonal. Therefore, the results of operations for the nine-month period ended March 31, 1998, are not necessarily indicative of results to be expected for the year ending June 30, 1998. 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, 1998, total exposure under guarantees issued for banking facilities of unconsolidated affiliates was approximately $6 million. Other contingent liabilities approximate $42 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 $55 million. The Company believes the Brazilian tax returns filed were in compliance with the applicable tax code. The numerous proposed adjustments vary in complexity and 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 an material adverse effect on the Company's consolidated financial position or results of operations. 3) In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for reporting and display of comprehensive income and its components. SFAS 130 is effective for fiscal years beginning after December 15, 1997, and the Company will adopt it for fiscal year 1999. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating the implementation of SFAS 131 and plans to adopt it for fiscal year 1999. 4) In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which was adopted by the Company in the quarter ended December 31, 1997. Prior to the adoption of SFAS 128, the Company was not required to present the dilutive effects of employee stock options because the effects were immaterial. SFAS 128 requires the presentation of both basic and diluted earnings per share, regardless of materiality, unless the per share amounts are equal. The effect of adopting SFAS 128 on earnings per share calculations for prior periods is not material. Net income was not affected by the calculation of basic and diluted earnings per share for any of the periods presented. The following table sets forth the computation of earnings per share and diluted earnings per share.
Three Months Nine Months 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net income ($ in thousands).................... $31,546 $27,614 $102,404 $79,038 ========== ========== ========== ========== Denominator for earnings per share Weighted average shares............... 35,298,742 35,085,332 35,202,716 35,068,788 ---------- ---------- ---------- ---------- Effect of dilutive securities Employee stock options................ 270,228 144,382 226,151 114,599 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share..... 35,568,970 35,229,714 35,428,867 35,183,387 ========== ========== ========== ========== Earnings per share............................. $.90 $.79 $2.91 $2.25 ========== ========== ========== ========== Diluted earnings per share..................... $.89 $.78 $2.89 $2.25 ========== ========== ========== ==========
5) In March 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting For the Costs of Computer Software Developed or Obtained for Internal Use". The SOP is effective for the Company's fiscal year beginning July 1, 1999. The SOP will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal use. The Company currently expenses such costs as incurred. The Company has not yet assessed what the impact of the SOP will be on the Company's future earnings or financial position. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Working capital at March 31, 1998, was $363 million compared to $347 million at June 30, 1997. Due to the seasonal nature of the Company's tobacco operations, the components of working capital on a comparative basis increased significantly compared to June 30th. Current assets and current liabilities increased $174 million and $158 million, respectively. The majority of the increase was seasonal and was reflected in accounts receivable, advances to suppliers, and tobacco inventory that was supported by increased notes payable and overdrafts and customer advances. 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. The increase in tobacco inventories primarily represents purchases of crops that have not yet been processed and/or shipped due to customer requirements. The Company generally does not purchase tobacco on a speculative basis. While the inventory of domestic tobacco operations is normally higher at March 31st than at June 30th, Brazilian inventories are lower. 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 increase in capital expenditures for the nine months ended March 31, 1998, compared to the last year was due to the acquisition of processing plants in Tanzania and Poland and other capital improvements to tobacco processing facilities. On May 6, 1998, Universal announced that its Board of Directors had approved the purchase of up to $100 million of the common stock of the Company. The purchases will be carried out from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market rates. The purchases are expected to be funded primarily from operating cash flow of the Company. Universal currently has approximately 35.3 million common shares outstanding. Management believes that the Universal's liquidity and capital resources at March 31, 1998, remain adequate to support its businesses. Results of Operations 'Sales and Other Operating Revenues' for the third quarter of fiscal year 1998 increased 14% compared to the same period last year due to strong foreign tobacco sales. In addition, dark tobacco revenues increased during the quarter. Lumber and building product revenues were adversely affected by lower market pricing of softwood, hardwood and plywood volume reductions as customers anticipated further price softening, and the strength of the U.S. dollar, which has appreciated approximately 16 percent against the Dutch guilder since the third quarter of last year. For the nine-month period, `Sales and Other Operating Revenues' increased by approximately $270 million or 9% compared to the nine months ended March 31, 1997. Lower lumber and building products revenues for the nine months were offset by strong tobacco sales growth during the same period. Operating income (earnings before interest and taxes) increased in both the third quarter and the nine-month period compared to the corresponding periods last year. In the third quarter, operating income increased by $8 million or 13% compared to the third quarter of fiscal year 1997. During the nine months ended March 31, operating income increased by $32 million or 17%. The increase in the nine-month period was principally due to improvements realized in both domestic and foreign tobacco operations. Domestic tobacco operations for the nine months benefited from higher volumes purchased and processed. In the quarter, domestic operating results were down due to differences in the timing of shipments and larger sales of old crop tobaccos last year. Foreign tobacco operations for the quarter were led by improved African operations, while the nine month period was positively impacted by larger Brazilian flue-cured and burley crops as well as gains in Africa and Western Europe. Oriental tobacco and dark tobacco operations also improved. In lumber and building products, operating income in both periods was down due to the aforementioned effect of a strong U.S. dollar. Volumes and margins were also lower due to the unprecedented simultaneous declines in world market prices for hardwood, softwood, and plywood. Agri-products operating income in the quarter and nine months was well above last year, benefiting from a strong international tea market and rubber operations. 'Selling, General and Administrative Expenses' for the nine-month period increased by approximately 6% over the comparable period last year reflecting increased foreign tobacco shipments. Interest expense for the nine months was down compared to last year principally reflecting the Company's improved borrowing rates and controlled borrowing levels. As a result of the Company's inventory control policies, it is currently not holding material leaf inventories that are not committed to customers. No significant impact is anticipated in the Company's financial condition or results of operations from the current weakness in the economies of countries in Southeast Asia. While world leaf production has increased and uncommitted inventories held by stabilization cooperatives and the dealer trade are up somewhat, Universal has been able to expand sales volumes and continues to have very low inventories of uncommitted leaf. Quarterly comparisons continue to be impacted by the timing of shipments to customers. The Company is currently in the process of evaluating the potential impact on its worldwide computer systems related to the year 2000. Systems and equipment may malfunction due to the inability to recognize a date ending with the digits "00", which could disrupt and have a material adverse impact on some of the Company's operations. The Company expects to complete its evaluation by June 30, 1998, and complete implementation of corrective actions by June 30, 1999. At the current time the Company has not finalized the total costs resulting from the Year 2000 issue. In compliance with current generally accepted accounting principles, costs incurred to fix the Year 2000 problems are expensed as incurred. The Company believes that these costs will not be material to its consolidated financial condition or results of operations. Costs such as vendor-supplied software and computer hardware will be capitalized and amortized to expense over their expected useful life. There can be no assurance that the actual costs incurred or any delay in implementation of corrective actions related to remediation of the Year 2000 problems will not have a material adverse affect on the Company's future financial condition or results of operations. In January 1998, the Company reached an agreement to sell its minority interest in a Dutch spice joint venture. The transaction is expected to result in an after-tax gain of approximately $11 million, which will be recognized in fourth quarter of fiscal year 1998. Reference is made to Items 1 and 7 and the Notes to the Consolidated Financial Statements in Item 8 of the Company's Form 10-K for the fiscal year ended June 30, 1997, regarding important factors that would cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company, including forward-looking statements contained in Item 2 of this Form 10-Q. PART II. OTHER INFORMATION 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) The Company filed a current Report on Form 8-K dated January 23, 1998, describing an agreement to sell a subsidiary's share of a European joint venture in spices. ii) The Company filed a current Report on Form 8-K dated May 7, 1998, describing a share repurchase plan approved by the Board of Directors. * Filed Herewith 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 8,1998 UNIVERSAL CORPORATION ------------------------------------------ (Registrant) /s/ Hartwell H. Roper ------------------------------------------ Hartwell H. Roper, Vice President and Chief Financial Officer /s/ William J. Coronado ------------------------------------------ William J. Coronado, Controller (Principal Accounting Officer) EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12. Universal Corporation and Subsidiaries RATIO OF EARNINGS TO FIXED CHARGES Nine Months Ended March 31, 1998 and 1997 1998 1997 -------- -------- Pretax income from continuing operations . $168,510 $133,342 Pretax income of unconsolidated affiliates 10,856 6,386 Fixed charges ............................ 46,853 50,154 -------- -------- Earnings ................................. $226,219 $189,449 ======== ======== Interest ................................. $ 46,266 $ 49,498 Interest of unconsolidated affiliates .... 364 400 Debt discount amortization ............... 223 256 -------- -------- Fixed charges ............................ $ 46,853 $ 50,154 ======== ======== Ratio of earnings to fixed charges ....... 4.8 3.8 ======== ======== EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1998 MAR-31-1998 110,493 0 454,703 0 877,600 1,604,552 716,324 382,618 2,196,367 1,241,519 280,722 82,964 0 0 453,165 2,196,367 3,441,009 3,441,009 2,981,402 2,981,402 0 0 46,266 168,510 67,404 102,404 0 0 0 102,404 2.91 2.89
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