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F O R M 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 - HAMILTON STREET AT BROAD
RICHMOND, VIRGINIA 23230
Telephone Number - (804) 359-9311
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Outstanding Shares
Title of each class on which registered at September 21, 1994
8% Cumulative Preferred None 4
Additional Preferred Stock None None
Common Stock, no par value New York 35,001,185
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by "X" 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 by "X" mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
The aggregate market value of Registrant's voting stock held by non-affiliates
was $764,000,000 at September 21, 1994.
INFORMATION INCORPORATED BY REFERENCE
Certain information in the September 23, 1994 Proxy Statement for the Annual
Meeting of Shareholders of Registrant is incorporated by reference into Part III
hereof.
PART I
ITEM 1. BUSINESS
A. The Company
Universal Corporation (which together with its subsidiaries is
referred to herein as "Universal" or the "Company") is the
world's largest independent leaf tobacco dealer and has
additional operations in agri-products and lumber and building
products. Universal's tobacco operations have been the
principal focus of the Company since its founding in 1918, and
for the fiscal year ended June 30, 1994, such operations
accounted for 73% of revenues and 75% of operating profits. Its
agri-products and lumber and building products operations
accounted for 15% and 12% of revenues and 8% and 17% of
operating profits, respectively, during the same period. See
Note 5 to Consolidated Financial Statements for additional
business segment and geographical information.
B. Description of Tobacco Business
General
Universal is the world's largest independent leaf tobacco
dealer. This business involves selecting, buying, shipping,
processing, packing, storing, and financing leaf tobacco in the
United States and other tobacco growing countries for the
account of, or for resale to, manufacturers of tobacco products
throughout the world. Universal does not manufacture cigarettes
or other consumer tobacco products. Most of its tobacco
revenues are derived from sales of processed tobacco and from
fees and commissions for specific services for its customers.
Timely and efficient processing of leaf tobacco is a service of
continuing importance to the Company's customers, the tobacco
product manufacturers, as the quality of the Company's finished
product substantially affects the cost and quality of the
manufacturer's production. The Company's processing includes
grading in the factories, blending, separation of leaf lamina
from the stems, and packing to precise moisture targets for
proper aging. To accomplish these tasks according to exacting
customer specifications requires considerable skill and
significant investment in plants and machinery.
The Company's sales are predominantly flue-cured and burley
tobaccos. Universal estimates that in fiscal 1994 it purchased
or processed approximately 33% of the flue-cured and burley
tobacco produced in the aggregate in the United States, Brazil,
Zimbabwe, and Malawi. In addition, Universal maintains a
presence, and in certain cases a leading presence, in virtually
all other tobacco growing regions in the world. Management
believes that its leading position in the leaf tobacco industry
is based on its broad market presence, its development of
processing equipment and technologies, its solid financial
position, and its ability to meet customer demand through
internal growth and selected acquisitions.
Universal has a leading position in worldwide dark tobacco
markets. Its operations are located in the major producing
countries (i.e., the United States, the Dominican Republic,
Indonesia, and northern Brazil) and other smaller markets.
These types of tobacco are typically used for cigars and
smokeless tobacco products.
Although consumption of tobacco products in the United States
and certain industrialized countries has been declining,
consumption in most developing countries has been rising.
Moreover, as a result of the elimination of trade barriers in
Far Eastern markets and the opening of markets in Eastern and
Central Europe, a significant amount of the world's tobacco
markets are open to free trade compared to ten years ago.
Reports and speculation with respect to the alleged harmful
physical effects of cigarette smoking, restrictions on the use
of tobacco products in public places and in advertising, and
increases in sales and excise taxes have all had some adverse
effect upon cigarette sales in the U.S. and in certain foreign
countries. The U. S. Environmental Protection Agency has
classified environmental tobacco smoke as a "Group A" ("known
human") carcinogen, which action has been challenged in court by
the Company and others. The U.S. Occupational Safety and
Health Administration has proposed a standard on indoor air
quality which if adopted would substantially limit smoking in
the workplace. Also in the U.S., legislation has been proposed
to increase the excise tax on cigarettes, and the U.S. Food and
Drug Administration is considering regulating nicotine as a
drug.
Litigation seeking damages for health problems alleged to have
resulted from the use of tobacco is pending against the leading
United States manufacturers of consumer tobacco products. It is
not possible to predict the outcome of such litigation or what
effect adverse determinations against the manufacturers might
have on the business of the Company.
Domestic Tobacco Business
Universal is represented by its buyers on all significant
tobacco markets in the United States, including flue-cured
tobacco markets in Virginia, North Carolina, South Carolina,
Georgia, and Florida; Light air-cured (burley and Maryland)
tobacco markets in Kentucky, Tennessee, Virginia, North
Carolina, and Maryland; air-cured tobacco markets in Kentucky
and Virginia; dark fired and dark air-cured markets in Virginia,
Tennessee, and Kentucky; and cigar/chewing tobacco markets in
Connecticut, Pennsylvania, and Wisconsin.
In the United States, flue-cured and burley tobacco is generally
sold at public auction to the highest bidder. In addition, the
price of such tobacco is supported under an industry-funded
federal program that also restricts tobacco production through a
quota system. The price support system has operated recently to
cause U.S. grown tobacco to be more expensive than most non-U.S.
tobacco, resulting in lower exports and declining quotas.
Industry leaders are currently exploring options including
program changes to improve the competitive position of U.S.
leaf. Other factors affecting the competitive position of U.S.
tobacco include improved methods of production and quality in
the U.S. and in foreign countries. In 1994, imports of foreign
leaf declined in response to legislation enacted in 1993 which
requires that cigarettes manufactured in the U.S. contain at
least 75% U.S. grown tobacco. Although this legislation has
been found in violation of GATT, new measures limiting tobacco
imports have been proposed. Despite the recent decline in
imports, inventories of U.S. flue-cured and burley tobacco held
by various stabilization cooperatives under the price support
program increased in 1994. This has resulted in higher revenues
to the Company for processing and storing such tobacco,
offsetting reduced processing volume from the Company's regular
customers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of
Operations".
Foreign Tobacco Business
Universal's business of selecting, buying, shipping, processing,
packing, storing, financing, and selling tobacco is, in addition
to its domestic operations, conducted in varying degrees in
Argentina, Belgium, Brazil, Canada, the Commonwealth of
Independent States (the former Soviet Union), Colombia, the
Dominican Republic, Ecuador, France, Germany, Greece, Guatemala,
Hong Kong, Hungary, India, Indonesia, Italy, Malawi, Mexico, the
Netherlands, Paraguay, the People's Republic of China, the
Philippines, Spain, Switzerland, Tanzania, Thailand, Turkey,
Uganda, the United Kingdom, Zambia, and Zimbabwe.
In a number of countries including Brazil, Hungary, Italy,
Mexico, and Thailand, Universal contracts directly with tobacco
farmers, in some cases before harvest, and thereby takes the
risk that the delivered quality and quantity will meet market
requirements. The price may be set by negotiation with farmers'
groups or with agencies of the local government. In some
countries Universal also provides agronomy services and advances
for fertilizers and supplies. Tobacco in Zimbabwe, Malawi,
Canada, and to a certain extent in India, is purchased under a
public auction system.
In southern Brazil, the Company has made substantial capital
investments and the profitability of the operations there can
materially affect the operating results of the Company. The
Company owns three tobacco leaf processing facilities in
southern Brazil. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
Sales to foreign customers are made by Universal's sales force
and through the use of commissioned agents. Most foreign
customers are long-established firms or government monopolies.
Universal's foreign operations are subject to the usual
international business risks, including unsettled political
conditions, expropriation, import and export restrictions,
exchange controls, and currency fluctuations. During the
tobacco season in many of the countries enumerated above,
Universal has advanced substantial sums, has guaranteed local
loans, or has guaranteed lines of credit in substantial amounts
for the purchase of tobacco. Most tobacco sales are denominated
in U.S. dollars, thus limiting the Company's currency risk.
Recent Developments and Trends
For recent developments and trends in the Company's tobacco
business, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Seasonality
The purchasing and processing aspects of Universal's tobacco
business are seasonal in nature. The United States flue-cured
tobacco markets usually open the third week of July and last for
approximately four months. The United States burley tobacco
markets open in late November and last for approximately two and
one-half months. Tobacco in Brazil is usually purchased from
January through May. Other markets around the world last for
similar periods, although at different times of the year, and
this has resulted in less overall seasonality in the Company's
business.
Universal normally operates its processing plants for
approximately seven to nine months of the year. It purchases
most of the tobacco which it redries and packs in the U.S. in
the eight-month period, July through February. During this
period, inventories of green tobacco, inventories of redried
tobacco and trade accounts receivable normally reach peak levels
in succession. Current liabilities, particularly short-term
notes payable to banks, commercial paper, and customer advances
are a means of financing this expansion of current assets and
normally reach their peaks in this period. At the end of the
Company's fiscal year (June 30), these seasonal expansions in
the United States are normally not reflected in the components
of working capital. Seasonal expansions are reflected at that
time, however, for Universal's operations in Brazil, Italy and
Mexico.
Customers
A material part of the Company's tobacco business is dependent
upon a few customers, the loss of any one of whom would have an
adverse effect on the Company. The Company has long-term
contracts (which under certain circumstances may be amended or
terminated) with a few of these customers, and, while there are
no formal continuing contracts with the others, the Company has
done business with each of its major customers for over 35
years. For the year ended June 30, 1994, tobacco sales to
Philip Morris Companies, Inc. accounted for greater than 10% of
consolidated revenues. See Note 12 to Consolidated Financial
Statements. Five other customers accounted for approximately
12%.
Universal had orders from customers in excess of $231 million
for its tobacco inventories at June 30, 1994. Based upon
historical experience, it is expected that at least 90% of such
orders will be delivered during the fiscal year ending June 30,
1995. Typically, delays in the delivery of orders result from
changing customer requirements. Orders from customers at June
30, 1993, were in excess of $245 million, of which over 90% was
delivered in the following fiscal year. The level of purchase
commitments for tobacco fluctuates from period to period and is
significant only to the extent that it reflects short-term
changes in demand for redried tobacco.
Competitors
Competition among leaf tobacco dealers is based on the price
charged for products and services as well as the dealer's
ability to meet customer specifications in the buying,
processing, and financing of tobacco. Universal has many
processing plants equipped with the latest technology and a
world-wide buying organization of tobacco specialists which,
management believes, give it a competitive edge. Competition
varies depending on the market or country involved. Normally,
there are from five to seven buyers on each of the United
States flue-cured and burley markets, representing both
cigarette manufacturers and dealers. The number of competitors
in foreign markets varies from country to country, but there is
competition in all areas to buy the available tobacco. The
principal competitors in the industry that do not manufacture
consumer tobacco products and that compete with the Company on
the United States markets and on foreign markets are as follows:
Monk-Austin, Inc., Dibrell Brothers, Incorporated, Export Leaf
Tobacco Company, and Standard Commercial Tobacco Company. Of
the significant competitors in the United States that are not
also manufacturers, Universal believes that it ranks first in
total U.S. market share and also first in total worldwide market
share.
C. Description of Agri-Products Business
The Company's agri-products business involves the selecting,
buying, shipping, processing, storing, financing, distribution,
importing and exporting of a number of products including tea,
rubber, sunflower seeds, nuts, dried fruit, canned meats, spices
and seasonings. During the past fiscal year, the Company
acquired two additional companies in the dried fruit and nut
import and distribution business and discontinued its coffee
trading activities.
The emphasis of the Company's agri-products business is on
value-adding activities and/or trading of physical products in
markets where a real function can be performed in the supply
system from the countries of origin to the consuming industries.
In a number of countries, longstanding sourcing arrangements
for certain products or value-adding activities through modern
processing facilities (tea, spices and sunflower seeds)
contribute to the stability and profitability of the business.
Traders are subject to strict trading limits to minimize
speculative risks and allow effective management control.
Seasonal effects on trading are limited.
The Company provides various products to numerous large and
small customers in the food and food packaging industry and in
the rubber and tire manufacturing industry. Generally, there
are no formal continuing contracts with these customers,
although business relationships may be longstanding. No single
customer accounts for 10% or more of the Company's consolidated
agri-products revenues.
Competition among traders in the agricultural products in which
Universal deals is based on price as well as the ability to meet
customer requirements in buying, processing, financing and
delivery. The number of competitors in each market varies from
country to country but there is competition for all products and
markets in which the Company operates. Some of the main
competitors are: Agway, Akbar Brothers, Andrew Weir
Commodities, Atlantic, Ennar, Cargill, Dahlgren, E.D. and F.
Mann, EP Lambert Co., Finlay, Metallgeschellschaft/SAFIC Alcan,
Stassens, Suiker Unie, Symington, and Verstegen.
For recent developments and trends in the Company's
agri-products business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
D. Description of Lumber and Building Products Business
The Company is engaged in the lumber and building products
business in the Netherlands and Belgium, where its subsidiaries
distribute and sell lumber and related building products through
a network of regional outlets, mainly to the building and
construction market. The Company's lumber and building products
business has a leading market share in the Netherlands and
significant operations in Belgium. The majority of lumber
products are sourced outside the Netherlands, principally in
North America, Scandinavia, Eastern and Western Europe, and the
Far East.
The lumber and building products business is seasonal to the
extent that winter weather may temporarily interrupt the
building industry which in turn affects this segment. The
lumber and building products business is also subject to
exchange risks and other normal market and operational risks
associated with lumber operations centered in Europe including
general economic conditions in the countries where the Company
is located and related trends in the building and construction
industries.
The wholesale and distribution activities necessarily include
carrying inventories to meet customers' demands for rapid
delivery. The level of inventories is based on a balance
between providing service and continuity of supply to customers
and achieving the highest possible turnover. The Company does
not provide extended payment terms to its customers. No single
customer accounts for 10% or more of the Company's consolidated
lumber and building products revenues.
The Company's lumber and building products sales accounted for
approximately 17% of the total market volume for the
Netherlands, which is slightly above the market share of its
largest competitor, Pont-Meyer N.V. Ten additional competitors
account for approximately 20% to 30% of the market share and the
balance is held by approximately 200 smaller competitors. The
primary factors of competition are quality and price, product
range, and speed and reliability of logistic systems. The
Company believes that its full geographical market coverage,
its automated inventory control and billing system, and
efficient logistics give it a competitive advantage in the
Netherlands. The Company's share of the highly fragmented
Belgium lumber and building products market is approximately 3%.
For recent developments and trends in the Company's lumber and
building products business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
E. Employees
The Company employed approximately 25,000 employees on average
throughout the world during the fiscal year ended June 30, 1994.
This figure is estimated because many of the non-salaried
personnel are seasonal employees.
Universal believes that in the United States approximately 1,300
of the non-salaried employees of its consolidated tobacco
subsidiaries are represented by unions. Most of these are
seasonal employees. The Company's labor relations have been
good.
F. Research and Development
No material amounts were expended for research and development
during the fiscal years ended June 30, 1994, 1993, and 1992.
G. Patents, etc.
The Company holds no material patents, licenses, franchises or
concessions.
H. Environmental Matters
Compliance with Federal, state and local provisions regarding
the discharge of materials into the environment, or otherwise
relating to the protection of the environment, has not had, and
is not anticipated to have, any material effect upon the capital
expenditures, earnings or competitive position of the Company.
ITEM 2. PROPERTIES
Universal owns the land and building located at Hamilton and
Broad Streets in Richmond, Virginia, where it is headquartered.
The building contains approximately 83,000 square feet of floor
space. The Company also owns a smaller office building nearby
which contains approximately 11,300 square feet of floor space.
In its domestic tobacco processing operations, Universal owns
six large, modern, high volume plants which have the capacity to
thresh, separate, quality grade and redry tobacco. Four of
these plants are located in North Carolina (Wilson, Henderson,
Rocky Mount and Smithfield), one plant is in Danville, Virginia,
and one plant is in Lexington, Kentucky. The Henderson plant
has a production capacity of over 140 million pounds of green
tobacco and 500,000 square feet of floor space. The Wilson
plant has approximately 500,000 square feet of floor space and a
production capacity of over 130 million pounds of green tobacco.
The remaining four plants each have a floor space of 300,000 to
400,000 square feet and an average annual production capacity of
over 100 million pounds of green tobacco. Universal also owns a
processing facility in Dinwiddie County, Virginia with 250,000
square feet of floor space.
Universal's foreign subsidiaries, some of which are not
majority-owned, own tobacco processing plants in the following
locations: a large processing plant in Canada; one large
processing plant and one smaller plant in Malawi; three large
processing plants in Italy; and plants in the Philippines,
Greece, Hungary, Thailand and Turkey. Universal's two plants in
South Korea recently have been sold. In Brazil, Universal owns
three large plants. In Zimbabwe the operations of two of the
Company's four plants have recently been combined with one plant
being utilized for storage.
The facilities described above are engaged primarily in
processing tobacco used by manufacturers in the production of
cigarettes. In addition, Universal owns plants that process
cigar/chewing tobaccos in Lancaster, Pennsylvania; Kenbridge,
Virginia; the Dominican Republic; Colombia; Indonesia; and
Brazil. It operates a sheet manufacturing plant in the
Netherlands and has access to one in Germany.
Universal owns or leases extruder plants (baling operations),
packaging stations, and warehouse space in the tobacco-growing
states and abroad. Large baling plants are owned in Lumberton
and Rocky Mount, North Carolina; Danville, Virginia;
Greeneville, Tennessee; and Lexington and Bowling Green,
Kentucky.
The processing and extruder plants are operated seasonally. The
large processing plants usually are in operation from seven to
nine months out of the year.
A portion of Universal's tobacco inventory is stored in public
storages. The following storages are owned:
(a) Wilson, North Carolina - 12 storages covering 460,000
square feet;
(b) Smithfield, North Carolina - 7 storages covering 240,000
square feet;
(c) Henderson, North Carolina - 6 storages covering 178,500
square feet;
(d) Rocky Mount, North Carolina - 3 storages covering 133,000
square feet;
(e) Danville, Virginia - 4 storages covering 153,000 square
feet;
(f) Lexington, Kentucky - 5 storages covering 127,000 square
feet; and
(g) Kenbridge, Virginia - 7 storages covering 243,000 square
feet.
Additional storage space is leased in Danville, Virginia;
Lexington, Kentucky; and in Smithfield, Henderson and Rocky
Mount, North Carolina. Lancaster Leaf Tobacco Company of
Pennsylvania, Inc. owns storage space with a capacity of 19,300
tons of tobacco and leases additional storage space. In other
U.S. tobacco areas, Universal owns or leases storages on a
smaller scale. In foreign areas storage space is owned or
leased on a comparable scale.
The Company believes that the above-listed properties are
maintained in good operating condition and are suitable and
adequate for its purposes at current sales levels. Facilities
owned are not subject to indebtedness except for those in
Dinwiddie County and Kenbridge, Virginia, which are financed in
part through governmental industrial development authorities.
The Company's agri-products subsidiaries own and operate a tea
blending plant in the Netherlands, a tea warehouse and office in
Sri Lanka, spice blending facilities in the Netherlands, a bean
processing plant in Park Rapids, Minnesota and sunflower seed
processing plants in Colby, Kansas and Fargo, North Dakota.
These latter two facilities are financed in part through
governmental industrial development authorities. The Company
has leased agri-products trading offices around the world,
including locations in New York, London, Warsaw, Rotterdam,
Indonesia, Kenya and Malawi.
The lumber and building products division owns or leases 37
sales outlets in the Netherlands and six sales outlets in
Belgium as well as three trading warehouses and a building
components manufacturing facility, all in the Netherlands. Most
of these locations are owned.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 1994, there were no matters
submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Dividend and market price information is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1994
Cash dividends declared $.22 $.24 $.24 $.24
Market price range: High 25 1/4 27 7/8 26 1/4 19 5/8
Low 21 3/4 22 3/8 18 1/2 17 3/4
1993
Cash dividends declared .20 .22 .22 .22
Market price range: High 29 3/8 34 1/4 33 3/4 29 7/8
Low $25 1/2 $25 3/8 $26 1/4 $24 1/8
The Company expects the past trend of dividend payments to
continue, subject, however, to its future earnings and financial
condition. At June 30, 1994 there were 4,022 holders of record
of the registrant's common stock which is traded on the New York
Stock Exchange.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Comparison of Selected Financial Data For Years Ended
June 30
(In thousands except per share data,
ratios, and number of common
shareholders) 1994 1993 1992 1991 1990
Summary of Operations
Gross revenues $2,975,050 $3,047,213 $2,989,018 $2,896,464 $2,389,346
Income from continuing operations before
extraordinary item and cumulative effect
of change in accounting principle 38,564 80,242 70,721 56,374 47,287
Net income $9,158 $80,242 $70,721 $20,224 $45,105
Return on beginning common shareholders'
equity 2.2% 26.6% 18.1% 5.1% 11.7%
Per common share
Income from continuing operations before
extraordinary item and cumulative effect
of change in accounting principle $1.09 $2.39 $2.15 $1.72 $1.41
Net income $ .26 $2.39 $2.15 $ .62 $1.35
Financial Position at Year End
Current ratio 1.37 1.38 1.39 1.34 1.60
Total assets $1,667,043 $1,564,188 $1,261,449 $1,275,621 $1,011,012
Long-term obligations 298,117 281,807 190,211 160,014 142,878
Working capital 318,029 300,531 273,299 223,450 244,039
Shareholders' equity $377,474 $417,913 $301,696 $389,829 $397,059
General
Number of common shareholders 4,022 4,132 4,210 4,157 4,288
Weighted average common shares outstanding
(used as basis for computation of E.P.S.) 35,502 33,599 32,822 32,792 33,522
Dividends per common share $ .94 $ .86 $ .79 $ .755 $ .73
Book value per common share $ 10.78 $ 11.73 $ 9.18 $ 11.89 $ 12.08
Amounts for 1990 and 1991 have been reclassified to include the
results of operations and financial position of Lawyers Title as
discontinued operations. Fiscal year 1990 reflects the
cumulative effect of the change in accounting principle ($5.1
million benefit) resulting from the adoption of SFAS 96
"Accounting for Income Taxes." Per common share information
reflects December 1991 two-for-one stock split. Fiscal year
1991 reflects an extraordinary loss ($3.8 million) resulting
from a provision for the uncollectability of a receivable from
the Iraqi State Tobacco Monopoly as a result of the Persion Gulf
war. Fiscal year 1994 reflects the cumulative effect of the
change in accounting principle ($29.4 million) resulting from
the adoption of SFAS 106 "Employer's Accounting for
Postretirement Benefits Other Than Pensions" as well as a $17.5
million ($11.8 million net of tax) restructuring charge.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity & Capital Resources
Universal Corporation's financial condition remained strong
during a year marked by extremely difficult market conditions.
During the year, the Company continued to expand its operations
with acquisitions in all segments of the business. It also took
advantage of attractive market prices to repurchase 632,400
shares of common stock at a total cost of $11.4 million. In
August 1993, the Company issued $100 million of 6.14% notes in a
private placement with a final maturity in the year 2000. The
proceeds of this issue were used to reduce short-term borrowings
and, in part, represented the prefunding of acquisitions
completed later in the year. In addition, in December 1993, the
Company finalized a new $100 million revolving credit facility.
The facility is available to support the issuance of commercial
paper.
In fiscal year 1994, the Company recorded charges for the
implementation of a restructuring plan and for the adoption of
a change in accounting principle. These charges to income and
the stock repurchase reduced shareholders' equity, causing an
increase in the Company's ratio of long-term debt to total
capitalization. The stock repurchase and restructuring were
undertaken with due consideration to maintaining the Company's
financial flexibility and strength; and, although certain
measures of financial strength have declined, management
believes that they are well within appropriate limits and that
the long-term benefits to the Company justified the actions.
The Company's working capital increased by approximately 6% to
$318 million while its current ratio has remained stable over
the last four years at approximately 1.4. The increase in
working capital relates primarily to acquisitions that occurred
during the year. These additions were offset, in part, by the
restructuring provision. Despite the worldwide oversupply of
tobacco, the Company's tobacco inventories were relatively
stable at $436 million, although uncommitted tonnage in
inventory was lower than at this time last year.
The Company's capital needs are predominantly short term in
nature and relate to working capital needs for financing crop
purchases. The working capital needs of the Company are
seasonal within each geographical region. Generally, the peak
need of domestic tobacco operations occurs in the second quarter
of the fiscal year. Foreign tobacco operations tend to have
higher requirements in the remainder of the year. The
geographical dispersion and the timing of working capital needs
permit the Company to predict its general level of cash
requirements during the year. Each geographic area follows the
cycle of buying, processing, and shipping of the tobacco crop.
The timing of individual customer shipping requirements may
change the level or duration of crop financing from year to
year. The working capital needs of individual agri-products
operations fluctuate during the year, depending on the product,
the country of origin, and the Company's inventory position;
however, the total working capital requirements of agri-products
during the year remain relatively stable due to offsetting
seasonal patterns. Working capital needs of lumber and building
products in Europe follow a pattern similar to that of the
construction industry in which the third quarter of the fiscal
year is typically sluggish. The Company finances its working
capital needs with short-term lines of credit, exchange
contracts for export prefinance, customer advances, and trade
payables.
Long-term investments are reflected in "Net cash used for
investing activities." Over the last three years, total
investment needs of $209 million were provided by cash flow from
operating activities and the issuance of common stock in 1993
supplemented by long-term debt.
Investments during 1994 included acquisitions of a Hungarian
tobacco processing facility, two small dealers in agri-products,
and a door and window producer in the Netherlands. These
purchases required a net cash payment of $21.9 million. Over the
last three years, net cash paid for acquisitions totaled
approximately $126 million. Those transactions were highlighted
by the purchase of The Casalee Group S.A. in 1993 and a
Brazilian tobacco supplier in 1992. In August 1994, the Company
agreed to acquire the premier distributor of value-added
softwood products in Holland. For its year ended December 31,
1993 the distributor had approximately $65 million in revenues.
The transaction is subject to satisfactory completion of due
diligence reviews and will initially be funded with existing
credit lines.
During the last several years, the Company completed a major
capital expenditure program that included a new processing
plant and new threshing and separating equipment in the United
States and upgraded processing lines in Brazil. Annual capital
spending related to that program and others averaged
approximately $42 million in 1992 and 1993. Following the
completion of the program in 1994 capital expenditures fell to
approximately $24 million. Although no major program is
currently underway, the Company continues to improve its
processing operations with incremental projects. At June 30,
1994, the Company had no material commitments for capital
expenditures.
The Company believes that its financial resources are adequate
to support its capital needs. The Company and its subsidiaries
currently have $1.5 billion in uncommitted lines of credit of
which approximately $1 billion was available at June 30, 1994 to
support future seasonal working capital needs in the United
States and several foreign countries. In addition, the Company
has $100 million in an unused committed facility under a
revolving credit agreement. This facility is also available to
support the future issuance of commercial paper. The Company's
debt ratings are investment grade. Excess cash flow from
operations after dividends, capital expenditures, and long-term
debt payments will be available to reduce short-term debt,
improve the Company's liquidity, or fund expansion.
Results of Operations
Fiscal Year 1994 Compared to 1993
Consolidated revenues in fiscal year 1994 declined $72 million
or 2.4% compared to last year. The decline was mitigated by the
inclusion of twelve months of Casalee's 1994 sales versus the
six weeks included last year. Tobacco revenues declined $109
million primarily due to the poor quality U.S. flue-cured crop
and reduced worldwide demand for all growths. Lumber and
building product revenues declined in fiscal year 1994
principally due to exchange rate differences. An increase of
$53 million in agri-product revenues in fiscal year 1994 was
attributable to increased nut and canned meat trading.
Tobacco operating profit of $82.5 million in fiscal year 1994
was net of a $17.5 million restructuring charge. Excluding the
restructuring charge, tobacco operating profits were down $46
million or almost 32% compared to last year. Included in fiscal
year 1994 results were $27 million of inventory write-downs
compared to approximately $14 million in fiscal year 1993.
Tobacco operating results in fiscal 1994 reflect a number of
adverse factors in the U.S., including a poor quality flue-cured
crop, domestic content legislation, and pending excise tax
increases on cigarettes. In addition to these domestic issues,
there was a worldwide glut of tobacco as demand softened in the
face of record crops. The culmination of these factors was
depressed prices and pressure on margins. Total domestic
tobacco purchases in fiscal year 1994 were down primarily due to
lower flue-cured purchases. However, processing volumes were
comparable to the prior year as reduced cigarette manufacturer
orders were offset by significantly larger volumes of tobacco
processed for the Stabilization Cooperatives. In addition to
the adverse effects of the current crop volumes, domestic
tobacco results in fiscal 1994 were down on a comparative basis
to last year due to customer-mandated hold-over shipments in the
first quarter of fiscal 1993. International tobacco profits for
fiscal year 1994 were down principally due to the pressure on
margins which reduced sales profits and resulted in significant
inventory write-downs.
Lumber and building product operations reported higher operating
results in fiscal year 1994 due to increased prices for hard and
softwoods. Operating profits of the lumber and building
products segment in fiscal year 1993 included a pre-tax gain of
$3.8 million realized on the sale of the Company's flatboard
finishing operation. Excluding the gain, lumber and building
products operating profits increased almost 50% in 1994.
Agri-product operating results were down approximately 15% in
fiscal year 1994 compared to last year. Improved results in
nuts and sunflower seeds were more than offset by shortfalls in
tea and coffee. Sunflower seed operations benefited from
increased demand and fewer supplies, while tea operations were
adversely affected by a weak market. Losses in coffee trading
in the current fiscal year reflected the continuing volatility
of those markets and the decision by the Company to terminate
this business.
Selling, general and administrative expenses increased $31
million as a result of the inclusion of Casalee's operations for
the full fiscal year in 1994. This increase was slightly offset
by declines in selling and shipping expenses on reduced volumes
in fiscal year 1994. Interest expense in fiscal year 1994
increased $12.3 million due to increased inventory levels,
longer holding periods, and increased levels of higher rate
long-term financing. The Company's effective tax rate for
fiscal year 1994 was 26.9% compared to 36.8% last year. The
decrease in 1994 was due to a higher proportion of foreign
earnings which were deemed permanently reinvested compared to
1993. In the future, the Company's effective tax rate is
expected to approximate statutory rates. See Note 10 for more
information. The Company's equity in net income of
unconsolidated affiliates increased over 40% compared to last
year due to the sale of idle facilities in Korea in fiscal 1994.
In June of 1994, the Company adopted a major restructuring plan
for its tobacco operations. The plan includes the
rationalization and consolidation of operations worldwide. The
tobacco merchant industry over the past few years has been
undergoing significant competitive changes. Consolidations
within the industry have reduced the number of competitors. At
the same time, customer pressure has increased to reduce costs
and continue to deliver high quality products and services.
Shortly after the acquisition of Casalee, the Company embarked
on a study of its worldwide operations to identify areas of
duplication. Included in the $17.5 million restructuring charge
was approximately $16 million of severance provisions for
approximately 700 of the Company's employees. The severance
costs will be funded by cash provided by operations. The plan
is expected to be implemented by the end of fiscal year 1995.
Estimated savings after the plan is fully implemented are
estimated to be $19 million per year, related primarily to
reduced total compensation.
In the first quarter of fiscal 1994, the Company adopted SFAS
106 and elected to record a one-time charge of $29.4 million;
subsequently, in the third quarter the Company amended its
postemployment benefit plans. The effect of the amendment is
expected to substantially offset the effect on earnings from
SFAS 106. See Note 3 for more information.
Fiscal Year 1993 Compared to 1992
Consolidated revenues were up $58 million or about 2% in fiscal
1993 compared to 1992. Increases in revenues were realized in
tobacco and lumber and building products segments, while
revenues in agri-products were down slightly. Net income for
fiscal year 1993 increased by nearly $10 million or 13%. This
improvement was largely attributable to increases in foreign
tobacco profits. Results of operations for the year included
the results of Casalee for the six-week period from the date of
its acquisition through March 31, 1993. Amounts for individual
income statement captions were not materially affected. Casalee
reported a loss of $3.5 million for the six-week period,
principally due to seasonally low sales activity combined with
inventory carrying costs and overhead.
Tobacco operating profits increased to $146 million in fiscal
year 1993. Foreign tobacco reflected improved results from
Brazil and from sales of African tobaccos. With the
acquisition of Casalee and its Brazilian operations, the
significance of this geographic region to consolidated results
has increased. Results of U.S. tobacco operations were up
slightly in 1993 versus 1992 due to increased processing
efficiencies and shipments delayed, at customers' requests, to
the first quarter of 1993. The total volume of tobacco bought
and processed was down compared to 1992. The majority of this
decrease was in burley tobacco where orders were down almost
15%.
Overall operating profits of European lumber operations were
down slightly for the year. During the year, the continuing
European recession, along with increased labor costs and higher
material prices, created a difficult market climate for the
lumber distribution segment. Consolidation of a number of
regional branches and the installation of a computer network led
to improved inventory control and reduced overhead. The
acquisition of a small window and door frame company also
improved results in 1993.
Operating profits of agri-products operations were down slightly
compared to those of fiscal year 1992. Each significant
agri-product group made positive contributions to the results of
the current year. In tea, drought conditions led to an
improvement in the supply/demand relationship and in operating
results. The effect of these market conditions was complemented
by the Company's strategy of offering expanded and improved
services to its customers. Sunflower seeds also benefited from
reduced supply, as frost reduced the U.S. crop and led to
improved selling prices. Other agri-product operations
including rubber, coffee, spices and specialty seeds were up
over 1992 as the Company took advantage of better trading
opportunities available in fiscal year 1993.
Selling, general and administrative expenses reflected an
increase in 1993 of $18 million or 8% over 1992. Approximately
$5 million of the increase was due the inclusion of Casalee in
the fourth quarter of fiscal year 1993. The balance of the
increase was primarily due to higher selling and shipping costs
incurred on higher volumes of foreign tobaccos sold. Interest
expense continued the downward trend of the last several years
primarily reflecting the reduction of short- term borrowing
rates. There was no significant change in the Company's
effective tax rate compared to 1992. The rate increased
approximately two percentage points principally due to reduced
tax benefits in fiscal year 1993 on foreign earnings deemed
permanently reinvested.
Other Information Regarding Trends and Management's Actions
Last year's report discussed the growth potential of China and
the former East Bloc. During the past year, there was economic
and political uncertainty in several countries in Eastern
Europe. As the former East Bloc has attempted economic reform,
a number of new situations have been encountered, including
privatization, exchange controls, tax policies, import / export
policies and hyperinflation. As these regions go through
change, we believe it is important to be participants in the
tobacco activities while, at the same time, limiting our
financial exposure.
Over the past few years, restrictions on cigarette smoking in
public places and advertising have increased substantially.
During the past year, particularly in the United States, the
tobacco industry has been under unprecedented legislative and
bureaucratic attack. There have been proposed increases in
excise taxes, restrictions on the importation of foreign leaf,
lawsuits regarding secondhand smoke and the Food and Drug
Administration's review of nicotine levels in cigarettes. These
efforts have adversely affected U.S. cigarette consumption.
The worldwide balance between tobacco supply and demand was one
of oversupply during the current year. Consequently, tobacco
prices have been under pressure. Progress has been made at
limiting production in the current year in a number of foreign
countries. In the United States, stabilization inventories are
in excess of reserve requirements, and crop size may have to be
reduced. Over the short term the surplus of tobacco will
continue to put pressure on margins and earnings. The Company
is not expected to immediately return to the record level of
earnings reported in fiscal 1993; however, efforts to control
leaf production and to further enhance operating efficiencies
that the Company has achieved through restructuring are some of
the important keys to long-term improvements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1994, 1993 and 1992
(In thousands of dollars
except per share data) 1994 1993 1992
Sales and other operating revenues $2,975,050 $3,047,213 $2,989,018
Costs and expenses
Cost of goods sold 2,576,807 2,635,560 2,608,684
Selling, general and
administrative expenses 278,527 247,325 229,450
Restructuring charge 17,500
Interest 58,387 46,087 49,807
2,931,221 2,928,972 2,887,941
Income before income taxes and
other items 43,829 118,241 101,077
Income taxes 11,804 43,455 35,265
Minority interests 130 (749) (267)
Income from consolidated operations 31,895 75,535 66,079
Equity in net income of
unconsolidated affiliates 6,669 4,707 4,642
Income before cumulative effect
of change in accounting principle 38,564 80,242 70,721
Cumulative effect of change in
accounting principle (29,406)
Net income 9,158 80,242 70,721
Per common share
Income before cumulative effect
of change in accounting principle 1.09 2.39 2.15
Cumulative effect of change in
accounting principle (.83)
Net income $ .26 $ 2.39 $ 2.15
See accompanying notes.
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(In thousands of dollars) 1994 1993
ASSETS
Current
Cash and cash equivalents $164,520 $119,693
Accounts and notes receivable 368,989 345,766
Accounts receivable - unconsolidated
affiliates 28,113 20,098
Inventories-at lower of cost or market:
Tobacco 436,033 431,140
Lumber and building products 83,441 63,386
Agri-products 60,132 56,004
Other 8,753 18,811
Prepaid income taxes 10,095
Deferred income taxes 5,530 3,606
Other current assets 20,423 28,431
Total current assets 1,186,029 1,086,935
Real estate, plant and equipment - at cost
Land 22,607 21,004
Buildings 166,111 155,652
Machinery and equipment 350,426 347,569
539,144 524,225
Less accumulated depreciation 269,955 246,450
269,189 277,775
Other assets
Goodwill 124,286 119,717
Other intangibles 27,089 20,080
Investments in unconsolidated affiliates 26,298 25,745
Deferred income taxes 3,494 2,193
Other noncurrent assets 30,658 31,743
211,825 199,478
$1,667,043 $1,564,188
See accompanying notes.
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(In thousands of dollars) 1994 1993
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $531,209 $426,251
Accounts payable 199,280 237,574
Accounts payable - unconsolidated
affiliates 34,810 25,402
Customer advances and deposits 51,671 52,672
Accrued compensation 13,366 21,017
Provision for restructuring 15,500
Income taxes payable 6,217 3,936
Current portion of long-term obligations 15,947 19,552
Total current liabilities 868,000 786,404
Long-term obligations 298,117 281,807
Postretirement benefits other than pensions 48,969
Other long-term liabilities 57,156 40,592
Deferred income taxes 12,361 35,020
Minority interests 4,966 2,452
Commitments and contingent liabilities
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
35,001,185 shares (35,631,485 at June 30,
1993) 75,287 86,672
Retained earnings 317,344 341,523
Foreign currency translation adjustments (15,157) (10,282)
Total shareholders' equity 377,474 417,913
$1,667,043 $1,564,188
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1994, 1993 and 1992
(In thousands of dollars) 1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $9,158 $80,242 $70,721
Adjustments to reconcile net income to
net cash provided by operating
activities:
Cumulative effect of change in
accounting principle 29,406
Restructuring charge ($17,500 less
cash payments of $2,000) 15,500
Depreciation 37,086 32,773 29,169
Amortization 7,790 2,878 2,975
Deferred taxes (471) 4,731 705
Translation loss-net 6,718 2,434 5,605
Other (3,963) (8,119) (8,620)
101,224 114,939 100,555
Changes in operating assets and
liabilities net of effects from
purchase of businesses:
Accounts and notes receivable (29,998) (55,298) 77,207
Inventories and other current assets 440 (933) (130,029)
Income taxes (7,712) (4,288) (3,500)
Accounts payable and other accrued
liabilities (36,824) 10,250 7,051
Net cash provided by operating
activities 27,130 64,670 51,284
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (23,728) (37,474) (47,129)
Purchase of businesses (net of
cash acquired) (21,861) (84,850) (19,034)
Sales of property, plant and
equipment 4,035 6,935 9,760
Other 507 (827) 4,307
Net cash used in investing
activities (41,047) (116,216) (52,096)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt - net 107,147 80,315 18,952
Repayment of short-term debt
classified as long-term June 30,
1993 (100,000)
Repayment of long-term debt (22,829) (40,948) (31,803)
Issuance of long-term debt 119,000 5,820 63,441
Issuance (purchase) of common stock (11,437) 70,943 1,576
Dividends paid (32,775) (28,220) (25,600)
Net cash provided by financing
activities 59,106 87,910 26,566
Effect of exchange rate changes
on cash (362) 655 (2,616)
Net increase in cash and cash equivalents 44,827 37,019 23,138
Cash and cash equivalents at beginning
of year 119,693 82,674 59,536
CASH AND CASH EQUIVALENTS AT END OF YEAR $164,520 $119,693 $82,674
Supplemental cash flow information:
Cash paid during the year for:
Interest $53,761 $41,483 $44,473
Income taxes - net of refunds $19,767 $39,539 $28,501
See accompanying notes.
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended June 30, 1994, 1993 and 1992
(In thousands of dollars) 1994 1993 1992
COMMON STOCK:
Balance at beginning of year $86,672 $15,597 $13,914
Issuance of common stock 52 70,579 109
Exercise of stock options 496 1,576
Common shares repurchased (11,437) (2)
Balance at end of year 75,287 86,672 15,597
RETAINED EARNINGS:
Balance at beginning of year 341,523 290,766 377,932
Net Income 9,158 80,242 70,721
Cash dividends declared ($.94 per
share in 1994; $.86 in 1993;
$.79 in 1992) (33,337) (29,485) (25,946)
Distribution of title insurance
shares* (131,941)
Balance at end of year 317,344 341,523 290,766
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year (10,282) (4,667) (5,136)
Translation adjustments for the year (7,552) (8,400) 728
Allocated income taxes 2,677 2,785 (259)
Balance at end of year (15,157) (10,282) (4,667)
NET UNREALIZED INVESTMENT GAINS:
Balance at beginning of year 3,119
Net unrealized gains for the year 4,705
Distribution of title insurance
shares* (7,824)
Balance at end of year 0
SHAREHOLDERS' EQUITY AT END OF YEAR $377,474 $417,913 $301,696
See accompanying notes.
*Equivalent to the net assets of Lawyers Title at October 1, 1991
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
Note 1 - ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of all controlled
domestic and foreign subsidiaries. All material intercompany
items and transactions have been eliminated. The fiscal years
of foreign subsidiaries generally end March 31 or April 30 to
facilitate timely reporting. The Company uses the equity method
of accounting for its investments in affiliates which generally
are owned less that 50%. However, due to exchange controls
which restrict the remittance of dividends and governmental and
other uncertainties, affiliates in Zimbabwe are accounted for
under the cost method.
Translation of Foreign Currencies
The financial statements of foreign subsidiaries where the local
currency is the functional currency are translated into U.S.
dollars using exchange rates in effect at period end for assets
and liabilities and average exchange rates during each reporting
period for results of operations. Adjustments resulting from
translation of financial statements are reflected as a separate
component of shareholders' equity.
The financial statements of foreign subsidiaries located in
highly inflationary economies are remeasured as if the
functional currency were the U.S. dollar. The remeasurement of
local currencies into U.S. dollars creates translation
adjustments which are included in net income. Exchange losses in
1994, 1993 and 1992 resulting from foreign currency transactions
were $6.8, $1.6 and $4.1 million, respectively (including $6.7,
$2.4 and $5.6 million of translation losses related to
subsidiaries located in highly inflationary economies) and are
included in the respective statements of income.
Inventories
Inventories of tobacco and agri-products are valued at the lower
of specific cost or market. In determining lower of cost or
market for agri-products, an entire position, i.e., tea,
including forward purchase and sales contracts, is considered.
Net unrealized losses by position are charged to income.
However, no recognition is given to net unrealized gains. All
other inventories are valued principally at lower of average
cost or market.
Depreciation
Depreciation expense is based upon historical cost and the
estimated useful lives of the assets. Depreciation of property
used in domestic tobacco operations is calculated using the
declining balance method in the early years and the
straight-line method thereafter. All other properties are
generally depreciated using the straight-line method. Estimated
useful lives of properties range from three to forty years.
Income Taxes
The Company provides deferred income taxes on temporary
differences arising from employee benefit accruals,
depreciation, deferred compensation, and undistributed earnings
of consolidated subsidiaries and unconsolidated affiliates not
permanently reinvested. At June 30, 1994 the cumulative amount
of undistributed earnings of consolidated subsidiaries on which
no provision for U.S. income taxes had been made was $ 47.9
million. It is not practical to determine the amount of
deferred income tax liabilities that would result had such
earnings been actually repatriated.
Goodwill and Other Intangible Assets
Goodwill and other intangibles include the excess of the
purchase price of acquired companies over the net assets,
convenants not to compete and pension intangibles. Goodwill and
other intangibles are amortized using the straight-line method
over periods not exceeding 40 years. Accumulated amortization at
June 30, 1994, and 1993 was $11.3 and $3.9 million, respectively.
Consolidated Statements of Cash Flows
For purposes of these statements, the Company considers all
highly liquid investments, with a maturity of three months or
less at the time of purchase, to be cash equivalents.
Fair Values of Financial Instruments
The fair values of the Company's long-term obligations have been
estimated using discounted cash flow analyses based on the
Company's current incremental borrowing rates for similar types
of borrowing arrangements.
The carrying amount of all other current assets and liabilities
as reported in the balance sheet at June 30, 1994 and 1993,
which qualify as financial instruments, approximate their fair
values.
Postretirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted SFAS 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions".
The initial effect of adopting the statement was recorded as a
cumulative change in accounting principle. See Note 3.
Reclassification
Amounts in prior years' statements have been reclassified to be
reported on a consistent basis with the current year's
presentation.
Note 2 - PENSION PLANS
The Company and its subsidiaries have several defined benefit
pension plans covering United States and foreign salaried
employees and certain other employee groups. These plans
provide retirement benefits based primarily on employee
compensation and years of service. The Company's funding policy
for domestic plans is to make contributions currently to the
extent deductible under existing tax laws and regulations,
subject to the full-funding limits of the Employee Retirement
Income Security Act of 1974. Foreign plans are funded in
accordance with local practices. Domestic and foreign plan
assets consist primarily of fixed income securities and equity
investments. Prior service costs are amortized equally over the
average remaining service period of employees. Information
regarding net pension cost and the funded status of domestic and
foreign plans was as follows:
Pension costs
Domestic Foreign
1994 1993 1992 1994 1993 1992
Service cost for
benefits earned during
the period $2,925 $2,617 $2,361 $2,392 $2,134 $1,885
Interest cost on
projected benefit
obligation 6,489 6,053 5,614 5,210 5,245 4,592
Actual return on plan
assets (5,872) (7,829) (5,861) (11,629) (5,929) (5,145)
Net amortization and
deferral 1,258 3,358 1,348 5,240 (234) 37
Total pension cost $4,800 $4,199 $3,462 $1,213 $1,216 $1,369
Funded status
Domestic - March 31 measurement date
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1994 1993 1994 1993
Vested benefit obligation $68,047 $60,767 $5,280 $5,085
Accumulated benefit obligation 68,888 61,677 6,521 5,988
Projected benefit obligation 84,707 78,337 9,699 8,053
Plan assets at fair value 75,839 72,010
Plan assets less than
projected benefit obligation (8,868) (6,327) (9,699) (8,053)
Unrecognized net (asset)
liability at transition (4,320) (4,919) 637 716
Unrecognized prior service
costs 949 2,383 1,701 494
Unrecognized net loss 16,217 13,235 3,017 3,220
Additional minimum liability (2,177) (2,365)
Prepaid (accrued) pension
cost $3,978 $4,372 $(6,521) $(5,988)
Foreign - April 30 measurement date
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1994 1993 1994 1993
Vested benefit obligation $62,303 $59,639 $8,787 $8,408
Accumulated benefit
obligation 70,368 62,727 10,609 10,004
Projected benefit obligation 75,916 67,392 11,583 11,089
Plan assets at fair value 81,881 73,563 3,692 3,417
Plan assets in excess of
(less than) projected
benefit obligation 5,965 6,171 (7,891) (7,672)
Unrecognized net (asset)
liability at transition (6,309) (7,215) 34 76
Unrecognized net loss (gain) 978 291 142 29
Additional minimum liability (273) (217)
Accrued pension cost $634 $(753) $(7,988) $(7,784)
SFAS 87 "Employers' Accounting for Pensions," required the
Company to recognize an additional minimum liability of $2.4 and
$2.6 million for the unfunded accumulated benefit obligation in
1994 and 1993, respectively. An equal amount was recognized as
an intangible asset in those years.
Assumptions used in the computations were:
1994 1993 1992
Discount rate:
Domestic 7.25% 7.75% 8.25%
Foreign 6.00% 7.00% 8.10%
Rate of increase in future compensation levels:
Domestic 5.50% 6.00% 6.00%
Foreign 4.50% 5.00% 5.25%
Expected long-term rate of return on plan assets:
Domestic 8.75% 8.50% 8.50%
Foreign 7.00% 7.00% 8.25%
Note 3 - POSTRETIREMENT BENEFITS
The Company provides postretirement health and life insurance
benefits for eligible U.S. employees attaining specific age and
service requirements. The health plan is funded by the Company
as the costs of the benefits are incurred and contains
cost-sharing features such as deductibles and coinsurance. The
Company funds the life insurance plan with deposits to a retired
life reserve account held by an insurance company. The Company
has made changes to the plans that have reduced benefits in the
past and reserves the right to amend or discontinue the plans at
any time.
Effective July 1, 1993, the Company adopted SFAS 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions"
which requires that the estimated costs of these benefits be
expensed over the employees' active service period rather than
as paid. In accordance with SFAS 106 the Company elected to
recognize the obligation as a one-time charge of approximately
$29 million (net of $18 million in taxes) or $.83 per share
during the first quarter of the year.
Effective January 1, 1994, the Company amended the benefit plans
for future retirees which reduced the Company's postretirement
obligation by approximately $14 million (net of tax benefits).
The amortization of this reduction is expected to substantially
offset the net periodic postretirement benefit expense from SFAS
106 through fiscal year 2001.
Net periodic postretirement benefit expense was as follows:
1994
Service cost $1,268
Interest cost 3,255
Return on plan assets (141)
Net amortization and deferral (1,527)
Net periodic postretirement benefit expense $2,855
Prior to fiscal year 1994 the Company recognized expense in the
year the benefits were paid. In fiscal year 1993 and 1992
approximately $1 million of expenses was recorded annually.
The following table sets forth the components of the
postretirement benefit obligation:
June 30 measurement date 1994
Accumulated postretirement benefit obligation:
Retirees $21,080
Fully eligible active plan participants 7,812
Other active plan participants 5,555
Accumulated postretirement benefit obligation 34,447
Fair value of plan assets 3,414
Accumulated postretirement benefit obligation in
excess of plan assets 31,033
Unrecognized prior service cost 22,119
Unrecognized net loss (4,183)
Accrued postretirement benefit cost $48,969
The accumulated postretirement benefit obligation was determined
using an assumed annual increase in the health care cost trend
rate of 13% for fiscal year 1995 and is assumed to decrease
gradually to 6.5% by fiscal year 2005. A one percentage point
increase in the assumed health care cost trend rate would
increase the accumulated benefit obligation by approximately $2
million and the aggregate of the service and interest cost
components of net periodic postretirement benefit expense for
the fiscal year by approximately $100 thousand. The
postretirement benefit obligation was determined using an
assumed discount rate of 7.25% and an estimated long-term salary
increase rate of 5.50%.
Note 4 - LONG-TERM OBLIGATIONS
1994 1993
6.14% Senior notes payable in five
annual installments from 1996 to 2000 $100,000
Notes payable classified as long-term $100,000
9.25% Medium-term notes due February 2001 100,000 100,000
Medium-term notes due January 1997 at an
average rate of 7.3% 50,000 50,000
Other notes due through 1999 at various
interest rates ranging from 5.5% to 12% 25,209 43,199
Notes due through 1998 at variable rates,
currently 11% 16,587
4.26% Promissory note due August 1995 15,000
Revenue bonds due through 2001 at various
interest rates below prime 7,268 8,160
314,064 301,359
Less current portion (15,947) (19,552)
Long-term obligations $298,117 $281,807
The fair value of the Company's long-term obligations was
approximately $303 million at June 30, 1994 and $301 million at
June 30, 1993. Certain notes are denominated in local
currencies of foreign subsidiaries. Effective U.S. dollar
interest rates vary based on exchange rate fluctuations.
Senior notes:
On August 24, 1993, the Company issued $100 million of 6.14%
senior notes due in five equal installments beginning in fiscal
1997. The proceeds from these notes were used to repay $100
million of notes payable which were classified as long-term at
June 30, 1993. In connection with these notes, the Company must
meet certain financial covenants including maintainence of $300
million minimum shareholders' equity and restrictions on the
issuance of long-term debt.
Other information:
Maturities of long-term debt for the fiscal years succeeding
June 30, 1994 are as follows: 1995-$15,947; 1996-$28,161;
1997-$77,676; 1998-$22,218; 1999-$23,566; 2000 and
after-$146,496.
Note 5 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates principally in three business segments:
Tobacco
Selecting, buying, shipping, processing, packing, storing and
financing leaf tobacco in the United States and other tobacco
growing countries for the account of, or for resale to,
manufacturers of tobacco products throughout the world.
Lumber and Building Products
Distribution of lumber and building products to the building and
construction market in Europe, primarily in Holland.
Agri-Products
Trading and processing tea, and sunflower seeds and trading
other products from the countries of origin to various customers
in the consuming industries throughout the world.
Generally, sales between business segments and geographic areas
are priced on the same basis as sales to unaffiliated customers.
Sales between business segments are insignificant.
Operating profit is total revenue less operating expenses. In
computing operating profit, none of the following items have
been added or deducted: general corporate expenses, interest
expense, income taxes and equity in net income of unconsolidated
affiliates.
Identifiable assets are those of the Company that are identified
with the operations in each industry group. Corporate assets
are principally the fixed assets of the Company's administrative
offices, certain notes receivable and corporate cash and cash
equivalents.
U.S. Export Sales by Geographic Area
1994 1993 1992
Europe $182,140 $302,733 $314,383
Asia 203,197 168,075 155,336
Other Areas 27,321 33,895 56,272
$412,658 $504,703 $525,991
Lumber and
Business Segments Tobacco Building Products Agri-products Consolidated
1994
Gross revenues $2,175,644 $368,463 $430,943 $2,975,050
Operating profit (net of
restructuring charge) 82,522 18,768 9,224 110,514
General corporate expenses (8,298)
Interest expense (58,387)
Income before income tax and
other items 43,829
Identifiable assets 1,205,173 262,442 171,372 1,638,987
Investments in unconsolidated
affiliates 26,298
Corporate assets 1,758
Total assets 1,667,043
Depreciation and amortization 38,943 4,376 1,557 44,876
Capital expenditures 18,640 4,265 823 23,728
1993
Gross revenues 2,284,936 384,631 377,646 3,047,213
Operating profit 146,199 16,427 10,898 173,524
General corporate expenses (9,196)
Interest expense (46,087)
Income before income tax
and other items 118,241
Identifiable assets 1,180,168 217,129 138,310 1,535,607
Investments in unconsolidated
affiliates 25,745
Corporate assets 2,836
Total assets 1,564,188
Depreciation and amortization 29,574 4,684 1,393 35,651
Capital expenditures 30,963 4,931 1,580 37,474
1992
Gross revenues 2,235,210 370,186 383,622 2,989,018
Operating profit 134,534 14,651 11,453 160,638
General corporate expenses (9,754)
Interest expense (49,807)
Income before income tax
and other items 101,077
Identifiable assets 862,971 225,411 148,017 1,236,399
Investments in unconsolidated
affiliates 21,995
Corporate assets 3,055
Total assets 1,261,449
Depreciation and amortization 26,315 4,081 1,748 32,144
Capital expenditures $ 39,914 $ 4,793 $2,422 $ 47,129
Consolidated Operations United South/Central Other
by Geographic Area States America Europe Areas Eliminations Consolidated
1994
Revenues from unaffiliated customers $1,532,592 $217,534 $1,088,693 $136,231 $2,975,050
Transfers between geographic areas 1,658 123,898 34,588 34,903 $(195,047)
Gross revenues 1,534,250 341,432 1,123,281 171,134 (195,047) 2,975,050
Operating profit (net of
restructuring charge) 44,686 20,691 49,221 (4,084) 110,514
General corporate expenses (8,298)
Interest expense (58,387)
Income before income taxes and
other items 43,829
Identifiable assets 575,425 469,415 754,696 107,456 (268,005) 1,638,987
Investments in unconsolidated
affiliates 26,298
Corporate assets 1,758
Total assets 1,667,043
1993
Revenues from unaffiliated
customers 1,690,484 187,790 1,014,450 154,489 3,047,213
Transfers between geographic areas 824 102,891 19,580 33,838 (157,133)
Gross revenues 1,691,308 290,681 1,034,030 188,327 (157,133) 3,047,213
Operating profit 71,820 39,930 56,593 6,688 (1,507) 173,524
General corporate expenses (9,196)
Interest expense (46,087)
Income before income taxes and
other items 118,241
Identifiable assets 497,706 471,892 613,998 107,545 (155,534) 1,535,607
Investments in unconsolidated
affiliates 25,745
Corporate assets 2,836
Total assets 1,564,188
1992
Revenues from unaffiliated customers 1,759,594 141,118 897,058 191,248 2,989,018
Transfers between geographic areas 2,361 110,931 20,367 53,370 (187,029)
Gross revenues 1,761,955 252,049 917,425 244,618 (187,029) 2,989,018
Operating profit 65,777 30,647 54,101 11,111 (998) 160,638
General corporate expenses (9,754)
Interest expense (49,807)
Income before income taxes
and other items 101,077
Identifiable assets $498,135 $245,420 $452,061 $112,581 $(71,798) 1,236,399
Investments in unconsolidated affiliates 21,995
Corporate assets 3,055
Total assets $1,261,449
Note 6 - UNCONSOLIDATED AFFILIATES
The combined results of operations of the Company's
unconsolidated affiliates, primarily foreign tobacco, are
summarized below:
Equity Basis Cost Basis
1994 1993 1992 1994 1993 1992
Gross revenues $291,892 $308,731 $402,399 $226,589 $149,169 $167,554
Gross profit 46,663 44,195 39,689 46,216 30,112 26,735
Net income $12,052 $10,565 $10,696 $6,454 $1,446 $4,675
The combined financial position of the Company's unconsolidated
affiliates, primarily foreign tobacco, are summarized below:
Equity Basis Cost Basis
1994 1993 1994 1993
Current assets $104,723 $149,197 $45,048 $88,093
Non-current assets 31,552 29,058 19,402 16,495
Current liabilities 88,093 130,726 38,467 92,305
Non-current liabilities $ 12,034 $ 13,130 $ 6,858 $ 6,070
Note 7 - UNAUDITED QUARTERLY FINANCIAL DATA
Due to the seasonal nature of the tobacco, lumber and building
products, and agri-products businesses, it is always more
meaningful to focus on cumulative rather than quarterly results.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1994
Sales and other operating revenues $690,739 $863,674 $749,587 $671,050
Gross profit 115,459 109,840 80,631 90,527
Income (loss) before cumulative
effect of change in accounting
principle 18,459 20,210 9,343 (9,448)
Net income (loss) (10,947) 20,210 9,343 (9,448)
Per common share
Income (loss) before cumulative
effect of change in accounting
principle .52 .57 .26 (.27)
Net income (loss) (.31) .57 .26 (.27)
Cash dividends declared .22 .24 .24 .24
Market price range: High 25 1/4 27 7/8 26 1/4 19 5/8
Low 21 3/4 22 3/8 18 1/2 17 3/4
1993
Sales and other operating
revenues 826,581 888,294 836,688 495,650
Gross profit 118,717 117,556 95,476 79,158
Net income 23,776 35,249 19,082 2,135
Per common share
Net income .72 1.08 .58 .06
Cash dividends declared .20 .22 .22 .22
Market price range: High 29 3/8 34 1/4 33 3/4 29 7/8
Low $25 1/2 $25 3/8 $26 1/4 $24 1/8
The Company recorded $16.1 and $12.5 million in pre-tax
writedowns of tobacco inventory and purchase commitments in the
fourth quarter of 1994 and 1993, respectively. The fourth
quarter of 1994 includes a $17.5 million pre-tax restructuring
charge.
The third quarter of 1993 includes a pre-tax gain of $3.8
million on the sale of the U.S. flatboard finishing company.
Note 8 - SHARE PURCHASE RIGHTS PLAN
In 1989, the Company distributed as a dividend one preferred
share purchase right for each outstanding share of common stock.
As adjusted for the two-for-one split of the common stock
effective December 16, 1991, each right entitles the shareholder
to purchase one-half of one-hundredth of a share of Series A
Junior Participating Preferred Stock ("Preferred Stock") at an
exercise price of $110, subject to adjustment. The rights will
become exercisable only if a person or group acquires or
announces a tender offer for 20% or more of the Company's
outstanding common stock. The Board of Directors may reduce
this threshold percentage to 10%. If a person or group acquires
the threshold percentage of common stock, each right will
entitle the holder, other than the acquiring party, to buy
shares of common stock or Preferred Stock having a market value
of twice the exercise price. If the Company is acquired in a
merger or other business combination, each right will entitle
the holder, other than the acquiring person, to purchase
securities of the surviving company having a market value equal
to twice the exercise price of the rights. Following the
acquisition by any person of more than the threshold percentage
of the Company's outstanding common stock but less than 50% of
such shares, the Company may exchange one share of common stock
for each right (other than rights held by such person). Until
the rights become exercisable, they may be redeemed by the
Company at a price of one cent per right. The rights expire on
February 13, 1999.
Note 9 - EXECUTIVE STOCK PLAN
Under the Company's Executive Stock Plan (the Plan) executives,
key employees, and directors may receive grants and/or awards
including common stock, restricted stock, options qualifying as
incentive or non-qualified stock options and "reload options".
Reload options allow a participant to exercise an option and
receive new options by exchanging previously acquired common
stock for the shares received from the exercise. One new option
may be granted for each share exchanged with an exercise price
equivalent to the market price at the date of exchange. Up to
3.2 million shares of the Company's common stock may be issued
under the Plan. Pursuant to the Plan non-qualified and reload
options have been granted to executives and key employees at an
option price equal to the fair market value of a share of common
stock on the date of grant.
Options granted under the Plan become exercisable one year after
date of grant except those granted in December 1991 which became
exercisable November 1, 1992. Options granted after December 4,
1991 qualify for reload options which are fully exercisable six
months after the date of the grant. All options expire ten
years after date of grant.
Further information regarding options in the Plan for 1994, 1993
and 1992 is summarized as follows:
For the year ended: 1994 1993 1992 Price Range
July 1
Outstanding 644,064 689,242 204,300 $11.06-28.00
Granted 12,000 116,805 590,000 27.38-28.00
Exercised (141,032) (81,158) 11.06-27.38
Canceled (20,951) (23,900) 11.06-28.00
June 30
Outstanding 656,064 644,064 689,242 11.06-28.00
Exercisable 650,064 588,231 99,242 11.06-28.00
Available for future
grant 2,334,376 1,633,746 229,600
Note 10 - INCOME TAXES
The components of income before income taxes and other items
consist of the following:
Year Ended June 30, 1994 1993 1992
United States $12,545 $45,772 $36,119
Foreign 31,284 72,469 64,958
$43,829 $118,241 $101,077
Income taxes consist of the following:
Year Ended June 30, 1994 1993 1992
Current
United States $5,165 $18,025 $14,865
State and local 1,065 4,676 2,896
Foreign 6,045 16,023 16,799
12,275 38,724 34,560
Deferred
United States (5,083) 118 (1,366)
State and local 652 (132) (83)
Foreign 3,960 4,745 2,154
(471) 4,731 705
Total $11,804 $43,455 $35,265
A reconciliation of the statutory U.S. federal rates is as
follows:
Year Ended June 30, 1994 1993 1992
Tax at statutory rate 35.0% 34.0% 34.0%
State income taxes - net of
federal benefit 2.5 2.4 1.9
Permanently reinvested earnings (9.6) (.8) (1.1)
Increase in federal statutory rate 2.5
Other - net (3.5) 1.2 .1
26.9% 36.8% 34.9%
In August, 1993, Congress passed the "Omnibus Budget
Reconciliation Act of 1993" which, among other things, increased
the corporate tax rate from 34% to 35% retroactive to January 1,
1993 which increased tax expense approximately $1.5 million in
the first quarter.
Significant components of deferred tax liabilities and assets as
of June 30 were as follows:
1994 1993
Liabilities
Nonrepatriated earnings $29,132 $21,278
Tax over book depreciation 6,637 12,834
All other 8,058 10,832
Total deferred tax liability 43,827 44,944
Assets
Employee benefit plans 20,327 485
Foreign currency translation 4,990 4,113
Deferred compensation 4,220 5,895
All other 10,953 5,230
Total deferred tax asset 40,490 15,723
Less current portion (5,530) (3,606)
Net deferred tax asset 34,960 12,117
Net deferred tax liability $8,867 $32,827
Note 11 - SHORT-TERM CREDIT FACILITIES
The Company maintains lines of credit in a number of foreign
countries. Foreign borrowings are generally in the form of
exchange contracts and overdraft facilities at rates competitive
in the countries in which the Company operates. Generally, each
foreign line is available only for borrowings related to
operations of a specific country. At June 30, 1994, unused,
uncommitted lines of credit were approximately $1.0 billion.
In addition, the Company maintains a $100 million revolving
credit facility to support short-term borrowings including the
issuance of commercial paper.
Note 12 - COMMITMENTS AND OTHER MATTERS
A material part of the Company's tobacco business is dependent
upon a few customers, the loss of any one of whom would have an
adverse effect on the Company. For the years ended June 30,
1994, 1993 and 1992, one customer accounted for revenues of $900
million, $1.1 billion and $1.2 billion, respectively.
At June 30, 1994, total exposure under guarantees issued for
banking facilities of unconsolidated affiliates was $32.6
million. Other commitments and contingent liabilities were
approximately $152 million and relate principally to Common
Market guarantees.
At June 30, 1994, the Company's equity in the underlying net
assets of its unconsolidated equity affiliates was approximately
equal to its investment. Consolidated retained earnings at June
30, 1994 include undistributed earnings of unconsolidated
affiliates of $25 million (including additional deferred income
tax benefits of $3 million).
The Company's operating subsidiaries within each industry
segment perform credit evaluations of customers' financial
condition prior to the extension of credit. Generally, accounts
and notes receivable are not secured with collateral and are due
within 30 days. When collection terms are extended for longer
periods, interest and carrying costs are recovered. Credit
losses are provided for in the financial statements and such
amounts have not been material except for the write-off of an
account receivable from Iraq in fiscal year 1991. In the lumber
and building product operations in Europe, it is traditional
business practice to insure accounts and notes receivable
against uncollectibility.
At June 30, accounts and notes receivable by operating segment
were as follows (in millions of dollars):
1994 1993
Tobacco $246 $233
Lumber and Building Products 71 70
Agri-products 52 43
$369 $346
Note 13 - ACQUISITIONS
On February 12, 1993, the Company acquired substantially all of
the tobacco operations of The Casalee Group SA (Casalee) through
the purchase of all of Casalee's capital stock and certain of
its subsidiaries at a cost of approximately $100 million. The
acquisition has been accounted for by the purchase method of
accounting. For financial reporting purposes the accounts of
Casalee are on a March 31 fiscal year basis, and are
consolidated with the Company's June 30 fiscal year.
Accordingly, the consolidated results of operations for the
fiscal year ended June 30, 1993 include the results of Casalee
from the acquisition date thru March 31, 1993. Unaudited pro
forma consolidated results of operations for the years ended
June 30, 1993 and 1992 as though Casalee had been acquired at
the beginning of the fiscal year follow:
1993 1992
Gross revenues $3,230,206 $3,170,413
Net income 59,498 68,449
Earnings per share* $ 1.67 $ 1.92
* Weighted average shares outstanding includes 2.7 million
shares assumed to have been issued at the beginning of 1992.
Note 14 - RESTRUCTURING CHARGE
In the fourth quarter of fiscal year 1994, plans were developed
to reduce the Company's worldwide cost structure including the
consolidation of certain tobacco operations and the reduction in
the number of employees. The consolidated statement of income
includes an estimated $17.5 million of pretax charge ($11.8
million net of tax benefits, or $.33 per share) related to the
plan. This charge includes $16 million for the expected costs
of severance payments related to approximately 700 employees
throughout the Company. As of June 30, 1994, payments of $2
million, primarily for severance and related costs of
approximately 200 employees, had been recorded as a reduction of
the provision for restructuring.
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Universal Corporation
We have audited the accompanying consolidated balance sheets of
Universal Corporation and subsidiaries as of June 30, 1994 and
1993, and the related consolidated statements of income, changes
in shareholders' equity, and cash flows for each of the three
years in the period ended June 30, 1994. Our audits also
included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accompanying principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Universal Corporation and
subsidiaries at June 30, 1994 and 1993, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended June 30, 1994, in conformity
with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 3 to the consolidated financial statements,
the Company changed its method of accounting for postretirement
benefits other than pensions in fiscal year 1994.
/s/ Ernst & Young LLP
Richmond, Virginia
August 4, 1994
REPORT OF MANAGEMENT
To the Shareholders of Universal Corporation
The consolidated financial statements of Universal Corporation
have been prepared under the direction of management, which is
responsible for their integrity and objectivity. The statements
have been prepared in accordance with generally accepted
accounting principles and, where appropriate, include amounts
based on judgements of management.
Management is also responsible for maintaining an effective
system of internal accounting controls designed to provide
reasonable assurance that assets are safeguarded and that
transactions are executed in accordance with management's
authorization and properly recorded. This system is continually
reviewed and is augmented by written policies and procedures,
the careful selection and training of qualified personnel, and
an internal audit program to monitor its effectiveness.
Ernst & Young LLP, independent auditors, are retained to audit
our financial statements. Their audit provides an objective
assessment of how well management discharged its responsibility
for fairness in financial reporting.
The Audit Committee of the Board of Directors is composed solely
of outside directors. The committee meets periodically with
management, the internal auditors and the independent auditors
to assure that each is properly discharging its
responsibilities. Ernst & Young LLP and the internal auditors
have full and free access to meet privately with the Audit
Committee to discuss accounting controls, audit findings and
financial reporting matters.
/s/ Hartwell H. Roper
Hartwell H. Roper
Vice President & Chief Financial Officer
August 4, 1994
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the three years ended June 30, 1994, there were no changes
in and disagreements between the Company and its independent
auditors on any matter of accounting principles, practices or
financial statement disclosures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to the caption, "Election of Directors" in the September
23, 1994 Proxy Statement which information is incorporated
herein by reference.
Fiscal
Year
Name Position Age Elected
H. H. Harrell Chairman and Chief
Executive Officer 55 1991
A. B. King President and Chief 48 1993
Operating Officer
H. H. Roper Vice President and 46 1993
Chief Financial Officer
W. L. Taylor Vice President and 53 1993
Chief Administrative Officer
K. M. L. Whelan Vice President and Treasurer 47 1993
J. M. White, III Secretary and General Counsel 55 1988
W. J. Coronado Controller 40 1991
J. Godthelp President and Chairman of the 60 1990
Board of Deli Universal, Inc.
R. J. Zalzneck Senior Vice President of 48 1990
Universal Leaf Tobacco Company,
Incorporated
There are no family relationships between any of the above
officers.
Term of Office: All officers are elected until the next annual
shareholders meeting or until their successors are elected.
Footnotes:
(1) H. H. Harrell was elected chairman and chief executive
officer of Universal Leaf Tobacco Company, Incorporated in 1989.
He was elected president in 1988.
(2) A. B. King was elected president in 1991. He was elected
executive vice president in 1988 of Universal Leaf Tobacco
Company, Incorporated.
(3) H. H. Roper was elected vice president in 1990 and
controller in 1988.
(4) W. L. Taylor was elected vice president in 1991. He joined
Universal Leaf Tobacco Company, Incorporated in 1990 as senior
vice president and chief administrative officer. Prior to 1990,
for more than five years he was a partner with the law firm of
McGuire, Woods, Battle and Boothe.
(5) K. M. L. Whelan joined the company in 1993. Prior to
joining the company she was elected vice president of financial
reporting in 1989 and assistant treasurer in 1986 of James River
Corporation.
(6) W. J. Coronado was elected controller in 1990 and assistant
controller in 1988 of Universal Leaf Tobacco Company,
Incorporated.
(7) J. Godthelp was elected executive vice president in 1986 of
Deli Universal, Inc., a subsidiary of the Company.
(8) R. J. Zalzneck joined the Company in 1988.
ITEM 11. EXECUTIVE COMPENSATION
Refer to the caption, "Stock Ownership," in the September
23, 1994 Proxy Statement which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to the caption, "Certain Relationships," in the September 23, 1994 Proxy
Statement which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the caption, "Certain Relationships and Related
Transactions," in the September 23, 1994 Proxy Statement which
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) and (2) - The following consolidated financial
statements of Universal Corporation and Subsidiaries are
included in Item 8:
Consolidated Statements of Income for the years ended June 30,
1994, 1993 and 1992
Consolidated Balance Sheets at June 30, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
June 30, 1994, 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity for
the years ended June 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements for the years ended
June 30, 1994, 1993 and 1992
Report of Ernst & Young LLP, Independent Auditors
The following consolidated financial statement schedule of
Universal Corporation and Subsidiaries is included in Item
14(d):
Schedule IX Short-term borrowings
(3) Listing of Exhibits
3.1 Restated Articles of Incorporation (incorporated herein
by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1990, File No. 1-652).
3.2 Bylaws (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, File No. 1-652).
4.1 Indenture between the Registrant and Chemical Bank, as
trustee (incorporated herein by reference to Registrant's
Current Report on Form 8-K, dated February 25, 1991, File No.
1-652).
4.2 Form of Fixed Rate Medium-Term Note, Series A
(incorporated herein by reference to the Registrant's Current
Report on Form 8-K, dated February 25, 1991, File No. 1-652).
4.3 Form of 9 1/4% Note due February 15, 2001 (incorporated
herein by reference to the Registrant's Current Report on
Form 8-K, dated February 25, 1991, File No. 1-652).
4.4 Rights Agreement, dated February 2, 1989, between the
Registrant and Sovran Bank, N.A., as Rights Agent
(incorporated herein by reference to the Registrant's Form 8-A
Registration Statement, dated February 9, 1989, File No.
1-652).
4.5 Amendment to Rights Agreement, dated May 2, 1991, between
the Registrant and Sovran Bank, N.A., as Rights Agent
(incorporated hereby by reference to the Registrant's Form 8
Amendment No. 1, dated May 7, 1991, to Form 8-A Registration
Statement, dated February 9, 1989, File No. 1-652).
4.6 Amendment to Rights Agreement, dated July 17, 1992,
between the Registrant, NationsBank, N.A., as Rights Agent,
and Wachovia Bank of North Carolina, N.A., as Successor
Rights Agent (incorporated herein by reference to the
Registrant's Form 8 Amendment No. 2, dated July 17, 1992, to
Form 8-A Registration Statement, dated February 9, 1989, File
No. 1-652).
The Registrant, by signing this Report on Form 10-K, agrees
to furnish the Securities and Exchange Commission, upon its
request, a copy of any instrument which defines the rights of
holders of long-term debt of the Registrant and its consolidated
subsidiaries, and for any unconsolidated subsidiaries for
which financial statements are required to be filed, which
authorizes a total amount of securities not in excess of 10% of
the total assets of the Registrant and its subsidiaries on a
consolidated basis.
10.1 Universal Corporation Restricted Stock Plan for
Non-Employee Directors (incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991, File No. 1-652).
10.2 Universal Leaf Tobacco Company, Incorporated
Supplemental Stock Purchase Plan, as amended June 24, 1991
(incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991,
File No. 1-652).
10.3 Universal Corporation Management Performance Plan
(incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1990,
File No. 1-652).
10.4 Universal Leaf Tobacco Company, Incorporated Management
Performance Plan (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1990, File No. 1-652).
10.5 Universal Leaf Tobacco Company, Incorporated Executive
Life Insurance Agreement.*
10.6 Universal Leaf Tobacco Company, Incorporated Deferred
Income Plan (incorporated herein by reference to the
Registrant's Report on Form 8, dated February 8, 1991, File
No. 1-652).
10.7 Universal Leaf Tobacco Company, Incorporated Benefit
Replacement Plan (incorporated herein by reference to the
Registrant's Report on Form 8, dated February 8, 1991, File
No. 1-652).
10.8 Universal Leaf Tobacco Company, Incorporated Senior
Executive Severance Plan (incorporated herein by reference to
the Registrant's Report on Form 8, dated February 8, 1991,
File No. 1-652).
10.9 Universal Leaf Tobacco Company, Incorporated
Supplemental Pension Plan (incorporated herein by reference to
the Registrant's Report on Form 8, dated February 8, 1991, File
No. 1-652).
10.10 Universal Corporation 1989 Executive Stock Plan, as
amended as of October 27, 1992 (incorporated hereby by
reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993, File No. 1-652).
10.11 Universal Corporation 1991 Stock Option and Equity
Accumulation Agreement (incorporated herein by reference to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1991, File No. 1-652).
10.12 Amendment to Universal Corporation 1991 Stock Option
and Equity Accumulation Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992, File No. 1-652).
10.13 Deli Universal, Inc. Management Performance Plan
(incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992,
File No. 1-652).
10.14 Universal Leaf Tobacco Company, Incorporated 1994
Deferred Income Plan.*
10.15 Universal Corporation Outside Directors' 1994 Deferred
Income Plan.*
10.16 Universal Leaf Tobacco Company, Incorporated 1994
Benefit Replacement Plan.*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.*
27 Financial Data Schedule.*
* Filed herewith.
(b) Reports on Form 8-K filed in the fourth quarter of 1994
Form 8-K filed on July 11, 1994. The form describes a press
release announcing a plan of restructuring which provides for
the consolidation and rationalization of operations and services
in company facilities around the world.
(c) Exhibits
The exhibits listed in Item 14(a)(3) are filed as part of this
annual report.
(d) Financial Statement Schedules
The consolidated financial statement schedule listed in Item
14(a) is filed as part of this annual report. All other
schedules are omitted since the required information is not
present in amounts sufficient to require submission or because
the information required is included in the consolidated
financial statements and notes therein.
SCHEDULE IX
SHORT - TERM BORROWINGS
Years Ended June 30, 1994, 1993 and 1992
(In thousands of dollars)
Maximum Amount Average Amount Weighted Average
Balance at End Weighted Average Outstanding During Outstanding During Interest Rate During
Classification of the Period Interest Rate the Period (1) the Period (1) the Period (2)
1994
Notes Payable $525,521 5.62% $565,281 $533,602 5.01%
1993
Notes Payable 417,067 5.60 444,600 378,721 6.35
1992
Notes Payable 363,378 6.57 363,378 288,750 8.88
Commercial Paper $0 NA $43,000 $16,454 5.93%
(1) Based on quarter-end balances.
(2) The weighted average interest rate was calculated by
dividing total interest paid by average amount borrowed.
Reference is made to Note 12 of the financial statements.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(REGISTRANT)
September 21, 1994 By /s/ Henry H. Harrell
Henry H. Harrell
Chairman and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Chairman, Chief Executive
/s/ Henry H. Harrell Officer and Director September 21, 1994
Henry H. Harrell (Principal Executive Officer)
/s/ Allen B. King President, Chief Operating September 22, 1994
Allen B. King Officer and Director
/s/ William W. Berry Director September 28, 1994
William W. Berry
/s/ Wallace L. Chandler Director September 21, 1994
Wallace L. Chandler
/s/ Richard G. Holder Director September 28, 1994
Richard G. Holder
/s/ Hubert R. Stallard Director September 28, 1994
Hubert R. Stallard
/s/ Thomas R. Towers Director September 22, 1994
Thomas R. Towers
/s/ Hartwell H. Roper Vice President and September 23, 1994
Hartwell H. Roper Chief Financial Officer
/s/ William J. Coronado Controller (Principal September 21, 1994
William J. Coronado Accounting Officer)