Page 1 of 18 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 1996 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 Common Stock, No par value - 35,042,051 shares outstanding as of May 13, 1996
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, 1996 and 1995 <TABLE> <CAPTION> Three Months Nine Months 1996 1995 1996 1995 ------------------------------ ------------------------------ <S> <C> <C> <C> <C> Sales and other operating revenues $942,587 $991,270 $2,817,870 $2,622,217 Costs and expenses Cost of goods sold 803,056 867,411 2,425,009 2,267,385 Selling, general and administrative 85,925 76,329 242,682 237,500 Interest 19,474 20,541 51,786 55,216 -------------- ------------- -------------- -------------- 908,455 964,281 2,719,477 2,560,101 -------------- ------------- -------------- -------------- Income before income taxes and other items 34,132 26,989 98,393 62,116 Income taxes 13,639 10,090 39,348 24,131 Minority interests 2,752 4,013 5,617 6,258 -------------- ------------- -------------- -------------- Income from consolidated operations 17,741 12,886 53,428 31,727 Equity in net income (loss) of unconsolidated affiliates 686 (657) 2,591 (14) -------------- ------------- -------------- -------------- Net income $18,427 $12,229 $56,019 $31,713 ============== ============= ============== ============== Earnings per common share $.53 $.35 $1.60 $.91 ============== ============= ============== ============== Retained earnings - Beginning of period $323,595 $332,626 Net income 56,019 31,713 Cash dividends declared ($.76-1996; $.74-1995) (26,629) (25,918) -------------- -------------- Retained earnings - End of period $352,985 $338,421 ============== ============== Average common shares outstanding 35,035,516 35,009,358 </TABLE> 2 Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, June 30, 1996 1995 --------------- --------------- ASSETS <S> <C> <C> Current Cash and cash equivalents $175,305 $158,093 Accounts and notes receivable 530,864 392,797 Accounts receivable - unconsolidated affiliates 18,270 13,230 Inventories - at lower of cost or market: Tobacco 494,580 458,964 Lumber and building products 109,174 122,613 Agri-products 67,320 72,908 Other 15,124 11,988 Prepaid income taxes 1,744 8,371 Deferred income taxes 6,000 5,625 Other current assets 10,365 17,764 --------------- --------------- Total current assets 1,428,746 1,262,353 Real estate, plant and equipment - at cost Land 33,148 35,631 Buildings 215,732 211,146 Machinery and equipment 421,214 405,029 --------------- --------------- 670,094 651,806 Less accumulated depreciation 341,505 317,365 --------------- --------------- 328,589 334,441 Other assets Goodwill 123,743 127,501 Other intangibles 28,199 21,759 Investments in unconsolidated affiliates 28,352 23,433 Deferred income taxes 19,271 7,832 Other noncurrent assets 47,715 30,646 --------------- --------------- 247,280 211,171 --------------- --------------- $2,004,615 $1,807,965 =============== =============== </TABLE> 3 Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, June 30, 1996 1995 --------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current <S> <C> <C> Notes payable and overdrafts 521,913 $651,140 Commercial paper 50,000 Accounts payable 247,770 221,574 Accounts payable - unconsolidated affiliates 7,890 6,976 Customer advances and deposits 182,117 46,443 Accrued compensation 13,312 18,286 Income taxes payable 23,936 21,745 Current portion long-term obligations 91,734 31,476 --------------- --------------- Total current liabilities 1,138,672 997,640 Long - term obligations 313,445 284,948 Postretirement benefits other than pensions 46,885 48,007 Other long - term liabilities 49,984 52,962 Deferred income taxes 15,024 17,211 Minority interests 29,017 17,238 Shareholders' equity Preferred stock $100 par, 8% cumulative, authorized 75,000 shares, issued and outstanding 4 shares 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 35,042,051 shares (35,030,314 at June 30, 1995) 75,929 75,749 Retained earnings 352,985 323,595 Foreign currency translation adjustments (17,326) (9,385) --------------- --------------- Total shareholders' equity 411,588 389,959 --------------- --------------- $2,004,615 $1,807,965 =============== =============== </TABLE> 4 Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1996 and 1995 <TABLE> <CAPTION> 1996 1995 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: <S> <C> <C> Net income $56,019 $31,713 Adjustments to reconcile net income to net cash provided by operating activities 34,600 41,800 Changes in operating assets and liabilities net of effects from purchase of businesses (21,257) (72,352) ------------ ------------- Net cash provided by operating activities 69,362 1,161 ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (25,500) (22,900) Purchase of businesses (net of cash acquired) (17,600) (60,800) Other (2,100) 1,500 ------------ ------------- Net cash used in investing activities (45,200) (82,200) ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of short-term debt - net (80,300) (900) Repayment of long-term debt (27,400) Issuance of long-term debt 117,200 6,800 Proceeds from minority investment in a subsidiary 10,000 Issuance of common stock 50 200 Dividends paid (26,500) (25,600) ------------ ------------- Net cash used in financing activities (6,950) (19,500) ------------ ------------- Net increase (decrease) in cash and cash equivalents 17,212 (100,539) Cash and cash equivalents at beginning of period 158,093 166,820 ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $175,305 $66,281 ============ ============= </TABLE> 5
Universal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1996 All figures contained herein are unaudited and stated in thousands of dollars 1) The Company's operating segments of domestic and foreign tobacco, lumber and building products and agri-products are seasonal by nature. Therefore, the results of operations for the nine-month period ended March 31, 1996 are not necessarily indicative of results to be expected for the year ending June 30, 1996. All adjustments necessary to fairly state the results for such period have been included and were of a normal recurring nature. 2) 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 Common Market subsidies and value-added taxes will be repaid if the crops are not exported or if the subsidies are not properly distributed to Common Market farmers. At March 31, 1996, total exposure under guarantees issued for banking facilities of unconsolidated affiliates was $3 million. Other contingent liabilities approximate $53 million and relate principally to Common Market guarantees. The Company considers the possibility of loss on any of these guarantees to be remote. 3) Effective in fiscal year 1995, the Company consolidated the results of African operations previously accounted for under the equity or cost methods of accounting. Financial data for the prior year's third quarter and nine months has been restated to reflect the consolidation. Before the effects of the consolidation, reported consolidated net income for the quarter and nine months ended March 31, 1995 was $10.3 million or $.29 per share and $31.1 million or $.89 per share, respectively. 4) The Company recognized in June 1995 a pre-tax restructuring charge of $15.6 million related to the consolidation of certain tobacco operations and a reduction in the number of employees. The charge included $7.2 million for the expected costs of severance payments related to approximately 200 employees throughout the Company. The non-severance portion of the charge was for the write-down of fixed assets in operations consolidated ($3.7 million), and other nonoperating restructuring costs ($1.7 million). As of March 31, 1996, cash payments of approximately $7.5 million had been made, $3.3 million of which was for the termination of leases and the balance to cover severance costs of 170 employees. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Working capital at March 31, 1996, was $290 million compared to $265 million at June 30, 1995. The increase in working capital was accounted for by increases in current assets of $166 million and an increase in current liabilities of $141 million. The most significant increases were accounted for by accounts and notes receivable (up $138 million) and customer advances (up $136 million). These increases primarily relate to the Company's tobacco operations. Within the U.S., tobacco working capital needs are normally at their lowest point at June 30, while the third quarter of the fiscal year includes working capital requirements related to finalization of the current year's flue-cured and burley crops. In addition, foreign tobacco operations have advanced funds to farmers for fertilizer and seeds. The increase in customer advances at March 31 reflects domestic tobacco customer prepayments for the purchase of tobacco to be shipped in the near term. The Company has continued to invest advances for the purchase of the Brazilian crop as described in the Company's 1995 Annual Report to Shareholders. The consolidated balance sheet at March 31, 1996 includes approximately $100 million of such investments. Earnings from such investment vehicles has been less than 7% of consolidated pre-tax earnings for the nine months ended March 31, 1996. At June 30, 1996, the Company expects that all such funds will have been utilized for crop purchases. Generally the Company's international tobacco operations conduct business in U.S. dollars, thereby limiting foreign exchange risk to local production and overhead costs. Agri-product and lumber operations enter into foreign exchange contracts to hedge firm purchase and sales commitments for terms of less than six months. 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 liquidity and capital resources of the Company at March 31, 1996 remain adequate. Over the past two years the Company has announced restructuring plans related to the consolidation of certain tobacco operations and a reduction in the number of employees. These efforts have led to increased efficiency and streamlined operations. Through the nine months ended March 31, 1996, approximately $4.4 million of severance payments related to the fiscal year 1995 restructuring had been paid. In the first quarter of fiscal 1996, the Company made some minor structural changes in its U.S. tobacco operations. The $10 million of "Proceeds from minority investment in a subsidiary" in the Statement of Cash Flows represents cash proceeds from the issuance of stock in a newly formed subsidiary. The Company treated the issuance of these shares as an equity transaction and no gain or loss was recognized. In February 1996 the Company sold $100 million of 6.5% ten-year notes, in the public market, to provide long-term funding to repay long-term debt, as it matures over the next 12 - 15 months. The net proceeds were used initially to repay a portion of the Company's short-term bank debt and commercial paper. 7 Results of Operations 'Sales and Other Operating Revenues' decreased $49 million or 5% in the quarter and increased $196 million or 7.5% year-to-date. In the quarter, tobacco operations accounted for the majority of the decline as the U.S. burley crop was greatly reduced by adverse weather. For the nine-month period, tobacco revenues accounted for $106 million of the consolidated increase. The balance can be attributed to lumber and building product operations which were up $87 million. The revenue increase year-to-date related to lumber & building products was due to a combination of a stronger Dutch guilder vis-a-vis the U.S. dollar, and the inclusion of Heuvelman, a softwood distributor acquired last year, for the entire current year period versus four months reported in the prior fiscal year. Gross profits in the quarter increased $15.6 million to $140 million and increased year-to-date $38.1 million to $393 million. The majority of the gross profit improvement in both periods was realized in tobacco operations. In the United States the volumes of flue-cured tobacco bought and processed were up year-to-date. In addition, foreign tobacco gross profits for the nine months improved. Fiscal 1995 results included writedowns of $3.9 million related to dark tobacco operations, in the quarter and an additional $2.7 million year-to-date as a result of sharply depressed economic conditions in Eastern Europe which led to reduced sales activity in the region. Year-to-date lumber and building product gross profits benefited from the inclusion of Heuvelman for the full period, while gross profits in the quarter improved slightly. Late last year softwood prices began to decline due to over production in supplying countries and high inventory levels in Western European markets. This led to increasing pressure on prices and reduced margins. Margins remained depressed due to a sharp decline in European construction activity caused by severe winter weather. Lower purchase prices for raw lumber, and the advent of spring are expected to lead to increased construction activity and an improvement in softwood margins in fiscal 1997. Agri-product gross profits were down slightly in the quarter and nine-month periods. 'Selling and General and Administrative Expenses' in the quarter increased 12.5% in the quarter due to higher costs related to lumber and building products related to a stronger guilder and costs of servicing tobacco contracts. The increase was partially offset in the nine months due to the inclusion of a $3.8 million provision related to Eastern European customers last year. Interest expense was down in the current year due to lower average borrowing rates. The outlook for the remainder of the year is positive and prospects for next year appear favorable. The Brazilian market has opened and even though the operating environment remains difficult, the current crop is selling well and better results are expected. The African markets are just opening and good demand and larger volumes are expected. Planting has begun in the United States and, if weather conditions are favorable, larger leaf volumes are expected to be handled in the upcoming fiscal year. The improvement in overall market conditions and the increased operating efficiencies achieved should continue to benefit the Company. Although there are factors beyond management's control, such as fiscal policies in Brazil, the Company's balance and strength in the major tobacco origins provides a firm base for growth. The Brazilian government has reduced inflation rates to 20-year lows through fiscal policies included in its Plano Real economic plan, which entails financial control of items such as interest rates and exchange rates. In addition, the Brazilian government exercises control over taxation, trade policies, foreign investment and banking. Although there have been benefits realized from enacting the Plano Real, the long-term viability of the government's plan is dependent on various factors, including whether the current administration can continue to hold office, the level of foreign currency reserves, and the confidence of the Brazilian business sector. There were no significant changes in Brazil's fiscal policies during the quarter ended March 31, 1996, and none have been announced that would lead the Company to believe there would be a significant impact for the Company's fiscal year ending June 30, 1996. 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.2 By-laws as amended February 13, 1996 12 Ratio of Earnings to Fixed Charges (b) Reports on Form 8-K Form 8-K filed on February 20, 1996. The form describes an event on February 14, 1996, in which Universal Corporation entered into an Underwriting Agreement and a Terms Agreement with Dillon, Read & Co. Inc. and Wheat, First Securities, Inc. for the public offering of $100,000,000 aggregate principal amount of its 6 1/2% Notes Due February 15, 2006. On February 20, 1996, the 6 1/2% Notes were issued pursuant to an Indenture dated as of February 1, 1991 between Universal Corporation and Chemical Bank, as Trustee, and an Officers' Certificate dated as of February 20, 1996. 9 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 13, 1996 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)