-----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, TOrR9WRk0m+ZuOEQifzZFiJzv9YAppoufj7mLmxV712k81fetzA4hKTKlJiUdhrs vHAvWzr09srK0uMzyHXy4A== 0000916641-99-000411.txt : 19990513 0000916641-99-000411.hdr.sgml : 19990513 ACCESSION NUMBER: 0000916641-99-000411 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: 99617669 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, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From______________to__________________ Commission file number 1-652 UNIVERSAL CORPORATION (Exact name of Registrant as specified in its charter) VIRGINIA 54-0414210 ------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1501 North Hamilton Street, Richmond, Virginia 23230 - ----------------------------------------------------- ------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code - (804) 359-9311 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No_____ Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock as of the latest practicable date: Common Stock, No par value - 32,713,684 shares outstanding as of May 7, 1999 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Three and Nine Months Ended March 31, 1999 and 1998 (In thousands of dollars, except per share data)
Three Months Nine Months 1999 1998 1999 1998 -------------------------------- --------------------------------- Sales and other operating revenues $1,222,814 $1,152,696 $3,399,818 $3,441,009 Costs and expenses Cost of goods sold 1,080,062 995,291 2,951,950 2,969,702 Selling, general and administrative expenses 87,631 90,952 251,615 256,531 --------------------------------------------------------------------- Operating Income 55,121 66,453 196,253 214,776 Equity in pretax earnings of unconsolidated affiliates 5,239 5,599 7,021 10,856 Interest expense 12,848 16,585 41,536 46,266 --------------------------------------------------------------------- Income before income taxes and other items 47,512 55,467 161,738 179,366 Income taxes 15,962 21,192 58,226 71,189 Minority interests 2,196 2,729 5,677 5,773 --------------------------------------------------------------------- --------------------------------------------------------------------- Net Income $ 29,354 $ 31,546 $ 97,835 $ 102,404 - ---------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- Earnings per share $ .88 $ .89 $ 2.90 $ 2.91 - ---------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------- Diluted earnings per share $ .88 $ .89 $ 2.90 $ 2.89 - ---------------------------------------------------------------------------------------------------------------------------------- Retained earnings - Beginning of period $508,137 $424,298 Net income 97,835 102,404 Cash dividends declared ($.88 - 1999; $.825 - 1998) (29,299) (29,079) Purchase of common stock (65,187) --------------------------------------------------------------------- Retained earnings - End of period $511,486 $497,623 - ---------------------------------------------------------------------------------------------------------------------------------- Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) March 31, June 30, 1999 1998 -------------------- ---------------------- ASSETS Current Cash and cash equivalents $ 89,466 $ 79,835 Accounts receivable 356,059 392,821 Advances to suppliers 125,191 104,439 Accounts receivable - unconsolidated affiliates 17,413 49,343 Inventories - at lower of cost or market: Tobacco 518,743 541,822 Lumber and building products 92,841 97,071 Agri-products 73,584 89,990 Other 25,279 33,162 Prepaid income taxes 11,660 18,347 Deferred income taxes 3,786 3,794 Other current assets 13,973 19,665 ------------------------------------------------- Total current assets 1,327,995 1,430,289 Property, plant and equipment - at cost Land 31,162 29,951 Buildings 240,412 219,594 Machinery and equipment 498,857 466,177 ------------------------------------------------- 770,431 715,722 Less accumulated depreciation 415,643 385,967 ------------------------------------------------- 354,788 329,755 Other assets Goodwill 119,908 120,889 Other intangibles 19,045 18,586 Investments in unconsolidated affiliates 91,112 87,052 Other noncurrent assets 89,940 70,134 ------------------------------------------------- 320,005 296,661 ------------------------------------------------- $2,002,788 $2,056,705 - -------------------------------------------------------------------------------------------------------------------------- See accompanying notes. Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) March 31, June 30, 1999 1998 -------------------- ---------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Notes payable and overdrafts $ 541,134 $ 586,450 Accounts payable 262,924 285,994 Accounts payable - unconsolidated affiliates 12,586 17,116 Customer advances and deposits 165,547 125,311 Accrued compensation 18,556 24,706 Income taxes payable 28,775 27,693 Current portion of long-term obligations 29,350 34,251 ------------------------------------------------- Total current liabilities 1,058,872 1,101,521 Long-term obligations 242,668 263,140 Postretirement benefits other than pensions 43,675 44,535 Other long-term liabilities 46,640 40,909 Deferred income taxes 18,395 27,065 Minority interests 37,696 31,668 Shareholders' equity Preferred stock, no par value, authorized 5,000,000 shares none issued or outstanding Common stock, no par value, authorized 100,000,000 shares, issued and outstanding 32,932,584 shares (34,866,406 at June 30, 1998) 77,692 80,122 Retained earnings 511,486 508,137 Accumulated other comprehensive income (34,336) (40,392) ------------------------------------------------- Total shareholders' equity 554,842 547,867 ------------------------------------------------- $ 2,002,788 $ 2,056,705 - -------------------------------------------------------------------------------------------------------------------------- See accompanying notes. Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Nine months Ended March 31, 1999 and 1998 (In thousands of dollars) March 31, March 31, 1999 1998 -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 97,835 $ 102,404 Adjustments to reconcile net income to net cash provided by operating activities 33,800 37,500 Changes in operating assets and liabilities net of effects from purchase of businesses 95,596 (105,381) ---------------------------------------------- Net cash provided by operating activities 227,231 34,523 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (52,400) (72,500) ---------------------------------------------- Net cash used in investing activities (52,400) (72,500) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance (repayment) of short-term debt, net (45,300) 84,200 Repayment of long-term debt (23,000) (20,000) Purchases of common stock (70,400) Issuance of common stock 2,800 4,300 Dividends paid (29,300) (29,100) ---------------------------------------------- Net cash provided (used) in financing activities (165,200) 39,400 ---------------------------------------------- Net increase in cash and cash equivalents 9,631 1,423 Cash and cash equivalents at beginning of year 79,835 109,070 ---------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,466 $ 110,493 - -------------------------------------------------------------------------------------------------------------------
Universal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 All figures contained herein are unaudited. 1) Universal Corporation, together with its subsidiaries and affiliates, is also referred to as the Company or Universal. The operations of domestic and foreign tobacco, lumber and building products, and agri-products segments are seasonal. Therefore, the results of operations for the periods ended March 31, 1999, are not necessarily indicative of results to be expected for the year ending June 30, 1999. All adjustments necessary to state fairly the results for such period have been included and were of a normal recurring nature. 2). Contingent liabilities: At March 31, 1999, total exposure under guarantees issued for banking facilities of unconsolidated affiliates was approximately $14 million. Other contingent liabilities approximate $41 million and relate principally to performance bonds, Common Market Guarantees and accounts receivable sold with recourse. The Company's Brazilian subsidiaries have been notified by the tax authorities of proposed adjustments to the income tax returns filed in prior years. The total proposed adjustments, including penalties and interest, approximate $40 million; however, recent currency fluctuations and possible interest rate changes could affect that amount. The Company believes the Brazilian tax returns filed were in compliance with the applicable tax code. The numerous proposed adjustments vary in complexity and amounts. While it is not feasible to predict the precise amount or timing of each proposed adjustment, the Company believes that the ultimate disposition will not have a material adverse effect on the Company's consolidated financial position or results of operations. At March 31, 1999, the Company had outstanding short-term loans of $43 million and long-term loans of $17 million to a farmer cooperative in Argentina. The loans are secured by tobacco and liens on real property, processing machinery and equipment and other assets of the cooperative. Upon export of the tobacco, which is usually in less than twelve months, the short-term loans should be recovered. The long-term loans are scheduled for repayment over the next nine years. Ultimate collection of the loans is contingent upon the ability of the farmers to produce competitively priced tobacco suitable for export, the financial management of the cooperative and the value of the assets pledged as security for the loans. 3) As of July 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130,"Reporting Comprehensive Income" (SFAS 130). The adoption of this statement had no impact on the Company's net income or shareholders' equity. SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components. SFAS 130 requires foreign currency translation adjustments to be included in other comprehensive income. Amounts in prior year financial statements have been reclassified to conform to SFAS 130.
Three Months Nine Months Periods ended March 31, 1999 1998 1999 1998 ----------------- ----------------- ----------------- ----------------- (in millions of dollars) Net income $29 $32 $97 $102 Foreign currency translation adjustment (4) (7) 6 (13) ----------------- ----------------- ----------------- ----------------- Comprehensive income $25 $25 $103 $89 ================= ================= ================= ================= 4) The following table sets forth the computation of earnings per share and diluted earnings per share. Three Months Nine Months Periods ended March 31, 1999 1998 1999 1998 ----------------- ----------------- ----------------- ----------------- Net income (in thousands of dollars) $29,354 $31,546 $97,835 $102,404 Denominator for earnings per share: Weighted average shares 33,193,954 35,298,742 33,722,844 35,202,716 Effect of dilutive securities: Employee stock options 12,244 270,228 49,203 226,151 ----------------- ----------------- ----------------- ----------------- Denominator for diluted earnings per share 33,206,198 35,568,970 33,772,047 35,428,867 Earnings per share $.88 $.89 $2.90 $2.91 ================= ================= ================= ================= Diluted earnings per share $.88 $.89 $2.90 $2.89 ================= ================= ================= =================
5) The lower estimated effective tax rate in fiscal year 1999 is due to the anticipated mix of foreign and domestic earnings, realization of tax benefits and management's current assessment of pending and contested tax issues. 6) Certain prior year amounts have been reclassified to be reported on a consistent basis with the current year's presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Working capital at March 31, 1999, was $269 million compared to $329 million at June 30, 1998. The seasonal nature of the Company's tobacco operations, affects the comparison of the components of working capital. Although Universal's current assets and liabilities usually reflect seasonal increases in March, current assets declined $102 million and current liabilities declined $43 million, respectively. The majority of the decreases occurred in accounts receivable, inventories, notes and accounts payable. The mix of notes payable and customer advances supporting inventories is dependent on the Company's borrowing capabilities, interest rates, and exchange rates as well as those of its customers, and in aggregate notes payable and customer advances were comparable to balances at June 30, 1998. The decrease in tobacco inventories primarily represents lower purchase prices of current year crops as well as the effect of smaller US flue-cured crops. The Company generally does not purchase tobacco on a speculative basis. Advances to farmers for agricultural materials, such as seed and fertilizer, were higher at the end of March compared to June as advances are made for the upcoming year's crops in Brazil and Latin America. Generally, the Company's international tobacco operations conduct business in U.S. dollars, thereby limiting foreign exchange risk to local production and overhead costs, which represent the smallest portion of its cost of sales. The Company's agri-product and lumber operations enter into foreign exchange contracts to hedge firm purchase and sales commitments for terms of less than six months. Contracts used to manage foreign currency risks are not material. Interest rate risk is limited because customers in the tobacco business usually pre-finance purchases or pay market rates of interest for inventory purchased for their accounts. The decrease in capital expenditures for the nine months ended March 31, 1999, compared to the last year was due to the acquisition of and subsequent improvements to processing plants in Tanzania and Poland that occurred in fiscal year 1998. Through April 15, 1999, the Company had purchased approximately 2.8 million shares of its common stock for $94.7 million. A total of $200 million has been authorized for the share purchase program. Management believes that the Universal's liquidity and capital resources at March 31, 1999, remain adequate to support its businesses. Results of Operations 'Sales and Other Operating Revenues' for the third quarter of fiscal year 1999 increased $70 million compared to the same period last year primarily due to higher volumes of U.S. tobacco processed and exported. For the nine-month period, `Sales and Other Operating Revenues' decreased by approximately $41 million compared to the nine months ended March 31, 1998. Lower volumes handled out of the 1998 Brazilian flue-cured and burley crops adversely affected revenues in the current fiscal year. In addition, revenues have been affected by the lower cost of green tobacco. "Operating income" decreased in both the third quarter and the nine-month period compared to the corresponding periods last year. In the third quarter, operating income declined by $11 million or 17% compared to the third quarter of fiscal year 1998. During the nine months ended March 31, operating income declined by $19 million or 9%. In both the quarter and the nine-month periods, tobacco earnings comparisons were negatively impacted by a number of factors including the aforementioned lower volumes handled in Brazil and quality issues in Argentina. Timing of shipments was also a factor in a number of regions. Earnings in the United States for the quarter benefited from larger volumes processed and increased export shipments. For the nine months, however, U. S. earnings declined, despite larger volumes handled, due to the mix of business including lower export shipments and a reduction in the quantity of tobacco processed for the stabilization pools. Shipment timing issues also reduced quarterly earnings from Africa and delayed recognition of Oriental leaf sales from a number of origins. Dark tobacco results were down for the quarter and for the nine months reflecting a slowdown in filler and binder sales and leaf quality problems in Indonesia and Brazil due to adverse weather. Shipment delays also impacted these operations in the quarter. Non-tobacco earnings were up for both the quarter and the nine months due primarily to improving lumber and building products margins and higher plywood and hardwood prices. Last year, lumber results were adversely impacted by simultaneous declines in softwood, hardwood and plywood prices. Sales volumes continued to be below levels for the comparable periods a year ago due to the disruption of construction activity in Holland caused by excessive rains over the past six months. The performance of on-going agri-products operations was comparable to last year's results . The Company's earnings for the quarter and the nine months also benefited from lower borrowing levels, which reduced interest expense, and a lower tax rate. As of March 31, 1999, total debt, excluding customer advances, had declined by about $170 million compared to March 31, 1998. The effective tax rate was 34 percent in the quarter and 36 percent for the nine months reflecting the expected mix of foreign and domestic earnings, the realization of tax benefits and management's continuing assessment of outstanding tax issues. The Company's effective tax rate in fiscal year 1998 was approximately 40 percent. For the year to date, the Company has continued to perform well despite considerable market uncertainty. Margins in some areas have been pressured by excess leaf supply, occasioned by financial and economic conditions in Southeast Asia and the former Soviet Union, declining consumption in the United States and a general buildup in uncommitted inventories. However, as a result of its "right sizing" policy, Universal has held its inventories to appropriate levels and have not been forced to take significant write-downs in order to dispose of excess stocks or to reflect the current market values of those stocks. At the same time, management has continued its efforts to reduce costs, improve efficiency, and strengthen strategic partnerships. As a result of the success of these efforts, management continues to expect that 1999 will be a good year for the Company and that Universal will achieve earnings from ongoing operations in line with its current projections. As reported in the Company's 1998 Annual Report on Form 10-K (refer to Management's Discussion and Analysis of Operations), the Company has developed a plan to mitigate the effects of the year 2000 problem on its operations. At the time of the report, it was expected that by December 31, 1998, all of the Company's business locations would complete the assessment and remediation phases of the plan's internal aspects. Currently a few business locations are not expected to complete the remediation phase until June 30, 1999. However, this delay should not have a material adverse effect on the Company's plan. The Company is conducting reviews and testing remediated systems. In conjunction with contingency planning for the year 2000, the Company's operating units have submitted contingency plans for each of their business units. These iterative plans identify potential risk areas and the possibility of disruptions to related business operations. These contingency plans are currently being reviewed by the Company. The Company's current estimate of costs to address the year 2000 problem is $7.5 million. Approximately $7.1 million was spent through March 31, 1999. The Company does not expect the total cost of preparing its internal technology for the year 2000 to be material to its consolidated financial condition or results of operations. On April 27, 1999 a tobacco subsidiary of the Company announced the rationalization and consolidation of several operations in the United States. The actions are expected to provide greater efficiencies and yield annual savings that are at least equal to their cost. The cost of the consolidation is estimated to be between $3 million and $4 million before taxes. The Company believes that it will recognize those costs primarily in its fourth fiscal quarter. The Company cautions readers that the statements contained herein regarding expected earnings are forward-looking statements based upon management's current knowledge and assumptions about future events, including anticipated levels of demand for the Company's products and services, costs incurred in providing these products and services, and timing of shipments to customers. Lumber earnings could also be affected by a number of factors, including the translation effects of currency rate changes and unusual weather conditions in the Netherlands. Actual results, therefore, could vary from those expected. For more details on factors that could affect expectations, see the Company's Annual Report on Form 10-K for the year ended June 30, 1998, as filed with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27 Financial Data Schedule.* b. Reports on Form 8-K (i) The Company filed a current report on Form 8-K on February 4, 1999 announcing the Company's Board of Directors approval of additional repurchase of up to $100 million in common stock (ii) The Company filed a current report on Form 8-K on February 4, 1999 announcing the Company's earnings for its second quarter ended December 31, 1998. * Filed Herewith SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 12, 1999 UNIVERSAL CORPORATION -------------------------------------------- (Registrant) /s/ Hartwell H. Roper -------------------------------------------- Hartwell H. Roper, Vice President and Chief Financial Officer /s/ William J. Coronado -------------------------------------------- William J. Coronado, Vice President and Controller (Principal Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1999 MAR-31-1999 89,466 0 356,059 0 710,447 1,327,995 770,431 415,643 2,002,788 1,058,872 242,668 77,692 0 0 477,150 2,002,788 3,399,818 3,399,818 2,951,950 2,951,950 0 0 41,536 161,738 58,226 97,835 0 0 0 97,835 2.90 2.90
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