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
For the fiscal year ended June 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________.
Commission file number 1-652
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UNIVERSAL CORPORATION
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(Exact name of Registrant as specified in its charter)
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Virginia 54-0414210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1501 North Hamilton Street, Richmond, Virginia 23230 804-359-9311
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(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, no par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
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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 X No
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The aggregate market value of the Registrant's voting stock held by
non-affiliates was $1,237,000,000 and the total number of shares of common stock
outstanding was 33,993,406 at September 16, 1998.
INFORMATION INCORPORATED BY REFERENCE
Certain information in the September 24, 1998 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, 1998, such operations accounted for 74% of
revenues and 88% of operating profits. Its agri-products and lumber and building
products operations accounted for 13% and 13% of revenues and 5% and 7% 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 the Company's tobacco revenues are
derived from sales of processed tobacco and from fees and commissions for
specific services for its customers.
The Company's sales consist primarily of flue-cured and burley tobaccos that,
along with oriental tobaccos, are the major ingredients in American blend
cigarettes. In the last fiscal year, however, the Company formed a joint venture
with an independent oriental leaf merchant to form the largest oriental leaf
merchant in the world, Socotab, L.L.C. American blend cigarettes are enjoying
increasing popularity among consumers in many parts of the world. Consumption of
cigarettes generally has been declining in the U.S. and certain industrialized
countries and the Company expects this trend to continue in the future. At the
same time, 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.
More important, American blend cigarettes have recently gained market share in
many foreign markets, including those in Asia, Europe and the Middle East and
the demand for flue-cured, burley and oriental tobaccos has risen accordingly.
For a discussion of the impact of current economic trends in Asia on the
Company, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other Information Regarding Trends and Management's
Actions."
Processing of leaf tobacco is an essential service to the Company's customers,
the tobacco product manufacturers, because the quality of processed leaf tobacco
substantially affects the cost and quality of their products. The Company's
processing of leaf tobacco includes grading in the factories, blending,
separation of leaf lamina from the stems and packing to precise moisture targets
for proper aging. To accomplish these tasks according to exacting customer
specifications requires considerable skill and significant investment in plants
and machinery.
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Universal estimates that in fiscal year 1998 it purchased or processed nearly
40% of the flue-cured and burley tobacco produced in the principal export
markets of these tobaccos: 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, its ability to meet customer demand and
long standing relationships with customers. For a description of the factors
that may affect Universal's operating revenues - See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Factors That May
Affect Future Results."
Universal also 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. Dark tobaccos are typically used for cigars and smokeless tobacco
products. After several years of rapid growth, particularly in the premium
segment of the cigar market, supplies of filler and binder styles of tobacco
leaf for use in cigars are adequate to meet current demand. The supply of
tobacco used for cigar wrappers is, however, still tight.
Domestic Tobacco Business
Universal is represented by its buyers on all significant tobacco markets in the
United States, including flue-cured tobacco markets in Virginia, North Carolina,
South Carolina, Georgia and Florida; light air-cured (burley and Maryland)
tobacco markets in Kentucky, Tennessee, Virginia, North Carolina and Maryland;
air-cured tobacco markets in Kentucky and Virginia; dark fired and dark
air-cured markets in Virginia, Tennessee and Kentucky; and cigar/chewing tobacco
markets in Connecticut, Pennsylvania and Wisconsin.
In the United States, flue-cured and burley tobacco is generally sold at public
auction to the highest bidder. In addition, the price of such tobacco is
supported under an industry-funded federal government 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.
tobacco. Other factors affecting the competitive position of U.S. tobacco in the
world market include the efficiency of the marketing system, relative costs of
production and leaf quality in the United States and in foreign countries.
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 also carried out in varying degrees in
a number of foreign countries including Argentina, Azerbaijan, Brazil, Canada,
Colombia, the Dominican Republic, Ecuador, France, Germany, Greece, Guatemala,
Hungary, India, Indonesia, Italy, Kyrgyrzstan, Malawi, Mexico, Mozambique, the
Netherlands, Paraguay, the People's Republic of China, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, Spain, Switzerland, Tanzania,
Thailand, Turkey, Uganda, the United Kingdom, Zambia and Zimbabwe. In addition,
Socotab, L.L.C. has oriental tobacco operations in Bulgaria and Greece,
Macedonia and Turkey.
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In a number of countries, including Argentina, Brazil, Hungary, Italy, Mexico
and Tanzania, Universal contracts directly with tobacco farmers or groups of
farmers, in some cases before harvest, and thereby takes the risk that the
delivered quality and quantity will not 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
crop 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 South
America and in Africa and the profitability of these operations can materially
affect the Company's tobacco operating profits.
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, thereby limiting some of the Company's foreign
currency exchange risk. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Factors That May Affect Future Results."
Recent Developments and Trends and Factors that May Affect Future Results
For recent developments and trends in the Company's tobacco business and a
discussion of factors that may affect 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, thereby reducing the 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 its U.S. tobacco in the
eight-month period from 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
peak in this period. The Company's balance sheet at its fiscal year end, June
30, normally reflects seasonal expansions in South America, Central America and
Western Europe.
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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 material 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, 1998, tobacco sales to Philip Morris Companies Inc. accounted for
greater than 10% of consolidated revenues. See Note 11 to Consolidated Financial
Statements. Five other customers accounted for approximately 14% of consolidated
revenues during the same period.
Universal had orders from customers in excess of $485 million for
its tobacco inventories at June 30, 1998. Based upon historical experience, it
is expected that at least 90% of such orders will be delivered during the fiscal
year ending June 30, 1999. Typically, delays in the delivery of orders result
from changing customer requirements.
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 a world-wide buying organization of tobacco
specialists and many processing plants equipped with the latest technology
which, management believes, give it a competitive edge. See "Properties."
Competition varies depending on the market or country involved. Normally, there
are at least four 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,
and Standard Commercial Corporation. Of the significant leaf tobacco industry
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.
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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,
and canned meats.
In the current year, the Company sold its investment in a joint venture with
COSUN (a Dutch sugar cooperative). A pre-tax gain of $16.7 million was recorded
on the sale. See Note 2 to Consolidated Financial Statements.
The emphasis of the Company's agri-products business is on value-adding
activities and 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 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.
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, Ennar,
Cargill, Dahlgren, Global, Fuchs, Metallgeschellschaft/ SAFIC Alcan, Stassens,
Symington, Universal Tea, and UTT (Unilever).
For recent developments and trends in the Company's agri-products business and a
discussion of matters that may affect 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 Company's 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.
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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
lumber merchants and DIY chains with a wide range of lumber related products
including panel products and doors. The industrial sales unit primarily
distributes value-added softwood 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 most accounts and
notes receivable against uncollectibility for the majority of the amount owed.
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 in fiscal year 1998 accounted
for approximately 20% of the total market volume of the Netherlands, which is
clearly above the market share of its largest competitor, Pont-Meyer N.V. Ten
additional competitors accounted for approximately 30% of the market share in
this period, and the balance was 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 was approximately 3% in fiscal year 1997. For recent
developments and trends in the Company's lumber and building products business
and further discussion of matters that may affect this segment, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
E. Employees
The Company employed approximately 25,000 employees throughout the world during
the fiscal year ended June 30, 1998. This figure is estimated because many of
the non-salaried personnel are seasonal employees.
Universal believes that in the United States approximately 1,200 of the
non-salaried employees of its consolidated tobacco subsidiaries are represented
by unions. Most of these are seasonal employees. The Company believes that its
labor relations have been good. The Company is, however, currently at an impasse
in its contract negotiations with the union representing the workers at its
processing plant in Danville, Virginia. The union is currently working without a
contract at this facility, and there can be no assurance that the Company and
the union will execute a contract or that union members will continue to work at
this plant. The Company does not believe that a strike at this plant would have
a material adverse affect on its global operations.
F. Research and Development
No material amounts were expended for research and development during the fiscal
years ended June 30, 1998, 1997 and 1996.
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G. Patents, etc.
The Company holds no material patents, licenses, franchises or concessions.
H. Government Regulation, Environmental Matters and Other Matters
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors that may Affect Future Results" for a discussion of
government regulation, environmental compliance and other matters that may
affect the Company's business.
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 two
smaller office buildings located on the block adjacent to the Company's
headquarters, which contain an aggregate of approximately 18,500 square feet of
floor space.
In its domestic tobacco processing operations, Universal owns seven large,
modern, high volume plants that have the capacity to thresh, separate, grade and
redry tobacco. Five of these plants are located in North Carolina (Henderson,
Oxford, Rocky Mount, Smithfield and Wilson), one plant is in Danville, Virginia,
and one plant is in Lexington, Kentucky. The Henderson plant has approximately
500,000 square feet of floor space and a production capacity of over 140 million
pounds of green tobacco. 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 plants in Henderson, Rocky Mount and Smithfield, North Carolina and
Danville, Virginia each have a floor space of 300,000 to 400,000 square feet of
floor space and an average annual production capacity of over 100 million pounds
of green tobacco. The Oxford plant has a floor space of approximately 200,000
square feet and an average annual production capacity of over 80 million pounds
of green tobacco.
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 processing plants in Italy; one
large plant in Zimbabwe; and plants in Hungary, Poland, Tanzania and the
Netherlands. In Brazil, Universal owns two large plants. Socotab, L.L.C. owns
two oriental tobacco processing plants in Turkey, one in Greece, one in
Macedonia and a storage complex with limited processing capabilities and owns
interests in two processing plants in Bulgaria.
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 Pennsylvania, 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. The Company owns
large extruder plants in Lumberton and Rocky Mount, North Carolina; Danville,
Virginia; Greeneville, Tennessee; and Lexington and Bowling Green, Kentucky.
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A portion of Universal's tobacco inventory is stored in public storages. The
Company also owns the following domestic tobacco storages:
(a) Lexington, Kentucky - 6 storages covering 127,000 square feet;
(b) Henderson, North Carolina - 6 storages covering 178,500 square feet;
(c) Oxford, North Carolina - 7 storages covering 239,000 square feet;
(d) Rocky Mount, North Carolina - 6 storages covering 353,000 square feet;
(e) Smithfield, North Carolina - 7 storages covering 240,000 square feet;
(f) Wilson, North Carolina - 12 storages covering 460,000 square feet;
(g) Danville, Virginia - 4 storages covering 153,000 square feet;
(h) Kenbridge, Virginia - 7 storages covering 243,000 square feet; and
(i) Petersburg, Virginia - 7 storages covering 220,000 square feet.
Additional storage space is leased in Lexington, Kentucky; Smithfield, Henderson
and Rocky Mount, North Carolina; and Danville, Virginia. 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 properties are maintained in good operating condition
and are suitable and adequate for their purposes at the Company's current sales
levels. The facilities owned by the Company are not subject to indebtedness.
The Company's agri-products subsidiaries own and operate a tea blending plant in
the Netherlands; a tea warehouse and office in Sri Lanka; a bean processing
plant in Park Rapids, Minnesota; and small grain processing facilities in
Delamere, North Dakota and Zevenbergen, the Netherlands. Sunflower seed
processing plants are also owned and operated in Lubbock, Texas; Fargo, North
Dakota; and Colby, Kansas. The latter facility is financed in part through a
governmental industrial development authority. The Company has leased
agri-products trading facilities around the world, including locations in the
United States, United Kingdom, Egypt, Indonesia, Kenya, Canada, Poland, Russia
and Malawi.
The lumber and building products business owns or leases 44 sales outlets and/or
distribution facilities in the Netherlands and 7 facilities in Belgium. The
Company also owns a softwood facility for large scale sawing, planing and
fingerjointing and a building components manufacturing facility, which are
located in the Netherlands. Most of these locations are owned.
ITEM 3. LEGAL PROCEEDINGS
The Company has received federal grand jury subpoenas seeking documents and
information about the tobacco industry in connection with an investigation being
conducted by the Philadelphia Office of the Antitrust Division of the U.S.
Department of Justice. The Company is currently reviewing the subpoenas and
intends to cooperate with the investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 1998, 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
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "UVV." The following table sets forth the high and low sales
prices per share of the Common Stock on the NYSE Composite Tape, based upon
published financial sources, and the dividends declared on each share of Common
Stock for the quarter indicated.
First Second Third Fourth
Quarter Quarter Quarter Quarter
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1998
Cash dividends declared....... $ .265 $ .280 $. 280 $ .280
Market price range: High..... 38 5/8 41 1/2 49 1/2 44
Low...... 32 36 37 34 5/8
1997
Cash dividends declared.........$ .255 $ .265 $ 265 $ .265
Market price range: High....... 28 1/2 32 3/8 33 1/2 36 5/8
Low........ 24 5/8 25 1/2 28 1/2 28
The Company's current dividend policy anticipates the payment of quarterly
dividends in the future. The declaration and payment of dividends to holders of
Common Stock will be at the discretion of the Board of Directors and will be
dependent upon the future earnings, financial condition and capital requirements
of the Company. At September 23, 1998 there were 3,448 holders of record of the
registrant's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
Five-Year Comparison of Selected Financial Data For Five Years Ended June 30
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FOR THE YEARS ENDED JUNE 30
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(In thousands except per share data,
ratios, and number of common shareholders) 1998 1997 1996 1995 1994
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Summary of Operations
Sales and other operating revenues $4,287,204 $4,112,675 $3,570,228 $3,280,880 $3,048,515
Income before extraordinary item
and cumulative effect of change
in accounting principle 141,258 100,873 71,350 25,639 42,579
Net income 141,258 100,873 72,246 25,639 13,173
Return on beginning common
shareholders' equity 30.1% 24.2% 18.5% 6.7% 3.1%
Per common share - basis:
Income before extraordinary item
and cumulative effect of change
in accounting principle $ 4.01 $ 2.88 $ 2.04 $ 0.73 $ 1.20
Net income $ 4.01 $ 2.88 $ 2.06 $ 0.73 $ 0.37
Per common share - diluted:
Income before extraordinary item
and cumulative effect of change
in accounting principle $ 3.99 $ 2.87 $ 2.03 $ 0.73 $ 1.20
Net income $ 3.99 $ 2.87 $ 2.05 $ 0.73 $ 0.37
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Financial Position at Year End
Current ratio 1.30 1.32 1.29 1.27 1.35
Total assets $2,056,705 $1,980,470 $1,889,513 $1,807,965 $1,735,866
Long-term obligations 263,140 291,637 309,543 284,948 304,149
Working capital 328,768 347,542 299,778 264,713 318,583
Shareholders' equity $ 547,867 $ 469,593 $ 417,305 $ 389,959 $ 384,598
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General
Number of common shareholders 3,049 3,271 3,420 3,741 4,022
Weighted average common shares
outstanding - Basic 35,190 35,076 35,038 35,014 35,502
Weighted average common shares
outstanding - Diluted 35,388 35,207 35,091 35,031 35,518
Dividends per common share $ 1.105 $ 1.05 $ 1.015 $ .99 $ .94
Book value per common shae $ 15.57 $ 13.39 $ 11.90 $ 11.13 $ 10.99
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Fiscal years have been restated to conform to Statement of Financial Accounting
Standard No. 128 "Earnings per share".
Fiscal year 1998 includes a $16.7 million ($10.9 million net of tax) gain on the
sale of an investment.
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 has been restated to reflect the consolidation of certain foreign
subsidiaries that had been accounted for under the cost or equity method of
accounting.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity & Capital Resources
Universal Corporation enjoyed record income in fiscal year 1998, and took
advantage of its strong cash flow to continue to optimize its capital structure
and position its operations to take advantage of any future market growth.
The current ratio was 1.3 in fiscal year 1998, down slightly compared to the
prior year on a decrease in working capital of $19 million to $329 million.
Tobacco inventories decreased during fiscal year 1998 by nearly $30 million due
to decreased prices in some markets. The Company estimates that its uncommitted
flue-cured and burley inventories were approximately 15 million kilos at June
30, 1998, up from approximately 7.5 million kilos last year. Management believes
that its current supply of uncommitted tobacco inventory is not excessive. The
reduction in cash and cash equivalents at June 30, 1998, reflects improved
efficiency in the utilization of offshore cash balances.
The Company's capital needs are predominantly short term in nature and relate to
working capital required for financing tobacco crop purchases. Working capital
needs are seasonal within each geographical region. Generally, the peak need of
domestic tobacco operations occurs in the second fiscal quarter. Foreign tobacco
operations tend to have higher requirements during 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. 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 agri-products
operations fluctuate during the year, depending on the product, the country of
origin, and the Company's inventory position; however, the total working capital
requirements of agri-products remain relatively stable due to offsetting
seasonal patterns. Working capital needs of lumber and building products
operations in Europe follow a pattern similar to that of the construction
industry, where the third quarter of the fiscal year is typically sluggish. The
Company finances its working capital needs with short-term lines of credit,
customer advances, and trade payables.
Acquisitions and investments are reflected in "Net cash used in investing
activities." Over the last three years, the Company invested approximately $200
million in its operations. These expenditures were funded with cash flow from
operating activities of about $280 million. 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 1998, Universal purchased plants in Tanzania and Poland as
well as the United States. It also continued improvements to processing lines in
Africa including the newly acquired plant in Tanzania. During fiscal year 1999,
Universal plans to continue to improve processing lines and facilities of its
tobacco operations and to rationalize its lumber and building products
facilities . Thus, the Company expects its capital expenditures to remain at or
near the levels of fiscal year 1998. Management believes that these projects
represent significant opportunities to improve productivity and enhance growth
for the long term. At June 30, 1998, the Company had no material commitments for
capital expenditures.
On May 6, 1998, Universal announced that its Board of Directors had approved the
purchase of up to $100 million of the common stock of the Company. The purchases
will be carried out from time to time on the open market or in privately
negotiated transactions at prices not exceeding prevailing market prices. The
purchases are expected to be funded primarily from operating cash flow of the
Company. At June 30, 1998, Universal had approximately 34.9 million common
shares outstanding and had purchased about 542,000 shares pursuant to the
program.
<PAGE>
The Company believes that its financial resources are adequate to support its
capital needs. The Company and its subsidiaries currently have about $1.4
billion in uncommitted lines of credit, of which about $900 million was unused
at June 30, 1998, and available to support future seasonal working capital needs
in the United States and several foreign countries. Effective December 18, 1997,
the Company replaced its $100 million revolving credit facility with a new $300
million facility issued in two equal tranches. The new facility is used to
support an increased commercial paper program that provides flexibility in the
Company's short-term borrowings. The Company's debt ratings are investment
grade, and its ratio of long-term debt to long-term capitalization (including
deferred taxes) is approximately 31%. The Company's total debt as a percentage
of total capitalization (including deferred taxes) has been reduced from 65% at
the end of fiscal year 1997 to approximately 61% at the end of fiscal year 1998.
Any excess cash flow from operations after dividends, capital expenditures, and
long-term debt payments will be available to reduce short-term debt, fund
expansion, purchase the Company's stock, or otherwise enhance shareholder value.
Results of Operations
Fiscal Year 1998 Compared to 1997
'Sales and other operating revenues' for fiscal year 1998 were $4.3 billion, an
increase of 4% compared to last year. Tobacco revenues were up $165 million or
5% principally due to increased sales volumes by domestic and Latin American
operations. Agri-product revenues were up $56 million or 11% on improved tea
market conditions. These gains were partially offset by a decline in lumber and
building product revenues of approximately $ 46 million. Lumber and building
product revenues were adversely affected by the strength of the U.S. dollar
which appreciated, on average, approximately 14 % against the Dutch guilder
during the year, and price declines for softwood, hardwood and plywood.
'Operating income' improved $42 million or almost 18% as compared to last year.
Tobacco operating profits in fiscal year 1998 of $258 million increased by $49
million or 23%. The majority of the growth in tobacco operating profits was due
to higher volumes and improved margins in the Company's international
operations. In addition, tobacco operations benefited from a lower cost
structure resulting from the Company's restructuring efforts in prior years.
Domestic tobacco operations reported better results on increased processing
volumes of both flue-cured and burley crops. Dark tobacco operating earnings
were up on increased volumes because of higher demand from cigar manufacturers.
In accordance with its normal valuation procedures, in the fourth quarter of
fiscal year 1998 the Company recorded in aggregate $11 million of charges for
tobacco inventory adjustments, none of which was individually significant. An
improvement in agri-products operating profits was more than offset by a decline
in operating profits from lumber and building products. The improvement in
agri-products operating profits of $3 million was due principally to tea
operations, which experienced a 37% increase in revenues in a strong market.
Lumber and building products operating results suffered from the aforementioned
impact of exchange rates plus a squeeze on margins resulting from simultaneous
declines in softwood, hardwood and plywood prices.
'Selling, general and administrative expenses' for fiscal year 1998 were up
approximately $19 million, reflecting the higher volume of tobacco handled this
year. The increase in "Equity in pretax earnings of unconsolidated affiliates"
is primarily due to the aforementioned improved market conditions for cigar
tobacco leaf. Pretax income in fiscal year 1998 included a gain of $17 million
from the sale of an investment in a spice joint venture.
<PAGE>
Fiscal Year 1997 Compared to 1996
'Sales and other operating revenues' in fiscal year 1997 exceeded $4 billion.
Each operating segment of the Company contributed to the increase of $542
million or 15% over fiscal year 1996. Tobacco contributed $486 million, over 90%
of the increase. The increase in tobacco revenues reflected a combination of
improved market balance and rising demand for leaf tobacco. Lumber and building
products revenues were up approximately 4% despite a stronger U.S. dollar, which
adversely affected the U.S. dollar results of this Netherlands-based operation.
Agri-products revenues increased 7% compared to fiscal year 1996 on the strength
of sunflower seed, nut, and dried fruit sales.
'Operating income' in fiscal year 1997 was $237 million compared to $192 million
in fiscal year 1996, an increase of 23%. Tobacco operating profits were up $41
million or 24% in fiscal year 1997. Increased demand for tobacco and a more
balanced supply situation created a favorable operating environment in 1997.
Foreign and dark tobacco operating results improved significantly in fiscal year
1997, while U.S. results were down. A combination of larger volumes handled and
improved margins in virtually all foreign tobacco operations contributed to the
gain. U.S. operations declined due to a combination of reduced crops and sales
mix. The Company had a higher proportion of old crop tobacco sales in fiscal
year 1996. Dark tobacco operations reflected the increased demand for cigars.
Lumber and building products operating profits were $26 million in fiscal year
1997, an increase of $3 million compared to the prior year. Improved performance
in both regional sales and industrial units accounted for the majority of the
increase, despite the adverse effects of a stronger U.S. dollar on reported
results. Agri-products operating profits increased 2% in fiscal year 1997,
despite difficult trading conditions for tea and rubber.
'Selling, general and administrative expenses' were up $18 million or 6%
compared to the prior year. The increase was primarily due to higher selling
costs on the larger tobacco volumes shipped. Interest expense in fiscal year
1997 was down due to lower average borrowings, reduced interest rates in
Holland, and foreign currency translation reductions in fiscal year 1997. In
fiscal year 1997, the Company's consolidated income tax rate was 40%. The rate
exceeded the Federal statutory rate by five percentage points, principally due
to state taxes and foreign subsidiary local tax rates.
OTHER INFORMATION REGARDING TRENDS AND MANAGEMENT'S ACTIONS
After three consecutive years of relative balance in supply and use of leaf
tobacco, 1997 production increased while purchases were lower, particularly by
customers in Asia who have been affected by the economic and financial turmoil
in that part of the world. Worldwide uncommitted tobacco inventory levels in the
industry have risen, primarily in higher priced grades. The combination of
oversupply, economic uncertainty in Asia, and the political and legal situation
in the United States could reduce volume growth and cause margin reductions in
the industry. The Company's uncommitted inventory at June 30, 1998 remains
relatively small, and management believes that, although it is well positioned
in the current market place, its rate of earnings growth could be slowed through
fiscal year 2000.
Worldwide tobacco consumption has grown on average about 1% annually over the
last ten years, however, the fast-growing American-blend cigarette has been
estimated to have a greater than 40% share of total world consumption in 1997
and is expected to continue to grow in the foreseeable future. In addition,
multinational cigarette manufacturers continued to expand their share of the
world cigarette market. Demand for leaf tobacco should remain strong, with
cigarette manufacturers sensitive to the price/value relationship in making
their purchases. In dark tobacco, the explosive growth of cigar sales in recent
years is beginning to moderate, with a slowdown in volume growth and lower
margins as supply and demand for filler and binder leaf becomes more balanced.
<PAGE>
The Company's 1998 formation of an oriental leaf joint venture, Socotab L.L.C. ,
created the world's leading oriental tobacco merchant. The Company is already
the leading supplier of flue-cured and burley leaf tobacco, which together with
oriental tobacco, form the American blend. A key trend in the tobacco industry
has been consolidation among manufacturers and among leaf tobacco merchants.
This concentration should increase the need for better quality tobacco and
improved processing, thereby providing a good growth opportunity for the
Company.
The Company operates in a number of countries in Asia. Its operations generally
relate to buying and subsequent sale of leaf tobacco to local and export
customers. Although some customers have postponed some shipments and orders, the
overall effect on the Company from the most recent Asian financial difficulties
has not been, and is not expected to be, significant.
The possible effects of regulatory factors and industry litigation, particularly
in the U.S., are more fully described in "Factors That May Affect Future
Results" below. Management has estimated that less than 17% of the flue-cured,
burley, and oriental tobacco the Company handles is consumed in the United
States.
The Company has a very large presence in the U.S. market, where leaf has not
been price competitive in the world market. If not corrected through federal
government program reforms and reduced support prices, U.S. pricing could result
in a decline in domestic production and marketings in the future. Management
believes that the risk of a significant decline in the total U.S. crop in fiscal
year 1999 is small, but notes that the Company is well positioned to acquire
leaf tobacco from many sources in world markets.
Year 2000
In recent months, there has been increasing public awareness and attention paid
to the year 2000 (or "Y2K") problem, which stems from the inability of certain
computerized devices (hardware, software and equipment) to process year-dates
properly after 1999 (in addition to related problems processing leap years and
other dates). Affected devices may fail or malfunction unless repaired or
replaced. Although the actual magnitude and effect of the issue cannot be
reasonably determined in advance, the Company has given it high priority. In
1996, the Company began an analysis of the possible implications to the Company
of the year 2000 problem and the development of a plan to prevent the problem
from adversely affecting its operations.
The plan as adopted and refined by the Company can be divided into two principal
areas:
(1) Resolution of the internal aspects of the year 2000 problem. This area
includes the effects of the year 2000 problem on the Company's technology,
including computer hardware and software systems, as well as computerized
equipment containing programmable logic controllers or other embedded chips
("PLCs" or "chips"). The Company's internal technology year 2000 plan includes:
(i) locating, listing and prioritizing the specific technology that is
potentially subject to the year 2000 problem (referred to as the "inventory"
phase), (ii) assessing the actual exposure of such technology to the year 2000
problem by inquiry, research, testing and other means (the "assessment" phase),
(iii) selecting the method necessary to resolve the year 2000 problems that were
identified, including replacement, upgrade, repair or abandonment, and
implementing the selected resolution method (the "remediation" phase), and (iv)
testing the remediated or converted technology to determine the efficacy of the
resolutions (the "testing" phase).
<PAGE>
(2) Determination and control of the external aspects of the year 2000 problem.
This area includes (i) assessing the foreign and domestic risk posed by possible
business interruption or production difficulties affecting important customers
and suppliers of goods, services and essential utilities due to year 2000
problems affecting their technology or business, and (ii) developing contingency
plans to address failures by external parties to remediate fully any year 2000
problems that are material to the Company. Assessment of external parties is
accomplished by written and verbal inquiry, and by research to the extent that
reliable information is available.
To date, the Company has made progress on both the internal and external aspects
of the plan. With regard to internal information technology, the majority of the
Company's business units have completed the remediation stage and have begun
testing. The remainder of the Company's business units have completed the
assessment phase and are currently scheduled to complete the remediation phase
by December 31, 1998. Testing of remediated or converted internal systems will
continue through calendar year 1999. The sequence and extent of testing will be
prioritized by the importance of the technology, with initial focus on two
areas: (i) critical computer hardware and software systems, and (ii) PLCs
embedded in key machinery and equipment.
The Company has assessed its internal operational exposure to the failure of
PLCs. Information provided by the manufacturers of the PLC's within the
Company's machinery and equipment indicates that there do not appear to be any
PLCs that will cause material year 2000 problems. The Company is currently
seeking technical assistance in order to test certain PLCs to confirm
manufacturers' representations regarding the absence of material year 2000
problems. Testing of PLCs is not a routine practice, and there can be no
assurances that the Company will be able to conduct such tests on PLCs or that
the tests will lead to reliable conclusions. In addition, there can be no
assurances that the Company will be able to conduct tests on all of its internal
technology, or that the tests will be fully successful in detecting Y2K problems
within the internal technology.
An evaluation of external parties is underway, and will continue throughout
1999. Determining the year 2000 readiness of external parties requires
collection and appraisal of voluntary statements made or provided by those
parties, if available, together with independent factual research. Although the
Company has taken, and will continue to take, reasonable efforts to gather
information to determine the readiness of external parties, often such
information is not provided voluntarily, is not otherwise available, or is not
reliable.
In assessing the risks to the Company's business arising from the year 2000
problem, the Company has considered the fact that certain of its significant
customers and suppliers are located in foreign countries where the awareness of
the year 2000 problem and remediation efforts may be behind comparable awareness
and remediation efforts in the United States, and that these entities may not be
prepared for the year 2000 problem on January 1, 2000. In the event these
significant entities fail to timely address the year 2000 problem, the Company
could suffer disruption of its normal business operations for a period of time
after January 1, 2000.
In addition, the Company is subject to operational risks relating to the
readiness of foreign and domestic public utilities, transportation facilities,
financial services providers and government-operated services. The loss of
services from one or more of these entities could interrupt or disrupt business
unit operations. Furthermore, with respect to certain fundamental services such
as electricity and telecommunications, it may be impractical to develop
contingency plans (such as alternative power generation or telecommunication
methods) to mitigate the potential adverse effects. The year 2000 readiness of
external parties is substantially beyond the Company's knowledge and control,
and there can be no assurances that the Company will not be adversely affected
by the failure of an external party to adequately address the year 2000 problem.
<PAGE>
Prior to June 30, 1999, the Company expects to develop initial contingency plans
to address situations wherein the readiness of internal technology or external
parties is not sufficiently assured, and practical alternative products,
services or methods are available. Thereafter, as the year 2000 approaches, the
Company will monitor and update such contingency plans as appropriate to address
any changes in the Company's year 2000 risks.
The Company currently estimates that the total costs for addressing the Y2K
problem will be approximately $5.7 million, which includes approximately $3.3
million in scheduled software upgrades that were accelerated in connection with
the plan. The balance of the estimate is the cost of consultants and employees
assigned to implement the plan. These amounts do not include estimated costs
associated with the implementation of any contingency plans that may be
developed by the Company during fiscal year 1999. The costs associated with
preparing for the Y2K problem are expensed as incurred and are being funded with
cash from operations. As of June 30, 1998, the Company had spent $4.3 million.
The Company does not expect the total cost of addressing the Y2K problem with
respect to its internal technology to be material to its consolidated financial
condition or results of operations.
The Conversion to the Euro Currency
On January 1, 1999 eleven of the European Union member countries will begin the
transition from their national currencies to the "euro". The euro will become
the single currency for the members of the European Monetary Union. In the first
phase, the permanent rates of exchange between the members' national currency
and the euro will be established, and monetary, capital, foreign exchange, and
interbank markets will be converted to the euro. National currencies will
continue to exist as legal tender and may continue to be used in commercial
transactions. By January 2002, euro notes and coins will be issued, and by July
2002 the respective national currencies will be withdrawn. The Company's
operating subsidiaries affected by the euro conversion have established plans to
address the related operating and information technology concerns. The Company
anticipates that the euro conversion will not have a material adverse effect on
its financial condition or results of operations.
Factors That May Affect Future Results
The foregoing discussion contains certain forward-looking statements, which may
be identified by phrases such as "the Company expects" or words of similar
effect. In addition, the Company may publish, from time to time, forward-looking
statements relating to such matters as anticipated financial performance,
business prospects and similar matters. The following important factors, among
other things, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for fiscal
year 1999 and any interim period to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company. The
Company assumes no duty to update any of the statements in this report.
Tobacco
OPERATING FACTORS
Universal's financial results are affected by a number of factors that directly
or indirectly impact the tobacco operations of the Company's business. Operating
factors that may affect the Company's results of operations include:
Competition; Reliance on Significant Customers
The leaf tobacco industry is highly competitive. Competition among leaf tobacco
merchants is based primarily 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. In addition, there is competition in all
countries to buy the available tobacco from suppliers.
<PAGE>
There are only three major global competitors in the leaf tobacco industry, and
they are dependent upon a few large tobacco manufacturing customers. The loss of
any large or significant customer would have a material adverse effect on the
Company's results of operations. Universal has long-term contracts (which under
certain circumstances may be amended or terminated) with some 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.
Market Balance
Universal's financial results can be significantly affected by the overall
balance of worldwide supply and demand for leaf tobacco. Customers purchase
tobacco based upon their expectations of future requirements, and those
expectations can change from time to time depending upon internal and external
factors affecting their business. Trends in the global consumption of cigarettes
and growth of American-blend cigarettes, as well as trends in cigar sales,
influence manufacturers' expectations and thus their demand for leaf tobacco.
The total supply of tobacco at any given time is a function of current tobacco
production and the volumes of uncommitted stocks of processed tobacco from prior
years' production. Production of tobacco in a given year may be significantly
affected by the amount of tobacco planted by farmers throughout the world,
fluctuations in the weather in geographically dispersed regions, and crop
disease. Any material imbalance in the supply and demand for tobacco may impact
the Company's results of operations.
Methods of Purchasing Tobacco
The Company purchases leaf tobacco from farmers, growers and other suppliers
through public auction and privately negotiated contract purchases. In a number
of countries, including Brazil, Hungary, Italy, Mexico and Tanzania, where the
Company contracts directly with tobacco farmers, in some cases before harvest,
the Company takes the risk that the delivered quality and quantity will meet
market requirements. Company affiliates also have dark tobacco growing
operations in Ecuador and Indonesia.
Timing of Customer Shipments
The Company generally recognizes sales and revenue from tobacco operations at
the time that title to the tobacco and risk of loss passes to the customer.
Individual shipments may be large and since the customer typically specifies
shipping dates, the Company's comparative financial results may vary
significantly between reporting periods.
Governmental Factors
The tobacco business is heavily regulated by federal, state and local
governments in the United States and by foreign governments in many
jurisdictions where the Company operates. Governmental factors that may affect
the Company's results of operations include:
Government Efforts to Reduce Tobacco Consumption
The United States government has taken or proposed actions that may have the
effect of reducing U.S. consumption of tobacco products. These activities have
included: (1) the U.S. Environmental Protection Agency's decision to classify
environmental tobacco smoke as a "Group A" (known human) carcinogen; which
action has been ruled unlawful by a Federal District Court decision that is
expected to be appealed; (2) restrictions on the use of tobacco products in
public places and places of employment including a proposal by the U.S.
Occupational Safety and Health Administration to severely restrict smoking in
the work place; (3) proposals by the U.S. Food and Drug Administration ("FDA")
to regulate nicotine as a drug and sharply restrict cigarette advertising and
promotion, recently determined, subject to appeal, to be outside the
jurisdiction of the FDA; (4) proposals to increase the U.S. excise tax on
cigarettes; and (5) the recently announced policy of the U.S. government to link
certain federal grants to the enforcement of state laws restricting the sale of
tobacco products. Numerous other legislative and regulatory anti-smoking
measures have also been proposed at the federal, state and local levels.
<PAGE>
In addition, a number of foreign governments have also taken steps to restrict
or prohibit cigarette advertising and promotion, to increase taxes on cigarettes
and to discourage cigarette smoking. In some cases, such restrictions are more
onerous than those in the U.S. For example, advertising and promotion of
cigarettes has been banned or severely restricted for several years in
Australia, Canada, Finland, France, Italy, Singapore and a number of other
countries.
The Company cannot predict the extent to which government efforts to reduce
tobacco consumption might affect the Company's business. Although the long-term
trend in the United States generally has been toward decreased consumption of
cigarettes, cigar sales have increased in recent years and the long-term trend
of worldwide cigarette consumption of tobacco has continued to grow slightly .
However, a significant decrease in overall worldwide tobacco consumption brought
about by existing or future governmental laws and regulations would reduce
demand for the Company's products and services and could have a material adverse
effect on the Company's results of operations.
Proposed Tobacco Litigation Settlement Legislation
On June 20, 1997, several multinational cigarette manufacturers, certain State
Attorneys General and plaintiffs' lawyers issued a Memorandum of Understanding
for consideration by Congress and the President. The Memorandum of Understanding
served as the basis for several bills introduced in the Congress, none of which
had been adopted by either house of Congress as of August 6, 1998. These bills,
if enacted into law, would, among other things, settle certain lawsuits filed by
various states against tobacco manufacturers and limit, or cap, their damages in
future lawsuits, provide for payments by the manufactures to the federal and
state governments, impose further restrictions on the sale, advertising and
promotion of tobacco products and impose a regulatory framework on the tobacco
manufacturers operating in the United States. The Company believes that the
legislation as proposed in any one of these bills could lead to reduced
consumption of tobacco products in the United States and, therefore, could
affect the volume of sales, operating revenues and operating profit of the
Company in amounts that cannot be determined. There can be no assurances as to
the content of any legislation that Congress may adopt or that Congress will not
enact legislation that would have a more detrimental effect on the domestic
consumption, import of tobacco in to the United States, export consumption of
tobacco and tobacco products and, therefore, the operating results of the
Company.
In addition, some government leaders in several foreign nations, including the
United Kingdom, Israel, and the Republic of South Korea have previously
announced their intention to propose legislation similar to that outlined in the
Memorandum of Understanding. To the extent that countries in which the Company
or its customers operate were to adopt this type of legislation, the Company's
volumes, operating revenues and operating profit could be adversely affected.
There can be no assurances as to the number of countries that may adopt such
legislation or to the content of any such legislation that a country may adopt.
However, the Company believes that none have done so by August 6, 1998.
Political Uncertainties in Foreign Tobacco Operations
The Company's international operations are subject to uncertainties and risks
relating to the political stability or instability of certain foreign
governments, principally in developing and emerging markets, and to the effects
of changes in the trade policies and economic regulations of foreign
governments. These uncertainties and risks include the effects of war,
insurrection, expropriation or nationalization of assets, undeveloped or
antiquated commercial laws, subsidies for local tobacco concerns, licenses to
conduct business in foreign jurisdictions, import and export restrictions, the
imposition of excise and other taxes on tobacco, monetary and exchange controls,
inflationary economies, and restrictions on repatriation of earnings or proceeds
from liquidated assets of foreign subsidiaries. In the past, the Company has
experienced significant year-to-year fluctuations in earnings due to changes in
the Brazilian government's economic policies. The Company has substantial
capital investments in Brazil, Zimbabwe, Malawi, and Tanzania and the
profitability of these operations can materially affect the Company's earnings
from tobacco operations.
<PAGE>
United States Trade Policies
The United States price support system is an industry-funded program that is
administered by the U.S. government. The effect of the price support system has
been to increase the cost of domestic tobacco relative to most foreign tobacco,
resulting in a decline in exports of domestic tobacco. In 1995, Congress
repealed certain domestic content legislation that had required that all
domestically manufactured cigarettes contain at least 75% domestically grown
tobacco and replaced it with a less restrictive tariff rate import quota system,
which was also designed to assist domestic tobacco growers by limiting imports.
It is not possible to predict the extent to which future trade policies or other
governmental activities might affect the Company's business.
Tax Matters
The Company through its subsidiaries is subject to the tax laws of many
jurisdictions, and from time to time contests assessments of taxes due. Changes
in tax laws or the interpretation of tax laws can affect the Company's earnings
as can the resolution of various pending and contested tax issues.
Health Issues; Public Sentiment; Industry Litigation
Reports and speculation with respect to the alleged harmful physical effects of
cigarette smoking have been publicized for many years and, together with
decreased social acceptance of smoking and increased pressure from anti-smoking
groups, have had an ongoing adverse effect on sales of tobacco products. A
significant decrease in global sales of tobacco products brought about by health
concerns, decreased social acceptance or other factors would reduce demand for
the Company's products and services and could have a material adverse effect on
the Company's results of operations.
In addition, litigation is pending against manufacturers of consumer tobacco
products seeking damages for health problems alleged to have resulted from the
use of tobacco in various forms. This includes lawsuits against cigarette
manufacturers filed by over 40 states in the United States seeking reimbursement
of Medicaid and other expenditures by such states claimed to have been made to
treat diseases allegedly caused by cigarette smoking. In addition, there have
been reports that the U.S. government is considering filing a similar type of
lawsuit. Neither the Company nor, to the Company's knowledge, any other leaf
merchant is a party to this litigation. It is not possible to predict the
outcome of such litigation or what effect adverse determinations in pending or
future litigation against manufacturers might have on the business of the
Company.
A group of U.S. tobacco manufacturers has settled the lawsuits brought by four
different states in the last year. Under the settlement agreements, the
manufacturers have agreed to make billions of dollars in payments to those
states and agreed to certain marketing restrictions, all of which could have the
effect of reducing tobacco consumption in those states. Lower consumption of
tobacco products could reduce demand for the Company's products and services and
could have a material adverse effect on the Company's results of operations.
<PAGE>
There can be no assurances as to the content of any future settlement agreements
between domestic manufacturers and any states. The Company believes that any
such future agreements will likely have a detrimental effect on the domestic
consumption of tobacco products and therefore could have a detrimental effect on
the Company's operating results.
Financial Factors
Financial factors that may affect the Company's results of operations include:
Extensions of Credit
Although the Company's credit experience has been excellent and extensions of
credit to customers are evaluated carefully, a significant delay in payment or
write-off of amounts due the Company could adversely affect the Company's
results. In addition, crop advances to farmers are generally secured by the
farmer's agreement to deliver green tobacco; in the event of crop failure,
recovery of advances could be delayed until deliveries of future crops. Funds
held by subsidiaries are generally invested in local banks or loaned to other
subsidiaries. To reduce credit risk, investment limits are established with each
bank according to the Company's evaluation of credit standing.
Fluctuations in Foreign Currency Exchange Rates
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 source country. Because there is no forward foreign exchange
market in many of the Company's major countries of tobacco origin, the Company
manages its foreign exchange risk by matching funding for inventory purchases
with the currency of sale and by minimizing the net investment in these
countries.
Interest Rates
Interest rate risk in the Company's tobacco operations is limited because
customers usually pre-finance purchases or pay market rates of interest for
inventory purchased on their order. However, since interest expense is recorded
as a period cost, the Company may experience earnings fluctuations on a short
term basis if customers delay shipments of tobacco.
Non-Tobacco Business
The Company's agri-products and lumber and building products businesses, which
are based in the United States and 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.
Hedging activity is not material.
The Company's lumber and building products operations are based in the
Netherlands, and their reported earnings are affected by the translation of the
Dutch guilder into the U.S. dollar. This 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 other normal market and
operational risks associated with lumber operations centered in Europe,
including economic conditions in the countries where the Company is located, the
prices of lumber products, and related trends in the building and construction
industry.
The agri-products business is affected by operating and other factors that are
similar to those that affect the Company's tobacco operations, including crop
risks and market balance, and to governmental factors such as political
uncertainties in countries of crop origin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item, to the extent applicable, is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth elsewhere in this report. See also Note 1 to Consolidated
Financial Statements for additional information regarding derivative financial
instruments.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1998 1997 1996
- -------------------------------------------------------------------------------------------------
(In thousands of dollars, except per share data)
<S> <C>
Sales and other operating revenues $4,287,204 $4,112,675 $3,570,228
Costs and expenses
Cost of goods sold 3,673,600 3,559,647 3,080,001
Selling, general and administrative expenses 335,210 316,201 297,752
---------------------------------------
Operating income 278,394 236,827 192,475
Equity in pretax earnings of unconsolidated
affiliates 16,901 11,864 4,305
Gain on sale of investment 16,718
Interest expense (63,974) (64,886) (68,754)
---------------------------------------
Income before income taxes and other items 248,039 183,805 128,026
Income taxes 98,659 73,945 49,980
Minority interests 8,122 8,987 6,696
---------------------------------------
Income before extraordinary item 141,258 100,873 71,350
Extraordinary item 896
---------------------------------------
Net income $ 141,258 $ 100,873 $ 72,246
- ------------------------------------------------------------------------------------------------
Per common share
Income before extraordinary item $4.01 $2.88 $2.04
Extraordinary item 0.02
---------------------------------------
Net income $4.01 $2.88 $2.06
- ------------------------------------------------------------------------------------------------
Per diluted common share
Income before extraordinary item $3.99 $2.87 $2.03
Extraordinary item 0.02
---------------------------------------
Net income $3.99 $2.87 $2.05
- -------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 35,190 35,076 35,038
Dilutive effect of stock options 198 131 53
----------------------------------------
Average common shares outstanding, assuming
dilution 35,388 35,207 35,091
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 1998 1997
- -----------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
ASSETS
Current
Cash and cash equivalents $ 79,835 $ 109,070
Accounts receivable 392,821 417,430
Advances to suppliers 104,439 90,499
Accounts receivable - unconsolidated affiliates 49,343 7,768
Inventories - at lower of cost or market:
Tobacco 541,822 570,650
Lumber and building products 97,071 105,567
Agri-products 102,187 80,812
Other 20,965 12,444
Prepaid income taxes 18,347 7,665
Deferred income taxes 3,794 7,064
Other current assets 19,665 22,270
---------------------------------
Total current assets 1,430,289 1,431,239
Property, plant and equipment - at cost
Land 29,951 30,887
Buildings 219,594 214,605
Machinery and equipment 466,177 430,360
---------------------------------
715,722 675,852
Less accumulated depreciation 385,967 366,200
---------------------------------
329,755 309,652
Other assets
Goodwill 120,889 117,483
Other intangibles 18,586 22,703
Investments in unconsolidated affiliates 87,052 33,413
Other noncurrent assets 70,134 65,980
---------------------------------
296,661 239,579
---------------------------------
$2,056,705 $1,980,470
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 1998 1997
- -----------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $ 586,450 $ 589,648
Accounts payable 285,994 275,980
Accounts payable - unconsolidated affiliates 17,116 10,204
Customer advances and deposits 125,311 144,175
Accrued compensation 24,706 19,296
Income taxes payable 27,693 16,166
Current portion of long-term obligations 34,251 28,228
---------------------------------
Total current liabilities 1,101,521 1,083,697
Long-term obligations 263,140 291,637
Postretirement benefits other than pensions 44,535 45,553
Other long-term liabilities 40,909 42,273
Deferred income taxes 27,065 17,018
Minority interests 31,668 30,699
Shareholders' equity
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 34,866,406 shares
(35,139,137 at June 30, 1997) 61,544 77,040
Retained earnings 526,715 424,298
Foreign currency translation adjustment (40,392) (31,745)
---------------------------------
Total shareholders' equity 547,867 469,593
---------------------------------
$2,056,705 $1,980,470
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $141,258 $100,873 $ 72,246
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 43,616 44,170 43,201
Amortization 7,455 7,400 9,311
Translation loss, net 1,739 2,392 3,545
Deferred taxes 14,439 22,892 (3,786)
Minority interests 8,122 8,987 6,696
Gain on sale of investment (16,718)
Equity in net income of unconsolidated affiliates (10,102) (6,695) (3,799)
Other 3,061 3,309 2,502
-------------------------------------
192,870 183,328 129,916
Changes in operating assets and liabilities
net of effects from purchase of businesses:
Accounts and notes receivable (54,189) (126,379) (33,917)
Inventories and other assets (15,434) (130,509) (26,001)
Income taxes 1,248 (8,733) 5,175
Accounts payable and other accrued liabilities 8,872 80,797 72,336
-------------------------------------
Net cash provided (used) by operating activities 133,367 (1,496) 147,509
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (96,720) (58,817) (35,259)
Purchase of business, net of cash acquired (19,200)
Investment in unconsolidated affiliate (41,114)
Proceeds from sale of investment 29,065
Sales of property, plant and equipment 6,688 19,551 2,135
Other (6,664) (2,671) 1,900
-------------------------------------
Net cash used in investing activities (108,745) (41,937) (50,424)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net 30,137 51,247 (86,318)
Repayment of long-term debt (30,241) (91,795) (42,258)
Issuance of long-term debt 7,767 18,769 118,726
Proceeds from minority investment in subsidiary 10,000
Dividends paid to minority shareholders (7,493) (3,657) (4,550)
Issuance of common stock 4,328 617 174
Purchases of common stock (19,824)
Dividends paid (38,390) (37,009) (35,387)
-------------------------------------
Net cash used in financing activities (53,716) (61,828) (39,613)
-------------------------------------
Effect of exchange rate changes on cash (141) (451) (783)
-------------------------------------
Net increase (decrease) in cash and cash equivalents (29,235) (105,712) 56,689
Cash and cash equivalents at beginning of year 109,070 214,782 158,093
-------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 79,835 $109,070 $214,782
- ----------------------------------------------------------------------------------------------------------
Supplemental information cash paid:
Interest $ 63,999 $ 69,672 $ 64,253
Income taxes, net of refunds $ 73,048 $ 63,348 $ 48,771
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1998 1997 1996
- ------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
COMMON STOCK:
Balance at beginning of year $ 77,040 $ 76,053 $ 75,749
Issuance of common stock 53 38 30
Purchase of common stock (19,824)
Exercise of stock options 4,275 949 274
------------------------------
Balance at end of year 61,544 77,040 76,053
------------------------------
RETAINED EARNINGS:
Balance at beginning of year 424,298 360,273 323,595
Net income 141,258 100,873 72,246
Cash dividends declared ($1.105 per share in 1998; -
$1.05 in 1997; $1.015 in 1996) (38,841) (36,848) (35,568)
------------------------------
Balance at end of year 526,715 424,298 360,273
------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year (31,745) (19,021) (9,385)
Translation adjustments for the year (13,298) (20,068) (14,893)
Allocated income taxes 4,651 7,344 5,257
------------------------------
Balance at end of year (40,392) (31,745) (19,021)
------------------------------
SHAREHOLDERS' EQUITY AT END OF YEAR $ 547,867 $469,593 $417,305
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
(All dollar amounts are in thousands, except as otherwise noted)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 are owned 50% or less.
NET INCOME PER SHARE AND SHARE PURCHASE
In the second quarter of fiscal year 1998, the Company adopted Statement of
Financial Accounting Standard No. 128 "Earnings per Share." Statement No. 128
requires a change in the method used to calculate earnings per share. The
Company uses the weighted average number of common shares outstanding during
each period to compute basic earnings per common share. Dilutive earnings per
share is computed using the weighted average number of common shares and
dilutive potential common shares outstanding. Dilutive potential common shares
are outstanding dilutive stock options that are assumed to be exercised. All
prior period earnings per share presentations have been restated to conform to
the requirements of Statement No. 128.
The Board of Directors of the Company approved a $100 million stock purchase
plan on May 6, 1998. The Company had purchased 542,000 shares at a cost of
$19,824 by June 30, 1998, and an additional 324,000 shares at a cost of $12,069
by August 6, 1998.
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. Lumber and building products inventory is valued at the lower
of cost or market, with cost determined under the first-in, first-out (FIFO)
method. All other inventories are valued principally at lower of average cost or
market.
<PAGE>
PROPERTY, 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 to
40 years; processing and packing machinery - 3 to 11 years; transportation
equipment - 3 to 10 years; and office and computer equipment - 3 to 10 years.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles include principally the excess of the purchase
price of acquired companies over the net assets. 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 that may indicate that an impairment of value exists,
based upon an assessment of future operations. Accumulated amortization at June
30, 1998 and 1997, was $35.5 and $28.6 million, respectively.
INCOME TAXES
The Company provides deferred income taxes on temporary differences arising from
employee benefit accruals, depreciation, deferred compensation, undistributed
earnings of unconsolidated affiliates, and undistributed earnings of foreign
subsidiaries not permanently reinvested. At June 30, 1998, the cumulative amount
of permanently reinvested earnings of foreign subsidiaries on which no provision
for U.S. income taxes had been made was $70.8 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 assets and liabilities that qualify as financial instruments,
approximates fair value.
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
Forward foreign currency exchange contracts are used by the Company in the
management of certain foreign currency exposures. The Company does not enter
into contracts for trading purposes. None of these contracts contain multiplier
or leverage features. The Company enters into such contracts only 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. Realized and unrealized gains and losses on the Company's foreign
currency contracts that are designated and effective as hedges are deferred and
recognized as a component of the underlying transaction when it occurs. Realized
gains or losses from matured and terminated hedge contracts are recorded in
other assets or liabilities until the underlying hedge transaction is
consummated. Realized and unrealized gains or losses on hedge contracts relating
to transactions that are not subsequently expected to occur are recognized in
results currently. Contracts used to manage foreign currency risks are not
material.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries, for which 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, for which 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 that are included in net income. Exchange losses in
1998, 1997, and 1996 resulting from foreign currency transactions were $3.0,
$3.1 and $3.6 million, respectively (including $1.7, $2.4 and $3.5 million
resulting from foreign currency translation losses) and are included in the
respective statements of income.
<PAGE>
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
Recently, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS 130"), "Reporting Comprehensive Income," ("SFAS
131"), "Disclosures about Segments of an Enterprise and Related Information,"
and ("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." These statements, which are effective for the
Company's fiscal year starting July 1, 1998, expand or modify disclosures and
will have no impact on its consolidated financial position, net income or cash
flow.
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." The statement will require the Company to recognize all
derivatives on the balance sheet at fair value. This statement is effective for
the Company's fiscal year starting July 1, 1999, and is not expected to
materially affect the consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain amounts in prior years' statements have been reclassified to be reported
on a consistent basis with the current year's presentation.
NOTE 2. GAIN ON SALE OF INVESTMENT
In 1998, the Company sold its minority interest in a Dutch spice joint venture
to the majority owner for total proceeds of $29.1 million and a gain of $16.7
million before taxes.
<PAGE>
NOTE 3. EXTRAORDINARY ITEM
During fiscal year 1996, 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 pretax provision of
$6.2 million for the uncollectability of outstanding receivables as a result of
the war in the Persian Gulf.
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 the Netherlands.
AGRI-PRODUCTS
Trading and processing tea and sunflower seeds and trading other products from
the countries of origin to various customers 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 pretax
income of unconsolidated affiliates.
<PAGE>
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.
The Company's primary 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.
U.S. Export Sales by Geographic Area
FOR THE YEARS ENDED JUNE 30, 1998 1997 1996
- ---------------------------------------------------------------------------
Europe $348,022 $358,276 $304,008
Asia 210,944 203,754 189,904
Other Areas 42,034 41,966 45,751
- ---------------------------------------------------------------------------
Total $601,000 $603,996 $539,663
<PAGE>
<TABLE>
<CAPTION>
LUMBER AND
Business Segments TOBACCO BUILDING PRODUCTS AGRI-PRODUCTS CONSOLIDATED
- --------------------------------------------------------------------------------------------------
<S> <C>
1998
Sales and other operating revenues $3,193,413 $ 550,901 $ 542,890 $4,287,204
---------------------------------------------------------------
Operating profit 258,359 19,710 16,274 294,343
------------------------------------------------
General corporate expenses (15,949)
Equity in pretax earnings of
unconsolidated affiliates 16,901
Gain on sale of investment 16,718
Interest expense (63,974)
------------
Income before income taxes and
other items 248,039
------------
Identifiable assets 1,534,642 265,149 167,725 1,967,516
Investments in unconsolidated --------------------------------------------
affiliates 87,052
Corporate assets 2,137
------------
Total assets 2,056,705
------------
Depreciation and amortization 41,516 7,466 2,089 51,071
---------------------------------------------------------------
Capital expenditures 89,407 4,890 2,423 96,720
- --------------------------------------------------------------------------------------------------
1997
Sales and other operating revenues $3,028,419 $ 597,069 $ 487,187 $4,112,675
---------------------------------------------------------------
Operating profit 209,090 26,338 13,095 248,523
--------------------------------------------
General corporate expenses (11,696)
Equity in pretax earnings of
unconsolidated affiliates 11,864
Interest expense (64,886)
------------
Income before income taxes and
other items 183,805
------------
Identifiable assets 1,526,986 273,149 144,849 1,944,984
Investments in unconsolidated --------------------------------------------
affiliates 33,413
Corporate assets 2,073
------------
Total assets 1,980,470
------------
Depreciation and amortization 39,677 9,774 2,119 51,570
---------------------------------------------------------------
Capital expenditures 45,363 10,162 3,292 58,817
- -------------------------------------------------------------------------------------- ------------
1996
Sales and other operating 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)
Equity in pretax earnings of
unconsolidated affiliates 4,305
Interest expense (68,754)
------------
Income before income taxes and
other items 128,026
------------
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
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Operations by UNITED LATIN OTHER
Geographic Area STATES AMERICA EUROPE AREAS ELIMINATIONS CONSOLIDATED
- --------------------------------------------------------------------------------------------------------------
<S> <C>
1998
Revenues from unaffiliated
customers $2,146,575 $ 317,700 $1,600,027 $ 222,902 $4,287,204
Transfers between geographic
areas 21,692 224,400 89,423 457,562 $ (793,077)
------------------------------------------------------------------------------
Sales and other operating
revenues 2,168,267 542,100 1,689,450 680,464 (793,077) 4,287,204
------------------------------------------------------------------------------
Operating profit 60,241 80,134 94,332 60,288 (652) 294,343
--------------------------------------------------------------------
General corporate expenses (15,949)
Equity in pretax earnings of
unconsolidated affiliates 16,901
Gain on sale of investment 16,718
Interest expense (63,974)
------------
Income before income taxes
and other items 248,039
------------
Identifiable assets 957,590 516,425 903,761 274,785 (685,045) 1,967,516
--------------------------------------------------------------------
Investments in unconsolidated
affiliates 87,052
Corporate assets 2,137
------------
Total assets 2,056,705
- -----------------------------------------------------------------------------------------------------------------
1997
Revenues from unaffiliated
customers 2,005,603 260,076 1,591,385 255,611 4,112,675
Transfers between geographic
areas 14,071 215,277 105,823 467,500 (802,671)
-------------------------------------------------------------------------------
Sales and other operating
revenues 2,019,674 475,353 1,697,208 723,111 (802,671) 4,112,675
-------------------------------------------------------------------------------
Operating profit 49,114 62,974 81,973 56,985 (2,523) 248,523
-------------------------------------------------------------------
General corporate expenses (11,696)
Equity in pretax earnings of
unconsolidated affiliates 11,864
Interest expense (64,886)
------------
Income before income taxes
and other items 183,805
------------
Identifiable assets 908,446 529,171 772,797 369,750 (635,180) 1,944,984
------------------------------------------------------------------
Investments in unconsolidated
affiliates 33,413
Corporate assets 2,073
------------
Total assets 1,980,470
- -----------------------------------------------------------------------------------------------------------------
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)
--------------------------------------------------------------------------------
Sales and other operating
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)
Equity in pretax earnings of
unconsolidated affiliates 4,305
Interest expense (68,754)
------------
Income before income taxes
and other items 128,026
------------
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 5. INCOME TAXES
Taxes Income taxes consist of the following:
Years Ended June 30, 1998 1997 1996
- --------------------------------------------------------------
Current
United States $17,854 $ 5,300 $ 7,212
State and local 3,482 1,620 1,946
Foreign 59,350 42,156 44,870
--------------------------------
80,686 49,076 54,028
Deferred
United States 17,332 19,025 983
State and local 887 (180) 729
Foreign (246) 6,024 (5,760)
-------------------------------
17,973 24,869 (4,048)
-------------------------------
Total $98,659 $73,945 $49,980
- --------------------------------------------------------------
A reconciliation of the statutory U.S. federal rate to the effective income tax
rate is as follows:
YEAR ENDED JUNE 30, 1998 1997 1996
- -------------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 1.0 0.5 1.3
Income taxed at other
than the U.S. rate 3.8 4.4 4.0
Other, net 0.3 (1.3)
--------------------------------
Total 39.8% 40.2% 39.0%
- -------------------------------------------------------------
Significant components of deferred tax liabilities and assets were as follows:
AT JUNE 30, 1998 1997
- --------------------------------------------------------------
Liabilities
Undistributed earnings $37,941 $ 28,209
Tax over book depreciation 13,441 13,881
Goodwill 7,762 4,987
All other 11,206 11,177
---------------------
Total deferred tax liabilities $70,350 $ 58,254
---------------------
Assets
Employee benefit plans $17,553 $ 15,772
Foreign currency translation 14,854 10,466
Deferred compensation 7,053 6,086
All other 7,619 15,977
---------------------
Total deferred tax assets $47,079 $ 48,301
---------------------
The components of income before income taxes and other items consist of the
following:
YEARS ENDED JUNE 30, 1998 1997 1996
- --------------------------------------------------------------------
United States $ 43,987 $ 41,780 $ 28,396
Foreign 204,052 142,025 99,630
-------------------------------
TOTAL $248,039 $183,805 $128,026
- --------------------------------------------------------------------
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 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, 1998, unused, uncommitted lines of
credit were approximately $900 million. The weighted average interest rate on
short-term borrowings outstanding as of June 30, 1998 and 1997 was approximately
6.9% and 6.0%, respectively.
NOTE 7. LONG-TERM OBLIGATIONS
AT JUNE 30, 1998 1997
- -----------------------------------------------------------------------
6.14% Senior notes payable in five
annual installments from
1996 to 2000 $ 60,000 $ 80,000
9.25% Medium-term notes
due February 2001 100,000 100,000
6.5% Notes due February 2006 100,000 100,000
Other notes due through 1999
at various interest rates
ranging from 5% to 11% 35,516 37,726
Revenue bonds due through 2001
at various interest rates below prime 1,875 2,139
-----------------------------
297,391 319,865
Less current portion (34,251) (28,228)
-----------------------------
Long-term obligations $ 263,140 $ 291,637
The fair value of the Company's long-term obligations was approximately $274
million at June 30, 1998 and $292 million at June 30, 1997. Certain notes are
denominated in local currencies of foreign subsidiaries.
Effective December 18, 1997, the Company replaced its $100 million revolving
credit facility with a new $300 million facility issued in two tranches of $150
million each. The facility is used to support short-term borrowings, including
the issuance of commercial paper. Under its terms, each facility may be extended
for an additional year on its anniversary date, December 18.
Under certain of the debt agreements, the Company must meet financial
covenants relating to minimum tangible net worth and restrictions on the
issuance of long-term debt. The Company was in compliance with all such
covenants at June 30, 1998 and 1997.
Other information:
Maturities of long-term debt for the fiscal years succeeding June 30, 1998 are
as follows: 1999-$34,251; 2000-$28,093; 2001-$125,434; 2002-$5,028;2003-$4,215;
2004 and after- $100,370.
<PAGE>
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 was as follows:
Assumptions used in the computations were:
FOR THE YEARS ENDED JUNE 30, 1998 1997 1996
- -------------------------------------------------------------------
Discount rate:
Domestic 6.75% 7.50% 7.25%
Foreign 6.00% 7.00% 7.00%
Rate of increase in future compensation levels:
Domestic 5.50% 5.50% 5.50%
Foreign 5.50% 5.50% 5.50%
Expected long-term rate of return on plan assets:
Domestic 8.75% 8.75% 8.75%
Foreign 6.00% 7.00% 7.00%
<TABLE>
<CAPTION>
Pension costs DOMESTIC FOREIGN
--------------------------------------------------------------
FOR THE YEARS ENDED JUNE 30, 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C>
Service cost for benefits earned
during the period $ 3,481 $ 3,324 $ 2,657 $ 3,192 $ 3,424 $ 2,932
Interest cost on projected benefit
obligation 8,004 7,409 7,312 6,025 6,658 6,383
Actual return on plan assets (28,125) (9,865) (16,537) (5,903) (9,413) (5,916)
Net amortization and deferral 21,051 3,847 10,583 (438) 2,602 (758)
--------------------------------------------------------------
Total pension cost $ 4,411 $ 4,715 $ 4,015 $ 2,876 $ 3,271 $ 2,641
- ---------------------------------------------------------------------------------------------------
</TABLE>
Funded Status Domestic March 31 measurement date
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
--------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C>
Vested benefit obligation $ 92,139 $ 79,851 $ 6,889 $ 3,657
--------------------------------------------------------
Accumulated benefit obligation 92,628 80,263 6,889 3,657
--------------------------------------------------------
Projected benefit obligation 119,507 100,577 14,682 6,910
Plan assets at fair value 124,480 99,839
--------------------------------------------------------
Plan assets in excess of (less
than) projected benefit
obligation 4,973 (738) (14,682) (6,910)
Unrecognized net (asset)
liability at transition (1,377) (1,986) 229 286
Unrecognized prior service costs 2,347 478 3,833 4,229
Unrecognized net (gain) loss (1,052) 6,561 7,668 1,386
Additional minimum liability (3,936) (2,648)
--------------------------------------------------------
Prepaid (accrued) pension cost $ 4,891 $ 4,315 $ (6,888) $ (3,657)
- -------------------------------------------------------------------------------------------
</TABLE>
Funded Status Foreign - April 30
measurement date
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
--------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C>
Vested benefit obligation $80,929 $76,323 $ 7,724 $10,645
---------------------------------------------------
Accumulated benefit obligation 84,329 80,088 8,076 11,264
---------------------------------------------------
Projected benefit obligation 92,401 89,711 7,924 11,937
Plan assets at fair value 99,694 97,008 3,658 3,670
---------------------------------------------------
Plan assets in excess of (less
than) projected benefit
obligation 7,293 7,297 (4,266) (8,267)
Unrecognized net asset at
transition (2,798) (3,984) (194)
Unrecognized net (gain) loss (2,681) (1,018) 241
---------------------------------------------------
Prepaid (accrued) pension cost $ 1,814 $ 2,295 $(4,266) $(8,220)
- ---------------------------------------------------------------------------------------
</TABLE>
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 reserves the right to amend or
discontinue the plans at any time.
Net periodic postretirement benefit expense was as follows:
FOR THE YEARS ENDED JUNE 30, 1998 1997 1996
- ---------------------------------------------------------------
Service cost $ 766 $ 872 $ 875
Interest cost 2,861 3,108 2,673
Return on plan assets (165) (153) (190)
Net amortization and deferral (3,059) (2,634) (3,063)
-----------------------------
Net periodic postretirement
benefit expense $ 403 $ 1,193 $ 295
- ----------------------------------------------------------------
The following table sets forth the components of the postretirement benefit
obligation:
<TABLE>
<CAPTION>
AT JUNE 30, 1998 1997
- ---------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $25,874 $27,790
Fully eligible active plan participants 6,901 5,867
Other active plan participants 7,158 5,251
-------------------------
Accumulated postretirement
benefit obligation 39,933 38,908
Fair value of plan assets 3,846 3,803
-------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 36,087 35,105
Unrecognized gain on plan amendment 9,882 12,941
Unrecognized net loss (1,434) (2,493)
-------------------------
Accrued postretirement benefit cost $44,535 $45,553
- ----------------------------------------------------------------------------------
</TABLE>
The accumulated post retirement benefit obligation was determined using an
assumed annual health care cost trend rate of 10% for fiscal year 1998 and 9.5%
for 1999. That cost trend rate is assumed to decrease gradually to 6.0% 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 $1.9 million and the aggregate of the service and interest cost
components of net periodic post retirement benefit expense for the fiscal year
by approximately $120 thousand.
JUNE 30
ASSUMPTIONS USED ------------------------------
IN THE COMPUTATIONS WERE: 1998 1997 1996
- ------------------------------------------------------------------
Discount rate 6.75% 7.50% 7.25%
Rate of increase in future
compensation levels 5.50% 5.50% 5.50%
Expected long-term rate of
return on plan asset 4.30% 4.30% 4.30%
<PAGE>
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 announce a tender offer for 20% or more of the Company's
outstanding common stock. The Board of Directors may reduce this threshold
percentage to 10%. If a person or group acquires the threshold percentage of
common stock, each right will entitle the holder, other than the acquiring
party, to buy shares of common stock or Preferred Stock having a market value of
twice the exercise price. If the Company is acquired in a merger or other
business combination, each right will entitle the holder, other than the
acquiring person, to purchase securities of the surviving company having a
market value equal to twice the exercise price of the rights. Following the
acquisition by any person of more than the threshold percentage of the Company's
outstanding common stock but less than 50% of such shares, the Company may
exchange one share of common stock for each right (other than rights held by
such person). Until the rights become exercisable, they may be redeemed by the
Company at a price of one cent per right. The rights expire on February 13,
1999.
NOTE 11. EXECUTIVE STOCK PLANS
The Company's 1989 Executive Stock Plan by its terms expired on June 30, 1998
and was replaced by the Company's 1997 Executive Stock Plan (together, the
"Plans"). Under the Plans, officers, directors and employees of the Company and
its subsidiaries may receive grants and/or awards of common stock, restricted
stock, incentive stock options, 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 million shares of the Company's common
stock may be issued under each of the Plans. Pursuant to the Plans,
non-qualified and reload options have been granted to executives and key
employees at an option price equal to the fair market value of a share of common
stock on the date of grant.
Options granted under the Company's stock incentive plans became exercisable
either one year or six months after the date of grant. Most options expire ten
years after the date of grant.
<PAGE>
A summary of the Company's stock option activity and related information for
the fiscal year ended June 30 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- --------------------- ----------------------
Average Average Average
Exercise Exercise Exercise
FOR THE YEARS ENDED JUNE 30: Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------
<S> <C>
Outstanding, beginning
of year 1,224,473 $25.86 1,275,353 $24.09 1,264,473 $23.88
Granted 1,239,978 38.10 193,950 32.31 213,329 24.36
Exercised (671,647) 25.27 (244,830) 21.73 (151,672) 21.56
Forfeited/expired (50,777) 27.49
Outstanding, end of year 1,792,804 34.55 1,224,473 25.86 1,275,353 24.09
Exercisable 1,534,783 34.42 1,137,778 25.14 1,205,715 23.98
Available for grant 4,872,599 3,466,489 2,872,617
</TABLE>
Of those available for future grant: 3,188,167; 2,859,562 and 2,321,885 for
1998, 1997, and 1996, respectively, are reload options.
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES, PER SHARE $10 - $20 $20 - $30 $30 - $40 $40 - $50
- -------------------------------------------------------------------------------------------------------
<S> <C>
For options outstanding:
Number outstanding 33,442 472,989 1,170,216 116,157
Weighted average remaining contractual life 2.0 6.6 9.2 9.5
Weighted average exercise price, per share $15.97 $26.77 $37.40 $40.70
For options exercisable:
Number exercisable 33,442 472,989 912,195 116,157
Weighted average exercise price,
per share $15.97 $26.77 $38.33 $40.19
</TABLE>
Effective in fiscal year 1997, the Company adopted the disclosure requirements
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). As permitted under SFAS 123, the Company
will continue to apply the Accounting Principles Board Opinion No.25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. If compensation expense for the Company's stock
options issued in 1998, 1997 and 1996 had been determined based on the fair
value method of accounting, as defined in SFAS 123, the Company's net income and
earnings per basic and diluted share would have been reduced by approximately
$6.4 million or $.18 per share in 1998, $800 thousand or $.02 per share in 1997,
and $500 thousand or $.01 per share in 1996. These pro forma amounts may not be
representative of future disclosures because the estimated fair value of the
stock options is amortized to expense over the vesting period, and additional
options may be granted in future years.
<PAGE>
The Black-Scholes option valuation model was used to estimate the fair value of
the options granted in fiscal year 1998 and 1997. Such models include subjective
input assumptions that can materially affect the fair value estimates. The model
was developed for use in estimating the fair value of traded options that have
no vesting restrictions and that are fully transferable. For example, the
expected volatility is estimated based on the most recent historical period of
time equal to the weighted average life of the options granted. The Plan has
characteristics that differ from traded options. In management's opinion, such
valuation models do not necessarily provide a reliable single measure of the
fair value of its employee stock options. Principle assumptions used in applying
the Black-Scholes model were as follows:
FOR THE YEARS ENDED JUNE 30, 1998 1997 1996
- ----------------------------------------------------------------------
Risk-free interest rate 5.83% 6.31% 6.06%
Expected life, in years 5.02 6.63 7.53
Expected volatility .298 .298 .298
Expected dividend yield 3.15% 3.82% 4.47%
Fair value of options granted $9.88 $8.67 $5.95
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 a material adverse effect on
the Company. For the years ended June 30, 1998, 1997, and 1996, one customer
accounted for revenues of $1.7 billion, $1.5 billion and $1.3 billion,
respectively.
<PAGE>
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,
1998, total exposure under such guarantees and performance bonds was
approximately $70 million. The Company considers the possibility of loss on any
of these guarantees to be remote.
The Company's Brazilian subsidiaries have been notified by the tax authorities
of proposed adjustments to 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
amount. While it is not feasible to predict the precise amount or timing of each
proposed adjustment, the Company believes that the ultimate disposition will not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
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 a major portion of accounts and notes
receivable against uncollectibility. At June 30, accounts and notes receivable
by operating segment were as follows (in millions of dollars):
<PAGE>
AT JUNE 30, 1998 1997
- -------------------------------------------------------------
Tobacco $254 $277
Lumber and Building Product 91 89
Agri-Products 48 51
------------------------
$393 $417
<PAGE>
NOTE 13. UNAUDITED QUARTER 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
FOR THE YEARS ENDED JUNE 30, QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------
<S> <C>
1998
Sales and other operating revenues $1,023,156 $1,265,157 $1,152,696 $846,195
Gross profit 142,235 161,529 155,843 153,997
Net income 32,773 38,085 31,546 38,854
Net income per common share - Basic .93 1.08 .90 1.10
Net income per common share - Diluted .92 1.08 .89 1.10
Cash dividends declared per common share .265 .280 .280 .280
Market price range: High 38 5/8 41 1/2 49 1/2 44
Low 32 36 37 34 5/8
1997
Sales and other operating revenues $ 820,840 $1,337,221 $1,013,715 $940,899
Gross profit 120,539 152,139 141,820 138,530
Net income 20,022 31,402 27,614 21,835
Net income per common share - Basic .57 .90 .79 .62
Net income per common share - Diluted .57 .89 .78 .62
Cash dividends declared per common share .255 .265 .265 .265
Market price range: High 28 1/2 32 3/8 33 1/2 36 5/8
Low 24 5/8 25 1/2 28 1/2 28
- ------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of fiscal year 1998, the Company recorded approximately
$11 million ($7 million net of tax) in charges related to tobacco inventory. The
Company also recorded a gain of $17 million ($11 million net of tax) related to
the sale of an investment.
<PAGE>
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
August 6, 1998
<PAGE>
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 the judgment of management. Management is also responsible for
maintaining an effective system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and that transactions
are executed in accordance with management's authorization and properly
recorded. This system is continually reviewed and is augmented by written
policies and procedures, the careful selection and training of qualified
personnel, and an internal audit program to monitor its effectiveness.
Ernst & Young LLP, independent auditors, are retained to audit our financial
statements. Their audit provides an objective assessment of how well management
discharged its responsibility for fairness in financial reporting.
The Audit Committee of the Board of Directors is composed solely of outside
directors. The committee meets periodically with management, the internal
auditors and the independent auditors to assure that each is properly
discharging its responsibilities. Ernst & Young LLP and the internal auditors
have full and free access to meet privately with the Audit Committee to discuss
accounting controls, audit findings and financial reporting matters.
Hartwell H. Roper
Vice President & Chief Financial Officer
August 6, 1998
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the three years ended June 30, 1998, there were no changes in and
disagreements between the Company and its independent auditors on any matter of
accounting principles, practices or financial disclosures.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to the caption, "Election of Directors" in the September 24, 1998 Proxy
Statement which information is incorporated herein by reference. The following
are Executive Officers as of September 24, 1998.
Name Position Age
- ----- --------- ---
H. H. Harrell Chairman and Chief 59
Executive Officer
A. B. King President and Chief 52
Operating Officer
H. H. Roper Vice President and 50
Chief Financial Officer
W. L. Taylor Vice President and 57
Chief Administrative Officer
D.G. Cohen Tervaert President and Chairman of the 45
Board of Deli Universal, Inc.
J. M. M. van de Winkel Executive Vice President and Vice 49
Chairman of Deli-Universal, Inc.
J. M. White, III Secretary and General Counsel 59
There are no family relationships between any of the above officers.
All of the above officers have been employed by the Company in the listed
capacities during the last five years except:
J. M. M. van de Winkel was elected Vice Chairman of Deli Universal, Inc. in
1995. From December 1989 to January 1995, Mr. Van de Winkel
was an Executive Vice President with Deli Universal, Inc.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Refer to the caption, "Executive Compensation," in the Company's September 24,
1998 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 Company's September 24, 1998
Proxy Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the caption, "Certain Transactions and Relationships," in the Company's
September 24, 1998 Proxy Statement, which information is incorporated herein by
reference.
<PAGE>
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,
1998, 1997 and 1996
Consolidated Balance Sheets at June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended June
30, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for
the years ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements for the years ended
June 30, 1998, 1997 and 1996
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>
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 that 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 that 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>
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).
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).
<PAGE>
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).
10.20 Universal Leaf Tobacco Company, Incorporated Benefit
Restoration Plan Trust, dated June 25, 1997, among
Universal Leaf Tobacco Company, Incorporated, Universal
Corporation and Wachovia Bank, N.A., as trustee
(incorporated by reference to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30,
1997, File No. 1-652).
10.21 Form of Universal Corporation 1997 Restricted Stock
Agreement with Schedule of Awards to Executive Officers
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.22 Form of Universal Corporation 1997 Stock Option and Equity
Accumulation Agreement, with Schedule of Grants to officers
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.23 Non-Employee Director Restricted Stock Agreement dated
October 29, 1997, between Universal Corporation and Charles
H. Foster, Jr.(incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1997, File No. 1-652).
10.24 Non-Employee Director Restricted Stock Agreement dated
October 29, 1997, between Universal Corporation and Joseph
C. Farrell (incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1997, File No. 1-652).
<PAGE>
10.25 1997 Non-Qualified Stock Option Agreement between
Deli-Universal, Inc. and D.G. Cohen Tervaert (incorporated
herein by reference to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1997,
File No. 1-652).
10.26 Employment Agreement dated January 15, 1998 between
Universal Corporation and Henry H. Harrell, Allen B. King,
William L. Taylor, Hartwell H. Roper, Edward M. Schaaf,
III, and James M. White, III (incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1997, File No. 1-652).
10.27 364-day Credit Agreement dated December 18, 1997
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.28 Three-Year Credit Agreement dated December 18, 1997
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.29 Universal Corporation Charitable Award Program*
10.30 Universal Corporation 1997 Executive Stock Plan
(incorporated herein by reference to Exhibit 4.7 to the
Registrant's Form S-8 Registration Statement
filed October 31, 1997, File No. 333-3927).
10.31 1997 Non-Qualified Stock Option Agreement between Deli
Universal, Inc. and J. M. M. van de Winkel.*
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>
(b) Reports on Form 8-K
Form 8-K filed on May 7, 1998.
The form reports a press release issued by the Company on May 6, 1998.
The press release announced the Board of Directors' authorization of
the Company's purchase of up to $100 million of the Company's
outstanding common stock and the declaration of a quarterly dividend
on the Company's common stock.
Form 8-K filed on June 3, 1998.
The form reports a press release issued by the Company on May 28, 1998.
The press release announced the completion of the Company's joint
venture with Socotab Leaf Tobacco Company, Inc. that combined their
respective oriental tobacco businesses.
(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>
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.
UNIVERSAL CORPORATION
September 25, 1998 By:/s/ Henry H. Harrell
--------------------
Henry H. Harrell
Chairman and Chief 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.
<TABLE>
<CAPTION>
<S> <C>
/s/ Henry H. Harrell Chairman, Chief Executive September 25, 1998
- ----------------------- Officer and Director ------------------
Henry H. Harrell (Principal Executive Officer)
/s/ Allen B. King President, Chief Operating September 25, 1998
- ----------------------- Officer and Director ------------------
Allen B. King
/s/ Hartwell H. Roper Vice President and September 25, 1998
- ----------------------- Chief Financial Officer ------------------
Hartwell H. Roper
/s/ William J. Coronado Controller (Principal September 25, 1998
- ------------------------ Accounting Officer) ------------------
William J. Coronado
/s/ William W. Berry Director September 25, 1998
- ------------------------ ------------------
William W. Berry
/s/ Charles H. Foster, Jr. Director September 25, 1998
- -------------------------- ------------------
Charles H. Foster, Jr.
/s/ Richard G. Holder Director September 25, 1998
- ----------------------- ------------------
Richard G. Holder
/s/ Jeremiah J. Sheehan Director September 25, 1998
- -------------------------- ------------------
Jeremiah J. Sheehan
/s/ Hubert R. Stallard Director September 25, 1998
- ------------------------ ------------------
Hubert R. Stallard
</TABLE>
Exhibit 10.29
UNIVERSAL CORPORATION
DIRECTOR'S CHARITABLE AWARD PROGRAM
<PAGE>
UNIVERSAL CORPORATION
DIRECTOR'S CHARITABLE AWARD PROGRAM
PROGRAM SUMMARY*
PURPOSE
o The purpose of the Director's Charitable Award Program is to recognize the
interest of Universal Corporation (the "Corporation") and its Directors in
supporting worthy charitable organizations.
ELIGIBILITY
o All Directors of the Corporation as of December 2, 1997, are immediately
eligible to participate in the Director's Charitable Award Program. Any
Director elected to the Board after that date will immediately be eligible to
participate in the Program when he or she is elected to the Board.
CONTRIBUTION TO RECOMMENDED BENEFICIARY
o The Corporation will contribute up to $1,000,000 on behalf of each
participating Director, to be allocated in accordance with the Director's
recommendation among up to five eligible charitable organizations.
o The donation(s) will be made in the Director's name, in minimum amounts of
$100,000 per organization.
o The donation(s) on behalf of a Director will be made in ten equal annual
installments, with the first installment to be made following the later of
the Director's retirement from the Board or attainment of age 70. The nine
remaining installments will be made following the Director's death.
<PAGE>
o If a Director recommends more than one organization to receive a donation,
each will receive a prorated portion of each annual installment. Each annual
installment payment will be divided among the recommended organizations in
the same proportions as the total donation amount has been allocated among
the organizations by the Director. For example, if a Director recommends one
organization to receive a $500,000 donation and two organizations to receive
$250,000 each, the $500,000 organization will receive 50% of each annual
installment and the other two organizations will each receive 25% of each
installment.
VESTING
o A Director will be fully vested in the Program: (a) upon the completion of
sixty full months of service as a Director, (b) in the event he or she
terminates service due to death, disability, or other circumstances as deemed
appropriate by the Board, or (c) if there is a Change in Control of the
Corporation (as hereinafter defined) while the Director is actively serving.
A Director's donation amount will be determined in accordance with the
following schedule:
MONTHS OF DONATION
SERVICE AMOUNT
----------------- ----------------
0-11 months $ 0
12-23 200,000
24-35 400,000
36-47 600,000
48-59 800,000
60 or more 1,000,000
o For persons serving as Directors on December 2, 1997, Board service prior to
December 2, 1997 will be counted as vesting service.
<PAGE>
o If a Director recommends more than one organization to receive aggregate
donations of $1,000,000, and if the applicable vested donation amount is less
than $1,000,000, the actual donation amount will be divided among the
recommended organizations in the same proportions as the total donation
amount has been allocated among the organizations by the Director. For
example, if a Director recommends one organization to receive a donation of
$500,000 and two other organizations to receive a donation of $250,000 each,
the organization recommended to receive $500,000 will receive 50% of the
vested donation amount and the other two organizations will each receive 25%
of the vested donation amount.
RECOMMENDATION OF BENEFICIARY
o Each Director will complete a Beneficiary Recommendation Form to recommend
the charitable organization(s) to receive a donation from the Corporation
after his or her death. The form will be acknowledged by the Corporation, and
a copy will be returned to the Director.
o Each Director may recommend a single organization to receive a $1,000,000
donation, or up to five organizations to receive donations aggregating
$1,000,000. Each recommended organization must be recommended to receive a
donation of at least $100,000.
o In order to be eligible to receive a donation, a recommended organization
must initially, and at the time each donation installment is to be made,
qualify to receive tax-deductible donations under the Internal Revenue Code,
and must be reviewed and approved by the Corporation's Executive Compensation
Committee (the "Committee"). A recommendation will be approved unless it is
determined, in the exercise of good faith judgment, that a donation to the
organization would be detrimental to the best interests of the Corporation. A
Director's private foundation is not eligible to receive donations under the
Program.
o The Corporation's acknowledgment of a Director's Beneficiary Recommendation
Form will constitute an initial approval of the organization(s) recommended
by the Director; however, all recommended organizations will be subject to
continuing approval by the Corporation, and will be subject to final approval
at the time each donation installment is to be made. Because the
organization(s) recommended are subject to approval at the time each donation
installment is to be made, there is no contractual obligation on behalf of
the Corporation to continue donation installment payments once they have
commenced.
<PAGE>
o The recommendation of a beneficiary may be revoked or revised by a Director
at any time. If a Director wishes to revise or revoke a beneficiary
recommendation, the Director will complete a new Beneficiary Recommendation
Form which will be acknowledged by the Corporation and a copy returned to the
Director.
o If any organization recommended by a Director to receive a donation ceases
to meet the requirements of a Program beneficiary, and if a revised
Beneficiary Recommendation Form is not submitted by the Director, the amount
recommended for the particular organization which does not meet the
eligibility requirements shall be divided among the Director's remaining
recommended qualified organizations on a prorated basis. If all the
organizations selected by a Director cease to qualify, the Corporation will
select the organization(s) to receive the donation(s) on behalf of the
Director. However, the Corporation reserves the right not to select an
organization to receive the donation(s).
o A Director may request the Corporation to notify an organization that it has
been selected by the Director to receive a donation by checking the
appropriate box in Section I of the Beneficiary Recommendation Form. If a
Director requests that an organization be notified, the Corporation will send
the organization a notification letter similar to the one included as
Attachment A (p.6).
MISCELLANEOUS PROVISIONS
o In order to financially support the Program, the Corporation may purchase a
life insurance policy or policies insuring the lives of the Directors. The
Corporation will be the owner and beneficiary thereof. Neither the Directors
nor the charitable organizations selected by the Directors will have any
rights or beneficial ownership interests in any such policy or policies
acquired by the Corporation.
o In order to participate in the Program, an eligible Director must complete
all required enrollment forms and procedures, including providing any
requested health and medical history information and submitting to any
required medical exams or tests (if life insurance is acquired). The Program
will not be effective for any Director until he or she completes all
enrollment procedures.
<PAGE>
o A Director's rights and interests under the Program may not be assigned or
transferred.
o The expenses of the Program will be borne by the Corporation.
o The Program effective date will be December 2, 1997. However, the
recommendation of an individual Director will not be effective until he or
she completes all enrollment requirements.
o The Program may be amended, suspended or terminated at any time by the
Corporation's Board of Directors.
o If there is a Change in Control of the Corporation, all Directors serving on
the Board at the time of the Change in Control shall become immediately
vested. Also, the Program will thereafter become irrevocable for all
Directors (and vested former Directors) then participating in the Program.
<PAGE>
ATTACHMENT A
SAMPLE LETTER TO RECOMMENDED BENEFICIARY
[Date]
Name, Title
Organization Name
Address
City, State Zip
Dear ___________:
On behalf of Universal Corporation, I am pleased to inform you that your
organization has been recommended as a potential beneficiary of $_________ at
the request of [Director's Name], a member of our Board of Directors and a
participant in our Director's Charitable Award Program. Under the provisions of
the Program, this donation will be made to your organization in ten equal annual
installments by Universal Corporation. The first installment of the donation
will be made following the later of [Director's Name]'s retirement from our
Board of Directors or his/her attainment of age 70, and the remaining nine equal
annual installments will be made following [his/her] death.
There is no action required on the part of your organization to participate in
this Program. However, your organization must continue to meet the Program
beneficiary eligibility requirements in order to be eligible to receive the
donation. In addition, Universal Corporation retains the right to amend,
suspend, or terminate the Program at any time. A brief summary of the Program is
attached so that you can be aware of the eligibility requirements and other
important elements of our Program.
We are delighted that your organization has been recommended for a future
donation, and we are pleased to be able to support the personal commitment of
[Director's Name] to your activities.
Sincerely,
Universal Corporation
cc: [Director's Name]
<PAGE>
UNIVERSAL CORPORATION
DIRECTOR'S CHARITABLE AWARD PROGRAM
PROGRAM SUMMARY FOR RECOMMENDED BENEFICIARY
OVERVIEW
The Program allows each Director to recommend a Corporation donation to his or
her selected charitable organization. The donation will be made by Universal
Corporation (the "Corporation"), in the Director's name, in ten equal
installments. The first installment will be paid at the later of the Director's
retirement from the Board or his/her attainment of age 70, and the remaining
nine equal annual installments will be paid beginning immediately after the
Director's death. If the Director dies while serving on the Board, the donation
will be paid in ten consecutive equal annual installments beginning immediately
after the Director's death.
DONATION AMOUNT
Ordinarily, a Director must have 60 months of service as a Director for the full
donation to be made on his or her behalf; otherwise, a reduced donation amount
will be made on the Director's behalf. However, the full donation amount will be
made on behalf of a Director who terminates Board service as a result of death,
disability, or other circumstances as deemed appropriate by the Board.
BENEFICIARY REQUIREMENTS
In order to be eligible to receive a donation, a recommended organization must
qualify to receive tax-deductible donations under the Internal Revenue Code, and
must be reviewed and approved by the Corporation. A recommendation will be
approved unless it is determined, in the exercise of good faith judgment, that a
donation to the organization would be detrimental to the best interests of the
Corporation. A recommended organization must satisfy the beneficiary eligibility
requirements at the time it is recommended by a Director, and must continue to
meet the eligibility requirements until each donation installment is made.
REVOCATION, AMENDMENT AND FORFEITURE
A Director can revoke or amend his or her beneficiary recommendation. In
addition, the Program can be amended, suspended or terminated by the
Corporation's Board of Directors, in its sole discretion, as it deems advisable.
There can be no assurance that a donation will be made to any organization, and
an organization does not acquire any legal right to a donation as a result of
being recommended by a Director to receive a donation, or as a result of being
notified by Universal Corporation of a potential future donation.
<PAGE>
UNIVERSAL CORPORATION
DIRECTOR'S CHARITABLE AWARD PROGRAM
QUESTIONS AND ANSWERS
Q1. HOW DOES THE DIRECTOR'S CHARITABLE AWARD PROGRAM WORK?
A. Universal Corporation (the "Corporation") will donate up to $1,000,000
to the charitable organizations you select. The donation on your
behalf will be made by the Corporation, in your name, in ten
installments of $100,000. The first installment will be paid at the
later of when you retire from the Board or reach age 70, and the
remaining nine installments will be paid in equal annual amounts
beginning immediately after your death. If you die while serving on
the Board, the donation will be paid in ten consecutive equal annual
installments of $100,000 beginning immediately after your death.
Q2. HOW WILL MY DONATION AMOUNT BE DETERMINED?
A. Your donation amount will be determined based on your months of Board
service, in accordance with the following schedule:
MONTHS OF DONATION
SERVICE AMOUNT
----------------- ----------------
0-11 months $ 0
12-23 200,000
24-35 400,000
36-47 600,000
48-59 800,000
60 or more 1,000,000
However, notwithstanding this schedule, you will be treated as having
served for 60 or more months if you terminate Board service as a result of
death, disability, or other circumstances as deemed appropriate by the
Board, or if there is a Change in Control of the Corporation (as
hereinafter defined) while you are actively serving on the Board.
<PAGE>
Q3. HOW MANY DIFFERENT ORGANIZATIONS MAY I SELECT AND IN WHAT AMOUNTS?
A. You may recommend one organization to receive a $1,000,000 donation, or
up to five organizations to receive aggregate donations of $1,000,000.
Each recommended organization must be recommended to receive a donation
of at least $100,000. If you recommend more than one organization to
receive a donation, each recommended organization will receive a
prorated portion of each annual installment. Each annual installment
payment for your vested donation amount will be divided among the
recommended organizations in the same proportions as the total donation
amount has been allocated among the organizations.
For example, if you are vested for the full $1,000,000 donation and you
recommend one organization to receive a $500,000 donation and two
organizations to receive $250,000 each, the $500,000 organization will
receive 50% of each annual installment and the other two organizations
will each receive 25% of each installment. However, if you terminate Board
service after 40 months, the organization you designated to receive
$500,000 will receive $300,000 and the two organizations designated to
receive $250,000 each will actually receive $150,000 each.
Q4. ARE THERE ANY LIMITATIONS AS TO THE TYPES OF ORGANIZATIONS WHICH I CAN
NAME TO RECEIVE DONATIONS?
A. In order to be eligible to receive a donation, a recommended
organization must qualify to receive tax-deductible donations under the
Internal Revenue Code, and must be reviewed and approved by the
Executive Compensation Committee of the Corporation (the "Committee").
A recommendation will be approved unless it is determined, in the
exercise of good faith judgment, that a donation to the organization
would be detrimental to the best interests of the Corporation. A
Director's private foundation is not eligible to receive a donation
under the Program.
<PAGE>
Q5. CAN I CHANGE MY BENEFICIARY RECOMMENDATION LATER IF I CHANGE MY MIND?
A. Yes, you may substitute a new recommendation to replace a prior one by
completing a new Beneficiary Recommendation Form and filing it with the
Corporation.
Q6. WHEN WILL THE CHARITABLE DONATIONS BE MADE?
A. The donation made on your behalf will be made in ten equal installments
of $100,000. The first installment will be paid at the later of when
you retire from the Board or reach age 70, and the remaining nine
installments will be paid in consecutive annual payments beginning
immediately after your death. If your death occurs while you are
serving on the Board, the donation made on your behalf will be made in
ten consecutive annual installments of $100,000 beginning immediately
after your death.
Q7. WHY IS LIFE INSURANCE INVOLVED IN THE PROGRAM?
A. The Corporation intends to fund its Director's Charitable Award Program
donations by purchasing life insurance contracts on your life and on the
lives of the other Directors.
Q8. WHO WILL OWN THE LIFE INSURANCE POLICIES?
A. The Corporation will be the sole owner and beneficiary of any life
insurance policies. Neither you nor your recommended charitable
organizations will have any rights or interest in the policies.
Q9. WHO WILL PAY THE LIFE INSURANCE PREMIUMS?
A. The Corporation will pay all premiums. You will have no financial
obligation or commitment under the Program and will not give up any other
current compensation or benefits to participate.
<PAGE>
Q10. WHAT IS THE PURPOSE OF THE QUESTIONNAIRE AND MEDICAL HISTORY FORM WHICH I
MUST COMPLETE TO ENROLL IN THE PROGRAM?
A. It is necessary for you to complete this form in order to provide the
information needed by the Corporation to apply for insurance on your
life. It is the Corporation's intention to use this insurance to fund
the donations which will be made under the Program. You will submit
your completed form directly to The Ayco Company, L.P., a consulting
firm we have retained to conduct the installation of the Program. They
will prepare the insurance application based on the information you
provide on your form.
Q11. WILL I NEED TO TAKE A PHYSICAL IN ORDER TO PARTICIPATE IN THE PROGRAM?
A. You may have to submit to a physical examination if you have not had a
complete physical in the past six months. Also, even if you do not need a
physical, some minor tests will most likely be required. Your requirements
will be determined by the insurance company when they review your health
and medical history information. The insurance company will pay for any
required physical or tests.
Q12. WILL HEALTH PROBLEMS MAKE IT IMPOSSIBLE FOR ME TO PARTICIPATE IN THE
PROGRAM?
A. No.
Q13. WILL I INCUR ANY CURRENT TAX LIABILITY AS A RESULT OF PARTICIPATION IN THE
PROGRAM OR FROM THE PREMIUMS PAID TO THE INSURANCE COMPANY?
A. No, there is no tax cost or any other cost to you under current tax
laws.
<PAGE>
Q14. WHO WILL ADMINISTER THE PROGRAM?
A. The Program will be administered by the Executive Compensation Committee
of the Corporation. The installation of the Program will be conducted by
The Ayco Company, L.P., a consulting firm employed by the Corporation. If
you have any questions about the Program or your enrollment in the
Program, please call Mike Lyeth of Ayco at (800) 342-2779 or Bill Taylor
of Universal at (804) 359-9311.
Q15. WHAT HAPPENS IN THE EVENT OF A CHANGE IN CONTROL?
A. All persons actively serving as Directors of the Corporation at the time
of a Change in Control of the Corporation (as hereinafter defined) will
become immediately vested upon the Change in Control.
Q16. CAN THE PLAN BE CHANGED?
A. Yes, the Board of Directors of the Corporation may, at any time, without
the consent of the Directors participating in the Program, amend, suspend,
or terminate the Program. However, if a Director becomes vested in the
Program, as a result of a Change in Control of the Corporation, the
Program may not be amended or terminated with respect to such Director.
Q17. WHEN IS THE PROGRAM EFFECTIVE?
A. The Program effective date is December 2, 1997. However, the Program will
not be effective for you until you complete all of the enrollment
requirements for the Program, including any requirements to qualify for
any insurance acquired by the Corporation in connection with the Program.
<PAGE>
UNIVERSAL CORPORATION
DIRECTOR'S CHARITABLE AWARD PROGRAM
1. PURPOSE OF THE PROGRAM
The Universal Corporation Director's Charitable Award Program (the
"Program") allows each eligible Director of Universal Corporation (the
"Corporation") to recommend that the Corporation make a donation of up to
$1,000,000 to the eligible tax-exempt organization(s) (the "Donee(s)")
selected by the Director, with the donation to be made in the Director's
name. The purpose of the Program is to recognize the interest of the
Corporation and its Directors in supporting worthy charitable
organizations.
2. ELIGIBILITY
All persons serving as Directors of the Corporation as of December 2, 1997
shall be eligible to participate in the Program. All Directors who join
the Corporation's Board of Directors after that date shall be immediately
eligible to participate in the Program upon election to the Board.
3. RECOMMENDATION OF DONATION
When a Director becomes eligible to participate in the Program, he or she
shall make a written recommendation to the Corporation, on a form approved
by the Corporation for this purpose, designating the Donee(s) which he or
she intends to be the recipient(s) of the Corporation donation to be made
on his or her behalf. A Director may revise or revoke any such
recommendation prior to his or her death by signing a new recommendation
form and submitting it to the Corporation.
4. AMOUNT AND TIMING OF DONATION
Each eligible Director may choose one organization to receive a
Corporation donation of $1,000,000, or up to five organizations to receive
donations aggregating $1,000,000. Each recommended organization must be
recommended to receive a donation of at least $100,000. The donation will
be made by the Corporation in ten equal annual installments, with the
first installment to be made at the later of the Director's retirement
from the Board or age 70; the remaining nine installments will be paid
annually beginning immediately after the Director's death. If the Director
dies while serving on the Board, the donation made on his or her behalf
will be paid in ten consecutive equal annual installments beginning
immediately after the Director's death. If a Director recommends more than
one organization to receive a donation, each organization will receive a
prorated portion of each annual installment. Each annual installment
payment will be divided among the recommended organizations in the same
proportion as the total donation amount has been allocated among the
organizations by the Director.
5. DONEES
In order to be eligible to receive a donation, a recommended organization
must initially, and at the time each donation installment is to be made,
qualify to receive tax-deductible donations under the Internal Revenue
Code, and be reviewed and approved by the Corporation. A recommendation
will be approved unless it is determined, in the exercise of good faith
judgment, that a donation to the organization would be detrimental to the
best interests of the Corporation. If an organization recommended by a
Director ceases to qualify as a Donee, and if the Director does not submit
a form to change the recommendation, the amount recommended to be donated
to the organization will instead be donated to the Director's remaining
recommended qualified Donee(s) on a prorated basis. If none of the
recommended organizations qualify, the donation will be made to an
organization(s) selected by the Corporation.
As each recommended organization is subject to approval prior to the time
each donation installment is to be made, there is no contractual
obligation on behalf of the Corporation to continue the donation
installments once they have commenced. In addition, the Corporation
retains the right not to grant the donation recommended for any ineligible
organization to another qualified organization.
<PAGE>
6. VESTING
The amount of the donation made on a Director's behalf will be determined
based on the Director's months of Board service, in accordance with the
following vesting schedule:
MONTHS OF
SERVICE DONATION AMOUNT
------------------- ------------------
0-11 months $ 0
12-23 200,000
24-35 400,000
36-47 600,000
48-59 800,000
60 or more 1,000,000
Notwithstanding this vesting schedule, a Director will be entitled to a
total donation amount of $1,000,000 in the event: (a) he or she dies or
becomes disabled while serving as a Director, (b) Board service is
terminated due to other circumstances as deemed appropriate by the Board,
or (c) there is a Change in Control of the Corporation while the Director
is actively serving.
For persons serving as Directors on December 2, 1997, both continuous and
intermittent Board service prior to that date will count as vesting
service. If a Director recommends more than one organization to receive
aggregate donations of $1,000,000, and if the Director's vested donation
amount is less than $1,000,000, the vested donation amount will be divided
among those organizations in the same proportions as the total donation
amount has been allocated among the organizations by the Director.
7. FUNDING AND PROGRAM ASSETS
The Corporation may fund the Program or it may choose not to fund the
Program. If the Corporation elects to fund the Program in any manner,
neither the Directors nor their recommended Donee(s) shall have any rights
or interests in any assets of the Corporation identified for such purpose.
Nothing contained in the Program shall create, or be deemed to create, a
trust, actual or constructive, for the benefit of a Director or any Donee
recommended by a Director to receive a donation, or shall give, or be
deemed to give, any Director or recommended Donee any interest in any
assets of the Program or the Corporation. If the Corporation elects to
fund the Program through life insurance policies, a participating Director
agrees to cooperate and fulfill the enrollment requirements necessary to
obtain insurance on his or her life.
<PAGE>
8. AMENDMENT OR TERMINATION
The Board of Directors of the Corporation may, at any time, without the
consent of the Directors participating in the Program, amend, suspend, or
terminate the Program.
9. ADMINISTRATION
The Program shall be administered by the Corporation's Executive
Compensation Committee (the "Committee"). The Committee shall have plenary
authority in its discretion, but subject to the provisions of the Program,
to prescribe, amend, and rescind rules, regulations and procedures
relating to the Program. The determinations of the Committee on the
foregoing matters shall be conclusive and binding on all interested
parties.
10. CHANGE IN CONTROL
If there is a Change in Control of the Corporation, all participants
serving as Directors at the time of the Change in Control shall become
immediately vested in the Program, and, notwithstanding the provisions of
Section 8, the Program shall not thereafter be amended or terminated with
respect to any person participating in the Program at the time of the
Change in Control. For the purpose of the Program, the term "Change in
Control" shall have the same meaning as is defined for that term in the
Corporation's 1997 Executive Stock Plan.
<PAGE>
11. GOVERNING LAW
The Program shall be construed and enforced according to the laws of the
Commonwealth of Virginia, and all provisions thereof shall be administered
according to the laws of said commonwealth.
12. EFFECTIVE DATE
The Program effective date is December 2, 1997. The recommendation of a
Director will not be effective until he or she completes the Program
enrollment requirements.
Exhibit 10.30
DELI UNIVERSAL, INC.
1997 NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of November 20, 1997, between Deli Universal,
Inc., a corporation organized under the laws of Virginia (the "Company"), and
J.M.M. Van de Winkel (the "Optionee"), is made pursuant and subject to the
provisions of the Universal Corporation 1997 Executive Stock Plan and any future
amendments thereto (the "Plan"). Capitalized terms not otherwise defined herein
have the meanings given them in the Plan.
1. Grant of Option. Pursuant to the Plan, the Company, on November 20,
1997, granted to the Optionee, subject to the terms and conditions of the Plan
and subject further to the terms and conditions herein set forth, the right and
option to purchase from the Company all or any part of an aggregate of 17,000
shares of common stock of Universal Corporation ("Common Stock") at the option
price of $38.94 per share. Such option will be exercisable as hereinafter
provided.
2. Terms and Conditions. This option is subject to the following terms and
conditions:
(a) Expiration Date. The Expiration Date of this option is
November 20, 2002.
(b) Exercise of Option. This option shall be exercisable,
with respect to the total number of shares of Common Stock
covered by this option, as set forth in paragraph 1 above,
on and after the date hereof, and it shall continue to be
exercisable with respect to such shares until the earlier
of (i) termination of the Optionee's rights hereunder
pursuant to paragraph 3 or 4, or (ii) the Expiration Date.
A partial exercise of this option shall not affect the
Optionee's right to exercise this option subsequently with
respect to the remaining shares that are exercisable
subject to the conditions of the Plan and this Agreement.
<PAGE>
(c) Method of Exercising and Payment for Shares. This option
shall be exercised by written notice (i) delivered to the
attention of the Company's Secretary at the Company's
principal office in Richmond, Virginia, and (ii) telefaxed
on the date of such delivery to the Secretary of Universal
Corporation (Facsimile Number 804/254-3594). The written
notice shall specify the number of shares being acquired
pursuant to the exercise of the option when such option is
being exercised in part in accordance with subparagraph
2(b) hereof. The exercise date shall be the date such
notice is received by the Company. Such notice shall be
accompanied by payment of the option price in full for each
share of Common Stock being acquired pursuant to such
exercise, in cash or cash equivalent acceptable to the
Committee, by the surrender of shares of Common Stock with
a Fair Market Value at the time of exercise equal to the
option price, or by any combination of cash or acceptable
cash equivalent and Common Stock having an aggregate Fair
Market Value equal to the option price.
(d) Cashless Exercise. To the extent permitted under the
applicable laws and regulations, at the request of the
Optionee, the Company in its discretion may agree to a
"cashless exercise" of the option. Such cashless exercise
shall be effected pursuant to the procedure to be
established by the Company pursuant to the Plan, which may
include a requirement that at least three (3) weeks prior
to the exercise date the Optionee provide written notice
requesting a cashless exercise to the Company and to
Universal Corporation in the manner specified in
subparagraph 2(c) above.
(e) Nontransferability. This option is nontransferable except by
will or by the laws of descent and distribution. During the
Optionee's lifetime, this option may be exercised only by the
Optionee.
<PAGE>
3. Exercise During Employment. Subject to the two-year period for
retirement, death and disability in paragraph 4, this option may not be
exercised in whole or in part after the earlier of (i) the date ninety days
after the date the Optionee terminates his employment with the Company or an
Affiliate or (ii) the Expiration Date; provided, however, that the Optionee's
right to exercise this option shall terminate immediately in the event the
Optionee's employment with the Company or an Affiliate is terminated for cause
as hereinafter defined or the Optionee is in violation of paragraph 6 hereof.
For purposes of the preceding sentence, the Optionee's employment shall be
deemed to have been terminated for cause if the Optionee's employment is
terminated as a result of fraud, dishonesty or embezzlement from the Company or
an Affiliate.
4. Exercise in the Event of Retirement, Death, Disability. This option
shall continue to be exercisable in full in the event that prior to the
Expiration Date of this option the Optionee (i) retires (early, after age 55,
normal, at age 65, or delayed retirement) or for any reason approved by the
Committee in its absolute discretion or, (ii) dies or becomes totally and
permanently disabled (as defined below) while employed by the Company or an
Affiliate. In the event of death this option may be exercised by the Optionee's
estate, or the person or persons to whom his rights under this option shall pass
by will or the laws of descent and distribution. This option will continue to be
exercisable for (x) the two-year period beginning on the date the Optionee
retires or for any reason approved by the Committee, dies or terminates
employment due to permanent and total disability, as the case may be, or (y) the
remainder of the period preceding the Expiration Date, whichever is shorter. For
purposes of this Agreement, "totally and permanently disabled" shall mean the
incapacity of the Optionee by reason of bodily injury or disease which prevents
the Optionee from performing the customary duties of his position with the
Company or an Affiliate, provided such disability can be expected to continue
for a lifetime.
5. Exercise in the Event of Liquidation or Reorganization. In the event of
a dissolution or liquidation of Universal Corporation or a merger or
consolidation in which Universal Corporation is not the surviving corporation,
the Optionee shall have the right immediately prior to such dissolution or
liquidation, or merger or consolidation, to exercise his option in full.
<PAGE>
6. Optionee Covenants. The Optionee recognizes that over a period of many
years the Company and Universal Corporation and its Affiliates (including any
predecessors or entities from which they might have acquired goodwill) have
developed, at considerable expense, relationships with customers and prospective
customers which constitute a major part of the value of the goodwill of the
Company, Universal Corporation and the Affiliates. During the course of his
employment by the Company, the Optionee will have substantial contact with these
customers and prospective customers. In order to protect the goodwill of the
Company's, Universal Corporation's and the Affiliate's businesses, the Optionee
covenants and agrees that, in the event of the termination of his employment,
whether voluntary or involuntary, he shall forfeit the option if he directly or
indirectly as an owner, shareholder, director, employee, partner, agent, broker,
consultant or other participant, for the period during which the option is
exercisable:
(a) calls upon or causes to be called upon, or solicits or
assists in the solicitation of any person, firm, association,
or corporation, listed as a customer of the Company, Universal
Corporation or any Affiliate on the date of termination of the
Optionee's employment, for the purpose of selling, renting or
supplying any product or service competitive with the products
or services of the Company, Universal Corporation or any
Affiliate; or
(b) performs for a competitor of the Company the same or
similar services he or she performed for the Company.
Subparagraphs (a) and (b) are separate and divisible covenants; if for any
reason any one covenant is held to be invalid or unenforceable, in whole or in
part, the same shall not be held to affect the validity or enforceability of the
others, or of any provision of this Agreement. The period and scope of the
restrictions set forth in this paragraph shall be reduced to the maximum
permitted by the law actually applied to determine the validity of each
subparagraph.
<PAGE>
7. Fractional Shares. Fractional shares shall not be issuable hereunder,
and when any provision hereof may entitle the Optionee to a fractional share
such fraction shall be disregarded.
8. No Right to Continued Employment. This option does not confer upon the
Optionee any right with respect to continuance of employment by the Company or
an Affiliate, nor shall it interfere in any way with the right of the Company or
an Affiliate to terminate his employment at any time.
9. Investment Representation. The Optionee agrees that unless such shares
previously have been registered under the Securities Act of 1933 (i) any shares
purchased by him hereunder will be purchased for investment and not with a view
to distribution or resale and (ii) until such registration, certificates
representing such shares may bear an appropriate legend to assure compliance
with such Act. This investment representation shall terminate when such shares
have been registered under the Securities Act of 1933.
10. Change in Capital Structure. Subject to any required action by the
shareholders of Universal Corporation, the number of shares of Common Stock
covered by this option, and the price per share thereof, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of Universal Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on the
Common Stock), a stock split-up or any other increase or decrease in the number
of such shares effected without receipt of cash or property or labor or services
by Universal Corporation.
Subject to any required action by the shareholders of Universal
Corporation, if Universal Corporation shall be the surviving corporation in any
merger or consolidation, this option shall pertain to and apply to the
securities to which a holder of the number of shares of Common Stock subject to
this option would have been entitled. A dissolution or liquidation of Universal
Corporation or a merger or consolidation in which Universal Corporation is not
the surviving corporation, shall cause this option to terminate, provided that
the Optionee shall, in such event, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation in which Universal
Corporation is not the surviving corporation, to exercise this option.
<PAGE>
In the event of a change in the Common Stock of Universal Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or securities
of Universal Corporation, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this Section 10, the Optionee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation, and any issue by Universal Corporation or the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to this option.
The grant of the option pursuant to the Plan shall not affect in any way
the right or power of Universal Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of Virginia.
12. Conflicts. In the event of any conflict between the provisions of the
Plan as in effect on the date hereof and the provisions of this Agreement, the
provisions of the Plan shall govern. All references herein to the Plan shall
mean the Plan as in effect on the date hereof.
<PAGE>
13. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of a
copy of the Plan and agrees to be bound by all the terms and provisions thereof.
14. Binding Effect. Subject to the limitations stated above and in the
Plan, this Agreement shall be binding upon and inure to the benefit of the
legatees, distributees, and personal representatives of the Optionee and the
successors of the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by a duly authorized officer, and the Optionee has affixed his signature hereto.
DELI UNIVERSAL, INC. OPTIONEE
By: /s/ William L. Taylor /s/ J. M. M. Van de Winkel
------------------------- --------------------------------
William L. Taylor J.M.M. Van de Winkel
EXHIBIT 12.
Universal Corporation and Subsidiaries
RATIO OF EARNINGS TO FIXED CHARGES
Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C>
Pretax income from continuing operations........ $231,138 $171,941 $ 123,721
Pretax income of unconsolidated affiliates...... 16,901 11,862 4,305
Fixed charges................................... 64,850 65,798 69,527
Earnings........................................ $312,889 $249,601 $ 197,553
Interest........................................ $ 63,974 $ 64,886 $ 68,754
Interest of unconsolidated affiliates........... 546 581 492
Debt discount amortization...................... 330 331 281
Fixed Charges................................... $ 64,850 $ 65,798 $ 69,527
Ratio of Earnings to Fixed Charges.............. 4.8 3.8 2.8
</TABLE>
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
ORGANIZED
UNDER LAW OF
----------------
<S> <C>
UNIVERSAL CORPORATION Virginia
Universal Leaf Tobacco Company, Incorporated Virginia
Universal Leaf North America NC, Inc. North Carolina
Casa Exported Limited Virginia
Grassland Holding, Incorporated Kentucky
Tabacos Del Pacifico Norte, S.A. De C.V. Mexico
Tabacos Argentinos S.A. Argentina
Procesadora Unitab, S.A. Guatemala
Latin America Tobacco Company Virginia
Maclin-Zimmer-McGill Tobacco Company, Incorporated Virginia
Simcoe Leaf Tobacco Company, Limited Canada
Dunnington-Beach Tobacco Company, Incorporated Virginia
Universal Leaf Export Company, Incorporated Guam
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
Orient Leaf Tobacco Co., Inc. Philippines
Tanzania Tobacco Processors LTD Tanzania
Universal Leaf Tabacos Limitada Brazil
Tebe-Ele S.A. Comercio Exterior Ltda. Brazil
Universal Leaf Far East, Limited Hong Kong
Universal Leaf Tobacco Poland Sp. z o.o. Poland
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
Tanzania Leaf Tobacco Co., Ltd Tanzania
Gebruder Kulenkampff, Inc. Virginia
Gebruder Kulenkampff AG Germany
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 Leaf P.H., Inc Virginia
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Lancaster Leaf Tobacco Company of Pennsylvania, Inc. Virginia
Lancotab, N.V. Belgium
Lancaster Philippines, Incorporated Philippines
Southern Processors, Incorporated Virginia
Southwestern Tobacco Company, Incorporated Virginia
J. P. Taylor Company, Incorporated Virginia
Tobacco Processors, Incorporated Virginia
W. H. Winstead Company, Incorporated Virginia
Universal DC Holdings Ltd. USA/United Kingdom
Universal Leaf (UK) Limited USA/United Kingdom
C.G. Services Ltd. United Kingdom
Casalee (UK) Ltd. United Kingdom
Universal Eastern Europe Limited United Kingdom
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
B.V. Deli-HTL Tabak Maatschappij 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
</TABLE>
EXHIBIT 23.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of our report dated August 6, 1998 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, 1998.
Registration
Statement Number Description
------ -----------
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
333-39297 Form S-8
333-45497 Form S-8
/s/ ERNST & YOUNG LLP
Richmond, Virginia
September 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102037
<NAME> UNIVERSAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 79,835
<SECURITIES> 0
<RECEIVABLES> 392,821
<ALLOWANCES> 0
<INVENTORY> 762,045
<CURRENT-ASSETS> 1,430,289
<PP&E> 715,722
<DEPRECIATION> 385,967
<TOTAL-ASSETS> 2,056,705
<CURRENT-LIABILITIES> 1,101,521
<BONDS> 263,140
0
0
<COMMON> 61,544
<OTHER-SE> 486,323
<TOTAL-LIABILITY-AND-EQUITY> 2,056,705
<SALES> 4,287,204
<TOTAL-REVENUES> 4,287,204
<CGS> 3,673,600
<TOTAL-COSTS> 3,673,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,974
<INCOME-PRETAX> 248,039
<INCOME-TAX> 98,659
<INCOME-CONTINUING> 141,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,258
<EPS-PRIMARY> 4.01
<EPS-DILUTED> 3.99
</TABLE>
