Universal Corp 10-Q for FY2020 Q3

Universal Corp (UVV)

10-Q 2020-02-04 For: 2019-12-31

Added on April 10, 2026

About this 10-Q

Universal Corp filed this 10-Q on February 4, 2020, covering the quarter ended December 31, 2019 (FY2020 Q3).

Headline figures

Quarter ended December 31, 2019, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $503.37M; down 20.6% from $634.07M a year earlier
Net income: $25.97M; down 7.7% from net income of $28.14M a year earlier
Diluted EPS: $1.04; down 6.3% from $1.11 a year earlier

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☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED	DECEMBER 31, 2019
		OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM ______________TO_______________



Virginia			54-0414210
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

9201 Forest Hill Avenue,	Richmond,	Virginia	23235
(Address of principal executive offices)			(Zip Code)



Title of each class	Trading Symbols	Name of Exchange on which registered
Common Stock, no par value	UVV	New York Stock Exchange



Large Accelerated Filer	þ	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐



Item No.		Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements	3
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
3.	Quantitative and Qualitative Disclosures About Market Risk	35
4.	Controls and Procedures	36
	PART II - OTHER INFORMATION
1.	Legal Proceedings	37
1A.	Risk Factors	37
2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
6.	Exhibits	39
	Signatures	40



	Three Months Ended December 31,						Nine Months Ended December 31,
	2019			2018			2019			2018
	(Unaudited)						(Unaudited)
Sales and other operating revenues	$	505,049		$	636,107		$	1,277,885		$	1,555,430
Costs and expenses
Cost of goods sold	412,076			520,677			1,030,233			1,268,319
Selling, general and administrative expenses	48,858			58,302			152,824			167,244
Restructuring and impairment costs	—			19,447			—			19,447
Operating income	44,115			37,681			94,828			100,420
Equity in pretax earnings (loss) of unconsolidated affiliates	(69		)	5,512			2,281			5,437
Other non-operating income	633			163			1,893			549
Interest income	164			233			1,412			1,044
Interest expense	5,197			4,732			14,361			13,274
Income before income taxes and other items	39,646			38,857			86,053			94,176
Income taxes	10,328			7,768			26,093			17,734
Net income	29,318			31,089			59,960			76,442
Less: net income attributable to noncontrolling interests in subsidiaries	(3,352		)	(2,954		)	(3,845		)	(3,682		)
Net income attributable to Universal Corporation	$	25,966		$	28,135		$	56,115		$	72,760

Earnings per share:
Basic	$	1.04		$	1.12		$	2.24		$	2.90
Diluted	$	1.04		$	1.11		$	2.23		$	2.87

Weighted average common shares outstanding:
Basic	24,931,711			25,162,268			25,058,525			25,126,595
Diluted	25,055,054			25,365,766			25,178,517			25,329,473

Total comprehensive income, net of income taxes	$	40,023		$	28,737		$	51,479		$	60,842
Less: comprehensive income attributable to noncontrolling interests	(3,491		)	(3,221		)	(3,983		)	(3,685		)
Comprehensive income (loss) attributable to Universal Corporation	$	36,532		$	25,516		$	47,496		$	57,157

Dividends declared per common share	$	0.76		$	0.75		$	2.28		$	2.25



	December 31,			December 31,			March 31,
	2019			2018			2019
	(Unaudited)			(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	64,734		$	138,358		$	297,556
Accounts receivable, net	271,981			336,564			368,110
Advances to suppliers, net	120,079			98,942			106,850
Accounts receivable—unconsolidated affiliates	24,748			77,543			30,951
Inventories—at lower of cost or net realizable value:
Tobacco	937,661			867,181			629,606
Other	84,621			74,360			69,611
Prepaid income taxes	13,619			21,170			14,264
Other current assets	61,450			70,309			71,197
Total current assets	1,578,893			1,684,427			1,588,145

Property, plant and equipment
Land	22,510			23,018			22,952
Buildings	255,202			253,150			261,976
Machinery and equipment	609,976			603,752			608,191
	887,688			879,920			893,119
Less accumulated depreciation	(592,457		)	(572,634		)	(590,625		)
	295,231			307,286			302,494
Other assets
Operating lease right-of-use assets	34,230			—			—
Goodwill and other intangibles	98,042			98,008			97,994
Investments in unconsolidated affiliates	77,783			80,558			80,482
Deferred income taxes	16,354			13,959			13,357
Other noncurrent assets	50,186			44,378			50,712
	276,595			236,903			242,545

Total assets	$	2,150,719		$	2,228,616		$	2,133,184



	Three Months Ended December 31,				Nine Months Ended December 31,
(in thousands of dollars)	2019		2018		2019		2018

Tobacco sales	$	475,574	$	600,848	$	1,193,062	$	1,455,617
Processing revenue	20,112		23,143		55,247		62,244
Other sales and revenue from contracts with customers	7,687		10,083		25,478		28,729
Total revenue from contracts with customers	503,373		634,074		1,273,787		1,546,590
Other operating sales and revenues	1,676		2,033		4,098		8,840
Consolidated sales and other operating revenues	$	505,049	$	636,107	$	1,277,885	$	1,555,430



(in thousands)		Three Months Ended December 31, 2018

Restructuring costs:
	Employee termination benefits	$	3,974
Impairment costs:
	Property, plant and equipment	14,584
	Goodwill	889
		15,473
	Total restructuring and impairment costs	$	19,447



	Three Months Ended December 31,				Nine Months Ended December 31,
(in thousands, except share and per share data)	2019		2018		2019		2018

Basic Earnings Per Share
Numerator for basic earnings per share
Net income attributable to Universal Corporation	$	25,966	$	28,135	$	56,115	$	72,760

Denominator for basic earnings per share
Weighted average shares outstanding	24,931,711		25,162,268		25,058,525		25,126,595

Basic earnings per share	$	1.04	$	1.12	$	2.24	$	2.90

Diluted Earnings Per Share
Numerator for diluted earnings per share
Net income attributable to Universal Corporation	$	25,966	$	28,135	$	56,115	$	72,760

Denominator for diluted earnings per share:
Weighted average shares outstanding	24,931,711		25,162,268		25,058,525		25,126,595
Effect of dilutive securities
Employee share-based awards	123,343		203,498		119,992		202,878
Denominator for diluted earnings per share	25,055,054		25,365,766		25,178,517		25,329,473

Diluted earnings per share	$	1.04	$	1.11	$	2.23	$	2.87



(in thousands)	December 31, 2019
Maturity of Operating Lease Liabilities
2020 (excluding the nine months ended December 31, 2019)	$	2,826
2021	9,271
2022	6,222
2023	5,021
2024	3,558
2025 and thereafter	10,268
Total undiscounted cash flows for operating leases	$	37,166
Less: Imputed interest	(5,307		)
Total operating lease liabilities	$	31,859



	Three Months Ended December 31,		Nine Months Ended December 31,
(in thousands, except lease term and incremental borrowing rate)	2019		2019

Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,805	$	11,064
Right-of-use assets obtained in exchange for new operating leases	1,512		5,613

Weighted Average Remaining Lease Term (years)			6.01

Weighted Average Collateralized Incremental Borrowing Rate			4.82		%



	Nine Months Ended December 31,
(in millions of dollars)	2019		2018

Tobacco purchases	$	123.2	$	71.9
Processing costs	35.1		18.1
Crop input sales	21.7		—
Total	$	180.0	$	90.0



	Derivatives in a Fair Value Asset Position							Derivatives in a Fair Value Liability Position
	Balance Sheet Location	Fair Value as of						Balance Sheet Location	Fair Value as of
(in thousands of dollars)	Balance Sheet Location	December 31, 2019		December 31, 2018		March 31, 2019		Balance Sheet Location	December 31, 2019		December 31, 2018		March 31, 2019

Derivatives Designated as Hedging Instruments
Interest rate swap agreements	Other non-current assets	$	—	$	6,075	$	—	Other long-term liabilities	$	15,978	$	—	$	6,351

Foreign currency exchange contracts	Other current assets	1,530		592		307		Accounts payable and accrued expenses	172		—		—
Total		$	1,530	$	6,667	$	307		$	16,150	$	—	$	6,351

Derivatives Not Designated as Hedging Instruments
Foreign currency exchange contracts	Other current assets	$	259	$	103	$	233	Accounts payable and accrued expenses	$	1,038	$	34	$	386
Total		$	259	$	103	$	233		$	1,038	$	34	$	386



Level		Description

1		quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date;

2		quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and

3		unobservable inputs for the asset or liability.



	December 31,			December 31,			March 31,
	2019			2018			2019
	(Unaudited)			(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable and overdrafts	$	92,592		$	129,316		$	54,023
Accounts payable and accrued expenses	130,165			144,107			145,506
Accounts payable—unconsolidated affiliates	7,494			1,470			106
Customer advances and deposits	8,230			56,355			21,675
Accrued compensation	21,761			23,989			31,372
Income taxes payable	1,991			3,090			1,066
Current portion of operating lease liabilities	8,394			—			—
Current portion of long-term debt	—			—			—
Total current liabilities	270,627			358,327			253,748

Long-term debt	368,698			368,438			368,503
Pensions and other postretirement benefits	55,305			41,601			59,257
Long-term operating lease liabilities	23,465			—			—
Other long-term liabilities	51,185			38,467			43,214
Deferred income taxes	28,228			32,000			28,584
Total liabilities	797,508			838,833			753,306

Shareholders’ equity
Universal Corporation:
Preferred stock:
Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized, none issued or outstanding	—			—			—
Common stock, no par value, 100,000,000 shares authorized 24,693,557 shares issued and outstanding at December 31, 2019 (24,968,799 at December 31, 2018 and 24,989,946 at March 31, 2019)	324,388			326,323			326,600
Retained earnings	1,089,718			1,093,829			1,106,178
Accumulated other comprehensive loss	(104,310		)	(75,667		)	(95,691		)
Total Universal Corporation shareholders' equity	1,309,796			1,344,485			1,337,087
Noncontrolling interests in subsidiaries	43,415			45,298			42,791
Total shareholders' equity	1,353,211			1,389,783			1,379,878

Total liabilities and shareholders' equity	$	2,150,719		$	2,228,616		$	2,133,184



	Nine Months Ended December 31,
	2019			2018
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	59,960		$	76,442
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation	27,500			27,651
Net provision for losses (recoveries) on advances and guaranteed loans to suppliers	93			(3,045		)
Foreign currency remeasurement (gain) loss, net	(2,179		)	1,790
Restructuring and impairment costs	—			19,447
Restructuring payments	(444		)	(762		)
Other, net	2,714			6,812
Changes in operating assets and liabilities, net	(260,542		)	(225,648		)
Net cash used by operating activities	(172,898		)	(97,313		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(21,692		)	(28,370		)
Proceeds from sale of property, plant and equipment	2,946			1,377
Other	496			2,000
Net cash used by investing activities	(18,250		)	(24,993		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt, net	41,201			85,893
Dividends paid to noncontrolling interests	(3,359		)	(1,260		)
Repurchase of common stock	(20,125		)	(1,443		)
Dividends paid on common stock	(56,601		)	(51,156		)
Other	(2,883		)	(4,946		)
Net cash (used) provided by financing activities	(41,767		)	27,088

Effect of exchange rate changes on cash	93			(552		)
Net decrease in cash and cash equivalents	(232,822		)	(95,770		)
Cash and cash equivalents at beginning of year	297,556			234,128

Cash and cash equivalents at end of period	$	64,734		$	138,358


⁽¹⁾	Includes variable operating lease costs.



	Nine Months Ended December 31,
(in thousands of dollars)	2019			2018

Balance at beginning of year	$	803		$	974
Payments under the guarantees and transfers to allowance for loss on direct loans to farmers (removal of prior crop year loans from portfolio)	(661		)	(777		)
Provision for loss or transfers from allowance for loss on direct loans to farmers (addition of current crop year loans)	(5		)	746
Change in discount rate and estimated collection period	(7		)	44
Currency remeasurement	1			(203		)
Balance at end of period	$	131		$	784



	December 31, 2019
			Fair Value Hierarchy
(in thousands of dollars)	NAV		Level 1		Level 2		Level 3		Total

Assets
Money market funds	$	4,003	$	—	$	—	$	—	$	4,003
Trading securities associated with deferred compensation plans	—		16,410		—		—		16,410
Foreign currency exchange contracts	—		—		1,789		—		1,789
Total financial assets measured and reported at fair value	$	4,003	$	16,410	$	1,789	$	—	$	22,202

Liabilities
Guarantees of bank loans to tobacco growers	$	—	$	—	$	—	$	131	$	131
Interest rate swap agreements	—		—		15,978		—		15,978
Foreign currency exchange contracts	—		—		1,211		—		1,211
Total financial liabilities measured and reported at fair value	$	—	$	—	$	17,189	$	131	$	17,320



	Pension Benefits						Other Postretirement Benefits
	Three Months Ended December 31,						Three Months Ended December 31,
(in thousands of dollars)	2019			2018			2019			2018

Service cost	$	1,529		$	1,433		$	53		$	60
Interest cost	2,678			2,503			322			342
Expected return on plan assets	(4,151		)	(3,693		)	(24		)	(24		)
Net amortization and deferral	696			902			(154		)	(193		)
Net periodic benefit cost	$	752		$	1,145		$	197		$	185


⁽¹⁾	Includes South America, Africa, Europe, and Asia regions, as well as inter-region eliminations.


⁽²⁾	Includes Dark Air-Cured, Special Services, and Oriental, as well as inter-company eliminations. Sales and other operating revenues for this reportable segment include limited amounts for Oriental because the business is accounted for on the equity method and its financial results consist principally of equity in the pretax earnings (loss) of unconsolidated affiliates.


⁽³⁾	Equity in pretax earnings (loss) of unconsolidated affiliates is included in segment operating income (Other Tobacco Operations segment), but is reported below consolidated operating income and excluded from that total in the consolidated statements of income and comprehensive income.


⁽⁴⁾	Restructuring and impairment costs are excluded from segment operating income, but are included in consolidated operating income in the consolidated statements of income and comprehensive income.


⁽¹⁾	Gain (loss) on foreign currency cash flow hedges related to forecast purchases of tobacco is reclassified from accumulated other comprehensive income (loss) to cost of goods sold when the tobacco is sold to customers. See Note 8 for additional information.


⁽²⁾	Gain (loss) on interest rate cash flow hedges is reclassified from accumulated other comprehensive income (loss) to interest expense when the related interest payments are made on the underlying debt, or as amortized to interest expense over the period to original maturity for terminated swap agreements. See Note 9 for additional information.


⁽³⁾	This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost. See Note 11 for additional information.



	Three Months Ended December 31, 2019								Three Months Ended December 31, 2018
(in thousands of dollars)	Universal Corporation			Non-controlling Interests		Total			Universal Corporation			Non-controlling Interests		Total

Balance at beginning of three-month period	$	1,298,659		$	39,924	$	1,338,583		$	1,336,341		$	42,077	$	1,378,418

Changes in common stock
Repurchase of common stock	(1,956		)	—		(1,956		)	—			—		—
Accrual of stock-based compensation	1,159			—		1,159			1,354			—		1,354
Dividend equivalents on RSUs	258			—		258			343			—		343

Changes in retained earnings
Net income	25,966			3,352		29,318			28,135			2,954		31,089
Cash dividends declared
Common stock	(18,768		)	—		(18,768		)	(18,726		)	—		(18,726		)
Repurchase of common stock	(5,830		)	—		(5,830		)	—			—		—
Dividend equivalents on RSUs	(258		)	—		(258		)	(343		)	—		(343		)

Other comprehensive income (loss)	10,566			139		10,705			(2,619		)	267		(2,352		)
Balance at end of period	$	1,309,796		$	43,415	$	1,353,211		$	1,344,485		$	45,298	$	1,389,783



	Nine Months Ended December 31, 2019									Nine Months Ended December 31, 2018
(in thousands of dollars)	Universal Corporation			Non-controlling Interests			Total			Universal Corporation			Non-controlling Interests			Total

Balance at beginning of year	$	1,337,087		$	42,791		$	1,379,878		$	1,342,429		$	42,873		$	1,385,302

Changes in common stock
Repurchase of common stock	(4,930		)	—			(4,930		)	(397		)	—			(397		)
Accrual of stock-based compensation	4,846			—			4,846			7,104			—			7,104
Withholding of shares from stock-based compensation for grantee income taxes	(2,883		)	—			(2,883		)	(2,657		)	—			(2,657		)
Dividend equivalents on RSUs	755			—			755			714			—			714

Changes in retained earnings
Net income	56,115			3,845			59,960			72,760			3,682			76,442
Cash dividends declared
Common stock	(56,626		)	—			(56,626		)	(56,171		)	—			(56,171		)
Repurchase of common stock	(15,194		)	—			(15,194		)	(1,046		)	—			(1,046		)
Dividend equivalents on RSUs	(755		)	—			(755		)	(714		)	—			(714		)
Adoption of FASB Accounting Standards Update 2016-16 eliminating deferred income taxes on unrecognized gains on intra-entity transfers of assets other than inventory	—			—			—			(1,934		)	—			(1,934		)

Other comprehensive income (loss)	(8,619		)	138			(8,481		)	(15,603		)	3			(15,600		)

Other changes in noncontrolling interests
Dividends paid to noncontrolling shareholders	—			(3,359		)	(3,359		)	—			(1,260		)	(1,260		)
Balance at end of period	$	1,309,796		$	43,415		$	1,353,211		$	1,344,485		$	45,298		$	1,389,783



Adjusted Operating Income
	Three Months Ended December 31,				Nine Months Ended December 31,
(in millions)	2019		2018		2019		2018
As Reported: Consolidated operating income	$	44.1	$	37.7	$	94.8	$	100.4
FruitSmart acquisition transaction costs⁽¹⁾	0.9		—		1.9		—
Restructuring and impairment costs⁽²⁾	—		19.4		—		19.5
Adjusted operating income	$	45.0	$	57.1	$	96.7	$	119.9


Adjusted Net Income and Diluted Earnings Per Share
	Three Months Ended December 31,				Nine Months Ended December 31,
(in millions and reported net of income taxes)	2019		2018		2019		2018
As Reported: Net income available to Universal Corporation	$	26.0	$	28.1	$	56.1	$	72.8
FruitSmart acquisition transaction costs⁽¹⁾	0.9		—		1.9		—
Restructuring and impairment costs⁽²⁾	—		15.8		—		15.8
Unresolved income tax matter for a foreign subsidiary	—		—		2.8		—
Income tax benefit from dividend withholding tax liability reversal⁽³⁾	—		—		—		(7.8		)
Adjusted Net income available to Universal Corporation	$	26.9	$	43.9	$	60.8	$	80.8

Adjusted diluted earnings per share	$	1.08	$	1.73	$	2.41	$	3.19


⁽¹⁾	The Company incurred legal and professional fees associated with the acquisition of FruitSmart (effective January 1, 2020). These costs are not deductible for U.S. income tax purposes.


⁽²⁾	In the third quarter of fiscal year 2019, the Company recognized a restructuring and impairment charge related to the Company's operations in Tanzania.


⁽³⁾	During fiscal year 2019, the Company reversed a portion of a liability previously recorded for dividend withholding taxes on the cumulative retained earnings of a foreign subsidiary.



Period ⁽¹⁾	Total Number of Shares Repurchased	Average Price Paid Per Share ⁽²⁾		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs ⁽³⁾	Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽³⁾

October 1-31, 2019	38,767	$	53.19	38,767	$	75,186,145
November 1-30, 2019	71,849	51.31		71,849	71,499,805
December 1-31, 2019	38,940	52.34		38,940	69,461,626
Total	149,556	$	52.06	149,556	$	69,461,626


⁽¹⁾	Repurchases are based on the date the shares were traded. This presentation differs from the consolidated statement of cash flows, where the cost of share repurchases is based on the date the transactions were settled.


⁽²⁾	Amounts listed for average price paid per share include broker commissions paid in the transactions.



2.1		Stock Purchase Agreement, dated as of November 20, 2019, by and among Universal Corporation, FruitSmart, Inc., the Sellers named therein and James P. Early, as the Sellers’ Representative (incorporated herein by reference to the Registrant’s Current Report on Form 8-K, filed November 20, 2019, File No. 001-00652).

3.1		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on April 12, 2019).

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.*

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*

101		Interactive Data File (submitted electronically herewith).*

		101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section and shall not be part of any registration or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



Date:	February 4, 2020	UNIVERSAL CORPORATION
		(Registrant)

		/s/ Johan C. Kroner
		Johan C. Kroner, Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

		/s/ Scott J. Bleicher
		Scott J. Bleicher, Vice President and Controller
		(Principal Accounting Officer)