SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ 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, 1996
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
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(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0414210
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(State or other jurisdiction of incorporation (I.R.S. Employer Identifica-
or organization) tion Number)
1501 North Hamilton Street, Richmond, Virginia 23230
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (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 17, 1996
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Common Stock, no par value New York 35,056,357
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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__
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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____ No X
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The aggregate market value of Registrant's voting stock held by non-affiliates
was $952,000,000 at September 17, 1996.
INFORMATION INCORPORATED BY REFERENCE
Certain information in the September 18, 1996 Proxy Statement for the Annual
Meeting of Shareholders of Registrant is incorporated by reference into Part III
hereof.
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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 merchant and has additional operations in agri-products and the
distribution of 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, 1996, such operations accounted for 71% of
revenues and 83% of operating profits. Its agri-products and lumber and building
products operations accounted for 13% and 16% of revenues and 6% and 11% of
operating profits, respectively, during the same period. See Note 4 to
Consolidated Financial Statements for additional business segment and
geographical information.
B. Description of Tobacco Business
General
Universal's tobacco 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.
The Company's sales are predominantly flue-cured and burley tobaccos that, along
with oriental tobaccos, are the major ingredients in American blend cigarettes.
American blend cigarettes are mild in taste in comparison to the harsher and
stronger cigarettes smoked in most of the world outside of the United States and
contain less tar and nicotine. Over the last decade, American-blend cigarettes
have gained market share in many foreign markets, including those in Asia,
Europe, and the Middle East, and the demand for flue-cured and burley tobaccos
has risen accordingly.
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
investment in plants and machinery.
Universal estimates that in fiscal 1996 it purchased or processed nearly 40% 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 financial position and
its ability to meet customer demand through internal growth and selected
acquisitions.
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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
markets. These types of tobacco are typically used for cigars and smokeless
tobacco products. After decades of sales volume declines, the cigar industry
has experienced recent growth particularly in the premium segment of the market.
Although consumption of cigarettes in the United States increased 1% in 1995,
the consumption of cigarettes generally has decreased in the U.S. and certain
industrialized countries in recent years and may continue to do so in the
future. However, consumption in many developing countries has increased and 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 number of the
world's tobacco markets are more open to trade as 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. Legislation has been proposed at the Federal level and in a number of
states to increase the excise tax on cigarettes. The U.S. Food and Drug
Administration ("FDA") is proposing to regulate nicotine as a drug and to
sharply restrict cigarette advertising and promotion in an effort to deter
smoking by minors. The FDA efforts have been challenged in the courts. Numerous
other legislative and regulatory anti-smoking measures have also been proposed
at the federal, state and local levels. It is not possible to predict what, if
any, governmental legislation or regulations will be adopted related to tobacco
or smoking. However, if any or all of the foregoing were to be implemented, the
Company's operating revenues and operating income could be adversely impacted in
amounts that cannot be determined.
Litigation seeking damages for health problems and nicotine addiction alleged to
have resulted from the use of tobacco is pending against the leading United
States manufacturers of consumer tobacco products. Several U.S. states have
filed lawsuits against the cigarette manufacturers seeking reimbursement of
Medicaid and other expenditures claimed to have been made by such states to
treat diseases allegedly caused by cigarette smoking. 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.
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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 caused U.S.
grown tobacco to be more expensive than most non-U.S. tobacco, resulting in a
declining trend in exports. Industry leaders continue to explore 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 and 1995, imports of foreign leaf declined in response to legislation
enacted in 1993 which required that cigarettes manufactured in the U.S. contain
at least 75% U.S. grown tobacco. In September 1995 this legislation was replaced
with a somewhat less restrictive tariff rate quota system. To prevent a
significant reduction in domestic production quotas, in December 1994 the
domestic cigarette manufacturers agreed to purchase 700 million pounds of
surplus flue-cured and burley tobacco from the stabilization cooperatives.
From time to time, the Company processes and stores tobacco acquired by the
flue-cured and burley stabilization cooperatives under the federal price support
program. The Company derives fees for such services, particularly in years when
a substantial portion of the domestic tobacco crop is acquired by such
cooperatives under the program. While the volume of such business fluctuates
from year to year, revenues from this business in each of the past five years
were not greater than 1% of consolidated tobacco revenues.
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,
Colombia, the Dominican Republic, Ecuador, France, Germany, Greece, Guatemala,
Hong Kong, Hungary, India, Indonesia, Italy, Malawi, Mexico, Mozambique, the
Netherlands, Paraguay, the People's Republic of China, the Philippines, Poland,
the Republics of the former Soviet Union, Spain, Switzerland, Tanzania,
Thailand, Turkey, Uganda, the United Kingdom, Zambia and Zimbabwe.
In a number of countries, including Brazil, Hungary, Italy and Mexico, 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 seed, fertilizer and other supplies. Tobacco
in Zimbabwe, Malawi and Canada, and to a certain extent in India, is purchased
under an auction system.
The Company has made substantial capital investments in Brazil and in Africa and
the profitability of these operations can materially affect the Company's
tobacco operating profits. The Company has installed a state-of-the-art
blending facility in one of its processing facilities in Italy as part of an
ongoing strategy to offer additional services to cigarette manufacturers. See
"Properties."
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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 to an extent, 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 South
America, Africa, 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 40 years. For the year ended
June 30, 1996, 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 14%.
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Universal had orders from customers in excess of approximately $400 million for
its tobacco inventories at June 30, 1996. Based upon historical experience, it
is expected that at least 90% of such orders will be delivered during the fiscal
year ending June 30, 1997. Typically, delays in the delivery of orders result
from changing customer requirements. Orders from customers at June 30, 1995,
were in excess of approximately $350 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.
Competition
The leaf tobacco industry is highly competitive. Competition among leaf tobacco
merchants is based on the price charged for products and services as well as the
firm'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. See "Properties."
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. 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: DiMon Incorporated, Export Leaf Tobacco Company,
Standard Commercial Corporation and Intabex Holding Worldwide S.A.. 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 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 fiscal year, the Company formed
a joint venture with COSUN (a Dutch sugar cooperative) in which the companies
merged their spices activities. This joint venture is the market leader in the
industrial spice market in the Benelux.
The emphasis of the Company's agri-products business is on value-adding
activities and/or trading of physical products in markets where a service can be
performed in the supply system from the countries of origin to the consuming
industries. In a number of countries, long-standing 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 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 long standing. No single
customer accounts for 10% or more of the Company's consolidated agri-products
revenues.
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Competition among suppliers in the agricultural products in which Universal
deals is based on price as well as the ability to meet customer requirements in
product quality, 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, Burns
Philip, Ennar, Cargill, Dahlgren, Global, EP Lambert Co., Finlay, Fuchs,
Metallgeschellschaft/SAFIC Alcan, Stassens, Symington, Universal Tea, UTT
(Unilever) 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 distribution business
in the Netherlands and 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 operations of its customers in the
building industry. The 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 Company's sales activities in this segment are conducted through three
business units: regional sales, wholesale/do-it-yourself (DIY) sales and
industrial sales. The regional sales unit distributes and sells lumber and
related building products through a network of regional outlets, mainly to the
building and construction market. The wholesale/DIY business unit supplies
timber merchants and DIY chains with a wide range of timber related products
including panel products and doors. The industrial sales unit consists mainly of
Heuvelman, a premier softwood distributor of value-added products to the
construction industry.
The Company carries inventories to meet customers' demands for prompt 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.
It is traditional business practice in this industry to insure accounts and
notes receivable against uncollectibility. The Company generally 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 20%
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 its 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%.
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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 30,000 employees throughout the world during
the fiscal year ended June 30, 1996. 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, 1996, 1995, and 1994.
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, 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.
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Processing plants in the following foreign locations are used in the Company's
tobacco operations: a large processing plant in Canada; one large processing
plant and one smaller plant in Malawi; three large processing plants in Italy;
three plants in Zimbabwe; and plants in Hungary, Turkey and the Netherlands. In
Brazil, Universal owns three large plants one of which is used for storage.
The facilities described above are engaged primarily in processing tobacco used
by manufacturers in the production of cigarettes. In addition, Universal
operates plants that process cigar/chewing tobaccos in Lancaster, Pennsylvania;
Kenbridge, Virginia; the Dominican Republic; Colombia; Germany; Indonesia; and
Brazil.
Universal owns or leases extruder plants (baling operations), packaging stations
and warehouse space in the tobacco-growing states and abroad. Large extruder
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 domestic tobacco 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 - 6 storages covering 353,000 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 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 their purposes at current
sales levels. Facilities owned are not subject to indebtedness except for the
facility in Dinwiddie County which is financed in part through a governmental
industrial development authority.
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 (indirectly owned through a joint venture) in the Netherlands, a bean
processing plant in Park Rapids, Minnesota, small grain processing facilities in
Delamere, North Dakota and Zevenbergen, the Netherlands, and sunflower seed
processing plants in Lubbock, Texas; Fargo, North Dakota; and Colby, Kansas.
This latter facility is financed in part through a governmental industrial
development authority. The Company has leased agri-products trading offices
around the world, including locations in New York, London, Warsaw, Rotterdam,
Dubai, Belgium, Indonesia, Kenya and Malawi.
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The lumber and building products business owns or leases 36 sales outlets in the
Netherlands and six sales outlets in Belgium. It also has five storage and
distribution warehouses, a softwood facility for large scale sawing, planing and
fingerjointing, 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, 1996, there were no matters submitted to a
vote of security holders.
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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
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1996
Cash dividends declared $ .25 $ .255 $ .255 $ .255
Market price range: High 23 24 5/8 28 3/8 28 1/2
Low 21 1/8 20 1/4 22 1/4 23 3/4
1995
Cash dividends declared .24 .25 .25 .25
Market price range: High 24 3/4 24 1/4 22 1/4 24
Low $18 3/4 $19 3/4 $18 7/8 $20 3/4
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The Company expects the past trend of dividend payments to continue, subject,
however, to its future earnings and financial condition. At June 30, 1996 there
were 3,420 holders of record of the registrant's common stock which is traded on
the New York Stock Exchange.
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ITEM 6. SELECTED FINANCIAL DATA
Five-Year Comparison of Selected Financial Data For Years Ended June 30
<TABLE>
<CAPTION>
(In thousands except per share data, ratios,
and number of common shareholders) 1996 1995 1994 1993 1992
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<S> <C>
Summary of Operations
Gross revenues $3,570,228 $3,280,880 $3,048,515 $3,077,597 $3,156,304
Income before extraordinary
item and cumulative effect of change
in accounting principle 71,350 25,639 42,579 80,066 73,722
Net income $72,246 $25,639 $13,173 $80,066 $73,722
Return on beginning common shareholders' equity 18.5% 6.7% 3.1% 26.1% 18.6%
Per common share
Income before extraordinary item
and cumulative effect of change in
accounting principle $2.04 $ .73 $1.20 $2.38 $2.25
Net income $2.06 $ .73 $ .37 $2.38 $2.25
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Financial Position at Year End
Current ratio 1.29 1.27 1.35 1.34 1.38
Total assets $1,889,513 $1,807,965 $1,735,866 $1,698,937 $1,345,347
Long-term obligations 309,543 284,948 304,149 287,796 194,566
Working capital 299,778 264,713 318,583 309,370 284,870
Shareholders' equity 417,305 389,959 384,598 421,022 306,754
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General
Number of common shareholders 3,420 3,741 4,022 4,132 4,210
Weighted average common shares outstanding
(used as basis for computation of E.P.S.) 35,038 35,014 35,502 33,599 32,822
Dividends per common share $ 1.015 $ .99 $ .94 $ .86 $ .79
Book value per common share $ 11.90 $ 11.13 $ 10.99 $ 11.82 $ 9.33
- --------------------------------------------- ---------- ---------- ---------- ---------- ----------
</TABLE>
Fiscal year 1995 includes a $15.6 million ($10.7 million net of tax)
restructuring charge.
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.
Fiscal 1994 and prior years have been restated to reflect the consolidation of
certain foreign susidiaries that had been accounted for under the cost or equity
method of accounting.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity & Capital Resources
Working capital increased by approximately $35 million to $300 million.
This increase related primarily to the reduction of short-term financing
with the proceeds of long-term debt issued in February, 1996. The
Company issued $100 million of 10-year notes bearing interest of 6.5%.
The proceeds of the note issuance were used initially to reduce
short-term debt, but are ultimately intended to retire long-term issues
as they mature in fiscal year 1997. The increase in cash and cash
equivalents reflects crop prefinancing invested temporarily in Brazil on
March 31, 1996, the date of consolidation of the Company's Brazilian
subsidiaries. For fiscal year 1996, earnings from such investment
vehicles was less than 8% of consolidated pretax earnings. As of June
30, 1996, all Brazilian investments had been used for crop purchases.
Although tobacco inventories increased slightly compared to last year,
as of July 1, 1996 the company estimates that its uncommitted flue cured
and burley tobacco inventories were approximately 8,600 tons, down from
25,700 tons a year ago.
In the first quarter of fiscal year 1996, the Company made some minor
structural changes in its U.S. tobacco operations. The $10 million of
"Proceeds from minority investment in a subsidiary" in the Statement of
Cash Flows represents cash proceeds from the issuance of stock in a
newly formed subsidiary. The Company treated the issuance of these
shares as an equity transaction and no gain or loss was recognized.
The Company's capital needs are predominantly short term in nature and
relate to working capital required for financing each operating
segment's 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 the duration of crop financing. 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 the
agri-products segment during the year remain relatively stable due to
offsetting seasonal patterns. Working capital needs of the lumber and
building products segment 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.
The international tobacco trade generally is conducted in U.S. dollars thereby
limiting foreign exchange risk to that which is related to production costs and
overhead in the country in which the tobacco is sourced. Because there are no
forward foreign currency exchange markets in many of the Company's major
countries of tobacco origin, the Company manages its risk by matching funding
for inventory purchases with the currency of sale and by minimizing its net
investment in these countries. In addition, it is a generally accepted practice
in the tobacco
<PAGE>
- 14 -
processing industry that customers pay a market rate of interest for
inventory purchased to their order; thus changes in interest rates do
not have a major impact on the Company's income and are not considered a
source of significant risk.
The agri-products and lumber and building products businesses, which are
based in the United States and in the Netherlands, do business in a
number of foreign countries. These operations enter into forward
exchange contracts to hedge firm purchase and sales commitments in
foreign currencies (principally Dutch guilders, U.S. dollars, German
marks, Swedish kronas, and pounds sterling). The term of currency hedges
is generally from one to six months.
Acquisitions and investments are reflected in "Net cash used for
investing activities." Over the last three years, total investment needs
of $104 million were provided by cash flow from operating activities.
Investments of $19 million in fiscal year 1996 included the acquisition
of the leaf processing business of RJR-Macdonald, Inc. in Canada. That
acquisition included a long-term contract for the processing and supply
of leaf tobacco to R.J. Reynolds Tobacco International, Inc. The Company
also entered into a joint venture processing agreement in Guatemala and
acquired an interest in a leaf processing company in Tanzania. The
Company enhanced its spice business by consummating a joint venture in
the Benelux area during the year. These investments were funded with
operating cash flow.
The Company's capital expenditures are generally limited to those that
add value to the customer, replace obsolete equipment, increase
efficiency, or position the Company for future growth. During fiscal
year 1996, Universal completed the installation of a processing facility
in China and upgraded a number of U.S. plants. During fiscal 1997, the
Company plans to improve its Canadian facility as well as upgrade one of
its African facilities. Management believes that these operations
represent significant opportunities for growth over the long term and
the expenditures will be funded from operating cash flow. At June 30,
1996, 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 $1.7 billion in uncommitted lines of credit of which $1.2 billion
was available at June 30, 1996, 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 issuance of commercial paper. The Company's debt ratings are
investment grade, and its ratio of long-term debt to total
capitalization (including deferred taxes) is approximately 42%. Any
excess cash flow from operations after dividends, capital expenditures,
and long-term debt payments will be available to reduce short-term debt,
or fund expansion.
Results of Operations
Fiscal Year 1996 Compared to 1995
Consolidated revenues in fiscal year 1996 increased $289 million or 8.8%
over last year. Tobacco revenues accounted for well over 75% of the
increase, or $228 million, principally due to improved market
conditions. Increased demand from manufacturers led to increases in
prices and volumes sold. The balance of the increase is attributed to
lumber and building
<PAGE>
- 15 -
product operations for which revenues were up $62 million. The lumber
and building products revenue increase was due to a stronger Dutch
guilder vis-a-vis the U.S. dollar, and the inclusion of Heuvelman, a
softwood distributor acquired last year, for the entire year versus
seven months reported in fiscal year 1995. Total agri-product revenues
were comparable year to year as increases in tea revenues were offset by
reductions in canned meat and other product offerings.
Tobacco operating profits in fiscal year 1996 were $168 million, an
increase of $66 million over the prior year. The majority of the
improvement was due to handling larger leaf volumes, and improved
operating margins. Fiscal year 1995's tobacco operating profits were
reduced by a $15.6 million restructuring charge and $10.7 million of
inventory write-downs. In fiscal year 1996 the Company benefited from
reduced operating expenses that resulted from its restructuring efforts
over the two previous years. In the United States results improved on
higher volumes of tobacco bought and processed, and shipments of prior
years' crops. Overall foreign tobacco operating profits were up due to
the aforementioned improved market conditions and lower costs. Profit
improvements were realized in South/Central America, Europe and Africa,
while results from the Far East and Turkey were down due to reduced
volumes and higher costs related to exchange differences, respectively.
Included in the increased tobacco operating profits are improved results
from dark tobacco operations reflecting continued strong demand for
cigar leaf, particularly in the U.S. Fiscal year 1996 lumber and
building product operating profits were up 8%, benefiting from growth in
the wholesale and do-it-yourself area, and the inclusion of Heuvelman
for the full year. This improvement was partially offset as regional
sales outlets suffered from historically low softwood prices and severe
winter weather that resulted in the virtual shut down of the
construction industry for a number of weeks late in the fiscal year.
Agri-product operating profits increased 7% to $13 million in fiscal
year 1996 principally due to improved results in all areas except nuts
and dried fruits.
`Selling, General and Administrative Expenses' were up $12 million or less than
4% compared to last year. The majority of the increase is due to the inclusion
of Heuvelman. The increase was mitigated by approximately $5.5 million of
provisions recorded in fiscal year 1995 related to customer obligations in
Eastern Europe. Interest expense was down slightly in fiscal year 1996 due to
lower average borrowing rates.
Fiscal year 1996's income tax rate was 40% compared to 44.6% last year.
Fiscal year 1995's tax rate did not include full statutory benefits on
the restructuring charge or on inventory write-downs and provisions
related to Eastern Europe. The Company's consolidated income tax rate in
both years was affected by a number of factors, including but not
limited to: the mix of domestic and foreign earnings, subsidiary local
tax rates, the Company's policy regarding repatriation of foreign
earnings, and its ability to utilize foreign tax credits. At the end of
fiscal year 1995, the Company implemented a number of tax planning
strategies to minimize the increase in its tax rate above the statutory
rate, and began realizing benefits in fiscal year 1996.
During fiscal year 1996, the Company's 1995 restructuring plan was
implemented. The fiscal year 1995 charge included $7.2 million for the
expected costs of severance and deferred payments related to
approximately 200 employees throughout the Company. The non-severance
portion of the charge was for the write-down of assets in operations
consolidated ($3.7 million), other nonoperating restructuring costs
($1.7 million) and cash
<PAGE>
- 16 -
payments to terminate occupancy of leased facilities ($3 million). As of
June 30, 1996 total cash payments of approximately $4 million had been
made to cover severance costs of 195 employees. Any remaining actions
related to the 1995 plan will be implemented in fiscal year 1997 and are
not significant to the Company's operations.
Fiscal Year 1995 Compared to 1994
In fiscal year 1995, the Company began reporting its African operations
on a consolidated basis. Previously, these operations were reported
either on the cost or equity method. The change in reporting did not
materially affect the results of operations, and all prior years have
been restated to reflect this change. The most significant factor that
resulted in an increase in previously reported fiscal year 1994 results
was the inclusion of earnings, rather than only dividends received, from
those companies previously accounted for under the cost method.
Consolidated revenues were up $232 million or 7.6% in fiscal year 1995
compared to 1994. Gross revenues in all three operating segments were up
over the prior year, with lumber and building products accounting for
over 60% of the consolidated increase. The improvement in lumber was due
to a combination of increased sales, the inclusion of full year results
of 1994 acquisitions and results of acquisitions in fiscal year 1995,
and exchange rate differences. The total increase in revenues related to
these acquisitions was almost $70 million. Domestic tobacco revenues
were up $137 million because of an increase in sales and purchasing
volume of about 16%. This improvement was due to the improved quality of
the domestic crops as the Company purchased more tobacco for customers.
Tobacco operating profits were down 15.8% or $19 million compared to
fiscal year 1994's results. Tobacco operating profits in fiscal year
1995 included $15.6 million of restructuring charges compared to $17.5
million in 1994. The lower results in fiscal year 1995 reflect the
continued pressure on margins from an unbalanced supply and demand
situation. Fiscal year 1995 included $10.7 million of tobacco inventory
write-downs, almost $7 million of which was related to Indonesian
tobacco and Eastern Europe. Write-downs in 1994 were $27 million.
Domestic tobacco's operating profits improved on increased volumes.
Lumber and building products operating income for fiscal year 1995 was
up 12.8% or $2.4 million largely due to the acquisition of Heuvelman and
a strong performance by the wholesale companies during the year.
Operating profits as a percentage of sales decreased from 5.1% in fiscal
year 1994 to 4.1% in 1995 due to the adverse effects of a strike in the
Dutch building industry, higher labor costs, and low prices for tropical
plywood and hardwoods; however, improved volumes and acquired operations
more than offset those factors. Agri-products operating income increased
$2.7 to $11.9 million in fiscal year 1995. The majority of this increase
was due to the discontinuation of coffee trading near the end of fiscal
year 1994; that operation had recorded losses during the year. Trading
activity in rubber showed improved results on the strength of higher
prices. Tea results improved despite a flat market from continuing
worldwide oversupply. In addition, improved earnings were reported in
confectionery sunflower seeds.
Selling, general and administrative expenses increased $18 million or
5.9% compared to 1994. Of the increase, $10 million was due to the
acquisition of the Heuvelman lumber operation in fiscal year 1995, and
approximately $5.5 million of the increase related to the aforementioned
provisions for customer obligations in Eastern Europe and other areas.
Interest expense in fiscal year 1995 dropped almost $6 million compared
to last year due to a combination of less crop financing in local
currencies and reduced levels of inventory financing during the year.
<PAGE>
- 17 -
Fiscal year 1995's income tax rate increased to 44.6%. As reported under
`Results of Operations: Fiscal Year 1996 Compared to 1995,' the 1995
effective tax rate was up due to of lower tax benefits on certain
charges recorded and various factors related to the taxation of foreign
source earnings.
Other Information Regarding Trends and Management's Actions
The write-downs in fiscal years 1995 and 1994 were a direct result of
the widely discussed worldwide oversupply of tobacco inventories.
Expectations of increased demand for tobacco products by manufacturers
for newly opened markets in Asia, Eastern Europe and the former Soviet
Union, led to increased leaf production. As Eastern Europe and the
former Soviet Union attempted to implement economic reforms, problems
were encountered related to taxes, exchange controls, inflation and
trade policies. This unstable environment led to reduced demand as
tobacco production was increasing. The threat of a significant increase
in U.S. excise taxes on tobacco products further reduced manufacturers'
expectations and demand, and in addition, the ill-fated U.S. domestic
content legislation, which sharply restricted imports into the U.S.,
de-stabilized world markets for leaf tobacco. In some non-auction market
regions where the Company operates, uncommitted inventories were exposed
to valuation adjustments.
The tobacco dealer industry and growing regions took steps to reduce the
volume of tobacco produced and available for sale, and this led to
improved markets. The outlook for fiscal year 1997 appears favorable
assuming normal crop conditions. Worldwide supply and demand during
fiscal year 1996 moved closer to being in balance. However, as market
prices increased, production volumes have grown, which could lead to
imbalance in the future if demand is not sustained. The current
Brazilian crop has been selling well despite a difficult operating
environment. The African markets are experiencing good demand, and
larger volumes are expected. Although wet weather, including a
hurricane, in the United States has adversely affected the current crop,
total production and marketings are expected to be higher than those of
last year. The improvement in worldwide market conditions and the
increased operating efficiencies achieved should continue to benefit the
Company. Although a number of factors remain beyond management's
control, such as effects of weather on various crops and economic and
fiscal policies in Brazil and other countries, the Company's balance and
strength in all of the major tobacco origins provide a firm base for
growth.
During fiscal year 1995 the Brazilian government reduced inflation rates
to 20-year lows through fiscal policies included in its Plano Real
economic plan, which entails financial control of items such as interest
rates and exchange rates. In addition, the Brazilian government
exercises control over taxation, trade policies, foreign investment and
banking. Although there have been benefits realized from enacting the
Plano Real, the long-term viability of the government's plan is
dependent on various factors, including whether the current
administration can continue to hold office, the level of foreign
currency reserves, and the confidence of the Brazilian business sector.
Recently there have been no significant changes in the Brazilian federal
government's economic policies, and none have been announced that would
lead the Company to believe there would be a significant impact on
earnings for the Company's fiscal year ending June 30, 1997.
<PAGE>
- 18 -
Efforts to restrict or limit tobacco consumption, particularly in the
United States, continued in fiscal year 1996 and will continue in the
foreseeable future including civil product liability suits or actions
taken by states in an attempt to hold the manufacturers responsible for
medical costs. These efforts include tax increases and regulations
affecting access to cigarettes and public smoking. The tobacco product
manufacturers also face a number of lawsuits. Due to the nature, number,
durations and varying degree of complexity of litigation and legislative
initiatives, the outcomes or effect on consumption of tobacco products
can not be predicted.
Despite the unfavorable treatment of tobacco products in the media and
the aforementioned restrictive actions in the United States, worldwide
cigarette and cigar consumption continues to grow. Cigarette consumption
has been growing at a 1% annual rate worldwide, and a number of new or
changing markets offer sourcing or sales opportunities for the Company,
especially in Eastern Europe, China, the Republics of the former Soviet
Union, and developing countries in the Pacific Rim. China, where
Universal is active, offers potential as the largest consumer of tobacco
products in the world and as a source of low-priced filler style
tobaccos for the export market. The Republics of the former Soviet Union
offer potentially large leaf markets as internal production has declined
and demand has been artificially constrained by economic dislocation and
lack of foreign exchange. In addition, management believes that
worldwide consumption of American blend cigarettes has recently been
increasing by 3 - 4 percent a year. The American blend cigarette has a
milder flavor and higher percentage of flue-cured and burley tobacco
than competing products in many developing areas of the world, where
darker, stronger tobacco has historically been the norm. The Company,
through its presence in all of the major tobacco origins in the world,
is positioned to take advantage of these opportunities.
A key trend in the tobacco industry has been consolidation among
manufacturers and among merchants. This concentration should increase
the need for better quality tobacco and improved processing which
provides a good opportunity for the Company to demonstrate its
strengths. However, it may also make demand for particular growths of
tobacco less predictable.
The Company has a large presence in the U.S. market where leaf has not
been price competitive with the world market. If not corrected through
program reforms and reduced support prices, this could eventually result
in a decline in U.S. production and marketings. Management believes that
the risk of a significant decline in the U.S. crop in the next year is
small. The Company's operations are well placed to supply leaf from many
sources in world markets, and the business is not capital intensive.
In its lumber and building products area, the Company has been leading a
trend toward consolidation of a fragmented industry in Holland and has
proved itself an attractive business partner in that environment.
<PAGE>
- 19 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(In thousands of dollars except per share data) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C>
Sales and other operating revenues $3,570,228 $3,280,880 $3,048,515
Costs and expenses
Cost of goods sold 3,044,373 2,818,431 2,588,060
Selling, general and administrative expenses 333,380 321,499 303,459
Restructuring charges 15,597 17,500
Interest 68,754 69,585 75,438
---------- ---------- ----------
3,446,507 3,225,112 2,984,457
---------- ---------- ----------
Income before income taxes and other items 123,721 55,768 64,058
Income taxes 49,474 24,866 19,390
Minority interests 6,696 6,633 4,618
---------- ----------- ----------
Income from consolidated operations 67,551 24,269 40,050
Equity in net income of unconsolidated affiliates 3,799 1,370 2,529
---------- ---------- ----------
Income before extraordinary item and
cumulative effect of change in accounting principle 71,350 25,639 42,579
Extraordinary item 896
Cumulative effect of change in accounting principle (29,406)
---------- ---------- ----------
Net income 72,246 25,639 13,173
========== ========== ==========
Per common share
Income before extraordinary item and cumulative
effect of change in accounting principle 2.04 .73 1.20
Extraordinary item .02
Cumulative effect of change in accounting principle (.83)
------------ ----------- ------------
Net income $ 2.06 $ .73 $ .37
============ ========== ============
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
- 20 -
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
- --------------------------------------------------------------------------------
(In thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $214,782 $158,093
Accounts and notes receivable 384,278 392,797
Accounts receivable - unconsolidated affiliates 17,843 13,230
Inventories - at lower of cost or market:
Tobacco 490,557 458,964
Lumber and building products 106,916 122,613
Agri-products 71,145 72,908
Other 15,373 11,988
Prepaid income taxes 5,867 8,371
Deferred income taxes 5,984 5,625
Other current assets 16,215 17,764
--------- ---------
Total current assets 1,328,960 1,262,353
Real estate, plant and equipment - at cost
Land 33,786 35,631
Buildings 218,012 211,146
Machinery and equipment 414,141 405,029
--------- ---------
665,939 651,806
Less accumulated depreciation 345,549 317,365
--------- ---------
320,390 334,441
Other assets
Goodwill 122,579 127,501
Other intangibles 26,726 21,759
Investments in unconsolidated affiliates 27,191 23,433
Deferred income taxes 13,029 7,832
Other noncurrent assets 50,638 30,646
--------- ---------
240,163 211,171
--------- ---------
1,889,513 1,807,965
========= =========
- --------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
- 21 -
Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(In thousands of dollars) 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $551,667 $651,140
Accounts payable 222,154 221,574
Accounts payable - unconsolidated affiliates 6,813 6,976
Customer advances and deposits 122,894 46,443
Accrued compensation 18,245 18,286
Income taxes payable 24,061 21,745
Current portion of long-term obligations 83,348 31,476
--------- ---------
Total current liabilities 1,029,182 997,640
Long-term obligations 309,543 284,948
Postretirement benefits other than pensions 46,268 48,007
Other long-term liabilities 44,920 52,962
Deferred income taxes 13,846 17,211
Minority interests 28,449 17,238
Commitments and contingent liabilities
Shareholders' equity
Preferred stock, $100 par, 8% cumulative, authorized 75,000 shares, none
issued or outstanding (4 shares at June 30, 1995)
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 35,056,357 shares (35,030,314 at June 30, 1995) 76,053 75,749
Retained earnings 360,273 323,595
Foreign currency translation adjustments (19,021) (9,385)
--------- ---------
Total shareholders' equity 417,305 389,959
--------- ---------
$1,889,513 $1,807,965
--------- ---------
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- 22 -
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(In thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $72,246 $25,639 $13,173
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of change in accounting principle 29,406
Restructuring charges (net of cash payments) 10,597 15,500
Depreciation 43,201 39,828 40,184
Amortization 9,311 8,796 8,136
Translation loss - net 3,545 2,563 6,726
Deferred taxes (3,786) (16,068) 693
Minority interests 6,696 6,633 4,618
Other (1,297) 1,537 (3,318)
--------- -------- ---------
129,916 79,525 115,118
Changes in operating assets and liabilities net of effects
from purchase of businesses:
Accounts and notes receivable (33,917) 29,640 (10,685)
Inventories and other current assets (26,001) 16,576 49,516
Income taxes 5,175 7,466 (9,436)
Accounts payable and other accrued liabilities 72,336 (70,515) (43,231)
--------- -------- ---------
Net cash provided by operating activities 147,509 62,692 101,282
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (35,259) (39,024) (38,917)
Purchase of businesses (net of cash acquired) (19,200) (62,702) (21,861)
Sales of property, plant and equipment 2,135 4,839 7,804
Other 1,900 (4,244) 507
--------- --------- ---------
Net cash used in investing activities (50,424) (101,131) (52,467)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt - net (86,318) 69,701 47,236
Repayment of long-term debt (42,258) (10,798) (124,278)
Issuance of long-term debt 118,726 6,550 120,168
Proceeds from minority investment in a subsidiary 10,000
Dividends paid to minority shareholders (4,550) (2,147) (3,521)
Issuance (purchase) of common stock 174 248 (11,437)
Dividends paid on common stock (35,387) (34,313) (32,775)
--------- --------- ---------
Net cash provided by (used in) financing activities (39,613) 29,241 (4,607)
--------- --------- ---------
Effect of exchange rate changes on cash (783) 471 (362)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 56,689 (8,727) 43,846
Cash and cash equivalents at beginning of year 158,093 166,820 122,974
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $214,782 $158,093 166,820
========= ========== =========
Supplemental cash flow information: Cash paid during the year for:
Interest $64,253 $67,755 $70,812
Income taxes - net of refunds $48,771 $30,542 $26,559
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
- 23 -
Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(In thousands of dollars) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK:
Balance at beginning of year $75,749 $75,287 $86,672
Issuance of common stock 30 214 52
Exercise of stock options 274 248
Common shares repurchased (11,437)
-------- --------- ---------
Balance at end of year 76,053 75,749 75,287
-------- --------- ---------
RETAINED EARNINGS:
Balance at beginning of year 323,595 332,626 352,790
Net Income 72,246 25,639 13,173
Cash dividends declared ($1.015 per share in 1996;
$.99 in 1995; $.94 in 1994) (35,568) (34,670) (33,337)
-------- --------- ---------
Balance at end of year 360,273 323,595 332,626
-------- --------- ---------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year (9,385) (23,315) (18,440)
Translation adjustments for the year (14,893) 21,240 (7,552)
Allocated income taxes 5,257 (7,310) 2,677
-------- --------- ---------
Balance at end of year (19,021) (9,385) (23,315)
-------- --------- ---------
SHAREHOLDERS' EQUITY AT END OF YEAR $417,305 $389,959 $384,598
======== ========== =========
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
- 24 -
Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are in thousands, except as otherwise noted)
Note 1 - SUMMARY OF SIGNIFICANT 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
than 50%.
Effective fiscal year 1995, the Company consolidated the results of
affiliates located in Malawi and Zimbabwe into its financial statements. After
changes in local governmental policies, the Company can now exercise greater
control over operations, including the remittance of dividends. Prior to fiscal
1995, affiliates located in Malawi were accounted for under the equity method
and affiliates in Zimbabwe under the cost method. Financial data for all prior
periods presented has been restated to reflect the consolidation. Before the
effects of consolidation, consolidated net income for the year ended June 30,
1994 was $9,158 or $.26 per share.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
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.
Real Estate, Plant and Equipment
Depreciation of plant and equipment is based upon historical cost and
the estimated useful lives of the assets. Depreciation of properties used in
tobacco operations is calculated using both the straight line and declining
balance methods, while lumber and building products, and agri-products utilize
the straight line method. Buildings include tobacco and agri-product processing
and blending facilities, lumber outlets, offices and warehouses. Machinery and
equipment represent processing and packing machinery, transportation, office and
computer equipment. Estimated useful lives range as follows: buildings 15 - 40
years, processing and packing machinery 3 - 11 years, transportation equipment 3
- - 10 years, office and computer equipment 3 - 10 years.
<PAGE>
- 25 -
Goodwill and Other Intangibles
Goodwill and other intangibles include the excess of the purchase price
of acquired companies over the net assets, covenants not to compete, and pension
intangibles. Goodwill and other intangibles are generally amortized using the
straight-line method over periods not exceeding 40 years. Goodwill and other
intangible assets are periodically reviewed for impairment, including a
determination of whether events or circumstances have changed which may indicate
that an impairment of value exists, based on an assessment of future operations.
Accumulated amortization at June 30, 1996 and 1995 was $21.4 and $19.6 million,
respectively.
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, 1996, the cumulative amount
of undistributed earnings of consolidated subsidiaries on which no provision for
U.S. income taxes had been made was $61.7 million.
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, 1996 and 1995, which qualify as
financial instruments, approximates fair value.
Derivative Financial Instruments
Derivative financial instruments are used by the Company in the
management of its foreign currency exposures. Realized and unrealized gains and
losses on the Company's foreign currency contracts that are designated and
effective as hedges are recognized in income in the same period that the foreign
exchange gains and losses on the underlying transactions are recorded. The
carrying amounts, including realized and unrealized gains and losses, of foreign
currency derivatives are reflected under the same balance sheet captions as the
hedged transactions. The Company does not enter into contracts for derivative
financial instruments for trading purposes.
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 in fiscal 1994 as a cumulative effect of a change in
accounting principle. See Note 9.
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 where the U.S. dollar
is the functional currency and which have certain transactions denominated in a
local currency 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
1996, 1995 and 1994 resulting from foreign currency transactions were $3.6, $4.7
and $3.7 million, respectively (including $3.5, $2.6 and $6.7 million resulting
from foreign currency translation losses) and are included in the respective
statements of income.
<PAGE>
-26-
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Accounting Pronouncements
In 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS 121). SFAS 121 standardizes the accounting practices for the recognition
and measurement of impairment losses on certain long-lived assets. The Company
will adopt the new standard July 1, 1996. It is not expected to have a material
impact on its results of operations or financial position.
Also in 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Under
the provisions of SFAS 123, companies can elect to account for stock-based
compensation plans using a fair-value-based method or continue measuring
compensation expense for those plans using the intrinsic value method prescribed
in APB 25. SFAS 123 requires that companies electing to continue using the
intrinsic value method must make pro forma disclosures of net income and
earnings per share as if the fair-value-based method of accounting had been
applied. The Company intends to continue to account for stock-based compensation
using the intrinsic value method and will provide disclosures in accordance with
SFAS 123 when the standard is adopted in 1997.
Reclassifications
Amounts in prior years' statements have been reclassified to be reported
on a consistent basis with the current year's presentation.
Note 2 - RESTRUCTURING
In the fourth quarter of fiscal years 1995 and 1994, plans were
developed to reduce the Company's worldwide cost structure, including the
consolidation of certain tobacco operations and a reduction in the number of
employees. The Company's consolidated statements of income included pretax
restructuring charges of $15.6 and $17.5 million in 1995 and 1994, respectively.
During fiscal 1995, the 1994 plan was implemented. The fiscal 1995 charge
included $7.2 million for the expected costs of severance and deferred payments
related to approximately 200 employees throughout the Company. The non-severance
portion of the charge was for the write-down of assets in operations
consolidated ($3.7 million), other nonoperating restructuring costs ($1.7
million) and cash payments to terminate occupancy of leased facilities ($3
million). As of June 30, 1996, total cash payments of approximately $4 million
had been made to cover severance costs of 195 employees. The balance of the
restructuring plan will be implemented in fiscal 1997 and is not significant to
the Company's operations.
<PAGE>
Note 3 - EXTRAORDINARY ITEM
During the year, the Company recovered $1.4 million related to
receivables from the Iraqi State Tobacco Monopoly written off in fiscal year
1991. The Company had recorded, as an extraordinary item, a provision for the
uncollectability of outstanding receivables of $6.2 million pretax as a result
of the war in the Persian Gulf.
-27-
Note 4 - 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 geographic areas are priced to generate a
reasonable profit margin. 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.
U.S. Export Sales by Geographic Area
______________________________________________________________
1996 1995 1994
- --------------------- ---------- --- ---------- -- -----------
Europe $304,008 $266,682 $182,140
Asia 189,904 179,737 203,197
Other Areas 45,751 51,962 27,321
---------- ---------- -----------
$539,663 $498,381 $412,658
========== ========== ===========
- --------------------- ---------- --- ---------- -- -----------
<PAGE>
- 28 -
<TABLE>
<CAPTION>
Lumber and
Business Segments Tobacco Building Products Agri-products Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
1996
Gross revenues $ 2,541,956 $ 574,171 $ 454,101 $ 3,570,228
------------ ---------- ---------- -----------
Operating profit 168,196 22,874 12,797 203,867
------------ ---------- ----------
General corporate expenses (11,392)
Interest expense (68,754)
-----------
Income before income taxes and other items 123,721
-----------
Identifiable assets 1,433,489 289,749 137,094 1,860,332
------------ ---------- ----------
Investments in unconsolidated affiliates 27,191
Corporate assets 1,990
-----------
Total assets 1,889,513
-----------
Depreciation and amortization 41,357 9,485 1,670 52,512
------------ ---------- ---------- -----------
Capital expenditures 26,756 6,589 1,914 35,259
------------ ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------
1995
Gross revenues 2,313,768 512,375 454,737 328,088
------------ ---------- ---------- -----------
Operating profit (net of restructuring charge 102,542 21,162 11,942 135,646
------------ ---------- ----------
General corporate expenses (10,293)
Interest expense (69,585)
-----------
Income before income taxes and other items 55,768
-----------
Identifiable assets 1,305,967 333,379 143,366 1,782,712
------------ ---------- ----------
Investments in unconsolidated affiliates 23,433
Corporate assets 1,820
-----------
Total assets 1,807,965
-----------
Depreciation and amortization 39,809 7,051 1,764 48,624
------------ ---------- ---------- -----------
Capital expenditures 28,590 8,537 1,897 39,024
------------ ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------
1994
Gross revenues 2,249,109 368,463 430,943 3,048,515
------------ ---------- ---------- -----------
Operating profit (net of restructuring charge) 121,783 18,768 9,224 149,775
------------ ---------- ----------
General corporate expenses (10,279)
Interest expense (75,438)
-----------
Income before income taxes and other items 64,058
-----------
Identifiable assets 1,385,218 212,247 124,891 1,722,356
------------ ---------- ----------
Investments in unconsolidated affiliates 11,752
Corporate assets 1,758
-----------
Total assets 1,735,866
-----------
Depreciation and amortization 42,387 4,376 1,557 48,320
------------ ---------- ---------- -----------
Capital expenditures $33,829 $4,265 $823 $38,917
------------ ---------- ---------- -----------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- 29 -
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated Operations United South/Central Other
by Geographic Area States America Europe Areas Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1996
Revenues from unaffiliated customers $1,800,204 $222,223 $1,370,767 $177,034 $3,570,228
Transfers between geographic areas 962 138,607 38,431 339,862 $(517,862)
---------- --------- ---------- --------- ---------- ----------
Gross revenues 1,801,166 360,830 1,409,198 516,896 (517,862) 3,570,228
---------- --------- ---------- --------- ---------- ----------
Operating profit 64,388 49,079 50,967 40,643 (1,210) 203,867
---------- --------- ---------- --------- ----------
General corporate expenses (11,392)
Interest expense (68,754)
----------
Income before income taxes and other items 123,721
----------
Identifiable assets 867,229 558,045 884,021 194,768 (643,731) 1,860,332
---------- --------- ---------- --------- ----------
Investments in unconsolidated affiliates 27,191
Corporate assets 1,990
----------
Total assets 1,889,513
----------
- -----------------------------------------------------------------------------------------------------------------------------
1995
Revenues from unaffiliated customers 1,650,868 236,496 1,218,525 174,991 3,280,880
Transfers between geographic areas 1,073 93,781 42,316 289,362 (426,532)
---------- --------- ---------- --------- ---------- ----------
Gross revenues 1,651,941 330,277 1,260,841 464,353 (426,532) 3,280,880
--------- --------- ---------- --------- ---------- ----------
Operating profit (net of restructuring
charge) 47,996 15,643 32,929 41,194 (2,116) 135,646
--------- --------- ---------- --------- ----------
General corporate expenses (10,293)
Interest expense (69,585)
----------
Income before income taxes and other items 55,768
----------
Identifiable assets 588,078 454,453 837,085 225,279 (322,183) 1,782,712
--------- --------- ---------- --------- ----------
Investments in unconsolidated affiliates 23,433
Corporate assets 1,820
----------
Total assets 1,807,965
----------
- -----------------------------------------------------------------------------------------------------------------------------
1994
Revenues from unaffiliated customers 1,530,833 217,534 1,088,693 211,455 3,048,515
Transfers between geographic areas 1,658 123,898 34,588 308,212 (468,356)
---------- --------- ---------- --------- ---------- ----------
Gross revenues 1,532,491 341,432 1,123,281 519,667 (468,356) 3,048,515
---------- --------- ---------- --------- ---------- ----------
Operating profit (net of restructuring
charge 44,908 20,691 49,221 34,955 149,775
---------- --------- ---------- ---------
General corporate expenses (10,279)
Interest expense (75,438)
----------
Income before income taxes and other items 64,058
----------
Identifiable assets $575,425 $469,415 $754,696 $210,031 $(287,211) 1,722,356
---------- --------- ---------- --------- ----------
Investments in unconsolidated affiliates 11,752
Corporate assets 1,758
----------
Total assets $1,735,866
----------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- 30 -
Note 5 - INCOME TAXES
The components of income before income taxes and other items consist of
the following:
Year Ended June 30,
1996 1995 1994
- ------------------------------------------------------------------------------
United States $26,420 $21,386 $12,545
Foreign 97,301 34,382 51,513
---------- --------- ---------
$123,721 $55,768 $64,058
---------- --------- ---------
- -------------------------------------------------------------------------------
Income taxes consist of the following:
Year Ended June 30, 1996 1995 1994
- -----------------------------------------------------------------
Current
United States $6,562 $5,396 $5,089
State and local 1,828 751 1,065
Foreign 44,870 34,787 12,543
-------- --------- ---------
53,260 40,934 18,697
Deferred
United States 983 (7,322) (5,103)
State and local 729 235 652
Foreign (5,498) (8,981) 5,144
-------- --------- ---------
(3,786) (16,068) 693
-------- --------- ---------
Total $49,474 $24,866 $19,390
-------- --------- ---------
- ------------------------------------------------------------------------------
A reconciliation of the statutory U.S. federal rates is as follows:
Year Ended June 30, 1996 1995 1994
- -------------------------------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes - net of federal benefit 1.3 1.4 1.7
Income taxed at other than the U.S. rate 5.0 7.0 (5.8)
Increase in federal statutory rate 1.7
Other - net (1.3) 1.2 (2.3)
------- ------ ------
40.0% 44.6% 30.3%
------- ------ ------
- -------------------------------------------------------------------------------
<PAGE>
-31-
Significant components of deferred tax liabilities and assets as of June
30 were as follows:
1996 1995
- ----------------------------------------------------------------------------
Liabilities
Nonrepatriated earnings $15,593 $17,713
Tax over book depreciation 15,640 17,072
Foreign currency translation 2,135
All other 18,231 17,930
-------- ---------
Total deferred tax liability 49,464 54,850
-------- ---------
Assets
Employee benefit plans 16,243 19,482
Foreign currency translation 3,162
Foreign tax credits 16,267 8,813
Deferred compensation 5,394 4,652
All other 13,565 18,149
-------- ---------
Total deferred tax asset 54,631 51,096
Less current portion (5,984) (5,625)
-------- ---------
Net deferred tax asset 48,647 45,471
-------- ---------
Net deferred tax liability $817 $9,379
-------- ---------
- -------------------------------------------------------------------------------
<PAGE>
-32-
Note 6 - SHORT-TERM CREDIT FACILITIES
The Company maintains lines of credit in the United States and 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, 1996, unused, uncommitted lines of credit were approximately $1.2
billion. In addition, the Company maintains a $100 million revolving credit
facility to support short-term borrowings including the issuance of commercial
paper. The weighted average interest rate on short-term borrowings outstanding
as of June 30, 1996 and 1995 was approximately 6.2 % and 6.6%, respectively.
Note 7 - LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
1996 1995
<S> <C>
- -----------------------------------------------------------------------------------------------------
6.14% Senior notes payable in five annual installments from 1996 to 2000 $100,000 $100,000
9.25% Medium-term notes due February 2001 100,000 100,000
6.5% Medium-term notes due February 2006 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% to 11% 36,357 44,536
4.26% Promissory note due August 1995 15,000
Revenue bonds due through 2001 at various interest rates below prime 6,534 6,888
---------- ----------
392,891 316,424
Less current portion (83,348) (31,476)
---------- ----------
Long-term obligations $309,543 $284,948
---------- ----------
- ------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of the Company's long-term obligations was approximately
$313 million at June 30, 1996 and $298 million at June 30, 1995. Certain notes
are denominated in local currencies of foreign subsidiaries. Effective U.S.
dollar interest rates vary based on exchange rate fluctuations.
In connection with the senior 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,
1996 are as follows: 1997-$83,348; 1998-$30,002; 1999-$25,425; 2000-$24,979;
2001-$122,605; 2002 and after-$106,532.
<PAGE>
-33-
Note 8 - 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 as follows:
<TABLE>
<CAPTION>
Pension costs
Domestic Foreign
-------------------------- ---------------------------
1996 1995 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Service cost for benefits earned during the period $2,657 $2,923 $2,925 $2,932 $2,803 $2,392
Interest cost on projected benefit obligation 7,312 6,626 6,489 6,383 5,784 5,210
Actual return on plan assets (16,537) (4,158) (5,872) (5,916) (4,942) (11,629)
Net amortization and deferral 10,583 (967) 1,258 (758) (1,397) 5,240
-------- -------- ------- -------- -------- --------
Total pension cost $4,015 $4,424 $4,800 $2,641 $2,248 $1,213
-------- -------- ------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Funded status
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Domestic - March 31 measurement date
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Vested benefit obligation $80,313 $70,611 $3,179 $6,239
-------- --------- --------- ---------
Accumulated benefit obligation 81,130 71,297 3,305 6,788
-------- --------- --------- ---------
Projected benefit obligation 100,025 85,786 5,818 8,792
Plan assets at fair value 92,272 77,580
-------- --------- --------- ---------
Plan assets less than projected benefit obligation (7,753) (8,206) (5,818) (8,792)
Unrecognized net (asset) liability at transition (2,573) (3,721) 473 557
Unrecognized prior service costs 630 784 4,845 1,528
Unrecognized net loss 13,990 14,679 744 1,445
Additional minimum liability (3,549) (1,526)
-------- --------- --------- ---------
Prepaid (accrued) pension cost $4,294 $3,536 $(3,305) $(6,788)
-------- --------- --------- ---------
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-34-
Foreign - April 30 measurement date
<TABLE>
<CAPTION>
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Vested benefit obligation $71,840 $77,921 $11,082 $10,674
--------- -------- -------- -------
Accumulated benefit obligation 75,227 81,934 11,968 13,033
--------- -------- -------- -------
Projected benefit obligation 82,679 88,868 12,850 14,180
Plan assets at fair value 92,065 102,925 3,234 4,219
--------- -------- -------- --------
Plan assets in excess of (less than) projected
benefit obligation 9,386 14,057 (9,616) (9,961)
Unrecognized net (asset) liability at transition (5,981) (6,671) (143) 92
Unrecognized net (gain) loss (3,218) (5,227) 290 764
Additional minimum liability (270)
--------- -------- -------- ---------
Prepaid (accrued) pension cost $187 $2,159 $(9,469) $(9,375)
--------- -------- -------- ---------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
SFAS 87 "Employers' Accounting for Pensions," required the Company to
recognize an additional minimum liability of $3.5 and $1.8 million for the
unfunded accumulated benefit obligation in 1996 and 1995, respectively. An equal
amount was recognized as an intangible asset in those years. Assumptions used in
the computations were:
1996 1995 1994
- -------------------------------------------------------------------------------
Discount rate:
Domestic 7.25% 8.00% 7.25%
Foreign 7.00% 7.00% 6.00%
Rate of increase in future compensation levels:
Domestic 5.50% 5.50% 5.50%
Foreign 5.50% 5.50% 4.50%
Expected long-term rate of return on plan assets:
Domestic 8.75% 8.75% 8.75%
Foreign 7.00% 7.00% 7.00%
- -------------------------------------------------------------------------------
<PAGE>
Note 9 - 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 fiscal year 1994.
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:
1996 1995 1994
- --------------------------------------------------------------------------
Service cost $875 $857 $1,268
Interest cost 2,673 2,517 3,255
Return on plan assets (190) (219) (141)
Net amortization and deferral (3,063) (2,925) (1,527)
--------- -------- ---------
Net periodic postretirement
benefit expense $295 $230 $2,855
--------- -------- ---------
- --------------------------------------------------------------------------
The following table sets forth the components of the postretirement
benefit obligation:
June 30 measurement date 1996 1995
- ------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $32,050 $22,841
Fully eligible active plan participants 6,080 6,082
Other active plan participants 5,569 5,466
--------- ---------
Accumulated postretirement benefit obligation 43,699 34,389
Fair value of plan assets 3,865 3,811
--------- ---------
Accumulated postretirement benefit obligation in
excess of plan assets 39,834 30,578
Unrecognized gain on plan amendment 16,000 19,060
Unrecognized net loss (9,566) (1,631)
--------- ---------
Accrued postretirement benefit cost $46,268 $48,007
--------- ---------
- ------------------------------------------------------------------------------
The accumulated postretirement benefit obligation was determined using
an assumed annual health care cost trend rate of 12% for fiscal year 1996 and
11% for fiscal year 1997, and which is assumed to decrease gradually to 6.5% by
fiscal year 2006. A one percentage point increase in the assumed health care
cost trend rate would increase the accumulated benefit obligation by
approximately $4.3 million and the aggregate of the service and interest cost
components of net periodic postretirement benefit expense for the fiscal year by
approximately $400 thousand.
Assumptions used in the computations were:
1996 1995 1994
- ------------------------------------------------------------------
Discount rate 7.25% 8.00% 7.25%
Rate of increase in future
compensation levels 5.50% 5.50% 5.50%
Expected long-term rate of
return on plan assets 4.30% 4.30% 4.30%
- ------------------------------------------------------------------
Note 10 - SHARE PURCHASE RIGHTS PLAN
In 1989, the Company distributed as a dividend one preferred share
purchase right for each outstanding share of common stock. 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.
<PAGE>
-37-
Note 11 - 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. Accordingly, the issuance of reload options does not
result in a greater number of shares potentially outstanding than that reflected
in the grant of the original option. Up to 2.0 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. In addition, restricted stock awards of 4,200 shares and 8,550
shares were issued in 1996 and 1995, respectively.
Options granted under the Plan prior to December 5, 1991 became
exercisable one year after date of grant except those granted on December 4,
1991, which became exercisable November 1, 1992. Options granted after December
4, 1991 are fully exercisable six months after the date of grant and qualify for
reload options which are also 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 1996, 1995 and
1994 is summarized as follows:
<TABLE>
<CAPTION>
For the year ended: 1996 1995 1994 Price Range
- -----------------------------------------------------------------------------------------------------
<S> <C>
Outstanding, beginning of year 1,295,385 656,064 644,064 $11.06 - 28.00
Granted 213,329 717,999 12,000 21.50 - 27.50
Exercised (151,672) (78,678) 21.50 - 23.63
---------- ---------- ----------- -----------------
Outstanding, end of year 1,357,042 1,295,385 656,064 11.06 - 28.00
Exercisable 1,287,404 1,235,886 650,064 11.06 - 28.00
Available for future grant 2,790,928 2,307,851 2,334,376
- -----------------------------------------------------------------------------------------------------
</TABLE>
Of those available for future grant, 2,307,231; 1,738,454; and 1,097,929
for 1996, 1995 and 1994, respectively, are reload options.
<PAGE>
-38-
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, 1996, 1995 and 1994, one customer
accounted for revenues of $1.3 billion, $1.1 billion and $900 million,
respectively.
The Company provides guarantees for seasonal pre-export crop financing
for some of its subsidiaries and unconsolidated affiliates. In addition, certain
subsidiaries provide guarantees that ensure that Common Market subsidies and
value-added taxes will be repaid if the crops are not exported or if the
subsidies are not properly distributed to Common Market farmers. At June 30,
1996, total exposure under guarantees issued for banking facilities of
unconsolidated affiliates was $2.4 million. Other commitments and contingent
liabilities were approximately $43 million and relate principally to Common
Market guarantees. The Company considers the possibility of loss on any of these
guarantees to be remote.
As part of its financing of purchases of the Brazilian crop, the Company
advances funds to its subsidiary under pre-export finance provisions of
Brazilian law. When funds are held in Brazil before purchase of the crop, they
are invested in U.S. dollar-indexed instruments issued by Brazilian banks. To
reduce credit risk, investment limits are established with each bank according
to the Company's evaluation of its credit standing. As of March 31, 1996, the
date of consolidation of the Company's Brazilian subsidiaries, approximately
$138 million was invested among 20 banks and was included in cash and cash
equivalents in the Company's June 30, 1996 balance sheet. The carrying value of
this investment approximates fair market value. As of June 30, 1996, all such
funds had been fully recovered and utilized for crop purchases.
The Company's Brazilian subsidiaries have been notified by the tax
authorities of proposed adjustments to the income tax returns filed in prior
years. The total adjustments, including penalties and interest, approximate $50
million. The Company believes the Brazilian tax returns filed were in compliance
with the applicable tax code. The numerous proposed adjustments vary in
complexity and amounts. While it is not feasible to predict the outcome or
timing of each proposed adjustment, the Company believes that the ultimate
disposition will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
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 usually 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 (See Note 3). 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):
1996 1995
- ----------------------------------------------------
Tobacco $242 $225
Lumber and Building Products 90 109
Agri-products 52 59
------- ------
$384 $393
------- ------
- ----------------------------------------------------
<PAGE>
-39-
Note 13 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company's dominant business, tobacco, is generally conducted in U.S.
dollars. In most countries the Company funds its major cost, the purchase of
green tobacco, in U.S. dollars thereby limiting foreign exchange risk to that
which is related to production costs and overhead in the country of tobacco
origin.
The Company conducts its agri-products and lumber and building products
businesses in various foreign currencies. As a result, it is subject to the
transaction exposures that arise from foreign exchange rate movements between
the dates that the foreign currency transactions are initiated and the date they
are settled. To mitigate this risk where such derivative markets exist, the
Company enters into forward exchange contracts, primarily in Dutch guilders,
U.S. dollars, Swedish kronas, and pounds sterling, to hedge certain foreign
currency transactions involving the purchase or sale of inventory in currencies
other than the functional currency of the subsidiary. The terms of the
agreements are for periods that are consistent with the terms of the underlying
transactions, which are rarely longer than six months.
As of June 30, 1996, the Company, through its subsidiaries, had entered
into foreign exchange contracts with a total notional value of approximately $17
million to hedge known transactions. The unrealized gains and losses from these
contracts were not material to the Company at June 30, 1996. All such
transactions were conducted with financial institutions of good standing, and
the total credit exposure related to non-performance by those institutions is
not material to the operations of the Company. At June 30, 1996, the carrying
value of these derivative financial instruments approximates the fair market
value.
<PAGE>
-40-
Note 14 - 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.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------
<S> <C>
1996
Sales and other operating revenues $842,454 $1,032,829 $942,587 $752,358
Gross profit 103,629 149,701 139,531 132,994
Income before extraordinary item 10,189 27,403 18,427 15,331
Net income 10,189 27,403 18,427 16,227
Per common share
Income before extraordinary item .29 .78 .53 .44
Net income .29 .78 .53 .46
Cash dividends declared .25 .255 .255 .255
Market price range: High 23 24 5/8 28 3/8 28 1/2
Low 21 1/8 20 1/4 22 1/4 23 3/4
1995
Sales and other operating revenues 661,415 969,532 991,270 658,663
Gross profit 94,379 136,594 123,859 107,617
Net income (loss) 3,979 15,505 12,229 (6,074)
Per common share
Net income (loss) .11 .44 .35 (.17)
Cash dividends declared .24 .25 .25 .25
Market price range: High 24 3/4 24 1/4 22 1/4 24
Low $18 3/4 $19 3/4 $18 7/8 $20 3/4
- -----------------------------------------------------------------------------------------------------
</TABLE>
Fiscal 1995 included pre-tax inventory write-downs and provisions
related to tobacco operations as follows: second quarter - $6.4 million; third
quarter - $3.9 million; fourth quarter - $4.1 million. The fourth quarter of
1995 included a pre-tax restructuring charge of $15.6 million.
<PAGE>
- 41-
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, 1996 and 1995, 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, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 accounting 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 9 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 1, 1996
<PAGE>
- 42 -
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 on 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 1, 1996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the three years ended June 30, 1996, 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.
<PAGE>
- 43 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to the caption, "Election of Directors" in the September 18, 1996 Proxy
Statement which information is incorporated herein by reference. The following
are Executive Officers as of September 18, 1996.
Name Position Age
H. H. Harrell Chairman and Chief 57
Executive Officer
A. B. King President and Chief 50
Operating Officer
H. H. Roper Vice President and 48
Chief Financial Officer
W. L. Taylor Vice President and 55
Chief Administrative Officer
D.G. Cohen Tervaert President and Chairman of the 43
Board of Deli Universal, Inc.
J. M. White, III Secretary and General Counsel 57
There are no family relationships between any of the above officers.
All of the above officers have been employed by the Company in various
capacities during the last five years.
<PAGE>
- 44 -
ITEM 11. EXECUTIVE COMPENSATION
Refer to the caption, "Executive Compensation," in the September 18, 1996 Proxy
Statement which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Refer to the caption, "Stock Ownership," in the September 18, 1996 Proxy
Statement which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the caption, "Certain Relationships," in the September 18, 1996 Proxy
Statement which information is incorporated herein by reference.
<PAGE>
- 45 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) 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, 1996, 1995 and 1994
Consolidated Balance Sheets at June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders'
Equity for the years ended June 30, 1996, 1995 and
1994
Notes to Consolidated Financial Statements for the
years ended June 30, 1996, 1995 and 1994
Report of Ernst & Young LLP, Independent Auditors
(2) Financial Statement Schedules: None
(3) List 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 Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, 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).
<PAGE>
- 46 -
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 herein 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).
4.7 Specimen Common Stock Certificate (incorporated herein by
reference to the Registrant's Form S-3, dated February 25,
1993, File No. 1-652).
4.8 Form of 6 1/2% Note due February 15, 2006 (incorporated
herein by reference to the Registrant's Current Report on
Form 8-K, dated February 20, 1996, 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).
<PAGE>
- 47 -
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 (incorporated herein by reference
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, File No. 1-652).
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 1996 Benefit
Restoration Plan.*
10.10 Universal Corporation 1989 Executive Stock Plan, as
amended on December 1, 1994 (incorporated by reference to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994, 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).
<PAGE>
- 48 -
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, as amended as of June 1, 1995 (incorporated
herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal years ended June 30, 1994 and
June 30, 1995, File No. 1-652).
10.15 Universal Corporation Outside Directors' 1994 Deferred
Income Plan (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, File No. 1-652).
10.16 Universal Leaf Tobacco Company, Incorporated 1994 Benefit
Replacement Plan (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, File No. 1-652).
10.17 Universal Corporation 1994 Stock Option and Accumulation
Agreement (incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1994, File No. 1-652).
10.18 Universal Corporation 1994 Stock Option Plan for
Non-Employee Directors (incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994, File No. 1-652).
10.19 Universal Corporation Non-Employee Director Non-Qualified
Stock Option Agreement (incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994, File No. 1-652).
12 Ratio of Earnings to Fixed Charges*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.*
27 Financial Data Schedule.*
* Filed herewith.
<PAGE>
- 49 -
(b) Reports on Form 8-K
None filed in the quarter ended June 30, 1996.
(c) Exhibits
The exhibits listed in Item 14(a)(3) are filed as part of this
annual report.
(d) Financial Statement Schedules
All 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.
<PAGE>
- 50 -
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 16, 1996 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 16, 1996
- --------------------- -------------------
Henry H. Harrell (Principal Executive Officer)
/s/ Allen B. King President, Chief Operating September 17, 1996
- --------------------- Officer and Director ------------------
Allen B. King
/s/ William W. Berry Director September 16, 1996
- --------------------------- -------------------
William W. Berry
/s/ Wallace L. Chandler Director September 17, 1996
- --------------------------- -------------------
Wallace L. Chandler
/s/ Richard G. Holder Director September 18, 1996
- --------------------------- -------------------
Richard G. Holder
/s/ Hubert R. Stallard Director September 17, 1996
- --------------------------- -------------------
Hubert R. Stallard
/s/ Charles H. Foster, Jr. Director September 17, 1996
- --------------------------- -------------------
Charles H. Foster, Jr.
/s/ Hartwell H. Roper Vice President and September 16, 1996
- --------------------------- Chief Financial Officer -------------------
Hartwell H. Roper
/s/ William J. Coronado Controller (Principal September 16, 1996
- --------------------------- Accounting Officer) -------------------
William J. Coronado
EXHIBIT 10.9
UNIVERSAL LEAF TOBACCO COMPANY, INCORPORATED
1996 BENEFIT RESTORATION PLAN
AMENDED AND RESTATED
EFFECTIVE DATE
June 1, 1996
<PAGE>
- 2 -
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION.............................................................................. 1
ARTICLE I
DEFINITIONS............................................................................... 1
1.01........................................................Accrued Benefit 1
1.02...................................................Actuarial Equivalent 1
1.03............................................................Beneficiary 1
1.04...................................................................Code 2
1.05..............................................................Committee 2
1.06................................................................Company 2
1.07...........................................................Compensation 2
1.08................................................Delayed Retirement Date 2
1.09........................................................Disability Plan 2
1.10.............................................Disability Retirement Date 2
1.11..................................................Early Retirement Date 3
1.12.........................................................Effective Date 3
1.13........................................................Employment Date 3
1.14..............................................................Fiduciary 3
1.15.................................................Normal Retirement Date 3
1.16............................................................Participant 3
1.17...................................................................Plan 3
1.18..............................................................Plan Year 3
1.19........................................................Retirement Plan 3
1.20.............................................Service or Year of Service 3
1.21......................................................Other Definitions 3
ARTICLE II
ELIGIBILITY AND PARTICIPATION............................................................. 3
2.01............................................................Eligibility 3
2.02..........................................................Participation 4
ARTICLE III
RETIREMENT BENEFITS....................................................................... 4
3.01..............................................Normal Retirement Benefit 4
3.02.............................................Delayed Retirement Benefit 4
3.03...............................................Early Retirement Benefit 5
ARTICLE IV
BENEFIT PAYMENT........................................................................... 5
4.01........................................................Form of Payment 5
4.02........................................................Time of Payment 6
4.03......................................Triennial Revaluation and Payment 7
<PAGE>
- 3 -
ARTICLE V
BENEFITS ON TERMINATION OF EMPLOYMENT..................................................... 7
5.01....................................................Vesting of Benefits 7
5.02..............................................Payment of Vested Benefit 7
5.03.................................................Forfeiture of Benefits 7
ARTICLE VI
BENEFITS ON DISABILITY OR DEATH........................................................... 8
6.01........................Disability After Eligibility for Vested Benefit 8
6.02.............................Death After Eligibility for Vested Benefit 8
ARTICLE VII
FUNDING................................................................................... 8
7.01................................................................General 8
ARTICLE VIII
FIDUCIARIES AND ADMINISTRATION OF THE PLAN................................................ 8
8.01................................................................General 8
8.02...............................................Company Responsibilities 9
8.03.............................................Committee Responsibilities 9
8.04....................................................Claims for Benefits 10
8.05......................................................Claims Procedures 10
8.06................................................................Records 11
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN..................................................... 12
9.01..................................................Amendment of the Plan 12
9.02................................................Termination of the Plan 12
9.03...................................................No Benefit Reduction 12
ARTICLE X
MISCELLANEOUS............................................................................. 12
10.01......................................................Governing Law 12
10.02.......................................................Construction 12
10.03.............................................No Employment Contract 12
10.04...........................................Receipt Prior to Payment 12
10.05................................Payments to Minors and Incompetents 13
10.06.......................................Non-alienability of Benefits 13
10.07.................................................Source of Benefits 13
10.08....................................................Indemnification 13
10.09.......................................................Counterparts 13
<PAGE>
- 4 -
ADOPTION OF THE PLAN...................................................................... 14
APPENDIX A................................................................................ 15
</TABLE>
INTRODUCTION
Universal Leaf Tobacco Company, Incorporated (hereinafter
referred to as the "Company") desires to provide a non-qualified pension
benefit plan for a select group of management and highly compensated
employees who contribute materially to the success of the Company and
its affiliated companies.
In order to achieve this objective, the Company has adopted the
following amended, restated and renamed 1996 Benefit Restoration Plan
(hereinafter referred to as the "Plan") to provide a restoration of
retirement benefits for those who become Participants in the Plan. In
general, benefits provided under the Plan are intended to restore
benefits that are limited or denied to Participants as a result of
limitations imposed on the Retirement Plan by Sections 415 or 401(a)(17)
of the Code.
Effective June 1, 1996, the Plan has the terms and provisions
hereinafter set forth.
ARTICLE I
DEFINITIONS
As used herein, the following words and phrases shall have the
meanings indicated, unless otherwise required by the context:
1.01 Accrued Benefit means, as of any date for any
Participant, the monthly retirement benefit determined in accordance
with Section 3.01 with Service as of such date.
1.02 Actuarial Equivalent means a benefit of equivalent
value when computed on the basis of interest and mortality tables
adopted by the Company for use in the computation of actuarial
equivalents under the Plan. Such Actuarial Equivalent shall be
reflected hereunder by the application of the factors denoted in
Appendix A to this Plan.
1.03 Beneficiary means any person designated by a
Participant or otherwise entitled to receive such benefits as may become
payable under the provisions of the Plan after the death of such
Participant.
<PAGE>
- 5 -
The designation of a Beneficiary shall be made on forms provided
by the Committee, and such forms shall be maintained in files held by
the Committee. A Participant may from time to time change the
Beneficiary by written notice to the Committee and, upon such change,
the rights of all previously designated Beneficiaries to receive any
benefits under the Plan shall cease. If, at the date of death of the
Participant, there is no valid and current Beneficiary designation on
file with the Committee, then any death benefits which would have been
payable to the Beneficiary shall be payable to the first of the
following classes of successive preference Beneficiaries then surviving:
(a) spouse,
(b) descendants, per stirpes,
(c) parents in equal shares,
(d) brothers and sisters in equal shares, or
(e) executors or administrators.
1.04 Code means the Internal Revenue Code of 1986, as
amended from time to time.
1.05 Committee means the Executive Committee of Universal
Leaf Tobacco Company Incorporated, as provided for in Article VIII.
1.06 Company means Universal Leaf Tobacco Company,
Incorporated, a Virginia corporation, or any successor thereto, as well
as Universal Corporation, and any of its subsidiaries, which are
Participating Employers in the Retirement Plan, as the context may
require. Universal Leaf Tobacco Company, Incorporated is the sponsor and
the administrator of the Plan.
1.07 Compensation means (i) "Compensation" as defined in
the Retirement Plan, provided, however, that the limitations imposed as
a result of Sections 415 or 401(a)(17) of the Code shall be disregarded
and (ii) the amount of "Compensation" shall be increased by including
any amounts deferred and decreased by any payments received by a
Participant pursuant to the Universal Leaf Tobacco Company,
Incorporated Deferred Income Plan or the Universal Leaf Tobacco
Company, Incorporated 1994 Deferred Income Plan for any year in which
such deferral or payment occurred. For purposes of calculating
benefits under this Plan, Compensation shall be used to determine
"Final Average Compensation."
1.08 Delayed Retirement Date means the first day of any
month coinciding with or next following the actual date the Participant
severs his employment with the Company after his Normal Retirement Date.
<PAGE>
- 6 -
1.09 Disability Plan means the Disability Benefits Plan of
Universal Leaf Tobacco Company, Incorporated and Domestic Subsidiaries.
1.10 Disability Retirement Date means the first day of any
month, prior to a Participant's Normal Retirement Date, coinciding with
or next following a determination by the Committee that the Participant
is totally and permanently disabled under the terms of the Disability
Plan.
1.11 Early Retirement Date means the first day of any
month, prior to a Participant's Normal Retirement Date, as defined in
the Retirement Plan.
1.12 Effective Date means June 1, 1996.
1.13 Employment Date means the date of employment as
determined under the Retirement Plan.
1.14 Fiduciary means the Company, the Committee and any
individual, corporation, firm or other entity which assumes in
accordance with Article VIII responsibilities of the Company or the
Committee respecting management of the Plan or the disposition of its
benefits.
1.15 Normal Retirement Date means the first day of the
month coinciding with or next following the date the Participant attains
the age of sixty-five (65).
1.16 Participant means any employee who becomes a
Participant as provided in Article II.
1.17 Plan means the amended, restated and renamed Universal
Leaf Tobacco Company, Incorporated 1996 Benefit Restoration Plan, as
contained herein or as duly amended.
1.18 Plan Year means each twelve (12) month period
beginning on January 1 and ending on December 31.
1.19 Retirement Plan means the Employees' Retirement Plan
of Universal Leaf Tobacco Company, Incorporated, and designated
affiliated companies.
1.20 Service or Year of Service means the determination of
Years of Service for purposes of vesting and benefit accrual as
determined under the Retirement Plan.
1.21 Other Definitions - Unless otherwise specifically
provided in this Plan, terms defined in the Retirement Plan shall apply
to and have the same meaning in this Plan.
<PAGE>
- 7 -
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 Eligibility - Any employee of the Company or of any
participating employer in the Retirement Plan who is a participant in
the Retirement Plan and whose benefits are reduced by the operation of
Sections 415 or 401(a)(17) of the Code after applying the definition of
Compensation set forth herein.
2.02 Participation - An eligible employee shall become a
Participant and shall enter the Plan effective as of the first day of
the Plan Year in which the eligible employees' benefits are reduced by
the operation of Section 415 or 401(a)(17) of the Code after applying
the definition of Compensation set forth herein. Each person who becomes
a Participant shall remain a Participant so long as he is entitled to
future benefits under the terms of the Plan.
ARTICLE III
RETIREMENT BENEFITS
3.01 Normal Retirement Benefit - Upon retirement at his
Normal Retirement Date, a Participant shall receive an Actuarial
Equivalent benefit calculated as a monthly retirement benefit commencing
on such retirement date paid in accordance with Article IV. The amount
of the calculated monthly retirement benefit shall be the excess of
paragraph (a) over paragraph (b) as follows:
(a) The Normal Retirement Allowance, as
calculated pursuant to Section 4.01 of the Retirement Plan, provided,
however, that for purposes of this calculation (i) limits imposed by
Sections 415 or 401(a)(17) of the Code shall be disregarded and (ii)
"Compensation" shall be defined in accordance with this Plan.
(b) The monthly retirement benefit payable to
the Participant as determined under the provisions of the Retirement
Plan.
3.02 Delayed Retirement Benefit - Upon retirement at his
Delayed Retirement Date, a Participant shall receive an Actuarial
Equivalent benefit calculated as a monthly retirement benefit commencing
on the date of such retirement paid in accordance with Article IV. The
amount of the calculated monthly retirement benefit shall be the excess
of paragraph (a) over paragraph (b) as follows:
<PAGE>
- 8 -
(a) The Delayed Retirement Allowance, as
calculated pursuant to Section 4.02 of the Retirement Plan, provided,
however, that (i) for purposes of this calculation limits imposed by
Sections 415 or 401(a)(17) of the Code shall be disregarded and (ii)
"Compensation" shall be defined in accordance with this Plan.
(b) The monthly retirement benefit payable to
the Participant as determined under the provisions of the Retirement
Plan.
3.03 Early Retirement Benefit - Upon retirement at his
Early Retirement Date, a Participant shall receive an Actuarial
Equivalent benefit calculated as a monthly retirement benefit commencing
on his Early Retirement Date paid in accordance with Article IV. The
amount of the calculated monthly retirement benefit shall be the excess
of paragraph (a) over paragraph (b) as follows:
(a) The Early Retirement Allowance, as
calculated pursuant to Section 4.03 of the Retirement Plan, provided,
however, that for purposes of this calculation (i) limits imposed by
Sections 415 or 401(a)(17) of the Code shall be disregarded; (ii)
"Compensation" shall be as defined in this Plan; and (iii) for a
Participant retiring at or after age 55, the actuarial reductions shall
be calculated by the application of the reduction factors denoted in
Appendix A to this Plan.
(b) The monthly retirement benefit payable to
the Participant as determined under the provisions of the Retirement
Plan.
3.04 Current Retiree's Benefit - Any former employees who
are receiving benefits under the predecessor to the Plan as of the
Effective Date shall be notified of the changes to the Plan and offered
the opportunity to request of the Executive Compensation Committee of
the Board of Directors of Universal Corporation a commuted benefit. If
such a request is granted by that committee, then a lump sum payment
calculated under Section 4.01 (using a discount rate of 6.22% in
calculating Price) shall be paid to the former employee prior to July 1,
1996 in full and complete release of any further benefits under such
plan.
ARTICLE IV
BENEFIT PAYMENT
4.01 Form of Payment - A Participant or Beneficiary shall
receive a lump sum payment in cash, unless Section 5.03 applies,
calculated in accordance with the following equations:
<PAGE>
- 9 -
(a) Annuity Equivalent = NAT Benefit divided
by [1 - (Rate times (1 minus Ratio))].
(b) Lump Sum Payment = (1 plus Expense) times
(Annuity Equivalent times Price) divided by (1 - Rate).
(i) "Benefit" means twelve times the life
only benefit for the Participant determined under Article III.
(ii) "Price" means the annuity cost
(either immediate or deferred, as appropriate) utilizing the factors
denoted in Appendix A to this Plan to provide the Benefit, calculated by
using the ten-year Treasury bill rate effective as of the first date of
the month in which termination of employment occurs.
(iii) "Rate" means the rate factoring
the maximum marginal federal and state tax rates and FICA tax rate
applicable to the Participant at the time of the payment.
(iv) "NAT Benefit" means the net after
tax (NAT) benefit determined by multiplying the Benefit times (1 minus
Rate).
(v) "Ratio" means Price divided by
the factors denoted in Treas. Reg. Section 1.72-9, Table V.
(vi) Expense means five percent (5%)
which is used as an approximation of the administrative charge that an
insurance company would use in pricing annuities for public sale.
4.02 Time of Payment - The Company shall make the lump sum
payment within sixty (60) days after the termination of employment in
all cases hereunder except for subparagraphs (a) and (b) below.
(a) In the event that the Participant
is disabled, as defined in the Disability Plan, the Company shall make
the lump sum payment within sixty (60) days after the earlier of the
Participant's retirement, death or his attaining his Normal Retirement
Date.
(b) In the event that the Participant
is a "covered employee" as defined in Treas. Reg. Section
1.162-27(c)(2) for the taxable year of the
<PAGE>
- 10 -
Company during which the termination of employment occurred or for the
immediately preceding year, the Company shall make the lump sum payment
not earlier than ninety (90) days following the end of the Company's
taxable year during which the Participant last was a "covered employee."
4.03 Triennial Revaluation and Payment - Until and upon the
death of the Participant, and as of the third anniversary of the
Effective Date and each subsequent triennial thereafter, the Committee
shall recalculate the NAT Benefit for such Participant, based upon the
actual Rates, as defined in Section 4.01 above for the period from the
receipt by the Participant of the lump sum payment to the recalculation
date (the "Actual Rates"). To the extent that the Actual Rates are less
than the Rate used in the calculation of the lump sum benefit (the
"Previous Rate") by two percentage points or more, then the Committee
shall delete the Previous Rate and insert the Actual Rates in the
calculation of the NAT Benefit. The Company shall then make a lump sum
payment within sixty (60) days of the triennial in the cumulative amount
that the Actual Rates NAT Benefit exceeds the Previous Rate NAT Benefit
after taking into account any interim triennial payments.
ARTICLE V
BENEFITS ON TERMINATION OF EMPLOYMENT
5.01 Vesting of Benefits - All rights to all benefits under
the Plan will cease upon a Participant's termination of employment with
the Company prior to retirement except as otherwise provided herein.
If the employment of a Participant is terminated with the
Company prior to retirement after he has completed at least five (5)
Years of Service, he shall be entitled to receive the Actuarial
Equivalent of his Accrued Benefit calculated under Section 3.03 present
valued from his 55th birthday to his termination date.
5.02 Payment of Vested Benefit - A terminated Participant,
who is entitled to a vested benefit in accordance with the provisions of
Section 5.01, shall be entitled to receive his vested benefit calculated
and paid in accordance with Article IV.
5.03 Forfeiture of Benefits - Notwithstanding anything in
this article to the contrary, a Participant shall forfeit all rights in
and to any benefits payable under the Plan if the Company terminates
the Participant's employment as the result of the Participant's fraud,
dishonesty or embezzlement where the Participant has been materially
unjustly enriched by such conduct.
<PAGE>
- 11 -
ARTICLE VI
BENEFITS ON DISABILITY OR DEATH
6.01 Disability After Eligibility for Vested Benefit - In
the event of the disability of a vested Participant, as defined in the
Disability Plan, prior to the payment of the retirement benefit, the
Participant shall continue as a Participant in this Plan until he
retires, dies or attains his Normal Retirement Date, whichever first
occurs. Upon the occurrence of retirement or attainment of his Normal
Retirement Date, the Participant shall receive the benefit calculated
and paid pursuant to Article IV, as though he had terminated employment,
or retired, whichever is applicable, at that time.
6.02 Death After Eligibility for Vested Benefit - In the
event of the death of a vested Participant prior to the payment of the
retirement benefit (including employees disabled as defined in the
Disability Plan), there shall be payable to his Beneficiary a benefit
calculated and paid pursuant to Article IV, as though he had terminated
employment, or retired, whichever is applicable, at the date of death.
ARTICLE VII
FUNDING
7.01 General - In order to meet its contingent obligation
hereunder, the Company may set aside in trust or otherwise or may
earmark funds in such amounts, determined by the Committee, necessary to
provide benefits accrued under the Plan. Funds set aside or earmarked
to meet the Company's contingent obligation hereunder may be kept in
cash, or invested and reinvested.
Title to and beneficial ownership of any assets which the
Company may set aside or earmark to meet its obligation hereunder shall
at all times remain in the Company; and no Participant or Beneficiary,
under any circumstances, shall acquire any property interest in or
rights to any specific assets of the Company.
ARTICLE VIII
FIDUCIARIES AND ADMINISTRATION OF THE PLAN
8.01 General - Each Fiduciary who is allocated specific
duties or responsibilities under the Plan or any Fiduciary who assumes
such a position with the Plan shall discharge his duties solely in the
interest of Participants and their Beneficiaries and for the exclusive
purpose of
<PAGE>
- 12 -
providing such benefits as stipulated herein to such Participants and
Beneficiaries, or defraying reasonable expenses of administering the
Plan. Each Fiduciary in carrying out such duties and responsibilities
shall act with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in exercising such
authority or duties.
A Fiduciary may serve in more than one Fiduciary capacity and
may employ one or more persons to render advice with regard to his
Fiduciary responsibilities. If the Fiduciary is serving as such without
compensation, all expenses reasonably incurred by such Fiduciary shall
be reimbursed by the Company.
A Fiduciary may delegate any of his responsibilities for the
operation and administration of the Plan.
8.02 Company Responsibilities - The Company has established
and maintains the Plan for the benefit of its employees and of necessity
retains control of the operation and administration of the Plan. The
Company in accordance with specific provisions of the Plan has, as
herein indicated, delegated certain of these rights and obligations to
the Committee and the Committee shall be solely responsible for these,
and only these, delegated rights and obligations.
The Company shall supply such full and timely information for
all matters relating to the Plan as (a) the Committee, (b) the actuary
and (c) the accountant, if any, engaged on behalf of the Plan by the
Company, may require for the effective discharge of their respective
duties.
8.03 Committee Responsibilities - In accordance with the
provisions hereof, the Committee has been delegated certain
administrative functions relating to the Plan with all powers necessary
to enable it properly to carry out such duties. The Committee shall have
no power in any way to modify, alter, add to or subtract from, any
provisions of the Plan. The Committee shall have powers to construe the
Plan and to determine all questions that may arise thereunder relating
to (a) the eligibility of individuals to participate in the Plan, (b)
the amount of retirement benefit or other benefits to which any
Participant or Beneficiary may become entitled hereunder, and (c) any
situation not specifically covered by the provisions of the Plan. All
disbursements from the Plan, except for the ordinary expenses of
administration of the Plan or the reimbursement of reasonable expenses
at the direction of the Company as provided herein, shall be made upon,
and in accordance with, the written directions of the Committee. When
the Committee is required in the performance of its duties hereunder to
administer, construe, or to reach a determination under any of the
provisions of the Plan, it shall do so in a uniform, equitable and
nondiscriminatory basis.
The Committee shall establish rules and procedures to be
followed by Participants and their Beneficiaries in filing applications
for benefits and for furnishing and verifying proofs
<PAGE>
- 13 -
necessary to establish age, years of Service, Final Average
Compensation, Primary Social Security Benefit and any other matters
required in order to establish their rights to benefits in accordance
with the Plan.
8.04 Claims for Benefits - All claims for benefits under
the Plan shall be submitted to the members of the Committee who shall
have the responsibility for determining the eligibility of any
Participant or Beneficiary to receive such benefits. All claims for such
benefits shall be made in writing and shall set forth the facts which
such Participant or Beneficiary believes to be sufficient to entitle him
to the benefit claimed. The Committee may adopt forms for the submission
of claims for benefits in which case all claims for benefits shall be
filed on such forms. The Committee shall provide Participants and their
Beneficiaries with all such forms.
Upon receipt by the Committee of a claim for benefits, it shall
determine all facts which are necessary to establish the right of an
applicant to benefits under the provisions of the Plan and the amount
thereof as herein provided. The Committee shall investigate and approve
or deny all questionable claims. Upon request, the Committee will afford
any applicant the right of a hearing with respect to any finding of fact
or determination related to any claim for benefits under the Plan. In
the event any claim for benefits is denied, the Participant or
Beneficiary shall be notified of such decision in accordance with the
provisions of Section 8.05.
8.05 Claims Procedures - The applicant shall be notified in
writing of any adverse decision with respect to his claim within ninety
(90) days after its submission. The notice shall be written in a manner
calculated to be understood by the applicant and shall include:
(a) The specific reason or reasons for
the denial;
(b) Specific references to the pertinent Plan
provisions on which the denial is based;
(c) A description of any additional material
or information necessary for the applicant to perfect the claim and an
explanation why such material or information is necessary; and
(d) An explanation of the Plan's claim review
procedures.
If special circumstances require an extension of time for
processing the initial claim, a written notice of the extension and the
reason therefor shall be furnished to the claimant before the end of the
initial ninety (90) day period. In no event shall such extension exceed
ninety (90) days.
<PAGE>
- 14 -
In the event a claim for benefits is denied or if the applicant
has had no response to such claim within ninety (90) days of its
submission (in which case the claim for benefits shall be deemed to have
been denied), the applicant or his duly authorized representative, at
the applicant's sole expense, may appeal the denial to the Committee
within sixty (60) days of the receipt of written notice of the denial or
sixty (60) days from the date such claim is deemed to be denied. In
pursuing such appeal, the applicant or his duly authorized
representative:
(i) may request in writing that the
Committee review the denial;
(ii) may review pertinent documents;
and
(iii) may submit issues and comments in
writing.
The decision on review shall be made within sixty (60) days of
receipt of the request for review, unless special circumstances require
an extension of time for processing, in which case a decision shall be
rendered as soon as possible, but not later than one hundred twenty
(120) days after receipt of the request for review. If such an extension
of time is required, written notice of the extension shall be furnished
to the claimant before the end of the original sixty (60) day period.
The decision on review shall be made in writing, shall be written in a
manner calculated to be understood by the claimant, and shall include
specific references to the provisions of the Plan on which the denial is
based. If the decision on review is not furnished within the time
specified above, the claim shall be deemed denied on review.
8.06 Records - All acts and determinations of the Committee
shall be duly recorded and all such records, together with such other
documents as may be necessary in exercising its duties under the Plan
shall be preserved in the custody of the Committee. Such records and
documents shall at all times be open for inspection to, and for the
purpose of making copies by, any person designated by the Company. The
Committee shall provide such timely information, resulting from the
application of its responsibilities under the Plan, as needed by the
actuary and the accountant, if any, engaged on behalf of the Plan by the
Company, for the effective discharge of their respective duties.
<PAGE>
- 15 -
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
9.01 Amendment of the Plan - The Company shall have the
right at any time by action of the Executive Committee of Universal Leaf
Tobacco Company, Incorporated, with the approval of the Executive
Compensation Committee of the Board of Directors of Universal
Corporation, to modify, alter or amend the Plan in whole or in part.
9.02 Termination of the Plan - The Company expects to
continue the Plan indefinitely, but continuance is not assumed as a
contractual obligation and the Company reserves the right at any time by
action of its Board of Directors to terminate the Plan. If the Company
terminates or partially terminates the Plan, or it is otherwise
terminated or partially terminated, the Committee shall continue to
administer the Plan as instructed by the Company in accordance with the
provisions hereof.
9.03 No Benefit Reduction - No amendment or termination of
the Plan shall reduce the Accrued Benefit or benefits payable to any
Participant as of the effective date of such amendment or termination.
ARTICLE X
MISCELLANEOUS
10.01 Governing Law - The Plan shall be construed, regulated
and administered according to the laws of the Commonwealth of Virginia
except to the extent preempted by the laws of the United States of
America.
10.02 Construction - The headings and subheadings in the
Plan have been inserted for convenience of reference only and shall not
affect the construction of the provisions hereof. In any necessary
construction, the masculine shall include the feminine and the singular
the plural, and vice versa.
10.03 No Employment Contract - This Plan shall not be deemed
to constitute a contract between the Company and any Participant or to
be a consideration or inducement for the employment of any Participant
or employee. No Participant in the Plan shall acquire any right to be
retained in the Company's employ by virtue of the Plan, nor, upon his
dismissal or upon his voluntary termination of employment, shall he have
any right or interest in and to the Plan other than as specifically
provided herein.
10.04 Receipt Prior to Payment - The Committee, or the
Company, jointly or severally, may require a written receipt as a
condition precedent to any payment called for by the Plan to be made to
a Participant, Beneficiary, or to their heirs, successors, executors and
legal representatives.
<PAGE>
- 16 -
10.05 Payments to Minors and Incompetents - Should any
Participant or Beneficiary be a minor or in the judgment of the
Committee, be physically or mentally incapable of personally receiving
and giving a valid receipt for any payment due him under the Plan, the
Committee may make such payment or any part thereof to or for the
benefit of such Participant or Beneficiary, or directly to or for the
benefit of any person determined by the Committee to have incurred
expense or assumed responsibility for the expenses of such Participant
or Beneficiary.
10.06 Non-alienability of Benefits - No benefits or other
amounts payable under the Plan shall be subject in any manner to
anticipation, sale, transfer, assignment, pledge, encumbrance, charge or
alienation.
10.07 Source of Benefits - This Plan provides an unsecured,
unfunded promise to pay benefits in the future. Participants in the Plan
shall have the status of general, unsecured creditors of the Company.
Amounts payable hereunder shall be paid from the general assets of the
Company and, to the extent that such assets are insufficient, from the
general assets of Universal Corporation. No person entitled to payment
hereunder shall have any claim, right, security interest, or other
interest in any fund, trust, account, insurance contract or asset of the
Company or of Universal Corporation which may be looked to for such
payment.
10.08 Indemnification - The Company shall indemnify and hold
harmless each person or persons who may serve on the Committee from any
and all claims, loss, damages, expenses (including attorneys' fees), and
liability (including any amounts paid in settlement) arising from any
act or omission of such person or persons, except when the same is
judicially determined to be due to the gross negligence or willful
misconduct of such person or persons.
10.09 Counterparts - The Plan may be executed in any number
of counterparts, each of which shall constitute but one and the same
instrument and may be sufficiently evidenced by any one counterpart.
<PAGE>
- 17 -
ADOPTION OF THE PLAN
As evidence of its adoption of the Plan, Universal Leaf Tobacco
Company, Incorporated has caused this instrument to be signed by its
duly authorized officer this ______ day of ______________, 19___ but
effective as of June 1, 1996.
UNIVERSAL LEAF TOBACCO
COMPANY, INCORPORATED
By:__________________________
UNIVERSAL CORPORATION
By:__________________________
<PAGE>
- 18 -
APPENDIX A
I. Early Retirement Factors
Numbers of Years
by which Early
Retirement Date
precedes Normal Less than 25 Years 25 or more Years
Retirement Date of Service of Service
1.00 0.98 1.00
2.00 0.96 1.00
3.00 0.94 1.00
4.00 0.92 1.00
5.00 0.90 1.00
6.00 0.87 0.95
7.00 0.84 0.90
8 0.81 0.85
9.00 0.78 0.80
10.00 0.75 0.75
- --------------------- -------------------- --------------------
The above factors shall be adjusted proportionately for
fractions of a year.
II. For all purposes of the Plan, the following assumptions
shall be used:
GA-83 Mortality Table, or its successor table
GAAP Discount Rate used for the Retirement Plan
Straight Life Normal Form
<PAGE>
- 51 -
EXHIBIT 12.
Universal Corporation and Subsidiaries
RATIO OF EARNINGS TO FIXED CHARGES
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C>
Pretax income from continuing operations $123,721 $55,768 $64,058
Pretax income of unconsolidated affiliates 4,305 2,232 3,854
Fixed charges 69,527 71,147 76,691
----------- ---------- -----------
Earnings $197,553 $129,147 $144,603
=========== ========== ===========
Interest $68,754 $69,585 $75,438
Interest of unconsolidated affiliates 492 1,328 1,031
Debt discount amortization 281 234 222
----------- ---------- -----------
Fixed Charges $69,527 $71,147 $76,691
=========== ========== ===========
Ratio of Earnings to Fixed Charges 2.8 1.8 1.9
=========== ========== ===========
</TABLE>
<PAGE>
- 52 -
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
ORGANIZED
UNDER LAW OF
UNIVERSAL CORPORATION Virginia
Universal Leaf Tobacco Company, Incorporated Virginia
K. R. Edwards Leaf Tobacco Company, Virginia
Incorporated
Casa Export Limited Virginia
Grassland Holding, Incorporated Kentucky
Tabacos Del Pacifico Norte, S.A. De C.V. Mexico
Tabacos Argentinos S.A. Argentina
Lancaster Leaf Tobacco Company of Pennsylvania, Inc. Virginia
Lancotab, N.V. Belgium
Lancaster Philippines, Incorporated Philippines
Latin America Tobacco Company Virginia
Maclin-Zimmer-McGill Tobacco Company, Incorporated Virginia
Simcoe Leaf Tobacco Company, Limited Canada
Southern Processors, Incorporated Virginia
Southwestern Tobacco Company, Incorporated Virginia
J. P. Taylor Company, Incorporated Virginia
Dunnington-Beach Tobacco Company, Incorporated Virginia
Thorpe & Ricks, Inc. Virginia
Thorpe-Greenville Export Tobacco Company North Carolina
Tobacco Processors, Incorporated Virginia
Universal Leaf Export Company, Incorporated Guam
W. H. Winstead Company, Incorporated Virginia
Universal Leaf International, Inc. Virginia
B. V. European Tobacco Company Netherlands
L'Agricola, S.p.A. Italy
Deltafina, S.p.A. Italy
Forestab, S.p.A. Italy
Itofina, S.A. Switzerland
<PAGE>
- 53 -
Orient Leaf Tobacco Co., Inc. Philippines
Universal Leaf Tabacos Limitada Brazil
Tebe-Ele S.A. Comercio Exterior Ltda. Brazil
Universal Leaf Far East, Limited Hong Kong
Universal Yaprak Tutun Sanayi Ve Ticaret A.S. Turkey
Continental Tobacco, S.A. Switzerland
Toutiana, S.A. Switzerland
Nyiregyhazi Dohanyfermentalo Rt. Hungary
Ultoco, S.A. Switzerland
Limbe Leaf Tobacco Company, Limited Malawi
Lytton Tobacco Company (Malawi) Limited Malawi
Gebruder Kulenkampff, Inc. Virginia
Gebruder Kulenkampff AG Germany
Tutuntex Ticaret A.S. Turkey
Industria AG Switzerland
Trestina Azienda Tabacchi, S.p.A.* Italy
Latina Tabacchi Greggi Italiani, S.p.A. Italy
Zimleaf Holdings (Private), Limited Zimbabwe
Lytton Tobacco Company (Private), Limited Zimbabwe
Zimbabwe Leaf Tobacco Company (Private) Limited Zimbabwe
Casalee, Inc. Virginia
Madison Management Ltd. British Virgin
Isles
Tobacco Trading International, Inc. British Virgin
Isles
Casalee Transtobac Lieferanten A.G. Switzerland
Casalee Transtobac (PVT) Ltd. Zimbabwe
Universal DC Holdings Ltd. USA/United Kingdom
Universal Eastern Europe Limited United Kingdom
Universal Leaf (UK) Limited USA/United Kingdom
C.G. Services Ltd. United Kingdom
Casalee (UK) Ltd. United Kingdom
<PAGE>
- 54 -
Deli Universal, Inc. Virginia
Imperial Commodities Corporation California
Red River Foods, Inc. Virginia
HTC Commodities, Inc. Virginia
Red River Commodities, Incorporated North Dakota
Ermor Tabarama-Tabacos do Brasil Ltda. Brazil
Deli-Mij Holdings Ltd. United Kingdom
Corrie, MacColl & Son Ltd. United Kingdom
Van Rees Ltd. United Kingdom
N.V. Deli Universal Netherlands
Deli Maatschappij B.V. Netherlands
Deli Services B.V. Netherlands
Jongeneel Holding B.V. Netherlands
Jongeneel B.V. Netherlands
Heuvelman Holding B.V. Netherlands
Heuvelman Hout Beheer B.V. Netherlands
Steffex Beheer B.V. Netherlands
Handelmatschappij Steffex B.V. Netherlands
Unifine * Netherlands
B.V. Deli-HTL Tabak Maatschappij Netherlands
Vriesthee B.V. Netherlands
Van Rees B.V. Netherlands
Van Rees Ceylon B.V. Netherlands
Beleggings-en Beheermaatschappij "DE Amstel' B.V. Netherlands
Indoco International B.V. Netherlands
Industria Exportadora de Tabacos Dominicanos
"Inetab" C. por Dominican Republic
Companhia Panamericana de Tabacos "Copata" Dominican Republic
* Company is 20 percent or more owned by parent and earnings of which
are recorded under the equity method of
accounting.
- 55 -
EXHIBIT 23.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of our report dated August 1, 1996 with respect to the consolidated
financial statements of Universal Corporation and subsidiaries included in this
Annual Report (Form 10-K) for the year ended June 30, 1996.
Registration Statement
Number Description
33-21781 Form S-8
33-38652 Form S-8
33-55140 Form S-8
33-38148 Form S-8
33-56719 Form S-8
33-65079 Form S-3
/s/ ERNST & YOUNG LLP
Richmond, Virginia
September 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102037
<NAME> UNIVERSAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 214,782
<SECURITIES> 0
<RECEIVABLES> 402,121
<ALLOWANCES> 0
<INVENTORY> 683,991
<CURRENT-ASSETS> 1,328,960
<PP&E> 665,939
<DEPRECIATION> 345,549
<TOTAL-ASSETS> 1,889,513
<CURRENT-LIABILITIES> 1,029,182
<BONDS> 309,543
0
0
<COMMON> 76,053
<OTHER-SE> 341,252
<TOTAL-LIABILITY-AND-EQUITY> 1,889,513
<SALES> 3,570,228
<TOTAL-REVENUES> 3,570,228
<CGS> 3,044,373
<TOTAL-COSTS> 3,044,373
<OTHER-EXPENSES> 333,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,754
<INCOME-PRETAX> 123,721
<INCOME-TAX> 49,474
<INCOME-CONTINUING> 71,350
<DISCONTINUED> 0
<EXTRAORDINARY> 896
<CHANGES> 0
<NET-INCOME> 72,246
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 0
</TABLE>
