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 December 31, 1994
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)
State or other jurisdiction of incorporation or organization - VIRGINIA
I.R.S. Employer Identification Number - 54-0414210
Address of principal executive offices - 1501 NORTH HAMILTON STREET
RICHMOND, VIRGINIA 23230
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 - 35,016,585 shares outstanding as of
February 9, 1995
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three and Six Months Ended December 31, 1994 and 1993
Three Months Six Months
1994 1993 1994 1993
Sales and other operating revenues $963,745 $866,774 $1,619,769 $1,557,313
Cost of goods sold 842,903 750,703 1,409,523 1,324,283
Selling, general and administrative 85,084 73,103 151,268 148,330
Interest 15,171 14,343 30,071 30,212
943,158 838,149 1,590,862 1,502,825
Income before income taxes and
other items 20,587 28,625 28,907 54,488
Income taxes 7,497 9,568 10,299 17,486
Minority interests 42 391 162 304
Income from consolidated operations 13,048 18,666 18,446 36,698
Equity in net income of
unconsolidated affiliates 1,901 1,544 2,371 1,971
Income before cumulative effect of
change in accounting principle 14,949 20,210 20,817 38,669
Cumulative effect of change in
accounting principle (29,406)
Net income $14,949 $20,210 $20,817 $9,263
Per common share
Income before cumulative effect
of change in accounting principle $.43 $.57 $.59 $1.09
Cumulative effect of change in
accounting principle (.83)
Net income $.43 $.57 $.59 $ .26
Retained earnings - Beginning of period $317,344 $341,523
Net income 20,817 9,263
Cash dividends declared ($.49-1994; $.46-1993) (17,162) (16,392)
Retained earnings - End of period $320,999 $334,394
Average common shares outstanding 35,005,823 35,632,238
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Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1994 1994
ASSETS
Current
Cash and cash equivalents $ 65,718 $164,520
Accounts and notes receivable 500,646 368,989
Accounts receivable - unconsolidated affiliates 84,686 28,113
Inventories at lower of cost or market:
Tobacco 474,906 436,033
Lumber and building products 112,126 83,441
Agri-products 58,416 60,132
Other 8,765 8,753
Prepaid income taxes 8,773 10,095
Deferred income taxes 5,547 5,530
Other current assets 16,497 20,423
Total current assets 1,336,080 1,186,029
Real estate, plant and equipment - at cost
Land 31,834 22,607
Buildings 187,883 166,111
Machinery and equipment 359,470 350,426
579,187 539,144
Less accumulated depreciation 286,273 269,955
292,914 269,189
Other assets
Goodwill 126,009 124,286
Other intangibles 24,534 27,089
Investments in unconsolidated affiliates 39,109 26,298
Deferred income taxes 3,789 3,494
Other noncurrent assets 30,536 30,658
223,977 211,825
$1,852,971 $1,667,043
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Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1994 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $550,142 $531,209
Accounts payable 233,309 199,280
Accounts payable - unconsolidated affiliates 33,440 34,810
Customer advances and deposits 173,862 51,671
Accrued compensation 15,378 13,366
Provision for restructuring 9,500 15,500
Income taxes payable 6,223 6,217
Current portion long-term obligations 32,416 15,947
Total current liabilities 1,054,270 868,000
Long - term obligations 285,583 298,117
Postretirement benefits other than pensions 48,387 48,969
Other long - term liabilities 54,335 57,156
Deferred income taxes 16,706 12,361
Minority interests 4,741 4,966
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 35,016,585 shares
(35,001,185 at June 30, 1994) 75,523 75,287
Retained earnings 320,999 317,344
Foreign currency translation adjustments (7,573) (15,157)
Total shareholders' equity 388,949 377,474
$1,852,971 $1,667,043
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Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1994 and 1993
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $20,817 $9,263
Adjustments to reconcile net income
to net cash provided by operating activities 23,900 30,500
Cumulative effect of change in accounting
principle 29,406
Changes in operating assets and liabilities
net of effects from purchase of businesses (74,319) (227,592)
Net cash used in operating activities (29,602) (158,423)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (14,900) (13,300)
Purchase of businesses (net of cash acquired) (60,600) (8,700)
Other 2,100 (3,500)
Net cash used in investing activities (73,400) (25,500)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt - net 14,100 131,100
Repayment of short-term debt classified
as long-term June 30,1993 (100,000)
Issuance of long-term debt 6,700 115,000
Issuance of common stock 200
Dividends paid (16,800) (15,700)
Net cash provided by financing activities 4,200 130,400
Net decrease in cash and cash equivalents (98,802) (53,523)
Cash and cash equivalents at beginning of period 164,520 119,693
CASH AND CASH EQUIVALENTS AT END OF PERIOD $65,718 $66,170
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Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
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 six month period ended
December 31, 1994 are not necessarily indicative of results to be
expected for the year ending June 30, 1995. All adjustments necessary
to fairly state the results for such period have been included and were
of a normal recurring nature.
2) At December 31, 1994, total exposure under guarantees issued for
banking facilities of unconsolidated affiliates was $12 million. Other
contingent liabilities approximate $109 million and relate principally
to Common Market guarantees.
3) The lower effective tax rate for last year was due to the reversal
of taxes accrued on non-repatriated earnings that were permanently
reinvested in certain foreign subsidiaries, and a greater proportion of
earnings taxed at less than the full statutory rate.
4) The Company recognized in June 1994 a pre-tax restructuring charge
of $17.5 million related to the consolidation of tobacco operations and
a reduction in the number of employees. The charge included $16 million
for the expected costs of severance payments related to approximately
700 employees throughout the Company. As of December 31, 1994, payments
of $8 million, primarily for severance and related costs of
approximately 500 employees, had been recorded as a reduction of the
restructuring provision.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Current assets and current liabilities increased $150 million
and $186 million, respectively, at December 31, 1994 compared to June
30, 1994, primarily due to the seasonal requirements of the Company's
domestic tobacco operations, and a recent acquisition in the lumber and
building products segment. Domestic tobacco balances at December 31,
generally reflect current U.S. burley crop purchasing and processing
activity, and any unshipped current year flue-cured crop. This has the
effect of increasing working capital needs compared to June 30, which is
the low point for U.S. requirements. Working capital for lumber and
building products included approximately $36 million of current assets
and $9 million of current liabilities related to a first quarter
softwood distributor acquisition. The acquisition was financed with
short-term borrowings.
In July 1994, the Brazilian government implemented a new
monetary policy. Subsequently the U.S. dollar declined in value
relative to the real, the new Brazilian currency. The exchange ratio of
the dollar to the real could lead to material swings in foreign exchange
gains and losses. In addition, if the real does not devalue at a rate
in line with Brazilian inflation, there will be significant dollar cost
increases for the next crop. At December 31, it was estimated the
increase in tobacco costs due to revaluation and inflation on the
upcoming crop will be between 30% - 40%. At this point, the prospects
for timely devaluation of the real are not strong. The overall
potential earnings impact cannot be determined at this time due to the
affect of future exchange and inflation rates, and negotiation of sales
prices with customers on the 1995 crop.
The Company's liquidity position at December 31, 1994, remains
strong. In the current year payments of approximately $8 million have
been made for severance and other costs related to the Company's
restructuring plan announced in June 1994. The Company has also reduced
its capital expenditure requirements over the last few years and
continues to do so in the current year.
Results of Operations
'Sales and Other Operating Revenues' increased $97 million and
$62 million in the quarter and six-month period respectively. Tobacco
sales improved principally due to increased shipments in the quarter,
while lumber and building products revenues benefited from the inclusion
of acquired operations. Agri-product revenues were comparable to last
year in both periods. Improvements in sales of a number of
agri-products offset a decline in revenues related to the Company's
decision last year to discontinue coffee trading activity.
Gross profits in the quarter were up $5 million to $121million
in the quarter, and down $23 million to $210 million for the six months
ended December 31, 1994. Both the quarter and year-to-date amounts
include $2.7 million of inventory writedowns due to sharply depressed
economic circumstances in Eastern Europe which has led to significantly
reduced sales activity in the region. In the quarter, tobacco gross
profits were down slightly due to the mix of customers and continued
pressure on margins. Lumber and building products gross profits
improved on the strength of new outlets compared to last year.
Year-to-date the reduction in tobacco gross profits was due to Brazilian
operations experiencing a significant decline in margins on current and
old crop sales. Sales of old crop tobacco, that had been written down
in the prior fiscal year, were nominally profitable and had the effect
of reducing the overall profit margins reported. Margins on current crop
sales were lower, despite benefits from restructuring, because of
reduced overall volumes and continued pressure from customers on
pricing. For the six month period the volume of U.S. flue-cured and
burley tobacco bought was up, while processing volumes were comparable
with last year. Domestic
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gross profits were down year-to-date due to a
shift in processing mix to lower margin business as well as reduced
margins on certain sales. Agri-product gross profits were up slightly in
the quarter and six month periods due to improvements in sunflower seed
and rubber trading as well as comparative improvements realized from
having discontinued coffee activities.
'Selling, general and administrative expenses' increased $12
million in the quarter and $3 million year-to-date. The fiscal 1995
quarter and year-to-date amounts included a $3.8 million provision
against customer obligations related to Eastern Europe. The quarter
also included approximately $3 million related to the inclusion of the
lumber companies acquired over the past year. For the year-to-date
comparison these increases were partially offset by reduced tobacco
shipping expenses. 'Interest expense' reflects the positive impact of a
reduction in inventory levels since the prior year which offset
increased interest rates in the U.S. that resulted primarily from moves
by the Federal Reserve. 'Income Taxes' in the prior year reflected an
effective tax rate that was lower than that of fiscal 1995 due to the
reversal of taxes previously accrued on earnings from certain foreign
subsidiaries and a greater proportion of earnings taxed at less than
full statutory rates.
Although the Company does not expect to equal fiscal 1994's
annual earnings from continuing operations, excluding effects of
restructuring provisions, there are some favorable trends. Tobacco
industry conditions are generally improving as anticipated with
projected crop sizes more nearly in line with demand and worldwide
inventory positions being reduced. The Company's restructuring program
is very much on track, and the reshaping of operations in Eastern Europe
and elsewhere should result in further restructuring during this fiscal
year.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.10 Universal Corporation 1989 Executive Stock Plan, as
amended on December 1, 1994
10.17 Universal Corporation 1994 Stock Option and
Accumulation Agreement
10.18 Universal Corporation 1994 Stock Option Plan for
Non-Employee Directors
10.19 Universal Corporation Non-Employee Director
Non-Qualified Stock Option Agreement
(b) Reports on Form 8-K
Form 8-K filed on January 24, 1995. The form describes a press
release issued by the Registrant on January 16, 1995 announcing that
earnings from continuing operations for fiscal year 1995 are expected to
be below management's previous estimate.
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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 9, 1995 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)
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