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 December 31, 2000 ----------------- 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 - 27,165,682 shares outstanding as of January 25, 2001
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Universal Corporation and Subsidiaries UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Three and Six Months Ended December 31, 2000 and 1999 (In thousands of dollars, except per share data) <TABLE> <CAPTION> THREE MONTHS SIX MONTHS 2000 1999 2000 1999 ------------------------------------------------------------ <S> <C> <C> <C> <C> Sales and other operating revenues $995,062 $1,032,453 $1,645,827 $1,819,459 Costs and expenses Cost of goods sold 853,756 891,657 1,382,938 1,552,708 Selling, general and administrative expenses 78,151 81,389 147,798 155,763 ------------------------------------------------------------ Operating Income 63,155 59,407 115,091 110,988 Equity in pretax earnings of unconsolidated affiliates 523 (674) 1,872 5,922 Interest expense 17,279 14,764 32,108 26,540 ------------------------------------------------------------ Income before income taxes and other items 46,399 43,969 84,855 90,370 Income taxes 15,550 15,829 30,548 32,533 Minority interests 2,987 1,992 1,480 2,187 ------------------------------------------------------------ Net Income $ 27,862 $ 26,148 $ 52,827 $ 55,650 - --------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ Earnings per common share $ 1.02 $ 0.85 $ 1.90 $ 1.78 - --------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ Diluted earnings per share $ 1.01 $ 0.85 $ 1.90 $ 1.78 - --------------------------------------------------------------------------------------------------------------------------------- Retained earnings - beginning of period $ 499,490 $ 510,123 Net income 52,827 55,650 Cash dividends declared ($.63 - 2000, $.61 - 1999) (16,960) (18,656) Purchase of common stock (25,085) (45,006) ---------------------------- Retained earnings - end of period $ 510,272 $ 502,111 </TABLE> See accompanying notes.
Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) <TABLE> <CAPTION> Dec. 31, June 30, 2000 2000 ---- ---- ASSETS <S> <C> <C> Current Cash and cash equivalents $ 68,287 $ 61,395 Accounts receivable 347,168 358,897 Advances to suppliers 69,440 52,383 Accounts receivable - unconsolidated affiliates 1,866 12,573 Inventories - at lower of cost or market: Tobacco 572,798 379,504 Lumber and building products 70,614 77,096 Agri-products 70,902 73,024 Other 29,716 33,068 Prepaid income taxes 10,695 9,283 Deferred income taxes 8,254 9,008 Other current assets 20,786 21,919 ------------------------------------------ Total current assets 1,270,526 1,088,150 Property, plant and equipment - at cost Land 26,330 27,377 Buildings 232,999 245,570 Machinery and equipment 526,157 505,323 ------------------------------------------ 785,486 778,270 Less accumulated depreciation 436,043 430,925 ------------------------------------------ 349,443 347,345 Other Goodwill 110,841 113,498 Other intangibles 15,827 17,145 Investments in unconsolidated affiliates 76,864 77,046 Deferred income taxes 32,885 33,606 Other noncurrent assets 74,515 71,314 ------------------------------------------ 310,932 312,609 ------------------------------------------ $1,930,901 $1,748,104 - ------------------------------------------------------------------------------------------------------------------ </TABLE> See accompanying notes. 3
Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands of dollars) <TABLE> <CAPTION> Dec. 31, June 30, 2000 2000 ---- ---- <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current Notes payable and overdrafts $ 364,996 $ 356,283 Accounts payable 255,772 256,666 Accounts payable - unconsolidated affiliates 5,193 10,169 Customer advances and deposits 175,850 91,414 Accrued compensation 13,839 20,997 Income taxes payable 35,136 26,682 Current portion of long-term obligations 101,568 121,023 --------------------------------------- Total current liabilities 952,354 883,234 Long-term obligations 344,351 223,262 Postretirement benefits other than pensions 41,387 41,295 Other long-term liabilities 53,639 53,948 Deferred income taxes 6,199 11,749 Minority interests 36,603 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) 64,007 66,274 Retained earnings 510,272 499,490 Accumulated other comprehensive income (77,911) (67,985) --------------------------------------- Total shareholders' equity 496,368 497,779 --------------------------------------- $ 1,930,901 $ 1,748,104 - ------------------------------------------------------------------------------------------------------------------ </TABLE> See accompanying notes. 4
Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended December 31, 2000 and 1999 (In thousands of dollars) <TABLE> <CAPTION> 2000 1999 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 52,827 $ 55,650 Adjustments to reconcile net income to net cash provided by operating activities 17,000 14,000 Changes in operating assets and liabilities (91,935) (26,332) ------------------------------------ Net cash provided (used) by operating activities (22,108) 43,318 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (37,000) (30,000) Proceeds from sale of equity investment - 22,000 ------------------------------------ Net cash provided (used) in investing activities (37,000) (8,000) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance (repayment) of short-term debt, net 9,000 46,000 Repayment of long-term debt (20,000) (20,000) Issuance of long-term debt 122,000 Purchases of common stock (28,000) (49,000) Issuance of common stock 1,000 Dividends paid (17,000) (19,000) ------------------------------------ Net cash provided (used) in financing activities 66,000 (41,000) Net increase (decrease) in cash and cash equivalents 6,892 (5,682) Cash and cash equivalents at beginning of year 61,395 92,784 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,287 $ 87,102 - --------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes. 5
Universal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 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 quarter and six months ended December 31, 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 December 31, 2000, total exposure under guarantees issued for banking facilities of unconsolidated affiliates and suppliers was approximately $49 million. Other contingent liabilities approximate $17 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 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. In fiscal year 2000, the consolidated statement of income included an $11 million pretax charge related to the plan. The charge includes $7 million of severance costs related to 108 employees in purchasing, processing, and sales. During the three-and six-month periods ended December 31, 2000, the Company paid $1 million and $3.8 million in cash payments to 49 and 105 employees, respectively. No additional restructuring costs were recorded during the quarter. 6
5). The following table sets forth the computation of earnings per share and diluted earnings per share. <TABLE> <CAPTION> Three Months Six Months Periods ended December 31, 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income (in thousands of dollars) $ 27,862 $ 26,148 $ 52,827 $ 55,650 ------------------------------------------------------------- Denominator for earnings per share: Weighted average shares 27,428,352 30,803,630 27,741,728 31,247,956 Effect of dilutive securities: Employee stock options 99,754 5,521 52,607 10,592 ------------- ------------- ------------ ------------ Denominator for diluted earnings per share 27,528,106 30,809,151 27,794,335 31,258,548 ------------- ------------- ------------ ------------ Earnings per share $ 1.02 $ 0.85 $ 1.90 $ 1.78 ============= ============= ============ ============ Diluted earnings per share $ 1.01 $ 0.85 $ 1.90 $ 1.78 ============= ============= ============ ============ </TABLE> 6). Comprehensive Income: <TABLE> <CAPTION> THREE MONTHS SIX MONTHS Periods ended December 31, 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------- (in thousands of dollars) <S> <C> <C> <C> <C> Net income $ 27,862 $ 26,148 $ 52,827 $ 55,650 Foreign currency translation adjustment (10,151) (4,661) (9,926) (3,838) ------------- ------------- ----------- ------------ Comprehensive income $ 17,711 $ 21,487 $ 42,901 $ 51,812 ============= ============= =========== ============ </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 SIX MONTHS Periods ended December 31, 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------- (in thousands of dollars) <S> <C> <C> <C> <C> SALES AND OTHER OPERATING REVENUES Tobacco $ 758,076 $ 767,945 $1,160,321 $ 1,281,718 Lumber/building products 123,038 138,801 252,700 280,822 Agri-products 113,948 125,707 232,806 256,919 ------------------------------------------------------------ Consolidated total $ 995,062 $ 1,032,453 $1,645,827 $ 1,819,459 - --------------------------------------------------------------------------------------------------------- OPERATING INCOME Tobacco $ 58,411 $ 52,964 $ 105,191 $ 102,213 Lumber/building products 6,100 6,724 13,750 15,533 Agri-products 4,053 3,578 7,810 8,636 - --------------------------------------------------------------------------------------------------------- Total 68,564 63,266 126,751 126,382 Less: Corporate expenses 4,886 4,533 9,788 9,472 Equity in pretax earnings of unconsolidated affiliates 523 (674) 1,872 5,922 ------------------------------------------------------------ Consolidated total $ 63,155 $ 59,407 $ 115,091 $ 110,988 - --------------------------------------------------------------------------------------------------------- </TABLE> 7
8). Short- and Long-Term Debt: Subsequent to the end of the quarter, the Company issued in the public market $20 million in 7.5% medium-term notes due on January 26, 2004. During the quarter, the Company issued an aggregate $97 million of fixed rate medium-term notes ranging in maturity from 3 to 10 years and ranging in rate from 8% to 8.5%. The Company also issued $25 million in floating rate medium term notes due November 30, 2004; the current rate of interest in those notes is 8.10%. The proceeds of these issues were used for general corporate purposes. 9). Depreciation and amortization for the three- and six-month periods are as follows: THREE MONTHS SIX MONTHS Periods ended December 31, 2000 1999 2000 1999 - ------------------------------------------------------------------------------ (in thousands of dollars) Depreciation $ 10,345 $ 10,838 $ 21,118 $ 22,822 ---------- --------- --------- ---------- Amortization $ 2,230 $ 1,876 $ 3,840 $ 3,273 ---------- --------- --------- ---------- 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - ------------------------------- Working capital at December 31, 2000, was $318 million compared to $205 million at June 30, 2000. The increase in working capital was the net result of an increase in current assets of $182 million, primarily from a seasonal increase in tobacco inventories, which was partially offset by an increase in current liabilities of $69 million. The working capital accounts fluctuate between December 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 processing continues during the second quarter and this is reflected at December 31 in increased tobacco inventories of $193 million along with increases in the total of notes payable and customer advances of $93 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 May 6, 1998. As of January 25, 2001, the company had purchased 9 million shares of Universal common stock for approximately $241 million. The programs provide for purchases of up to $300 million. Currently, about 27.2 million common shares are outstanding. During the first quarter of fiscal year 2001, 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, Universal has issued $122 million in notes with maturity dates from October of 2003 to December of 2010. The notes were issued with both fixed and variable interest rates. The interest rates on the notes issued to date range from 8% to 8.5%. The proceeds were used general corporate purposes. Management believes that the liquidity and capital resources of the company at December 31, 2000, remain adequate to support the company's foreseeable operating needs. Results of Operations - --------------------- 'Sales and Other Operating Revenues' decreased $37 million or 4% in the second quarter of fiscal year 2001 and $174 million for the six-month period ending December 31, 2001. Tobacco revenues were down by $10 million; lumber and building products revenues were down by $16 million; and agri-products revenues declined $11 million during the quarter. The six-month decline in revenue compared to the comparable period last year comprised $121 million 9
for tobacco, $28 million for lumber and building products, and $24 million for agri-products. The lower tobacco revenues resulted from delays in shipments from Zimbabwe and smaller U.S. crops. In addition, dark tobacco operations were negatively affected in the six months by shipment delays. The reduction in lumber and building products revenues was primarily related to the stronger U.S. dollar, and agri-products continued to experience difficult markets for sunflower seeds. Fiscal year 2001 segment operating income in the second quarter was up by 8% or $5 million compared to the same period last year. The results for the six- month period resulted in a slight increase of $369 thousand. Tobacco segment operating income was up almost 3% to $105 million for the six-month period, despite the recognition of a $4.1 million gain on the sale of a joint venture interest in the first quarter of the prior year, which made the comparison more difficult. In addition, there were lower costs in the United States associated with operating fewer processing facilities this year. Lumber and building products operating income declined 9% in the second quarter and 11% for the six- month period compared to the same periods last year, as the sharp decline in the euro exchange rate more than offset improved local currency sales. The euro was weaker on average by 19% in the quarter and 16% in the six months when compared to a year ago. Operating income for the agri-products business improved by 13% in the second quarter; however it was down by 6% for the six months. The quarterly results reflected improved market conditions for tea, and dried fruit and nuts. However, very competitive conditions for confectionery sunflower seed continued in the quarter and adversely affected results for the quarter and the six months. Interest expense increased for the quarter and six months due to higher short-term rates, higher interest rates on long-term debt, and an increase in debt during the quarter. The company's estimated effective tax rate in fiscal year 2001 is consistent with the prior year at 36%. The company's quarterly earnings comparisons are often difficult due to such factors as timing of shipments and currency fluctuations, particularly the euro. Despite these factors, Universal achieved a good earnings performance in the quarter. Looking to the remainder of the fiscal year, management believes that world market conditions are beginning to improve for tobacco as leaf demand appears to be strengthening and unsold leaf inventories are declining. In addition, the U. S. dollar has weakened against the euro recently, which suggests more favorable earnings translations going forward for the company's lumber and building products distribution businesses. Although uncertainties remain, the company expects to have a successful year. Readers are cautioned that the statements contained herein regarding 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 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. 10
PART II. OTHER INFORMATION ITEM 5. OTHER EVENTS. In accordance with Securities and Exchange Commission Rule 10b5-1(c), certain executive officers of the Company have provided his or her securities broker with written instructions for the cashless exercise of certain options that expire on December 4, 2001, and for the sale of sufficient shares of common stock of the Company in connection with such cashless exercises to fund the exercise and the payment of associated taxes. ItTEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 12. Ratio of earnings to fixed charges.* b. Reports on Form 8-K. Report on Form 8-K dated October 2, 2000 filing Fixed Rate Note that was issued on October 2, 2000. Report on Form 8-K dated October 18, 2000 filing press release announcing conference call on October 24, 2000. Report on Form 8-K dated October 25, 2000 filing press release announcing first quarter earnings. Report on Form 8-K dated November 13, 2000 filing Fixed Rate Note that was issued on November 13, 2000. Report on Form 8-K dated November 21, 2000 filing Fixed Rate Note that was issued on November 21, 2000. Report on Form 8-K dated December 1, 2000 filing Fixed Rate Note that was issued on November 30, 2000. Report on Form 8-K dated December 8, 2000 filing press release announcing increase in quarterly dividend. Report on Form 8-K dated December 8, 2000 filing Fixed Rate Note that was issued on December 8, 2000. Report on Form 8-K dated December 15, 2000 filing Fixed Rate Note that was issued on December 14, 2000. * Filed herewith 11
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: February 2, 2001 UNIVERSAL CORPORATION ----------------- ------------------------------------------ (Registrant) /s/ Hartwell H. Roper ------------------------------------------ Hartwell H. Roper, Vice President and Chief Financial Officer /s/ James A. Huffman ------------------------------------------ James A. Huffman, Controller (Principal Accounting Officer) 12