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, 1997 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 ncorporation 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 - 35,140,537 shares outstanding as of November 7, 1997
2 <TABLE> PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Three Months Ended September 30, 1997 and 1996 (In thousands of dollars, except per share data) <CAPTION> September 30, September 30, 1997 1996 ------------ ------------ <S> <C> Sales and other operating revenues .................. $ 1,023,156 $ 820,840 Costs and expenses Costs of goods sold ............................. 880,921 700,301 Selling, general and administrative ............. 78,437 71,486 Interest ........................................ 13,802 15,911 ------------ ------------ 973,160 787,698 ------------ ------------ Income before income taxes and other items .......... 49,996 33,142 Income taxes .................................... 20,000 13,219 Minority interests .............................. (338) 608 ------------ ------------ Income from consolidated operations ................. 30,334 19,315 Equity in net income of unconsolidated affiliates 2,439 707 ------------ ------------ Net income .......................................... $ 32,773 $ 20,022 ============ ============ Earnings per common share ........................... $ .93 $ .57 ============ ============ Retained earnings - Beginning of period ............. $ 424,298 $ 360,273 Net income .......................................... 32,773 20,022 Cash dividends declared ($.265-1997; $.255-1996) .... (9,312) (8,940) ------------ ------------ Retained earnings - End of period ................... $ 447,759 $ 371,355 ============ ============ Average common shares outstanding ................... 35,139,137 35,056,357 See accompanying notes.
3 Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) <CAPTION> September 30, June 30, 1997 1997 ---------- ---------- ASSETS Current Cash and cash equivalents ..................... $ 97,602 $ 109,070 Accounts and notes receivable ................. 343,127 428,430 Advances to suppliers ......................... 105,335 79,499 Accounts receivable - unconsolidated affiliates 4,266 7,768 Inventories - at lower of cost or market: Tobacco ................................... 687,788 570,650 Lumber and building products .............. 107,973 105,567 Agri-products ............................. 76,116 80,812 Other ..................................... 16,303 12,444 Prepaid income taxes .......................... 5,744 7,665 Deferred income taxes ......................... 7,338 7,064 Other current assets .......................... 17,999 22,270 ---------- ---------- Total current assets ...................... 1,469,591 1,431,239 Real estate, plant and equipment - at cost Land .......................................... 29,444 30,887 Buildings ..................................... 212,471 214,605 Machinery and equipment ....................... 438,055 430,360 ---------- ---------- 679,970 675,852 Less accumulated depreciation ............. 370,045 366,200 ---------- ---------- 309,925 309,652 Other assets Goodwill ...................................... 121,841 117,483 Other intangibles ............................. 22,354 22,703 Investments in unconsolidated affiliates ...... 34,463 33,413 Deferred income taxes ......................... 1,784 1,509 Other noncurrent assets ....................... 62,657 65,980 ---------- ---------- 243,099 241,088 ---------- ---------- $2,022,615 $1,981,979 ========== ========== See accompanying notes.
4 Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) <CAPTION> September 30, June 30, 1997 1997 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Notes payable and overdrafts ....................... $ 574,040 $ 589,648 Accounts payable ................................... 251,161 275,980 Accounts payable - unconsolidated affiliates ....... 8,553 10,204 Customer advances and deposits ..................... 225,789 144,175 Accrued compensation ............................... 15,257 19,296 Income taxes payable ............................... 14,366 16,166 Current portion long-term obligations .............. 29,862 28,228 ----------- ----------- Total current liabilities ...................... 1,119,028 1,083,697 Long - term obligations ................................ 280,521 291,637 Postretirement benefits other than pensions ............ 46,635 45,553 Other long - term liabilities .......................... 41,244 42,273 Deferred income taxes .................................. 22,473 18,527 Minority interests ..................................... 26,547 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 35,139,137 shares 77,040 77,040 Retained earnings .................................. 447,759 424,298 Foreign currency translation adjustments ........... (38,632) (31,745) ----------- ----------- Total shareholders' equity ..................... 486,167 469,593 ----------- ----------- $ 2,022,615 $ 1,981,979 =========== ===========
5 Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended September 30, 1997 (In thousands of dollars) <CAPTION> 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................... $ 32,773 $ 20,022 Adjustments to reconcile net income to net cash provided by operating activities ................................... 15,400 18,300 Changes in operating assets and liabilities net of effects from purchase of businesses .................................... (1,641) (159,408) --------- --------- Net cash provided by (used in) operating activities ....... 46,532 (121,086) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment ..................... (13,100) (13,000) Other ......................................................... (100) --------- --------- Net cash used in investing activities ..................... (13,100) (13,100) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of (repayment) short-term debt - net ................. (15,600) 28,600 Repayment of long-term debt ................................... (20,000) (20,000) Dividends paid ................................................ (9,300) (8,900) --------- --------- Net cash provided by (used in) financing activities ....... (44,900) (300) --------- --------- Net decrease in cash and cash equivalents ......................... (11,468) (134,486) Cash and cash equivalents at beginning of period .................. 109,070 214,782 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................ $ 97,602 $ 80,296 ========= ========= </TABLE> See accompanying notes.
6 Universal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 All figures contained herein are unaudited and stated in thousands of dollars, except per share data and the number of average common shares outstanding. 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 three-month period ended September 30, 1997, are not necessarily indicative of results to be expected for the year ending June 30, 1998. All adjustments necessary to fairly state the results for such period have been included and were of a normal recurring nature. 2) Contingent liabilities: At September 30, 1997, total exposure under guarantees issued for banking facilities of unconsolidated affiliates was $4 million. Other contingent liabilities approximate $50 million and relate principally to performance bonds and Common Market guarantees. 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 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 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) Amounts in the three-month period for the last year have been reclassified to be reported on a consistent basis with the current year's presentation. 4) In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which is required to be adopted in the quarter ending December 31, 1997. SFAS 128 simplifies the calculation of earnings per share and changes the calculation related to dilution. The impact of SFAS 128 on the calculation of earnings per share for the company is not expected to be material due to the company's simple capital structure. 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 will be adopted by the Company 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, and will be adopted by the Company for fiscal year 1999. The Company is currently evaluating the provisions of SFAS 131.
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Working capital at September 30, 1997, was $351 million compared to $348 million at June 30, 1997. The net change in working capital was accounted for by increases in current assets of $38 million offset by increases in current liabilities of $35 million. Advances to suppliers, tobacco inventory and customer advances account for the majority of the growth in the respective categories. Within the U.S., tobacco working capital needs are normally at their lowest point at June 30. In mid to late July, the U.S. flue-cured tobacco markets open and capital needs increase. As tobacco is purchased and shipped to factories for processing, the Company's inventories rise. This increase in inventories is offset by increases in notes payable and/or customer advances. The mix of notes payable and customer advances is dependent on the Company's borrowing capabilities, interest rates and exchange rates, as well as those of its customers. In addition to the increases related to domestic tobacco operations, accounts receivable dropped $85 million compared to the balance at June 30, 1997, due to collections in Brazil. 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. 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 liquidity and capital resources of the Company at September 30, 1997, remain adequate to support its businesses. Results of Operations 'Sales and Other Operating Revenues' and 'Cost of Goods Sold' for the first quarter of fiscal year 1998 increased $202 million and $181 million respectively, over the comparable period last year. Both domestic and foreign tobacco operations contributed to the increases in the quarter, due to strong demand. Lumber and building products revenues were lower due to the effect of a stronger U.S. dollar. The U.S. dollar appreciated on average 15 percent against the Dutch guilder since the first quarter of last year. Before interest and income taxes, in the quarter increased over compared to the first quarter of 1997 to, principally due to improvements realized in both domestic and foreign tobacco operations. Foreign tobacco operations were positively impacted by the operating results from Brazil. An increase in the combined 1997 Brazilian flue-cured and burley crops of 36% contributed to the improved volume and earnings. A high proportion of the Brazilian crop is traditionally shipped in the Company's first and second quarters. Domestic tobacco earnings benefited from increased shipments of old crop tobaccos in the quarter, although the volume of current
8 crop purchases in the quarter were down compared to last year because of a later harvest. Lumber and building products operating profits were down due to the aforementioned effect of a strong U.S. dollar. Agri product operating profits improved due to improved results in tea and rubber trading. 'Selling, General and Administrative Expenses' for the first quarter of fiscal year 1998 were up about 10% reflecting increased foreign tobacco shipments. Interest expense was down 13% from the comparable period last year principally reflecting lower borrowing levels. Increased leaf production in a number of areas and strong demand in world markets has enabled the Company to handle increased leaf volumes in the current year. The strong performance by the Company for the three month period is a reflection of these market conditions. Quarterly comparisons continue to be complicated by the timing of shipments to customers. 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.
9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 1). (12) Ratio of Earnings to Fixed Charges 2). (27) Financial Data Schedule (b) Reports on Form 8-K 1). Form 8-K filed on July 17, 1997. The form reports a press release issued by the Company on July 9, 1997. The press release announced the purchase of Tanzania's only leaf processing facility, located in Morogoro. 2). Form 8-K filed on July 17, 1997. The form reports a press release issued by the Company on July 9, 1997. The press release announced that a subsidiary of the Company had reached an agreement to acquire a processing plant and agronomy and leaf buying units located in the Grudziadz region of Poland. 3). Form 8-K filed on August 21, 1997. The form reports a press release issued by the Company on August 6, 1997. The press release announced that the Company had signed a letter of intent with Socotab Leaf Tobacco Company, Inc. to combine both company's oriental leaf tobacco operations into a partnership.
10 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: November 7,1997 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)