<PAGE>
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, 2000
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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
---------------------
(Exact name of Registrant as specified in its charter)
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, 804-359-9311
Richmond, Virginia 23230 ------------
------------------------ (Registrant's telephone number)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, no par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by "X" mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by "X" mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by non-
affiliates was $690,000,000 and the total number of shares of common stock
outstanding was 27,878,097 at September 15, 2000.
INFORMATION INCORPORATED BY REFERENCE
Certain information in the September 22, 2000 Proxy Statement for the Annual
Meeting of Shareholders of Registrant is incorporated by reference into Part III
hereof.
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2
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, 2000, tobacco operations accounted for 70%
of revenues and 85% of segment operating income, as disclosed in Note 10 of
'Notes to Consolidated Financial Statements'. Universal's agri-products and
lumber and building products operations accounted for 14% and 16% of revenues
and 5% and 10% of operating profits, respectively, during the same period. See
Note 10 to Consolidated Financial Statements for additional business segment and
geographical information.
B. Description of Tobacco Business
General
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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.
The Company's tobacco sales consist primarily of flue-cured and burley tobaccos
which, along with oriental tobaccos, are the major ingredients in American blend
cigarettes. The Company participates in the sales of oriental tobacco through
ownership of a minority equity interest in what management believes to be the
largest oriental tobacco leaf merchant in the world, Socotab, L.L.C. Despite
declines at the end of the period, worldwide cigarette production increased on
average, about 1% per year during the ten years that ended in 1998. Since 1999,
worldwide cigarette production has declined. American-blend cigarette
consumption has been the fastest growing segment with multinational
manufacturers expanding their total market share, and it is expected to continue
to increase as a percent of the world total. For a discussion of the impact of
current trends 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, quality
picking, separation of leaf lamina from the stems, drying, and packing to
precise moisture targets for proper aging. Accomplishing these tasks in
accordance with exacting customer specifications requires considerable skill and
investment in plants and machinery.
Excluding tobacco purchased by the U.S. stabilization cooperatives, Universal
estimates that in fiscal year 2000, it purchased or processed about 39% of the
aggregate amount of flue-cured and burley tobacco produced in the United States,
Brazil, Zimbabwe, and Malawi, which are the principal export markets of such
tobaccos. 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
its 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 dark tobacco 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 in the
manufacture of cigars and smokeless tobacco products.
Sales are made by Universal's sales force and through the use of commissioned
agents. Most customers are long-established firms or government monopolies.
Universal is represented by its buyers on most 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, although some cigarette manufacturers have begun
experimental programs to purchase tobacco directly from farmers under contracts.
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.
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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3
From time to time, the Company processes and stores tobacco acquired by the
flue-cured and burley stabilization cooperatives. The Company derives fees for
such services. 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.
Universal conducts its tobacco business in varying degrees in a number of
foreign countries including Argentina, Belgium, Brazil, Canada, Colombia, the
Dominican Republic, France, Germany, Greece, Guatemala, Hungary, India,
Indonesia, Italy, Malawi, Mexico, Mozambique, the Netherlands, Paraguay, the
People's Republic of China, the Philippines, Poland, Portugal, Russia,
Singapore, South Africa, Spain, Switzerland, Tanzania, Thailand, Uganda, the
United Kingdom, Zambia, and Zimbabwe. In addition, Socotab, L.L.C. has oriental
tobacco operations in Bulgaria, Greece, Macedonia, and Turkey.
In a number of countries, including Argentina, Brazil, Guatemala, Hungary,
Italy, Mozambique, Mexico, Poland, Tanzania, and Zambia, 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 of or for seed, fertilizer,
and other supplies. Tobacco in Zimbabwe, Malawi, Canada, and to a certain extent
in India, is purchased under an auction system. The Company has substantial
capital investments in South America and Africa, and the performance of its
operations in these regions can materially affect the Company's earnings from
tobacco operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors that May Affect Future Results -
Tobacco Businesses."
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 listed 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 Operations - Factors that May Affect Future Results."
Recent Developments and Trends; Factors that May Affect Future Results
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For a discussion of recent developments and trends in, and factors that may
affect, the Company's tobacco business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Seasonality
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Universal's tobacco business is 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
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.
Customers
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A material part of the Company's tobacco business is dependent upon a few
customers. The loss of, or a substantial reduction of business from, any one of
these major customers would have a material adverse effect on the Company.
Although generally there are no formal continuing contracts with these
customers, the Company has done business with each of its major customers for
over 40 years. For the year ended June 30, 2000, tobacco sales to Philip Morris
Companies Inc. accounted for greater than 10% of consolidated revenues.
<PAGE>
4
See Note 9 to Consolidated Financial Statements. Collectively, five other
customers accounted for approximately 12% of consolidated revenues during the
same period.
Universal had orders from customers in excess of $311 million for its tobacco
inventories at June 30, 2000. Based upon historical experience, it is expected
that at least 90% of such orders will be delivered during the fiscal year ending
June 30, 2001. Typically, delays in the delivery of orders result from changing
customer requirements.
Competition
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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 worldwide 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
auction 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 Company's principal competitors are: DIMON Incorporated and
Standard Commercial Corporation. In addition, British American Tobacco Company,
a multi-national tobacco product manufacturer, has subsidiaries that compete
with the Company in some markets. Of the significant leaf tobacco industry
competitors that are not affiliates of manufacturers, Universal believes that it
holds the largest worldwide market share.
C. Description of Agri-Products Business
The Company's agri-products business involves the selecting, buying, shipping,
processing, storing, financing, distribution, importing, and exporting of a
number of products including tea, rubber, sunflower seeds, nuts, dried fruit,
and canned and frozen foods.
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. 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, Centrotrade, Cargill, Dahlgren,
Ennar, Global, Metallgeschellschaft/ SAFIC Alcan, Stassens,STT/Wurfbain,
Symington, Universal Tea, and UTT (Unilever).
For a discussion of recent developments and trends in, and factors 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 purchased
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.
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, ceiling and wall contractors, and DIY chains with a wide range
of lumber-related products, including panel products, ceiling tiles, and
<PAGE>
5
doors. The industrial sales unit primarily distributes value-added softwood
products and window frames to the prefabrication and construction industries.
The Company carries inventories to meet customer 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 2000 accounted
for approximately 20% of the total market volume in the Netherlands. That share
is similar to the market share of its largest competitor, Pont-Eecen N.V., which
was formed in the recent merger of Universal's former two largest competitors
Pont-Meyer N.V. and Houtgroep Eecen Nederland 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 Belgian lumber and building products market was
approximately 3% in fiscal year 2000. For a discussion of recent developments
and trends in, and factors that may affect, the Company's lumber and building
products business, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
E. Employees
The Company employed over 32,000 employees throughout the world during the
fiscal year ended June 30, 2000. This figure is estimated because the majority
of the personnel are seasonal employees.
Universal believes that in the United States approximately 950 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.
F. Research and Development
No material amounts were expended for research and development during the fiscal
years ended June 30, 2000, 1999, and 1998.
G. Patents, etc.
The Company holds no material patents, licenses, franchises, or concessions.
H. Government Regulation, Environmental Matters and Other Matters
The Company's business is subject to extensive governmental regulation in the
United States and in foreign jurisdictions where the Company conducts business.
Such regulation includes, but is not limited to, matters relating to
environmental protection. To date, governmental provisions regulating the
discharge of material into the environment have not had a material effect upon
the capital expenditures, earnings, or competitive position of the Company. 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 factors that may
affect the Company's business.
ITEM 2. PROPERTIES
Universal owns the land and building located at 1501 North Hamilton Street in
Richmond, Virginia, where it is headquartered. The building contains
approximately 83,000 square feet of floor space. The Company also owns three
smaller office buildings located on the block adjacent to the Company's
headquarters. These buildings contain in the aggregate approximately 18,500
square feet of floor space.
In its domestic tobacco processing operations, Universal currently owns and
operates four large, high volume plants that have the capacity to thresh,
separate, grade, and redry tobacco. Two of these plants are located in North
Carolina (Henderson and Wilson), one plant is in Danville, Virginia, and one
plant is in Lexington, Kentucky. In fiscal year 2000, the Company closed one
processing plant in Rocky Mount, North Carolina, that had been severely damaged
in floods associated with Hurricane Floyd. The reduction in the Company's
domestic processing capacity reflects the decrease in U.S. tobacco crops due to,
among other things, declining U.S. cigarette consumption, declining exports of
U.S. tobacco, and increased amounts of U.S. tobacco held by the stabilization
cooperatives that is part of the current worldwide oversupply of tobacco. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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6
The Company owns processing facilities in the following foreign countries: two
processing plants in each of Brazil, Italy, Malawi, and Poland and one
processing plant in each of Canada, Hungary, the Netherlands, Tanzania and
Zimbabwe. In addition, the Company owns interests in a processing plant in each
of Guatemala and Mexico and has access to processing plants in each of
Argentina, India, the Philippines, the People's Republic of China, Uganda, and
Zambia. Socotab, L.L.C., a joint venture in which Universal owns a minority
interest, owns two oriental tobacco processing plants in Turkey, one in Greece,
one in Macedonia, and a storage complex with limited processing capabilities. In
addition, Socotab, L.L.C. owns minority 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 tobacco used in making cigar and smokeless products
in Pennsylvania, Virginia, the Dominican Republic, Colombia, Germany, Indonesia,
and Brazil.
Universal also owns or leases packaging stations and warehouse space in the
tobacco-growing states and abroad. In fiscal year 2000, the Company closed down
its remaining domestic extruder plants (baling operations) in Lumberton and
Rocky Mount, North Carolina, and in Lexington and Bowling Green, Kentucky in
response to increased use of farmer bales in the U.S. flue-cured market and
declining U.S. tobacco production volumes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Other Information
Regarding Trends and Management's Actions."
The Company believes that the properties currently utilized in its tobacco
operations are maintained in good operating condition currently 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 six facilities in Belgium. Most
of these locations are owned. In the Netherlands, the Company also owns a
softwood facility for large scale sawing, planing and fingerjointing, and a
manufacturing facility for building components.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 2000, there were no matters submitted to a
vote of security holders.
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7
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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2000
Cash dividends declared: $ .30 $ .31 $ . 31 $ .31
Market price range: High 31.00 26.50 23.94 24.81
Low 25.13 20.75 13.56 16.00
1999
Cash dividends declared: $ .28 $ .30 $ .30 $ .30
Market price range: High 38.75 38.06 34.69 28.81
Low 31.50 32.94 25.56 23.88
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 15, 2000, there were 2,882 holders of
record of the registrant's Common Stock.
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8
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Comparison of Selected Financial Data For Five Years Ended June 30,
2000
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30
---------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands except per share data, ratios
and number of shareholders)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Sales and other operating revenues $ 3,401,969 $ 4,004,903 $ 4,287,204 $ 4,112,675 $ 3,570,228
Income before extraordinary item 113,805 127,276 141,258 100,873 71,350
Net income $ 113,805 $ 127,276 $ 141,258 $ 100,873 $ 72,246
Return on beginning common shareholders'
equity 21.1% 23.2% 30.1% 24.2% 18.5%
Per common share - Basic:
Income before extraordinary item $ 3.77 $ 3.81 $ 4.01 $ 2.88 $ 2.04
Net income $ 3.77 $ 3.81 $ 4.01 $ 2.88 $ 2.06
Per common share - Diluted:
Income before extraordinary item $ 3.77 $ 3.80 $ 3.99 $ 2.87 $ 2.03
Net income $ 3.77 $ 3.80 $ 3.99 $ 2.87 $ 2.05
Financial Position at Year End
Current ratio 1.23 1.30 1.31 1.32 1.29
Total assets $ 1,748,104 $ 1,824,361 $ 1,998,502 $ 1,957,330 $ 1,889,513
Long-term obligations 223,262 221,545 244,080 273,055 309,543
Working capital 204,916 271,825 328,768 347,542 299,778
Shareholders' equity $ 497,779 $ 539,036 $ 547,867 $ 469,593 $ 417,305
General
Ratio of earnings to fixed charges 4.13 4.44 4.57 3.63 2.79
Number of common shareholders 2,749 2,951 3,049 3,271 3,420
Weighted average common shares
outstanding - Basic 30,199 33,437 35,190 35,076 35,038
Weighted average common shares
outstanding - Diluted 30,205 33,477 35,388 35,207 35,901
Dividends per common share $ 1.23 $ 1.18 $ 1.11 $ 1.05 $ 1.02
Book value per common share $ 16.48 $ 16.12 $ 15.57 $ 13.39 $ 11.90
</TABLE>
All fiscal years have been restated to conform to Statement of Financial
Accounting Standard No. 128 "Earnings per share".
Fiscal year 2000 includes a $11 million ($7 million, net of tax) charge for
restructuring.
Fiscal year 1998 includes a $16.7 million ($10.9 million, net of tax) gain on
the sale of an investment.
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9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY & CAPITAL RESOURCES
During the five years since fiscal year 1995, Universal Corporation has reduced
its total debt from a peak of about $968 million at the end of fiscal year 1995
to $701 million as of June 30, 2000. During those five years, the Company's cash
flow from operating activities aggregated about $790 million, averaging over
$155 million annually. Using that cash, it funded capital expenditures and
acquisitions of $381 million; share repurchases of $212 million; and dividends
of about $187 million.
During fiscal year 2000, working capital was reduced by about $67 million to
$205 million, and the current ratio fell from 1.3 to 1.23. The primary reason
for the reduction is the reclassification of $120 million of maturing long-term
debt to current liabilities. Although inventories, primarily tobacco, declined
by about $49 million because of lower dark tobacco inventories, that decline was
offset by the decrease in funding for those inventories and thus did not reduce
net working capital. The Company estimates that its inventories of flue-cured
and burley tobaccos that were not committed to customers as of June 30, 2000,
were approximately 23 million kilos. Management does not consider these levels
excessive.
Management believes that the Company has adequate resources available to meet
its needs, which 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
Universal 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 due
to winter weather and the holiday season. The Company finances its working
capital needs with short-term lines of credit, customer advances, and trade
payables.
As of June 30, 2000, Universal and its affiliates had approximately $1.2 billion
in uncommitted lines of credit, of which about $800 million were unused and
available to support seasonal working capital needs. Effective December 16,
1999, the Company replaced its $300 million revolving credit facility with a new
$270 million facility issued in tranches of $180 million and $90 million. The
new facility has been used as support for Universal's commercial paper program,
which provides flexibility in the Company's short-term borrowings.
In August 2000, the Company filed a registration statement on Form S-3 to
register $400 million of debt securities, which could be issued as short-term or
long-term debt.
Universal's long-term debt, at about $223 million, changed little during the
year ended June 30, 2000. However, the components changed significantly. In a
public offering on February 16, 2000, Universal issued $120 million of 8.5%
Notes due February 2003 (the "Notes"). The proceeds of the issue were used to
reduce short-term bank debt and commercial paper in anticipation of the pending
maturity of the $100 million in 9.25% medium-term notes due February 2001. The
maturing debt was reclassified to current liabilities. Although Universal's
total debt declined during the year, its total debt as a percentage of total
capitalization (including deferred taxes and minority interest) increased
somewhat, from about 55% to 56%. The effect of the decline in total debt was
offset by three main factors: (1) larger foreign currency translation
adjustments, primarily related to the lumber operations in Holland, were
recorded as the U.S. dollar strengthened during the year; (2) share repurchases
and dividends slightly exceeded net income for the year; and (3) deferred tax
liabilities were reclassified to current taxes payable due to a sale of a joint
venture interest and dividends received from offshore operations.
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10
Upon issuance of the Notes, the Company entered into interest rate swaps in
which it receives a fixed rate of interest and pays a floating rate based on
LIBOR. The effective interest rate payable by the Company at June 30, 2000, was
7.67%. The notional amount, maturity, and payment dates of the interest rate
swaps match those of the Notes. At June 30, 2000, the fair value of the swaps
was immaterial. The differential to be paid or received as interest rates change
is accrued and recognized as an adjustment to interest expense. Management does
not expect that the adoption of Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," with
respect to these swaps will materially affect the consolidated financial
position or results of operations.
The Company's capital expenditures are generally limited to those that add value
to the customer, replace obsolete equipment, increase efficiency, or position it
for future growth. Universal's capital expenditures were approximately $61
million in fiscal year 2000, down by about $8 million, reflecting the completion
of African projects in fiscal year 1999. For fiscal year 2001, management
expects its capital expenditures to remain at or below the levels of fiscal year
2000. At June 30, 2000, the Company had no material commitments for capital
expenditures.
In December 1999, Universal's Board of Directors approved the expansion of its
share purchase program to permit the purchase of up to $300 million of the
common stock of the Company. The purchases are carried out from time to time on
the open market or in privately negotiated transactions at prices not exceeding
prevailing market prices. The purchases have been and are expected to be funded
primarily from operating cash flow of the Company. At June 30, 2000, Universal
had approximately 28.1 million common shares outstanding and had purchased
approximately 8 million shares of its common stock for $212 million pursuant to
the program.
Management believes that its financial resources are adequate to support
its capital needs. 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 2000 Compared to 1999
Sales and other operating revenues' for fiscal year 2000 declined $603
million or 15% to $3.4 billion compared to last year. Lower tobacco revenues
accounted for a decrease of $572 million or over 95% of the total decline. The
reduced level of tobacco sales was due to smaller crops and volumes handled in
the United States and Africa. Agri-products revenues were down $27 million or 5%
on sharply reduced operations due to adverse market conditions for tea and
sunflower seeds. Lumber and building products revenues were adversely affected
by the strength of the U.S. dollar, which appreciated, on average, approximately
10% against the Dutch guilder during the year.
Segment operating income as disclosed in Note 10 of `Notes to Consolidated
Financial Statements' was $264 million in 2000 compared to $282 million in 1999,
a decrease of $18 million. Tobacco operating profits in fiscal year 2000 were
$223 million and accounted for approximately $17 million of the total decline.
Approximately $11 million of the decline was due to the restructuring charge for
domestic tobacco operations that was recorded in the fourth quarter. The volume
of tobacco that Universal purchased and processed in the United States declined
significantly as a result of much smaller U.S. flue-cured and burley crops.
Total U.S. flue-cured and burley marketings decreased by 14% compared to the
previous year. On the other hand, the Company's aggregate volumes of flue-cured
and burley tobaccos handled from markets outside the United States increased for
the year, led by Brazil, which had a large flue-cured crop. African volumes were
lower due to smaller crops in Zimbabwe and Tanzania. Dark tobacco volumes were
adversely affected by delayed shipments from Indonesia and the Dominican
Republic and by the lower quality of Indonesian wrapper and binder tobaccos. In
addition, the Company's oriental tobacco joint venture experienced very
favorable shipment timing. Despite the continued impact of a strong U.S. dollar,
operating profits of lumber and building products improved by 7%, to $26 million
on higher volumes. That improvement was more than offset by a decline in agri-
products to $14 million from $17.5 million last year.
<PAGE>
11
The agri-products decrease can be attributed to the adverse conditions in world
markets for tea and severe price competition in confectionery sunflower seeds
from Argentina and China.
'Selling, general and administrative expenses' for fiscal year 2000 were down
slightly to $353 million, primarily reflecting the lower volume of tobacco
handled in the fiscal year.
In June 2000, the Company adopted a restructuring plan for its U.S. tobacco
operations. The plan included the consolidation of certain domestic tobacco
processing facilities and resulted in $11 million of restructuring costs. The
tobacco dealer industry in the United States continues to go through significant
changes due to sharply reduced U. S. crops for which prices are not competitive
in the world market. The restructuring charge included approximately $7 million
of severance costs related to 108 employees, and $4 million related to assets
that will no longer be utilized. The severance costs will be funded by cash
provided by operations. As of June 30, 2000, total cash payments of
approximately $200,000 had been made to 46 employees. A significant portion of
the remaining severance payments will be made in fiscal year 2001. The plan is
expected to save approximately $5 million per year, related primarily to reduced
total compensation cost.
Despite a climate of rising rates, 'Interest expense' was comparable year to
year due to a reduction in the levels of amounts borrowed.
The Company's consolidated income tax rate was approximately the same as last
year's rate. The rate is affected by a number of factors, including but not
limited to: the mix of domestic and foreign earnings, subsidiary local tax
rates, the repatriation of foreign earnings, and the Company's ability to
utilize foreign tax credits.
Fiscal Year 1999 Compared to 1998
'Sales and other operating revenues' in fiscal year 1999 were $4.0 billion
compared to $4.3 billion in 1998, a drop of $282 million or almost 7%. A decline
in tobacco revenues of almost $250 million was due to a combination of lower
prices, lower volumes and the Company's oriental leaf tobacco business being
conducted by a minority-held joint venture in fiscal year 1999. Lumber and
building products revenues were down slightly, less than 1% to $548 million,
while a decline of $31 million in agri-products revenues reflected primarily
lower volumes of tea.
'Operating income' in fiscal year 1999 was $255 million compared to $278 million
in fiscal year 1998, a decline of almost 9%. Tobacco operating profits were down
$31 million or 12% in fiscal year 1999. Oversupply of tobacco leaf and unsettled
world market conditions for tobacco created a difficult operating environment in
1999. Tobacco results suffered due to this imbalance and the adverse effects of
weather in certain areas of the world, quality problems in Argentina, shipment
delays in the Company's oriental tobacco joint venture, and lower dark air-cured
tobacco volumes. Lumber and building products operating profits were $24 million
in fiscal year 1999, an increase of $4 million compared to the prior year.
Improved market conditions and higher prices for plywood, softwood and hardwood
had a positive impact on results for fiscal year 1999. Agri-products operating
profits in fiscal year 1999 were down slightly due to the Company's sale of an
investment in a spice joint venture in fiscal year 1998, which generated a gain
of $17 million before taxes. On a comparable basis, excluding the spice
operations in fiscal year 1998, agri-product's operating income would have been
slightly higher in fiscal 1999.
'Selling, general and administrative expenses' were down 3% to $356 million in
1999 primarily due to the reduced levels of tobacco shipments. The reduction in
interest expense in fiscal year 1999 reflects lower interest rates and reduced
borrowing levels due to lower tobacco prices. In fiscal year 1999, the Company's
consolidated income tax rate was almost 36%. The reduction in the effective tax
rate compared to fiscal year 1998 was due to the mix of foreign and domestic
earnings plus the realization of tax benefits.
<PAGE>
12
OTHER INFORMATION REGARDING TRENDS
AND MANAGEMENT'S ACTIONS
World markets for flue-cured and burley tobacco are generally oversupplied.
Uncommitted worldwide flue-cured and burley inventories have been trending
upward since mid-1997, but these uncommitted stocks are generally higher priced
tobacco, and despite sharp reductions in U.S. crops, the U. S. stabilization
cooperatives continue to hold a large portion of the excess. The increases in
uncommitted stocks have occurred as decreases in production of flue-cured and
burley tobacco since 1997 by exporting countries did not keep pace with
declining cigarette production. However, there are indications that the
increases in these inventories outside of the United States will slow or that
the inventories may begin to decline in the near term. Although large
uncommitted inventories continue to be held by dealers and the U.S.
cooperatives, world flue-cured and burley markets are in better balance than
last year due to smaller crops, and to recovering demand. Management expects
world flue-cured and burley crop sizes to decline again in 2000 and 2001. Demand
for leaf and manufactured tobacco products appears to be strengthening in Asia
in concert with improving economies in much of that region, and in Russia and
Eastern Europe. An increase in demand for tobacco in these areas and smaller
crops could help reduce the surplus leaf stocks that have been overhanging the
market. While cigarette sales continue to decline in the United States, the rate
is expected to be less than half of last year's reported 9 percent. However, the
potential impact of future price and tax increases, as well as the uncertain
outcome of pending litigation against cigarette manufacturers, makes it
difficult to predict the outlook for U. S. cigarette sales.
The Company has a significant presence in the U.S. market, where the outlook for
tobacco production is uncertain. For a number of years, U.S. leaf has not been
price competitive in world markets. The situation has reduced exports, and that
reduction, combined with declining purchases of U.S. manufacturers and the
buildup of leaf inventories in the U.S. stabilization cooperatives, has
adversely affected the amount of U.S. tobacco that can be produced and sold in
the United States. Domestic leaf purchases appear likely to continue to decline
because of lower cigarette consumption. If not corrected through federal tobacco
program reforms and reduced support prices, the competitive position of U.S.
leaf is unlikely to improve. As a result, foreign manufacturers will likely
continue to shift business to other tobacco producing areas, such as Brazil,
Zimbabwe and Malawi, where Universal also has operations. The Company has
responded to the decrease in demand for, and production of, U.S. tobacco by
closing certain plants, consolidating operations and reducing personnel.
Despite declines at the end of the period, worldwide cigarette production
increased, on average, about 1% per year for the 10 years that ended in 1998.
The American-blend cigarette consumption has been the fastest growing segment
with multinational manufacturers expanding their market share, and it is
expected to continue to increase as a percent of world tobacco consumption.
Although management believes that this bodes well for the long-term viability of
the tobacco leaf industry, on a year-to-year basis, the Company is susceptible
to fluctuations in demand as manufacturers adjust inventories or respond to the
cigarette market. Although cigar consumption is still growing in the United
States and Europe, the rate of growth continues to be down significantly from
levels experienced in recent boom years. The possible effects of regulatory
factors and industry litigation, particularly in the United States, are more
fully described in "Factors That May Affect Future Results" below.
An important trend in the tobacco industry has been consolidation among
manufacturers and among leaf tobacco merchants. This trend is expected to
continue as further privatization of state monopolies occurs, providing
opportunities for acquisitions by international manufacturers. This
concentration should intensify the competition for market share within the leaf
tobacco industry. A key success factor for leaf dealers in the future will be to
provide customers with the quality of leaf and the level of service they desire
at the lowest cost possible.
Universal's consolidated income tax rate for the current year is 36%. The
tax rate is affected by a number of factors, including but not limited to: the
mix of domestic and foreign earnings and investments, subsidiary tax rates,
repatriation of foreign earnings
<PAGE>
13
and the ability to utilize foreign tax credits. In recent years, the Company's
domestic income has been declining while foreign income has been increasing. The
effective rate of tax on the foreign income has been rising as well.The
continuation of this trend may result in higher consolidated income tax rates
for the Company in the future.
In the Company's non-tobacco businesses, construction activity in the
Netherlands continues at a high level; however the strength of the U.S. dollar,
if it is sustained over the year, could reduce the performance of the lumber and
building products segment.
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 "management believes"
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 a fiscal year and any interim period to differ materially
from those expressed or implied 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 Business
----------------
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.
There are three major global competitors in the leaf tobacco industry, and
they are dependent upon a few large tobacco manufacturing customers. The number
of manufacturers has declined in recent years due to consolidation. The loss of,
or a substantial reduction in the services provided to, any large or significant
customer would have a material adverse effect on the Company's results of
operations.
Market Balance
Universal's financial results can be significantly affected by changes in 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, such as the growth in popularity of American-blend cigarettes, as
well as trends in sales of cigars and other tobacco products, 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, Guatemala, Hungary, Italy, Mexico and Tanzania,
where the Company contracts directly with and provides financing to tobacco
farmers, in some cases before harvest, the Company
<PAGE>
14
takes the risk that the tobacco will be delivered and that the delivered quality
and quantity will meet market requirements. Company affiliates also have dark
tobacco growing operations in Indonesia.
In the United States, several domestic manufacturers have initiated experimental
programs to purchase tobacco directly from farmers, rather than through leaf
merchants at the tobacco auctions. In the event that Universal's domestic
customers for U.S. leaf were to buy all their tobacco directly from the farmers,
the Company's revenues would be substantially reduced. However, assuming that
the Company continues to process a similar volume of tobacco, management
believes that the effect on the Company's results of operations would not be
material.
Timing of Customer Shipments
The Company 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 U.S. federal and certain state governments have 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 has been 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 by the U. S. Supreme Court to be outside the
jurisdiction of the FDA; (4) proposals to increase the U.S. and state excise
taxes on cigarettes; and (5) the policy of the U.S. government to link certain
federal grants to the enforcement of state laws restricting the sale of tobacco
products. In addition, several bills have been introduced in previous sessions
of Congress that, if they had been enacted into law, would have settled certain
lawsuits filed against tobacco manufacturers and limited or capped damages in
future lawsuits; provided for payments by the manufacturers to federal and state
governments; imposed further restrictions on the sale, advertising and promotion
of tobacco products; and imposed regulatory frameworks on tobacco manufacturers
operating in the United States. Numerous other legislative and regulatory anti-
smoking measures have also been proposed at the federal, state and local levels.
In addition, a number of foreign governments have also taken or proposed steps
to restrict or prohibit cigarette advertising and promotion, to increase taxes
on cigarettes and to discourage cigarette consumption. In some cases, such
restrictions are more onerous than those proposed or in effect in the United
States. The Company cannot predict the extent to which government efforts to
reduce tobacco consumption might affect its business. A significant decrease in
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.
Political Uncertainties in Foreign Tobacco Operations
The Company's international operations are subject to uncertainties and risks
relating to the political stability of certain foreign governments, principally
in developing countries and emerging markets, and to the effects of changes in
the trade policies and
<PAGE>
15
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
growers and companies, issuance of 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 South America and Africa and the performance of its operations in these
regions can materially affect the Company's earnings from tobacco operations.
For example, the Company has significant operations and assets in Zimbabwe,
which is currently experiencing political and economic unrest. Although the
Company does not expect any significant impact on fiscal year 2001 earnings, if
the political situation in Zimbabwe were to deteriorate significantly, the
Company's ability to recover its assets there could be impaired. The
Company'sequity in its net assets of subsidiaries in Zimbabwe was $36 million at
June 30, 2000. To the extent that the Company could not replace any lost volumes
of tobacco with tobacco from other sources, the Company's results of operations
could suffer.
United States Trade Policies
The U.S. tobacco price support system is an industry-funded federal program that
is administered by the U.S. Department of Agriculture. 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. The
consolidated income tax rate is affected by a number of factors, including but
not limited to: the mix of domestic and foreign earnings and investments,
subsidiary tax rates, repatriation of foreign earnings and the ability to
utilize foreign tax credits.
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,
particularly in the United States. 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.
During the past few years, certain U.S. tobacco product manufacturers entered
into agreements with states and various U.S. jurisdictions settling asserted and
unasserted healthcare cost recovery and other claims. The settlements provide
for billions of dollars in annual payments from those manufacturers and place
numerous restrictions on their conduct of business operations, including
restrictions on the advertising and marketing of cigarettes, which have reduced
tobacco consumption and, therefore, demand for the Company's products and
services in the United States. Further significant decreases in consumption of
tobacco products could have a material adverse effect on the Company's operating
results.
<PAGE>
16
In September 1999, the U.S. government filed a lawsuit against tobacco product
manufacturers to recover healthcare costs, similar to the suits settled by the
states. In addition, there are numerous smoking and health cases filed by
individual plaintiffs or on behalf of putative classes pending in the United
States and other countries against tobacco product manufacturers. It is not
possible to predict the outcome of such litigation. However, judgments or
settlements in these cases could have a detrimental effect on the consumption of
tobacco products and, therefore, could have a material adverse 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 a
significant write-off of amounts due the Company could adversely affect its
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 primarily in the United States and the Netherlands, do business in a
number of foreign countries. These operations enter into forward exchange
contracts to offset the effect of currency changes on firm purchase and sales
commitments in foreign currencies (principally Euros, Dutch guilders, U.S.
dollars, German Marks, Swedish Kronas, and pound sterling). The terms of
currency contracts are generally from one to six months. This 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, market balance, and governmental factors such as political uncertainties
in countries of crop origin.
<PAGE>
17
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended June 30 2000 1999 1998
(in thousands of dollars, except per share data)
<S> <C> <C> <C>
Sales and other operating revenues $ 3,401,969 $ 4,004,903 $4,287,204
Costs and expenses
Cost of goods sold 2,803,957 3,394,419 3,644,100
Selling, general and administrative expenses 353,130 355,928 364,710
Restructuring costs 10,958
---------------------------------------------
Operating income 233,924 254,556 278,394
Equity in pretax earnings of unconsolidated affiliates 12,532 14,066 16,901
Gain on sale of investment 16,718
Interest expense 56,869 56,837 63,974
---------------------------------------------
Income before income taxes and other items 189,587 211,785 248,039
Income taxes 68,221 75,963 98,659
Minority interests 7,561 8,546 8,122
---------------------------------------------
Net income $ 113,805 $ 127,276 $ 141,258
---------------------------------------------------------------------------------------------------------------------------
Net income:
Per common share $3.77 $3.81 $4.01
Per diluted common share $3.77 $3.80 $3.99
---------------------------------------------------------------------------------------------------------------------------
Basis for per-share calculations:
Weighted average common shares outstanding 30,199 33,437 35,190
Dilutive effect of stock options 6 40 198
---------------------------------------------
Average common shares outstanding, assuming dilution 30,205 33,477 35,388
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
18
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June30 2000 1999
<S> <C> <C>
(in thousands of dollars)
ASSETS
Current
Cash and cash equivalents $ 61,395 $ 92,784
Accounts receivable 358,897 326,055
Advances to suppliers 52,383 72,455
Accounts receivable--unconsolidated affiliates 12,573 17,707
Inventories--at lower of cost or market:
Tobacco 379,504 419,256
Lumber and building products 77,096 85,458
Agri-products 73,024 74,114
Other 33,068 33,218
Prepaid income taxes 9,283 20,993
Deferred income taxes 9,008 6,952
Other current assets 21,919 21,333
-------------------------------
Total current assets 1,088,150 1,170,325
Property, plant and equipment--at cost
Land 27,377 29,743
Buildings 245,570 237,054
Machinery and equipment 505,323 491,201
-------------------------------
778,270 757,998
Less accumulated depreciation 430,925 409,678
-------------------------------
347,345 348,320
Other assets
Goodwill 113,498 117,871
Other intangibles 17,145 20,950
Investments in unconsolidated affiliates 77,046 95,491
Deferred income taxes 33,606 1,238
Other noncurrent assets 71,314 70,166
-------------------------------
312,609 305,716
-------------------------------
$1,748,104 $1,824,361
-----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
19
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 2000 1999
(in thousands of dollars)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $ 356,283 $ 497,399
Accounts payable 256,666 235,310
Accounts payable--unconsolidated affiliates 10,169 14,186
Customer advances and deposits 91,414 82,432
Accrued compensation 20,997 24,291
Income taxes payable 26,682 15,836
Current portion of long-term obligations 121,023 29,046
-------------------------
Total current liabilities 883,234 898,500
Long-term obligations 223,262 221,545
Postretirement benefits other than pensions 41,295 42,981
Other long-term liabilities 53,948 45,474
Deferred income taxes 11,749 40,436
Minority interests 36,837 36,389
Shareholders' equity
Preferred stock, no par value, authorized 5,000,000 shares, none issued or outstanding
Common stock, no par value, authorized 100,000,000 shares,
issued and outstanding 28,146,697 shares (32,090,550 at June 30, 1999) 66,274 75,758
Retained earnings 499,490 510,123
Accumulated other comprehensive income (67,985) (46,845)
-------------------------
Total shareholders' equity 497,779 539,036
-------------------------
$1,748,104 $1,824,361
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30 2000 1999 1998
(in thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 113,805 $ 127,276 $ 141,258
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 44,182 46,158 43,616
Amortization 7,840 6,604 7,455
Translation loss, net 1,593 2,689 1,739
Restructuring costs 10,958
Deferred taxes (51,728) 13,986 14,439
Minority interests 7,561 8,546 8,122
Gain on sale of investment (16,718)
Equity in net income of unconsolidated affiliates (8,248) (9,091) (10,102)
Other (5,340) (3,655) 3,061
---------------------------------
120,623 192,513 192,870
Changes in operating assets and liabilities net of effects from purchase of businesses:
Accounts and notes receivable (30,910) 69,969 (54,189)
Inventories and other assets 31,196 145,422 (15,434)
Income taxes 22,556 (14,503) 1,248
Accounts payable and other accrued liabilities 34,368 (60,971) 8,872
---------------------------------
Net cash provided by operating activities 177,833 332,430 133,367
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (60,837) (69,154) (96,720)
Investment in unconsolidated affiliates (41,114)
Proceeds from sale of investments 32,063 29,065
Sales of property, plant and equipment and other 5,827 (8,683) 24
---------------------------------
Net cash used in investing activities (22,947) (77,837) (108,745)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net (137,566) (87,638) 30,137
Repayment of long-term debt (29,920) (28,891) (30,241)
Issuance of long-term debt 123,614 6,618 7,767
Dividends paid to minority shareholders (7,236) (1,876) (7,493)
Issuance of common stock 1,010 2,268 4,328
Purchases of common stock (98,756) (93,026) (19,824)
Dividends paid (37,077) (39,032) (38,390)
---------------------------------
Net cash used in financing activities (185,931) (241,577) (53,716)
---------------------------------
Effect of exchange rate changes on cash (344) (67) (141)
---------------------------------
Net increase (decrease) in cash and cash equivalents (31,389) 12,949 (29,235)
Cash and cash equivalents at beginning of year 92,784 79,835 109,070
CASH AND CASH EQUIVALENTS AT END OF YEAR ---------------------------------
$ 61,395 $ 92,784 $ 79,835
--------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL INFORMATION--CASH PAID:
Interest $ 54,363 $ 57,387 $ 63,999
Income taxes, net of refunds $ 97,393 $ 85,033 $ 73,048
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
21
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YearsEnded June 30 2000 1999 1998
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $ 75,758 $ 80,122 $ 77,040
Issuance of common stock and exercise
of stock options 1,010 2,268 4,328
Purchase of common stock (10,494) (6,632) (1,246)
---------------------------------------------------------------
Balance at end of year 66,274 75,758 80,122
---------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 510,123 508,137 424,298
Net income 113,805 $113,805 127,276 $127,276 141,258 $141,258
Cash dividends declared ($1.23 per share in
2000; $1.18 in 1999; $1.105 in 1998) (36,176) (38,896) (38,841)
Cost of common shares retired in excess of
stated capital amount (88,262) (86,394) (18,578)
---------------------------------------------------------------
Balance at end of year 499,490 510,123 508,137
---------------------------------------------------------------
ACCUMULATED COMPREHENSIVE INCOME:
Balance at beginning of year (46,845) (40,392) (31,745)
Translation adjustments for the year (32,522) (32,522) (9,928) (9,928) (13,298) (13,298)
Allocated income taxes 11,382 11,382 3,475 3,475 4,651 4,651
-------- -------- --------
Total comprehensive income $ 92,665 $120,823 $132,611
---------------------------------------------------------------
Balance at end of year (67,985) (46,845) (40,392)
---------------------------------------------------------------
SHAREHOLDERS' EQUITY AT END OF YEAR $497,779 $539,036 $547,867
-------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING:
(in thousands of shares)
Balance at beginning of year 32,091 34,866 35,139
Issuance of common stock and exercise
of stock options 620 108 269
Purchase of common stock (4,563) (2,883) (542)
---------------------------------------------------------------
Balance at end of year 28,148 32,091 34,866
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
22
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
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings per Share." The Company uses
the weighted average number of common shares outstanding during each period to
compute basic earnings per common share. Diluted 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.
Over the course of the past three years, the Board of Directors of the
Company approved $300 million in stock purchase programs. The Company had
purchased an aggregate of 7,987,714 shares at a total cost of $211,606 by June
30, 2000, and 3,425,161 shares at a cost of $112,850 by June 30, 1999.
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.
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 and 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, 2000 and 1999, was $50.5 and $42.1 million, respectively.
Income Taxes
The Company provides deferred income taxes on temporary differences arising
principally from employee benefit accruals, depreciation, deferred compensation,
undistributed earnings of unconsolidated affiliates, and undistributed earnings
of foreign subsidiaries not permanently reinvested. At June 30, 2000, the
cumulative amount of permanently reinvested earnings of foreign subsidiaries, on
which no provision for U.S. income taxes had been made, was $107 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.
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.
<PAGE>
23
Note 1 continued
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
transactions when they occur. 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 comprehensive income.
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 into U.S. dollars. The remeasurement of local
currencies into U.S. dollars creates remeasurement adjustments that are
included in net income. Exchange losses in 2000, 1999, and 1998 resulting from
foreign currency transactions were $2.1, $4.8 and $3.0 million, respectively
(including $1.6, $2.7 and $1.7 million resulting from remeasurement) and are
included in the respective statements of income.
Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 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, 2000, 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 Restructuring
In the fourth quarter of fiscal year 2000, plans were approved to reduce the
Company's U.S. cost structure including the consolidation of tobacco processing
facilities and a corresponding reduction in the number of employees. The
consolidated statement of income includes an $11 million pretax charge related
to the plans. The charge includes $7 million of severance costs related to 108
employee in purchasing, processing and sales. The non-severance portion of the
charge was for the closure of processing and packing facilities. As of June 30,
2000, total cash payments of approximately $200 thousand had been made to 46
employees. A significant portion of the remaining severance payments will be
made in fiscal year 2001.
<PAGE>
24
Note 3 Income Taxes
Income taxes consist of the following:
YEARS ENDED JUNE 30, 2000 1999 1998
---------------------------------------------------------------------
Current
United States $ (1,904) $(8,096) $17,854
State and local 1,675 1,248 3,482
Foreign 104,347 68,511 59,350
-------------------------------------
104,118 61,663 80,686
Deferred
United States (12,592) 10,603 17,332
State and local 2,351 538 887
Foreign (25,656) 3,159 (246)
------------------------------------
(35,897) 14,300 17,973
---------------------------------------------------------------------
Total $ 68,221 $75,963 $98,659
=====================================================================
A reconciliation of the statutory U.S. federal rate to the effective
income tax rate is as follows:
YEARS ENDED JUNE 30, 2000 1999 1998
---------------------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 1.0 0.5 1.0
Income taxed at other
than the U.S. rate 0.0 0.4 3.8
---------------------------------------------------------------------
Total 36.0% 35.9% 39.8%
=====================================================================
Significant components of deferred tax liabilities and assets were
as follows:
AT JUNE 30, 2000 1999
----------------------------------------------------------------
Liabilities
Undistributed earnings $17,929 $45,916
Tax over book depreciation 13,324 10,603
Goodwill 11,211 9,254
All other 11,275 12,137
----------------------------------------------------------------
Total deferred tax liabilities $53,739 $77,910
----------------------------------------------------------------
Assets
Employee benefit plans $17,839 $14,999
Foreign currency translation 30,359 19,147
Deferred compensation 8,595 6,272
Tax credits 10,493 0
All other 12,250 5,246
----------------------------------------------------------------
Total deferred tax assets $79,536 $45,664
================================================================
The components of income before income taxes and other items consist
of the following:
YEARS ENDED JUNE 30, 2000 1999 1998
----------------------------------------------------------------
United States $(32,707) $ (3,758) $ 43,987
Foreign 222,294 215,543 204,052
----------------------------------------------------------------
Total $189,587 $211,785 $248,039
================================================================
Note 4 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, 2000, unused, uncommitted lines of credit were approximately $800
million. The weighted average interest rate on short-term borrowings outstanding
as of June 30, 2000 and 1999, was approximately 6.7% and 5.7%, respectively.
<PAGE>
25
Note 5 Long-Term Obligations
Long-term obligations consist of the following:
AT JUNE 30, 2000 1999
-----------------------------------------------------------------
6.14% Senior notes payable in
five annual installments from
1996 to August 2000 $ 20,000 $ 40,000
9.25% Medium-term notes
due February 2001 100,000 100,000
6.5% Notes due February 2006 100,000 100,000
8.5% Notes due February 2003 120,000
Other notes due through 2004
at various interest rates 4,285 10,591
-----------------------------------------------------------------
344,285 250,591
Less current portion (121,023) (29,046)
-----------------------------------------------------------------
Long-term obligations $ 223,262 $221,545
=================================================================
The fair value of the Company's long-term obligations was approximately $214
million at June 30, 2000, and $223 million at June 30, 1999. Certain notes are
denominated in local currencies of foreign subsidiaries.
The Company maintains a $270 million revolving credit facility issued in
two tranches of $180 million and $90 million. 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 16.
In a public offering on February 16, 2000, Universal issued $120 million of
8.5% Notes due in February 2003. The proceeds of this issue were used to reduce
short-term bank debt and commercial paper. Upon issuance of the Notes, the
Company entered into interest rate swaps in which it receives fixed rate
interest and pays a floating rate based on LIBOR. The effective interest rate at
June 30, 2000, was 7.67%. The notional amount, maturity and payment dates of the
interest rate swaps match those of the Notes. At June 30, 2000, the fair value
of the swaps was immaterial. The differential to be paid or received as interest
rates change is accrued and recognized as an adjustment to interest expense. It
is not expected that the adoption of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," with
respect to these swaps will materially affect the consolidated financial
position or results of operations.
Under certain of the debt agreements, the Company must meet financial
covenants relating to minimum tangible net worth, working capital, and
restrictions on the issuance of long-term debt. The Company was in compliance
with all such covenants at June 30, 2000 and 1999.
Maturity of long-term debt for the fiscal years succeeding June 30, 2000,
are as follows:2001--$121,023; 2002--$2,522; 2003--$120,385; 2004--$355; 2005--
$0; 2006 and after--$100,000.
In August 2000, the Company filed a registration statement on Form S-3 to
register $400 million of debt securities, which could be issued as short-term or
long-term debt.
Note 6 Pension Plans and Postretirement Benefits
The Company has 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.
The Company provides postretirement health and life insurance benefits for
eligible U.S. employees attaining specific age and service requirements. The
health benefits are funded by the Company as the costs of the benefits are
incurred and contain cost-sharing features such as deductibles and coinsurance.
The Company funds the life insurance benefits with deposits to a retired life
reserve account held by an insurance company. The Company reserves the right to
amend or discontinue these benefits at any time.
Assumptions used for financial reporting purposes to compute net benefit
income or cost and benefit obligations, as well as the components of net
periodic benefit income or cost are as follows:
<PAGE>
26
Note 6 continued
<TABLE>
<CAPTION>
Foreign Pension Benefits Domestic Pension Benefits Other Postretirement Benefits
(APRIL 30 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1998 2000 1999 1998 2000 1999 1998
Assumptions:
Discount rate, end of year 5.00% 5.00% 6.00% 7.50% 6.75% 6.75% 7.50% 6.75% 6.75%
Rate of compensation
increases, end of year 5.50% 5.50% 5.50% 5.00% 5.00% 5.50% 5.00% 5.00% 5.50%
Expected long-term return
on plan assets, during the year 5.00% 5.00% 6.00% 8.75% 8.75% 8.75% 4.30% 4.30% 4.30%
Rate of increase in
per-capita cost of covered
health care benefits 9.00% 9.50% 9.50%
Components of net periodic benefits
Cost (Income):
Service cost $ 3,425 $ 3,118 $ 3,192 $ 4,899 $ 4,483 $ 3,481 $ 1,045 $ 1,095 $ 766
Interest cost 5,748 6,052 6,025 9,644 8,872 8,004 2,679 2,651 2,861
Expected return on plan assets (4,942) (9,386) (5,903) (9,416) (8,545) (8,048) (171) (165) (165)
Net amortization and deferral (1,884) 2,860 (438) 2,137 1,245 974 (3,059) (3,059) (3,059)
-----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 2,347 $ 2,644 $ 2,876 $ 7,264 $ 6,055 $ 4,411 $ 494 $ 522 $ 403
=============================================================================================================================
</TABLE>
The following tables reconcile the changes in benefit obligations and plan
assets in 2000 and 1999, and reconcile the funded status to prepaid or accrued
cost at June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Foreign Pension Benefits Domestic Pension Benefits Other Postretirement Benefits
(APRIL 30 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE)
2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in projected benefit obligation:
Benefit obligation,
beginning of year $111,174 $100,325 $146,446 $134,773 $40,914 $39,933
Service cost 3,425 3,118 4,899 4,483 1,045 1,095
Interest cost 5,748 6,052 9,644 8,872 2,679 2,651
Effect of discount rate change 11,687 (12,844)
Foreign currency exchange rate changes (14,932) (2,407)
Other 1,147 (2,281) (858) 5,338 (3,356) (646)
Benefits paid (5,533) (5,320) (8,087) (7,020) (2,172) (2,119)
-----------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation, end of year $101,029 $111,174 $139,200 $146,446 $39,110 $40,914
=============================================================================================================================
</TABLE>
<PAGE>
27
Note 6 continued
<TABLE>
<CAPTION>
Foreign Pension Benefits Domestic Pension Benefits Other Postretirement Benefits
(APRIL 30 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE)
2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in plan assets:
Plan assets at fair value,
beginning of year $106,307 $103,352 $122,987 $124,480 $ 4,493 $ 3,846
Actual return on plan assets 2,685 9,602 15,694 2,561 208 185
Employer contributions 4,015 2,780 4,128 2,966 2,192 2,581
Foreign currency exchange rate changes (13,861) (4,107)
Benefits paid (5,533) (5,320) (8,087) (7,020) (2,172) (2,119)
-----------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value, end of year $ 93,613 $106,307 $134,722 $122,987 $ 4,721 $ 4,493
=============================================================================================================================
Reconciliation of prepaid (accrued) cost:
Funded status of the plans $ (7,416) $ (4,867) $(4,478) $(23,459) $(34,389) $(36,421)
Contributions after measurement date 720 786
Unrecognized net transition
(asset) obligation (1,656) (2,392) (253) (782)
Unrecognized prior service cost 4,794 5,487
Unrecognized gain on plan amendment (3,763) (6,822)
Unrecognized net (gain) loss 7,009 4,775 (4,645) 16,987 (3,143) 262
Additional minimum liability (4,835) (6,176)
-----------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) cost, end of year $ (2,063) $ (2,484) $(8,697) $ (7,157) $(41,295) $(42,981)
=============================================================================================================================
</TABLE>
Prepaid pension costs of $8.8 million and $6.9 million at June 30, 2000 and 1999
are included in other noncurrent assets; accrued pension costs of $19.6 million
and $16.5 million were included in long-term liabilities at June 30, 2000 and
1999.
The accumulated postretirement benefit obligation cost trend rate is
assumed to decrease gradually from 9.0% in 2000 to 6.0% for fiscal year 2006. A
one percentage point increase in the assumed health care cost trend would
increase the accumulated benefit obligation by approximately $1.6 million and
the aggregate of the service and interest cost components of the net periodic
postretirement benefit expense for the fiscal year by approximately $129
thousand. A one percentage point decrease in the assumed health care cost trend
would decrease the accumulated benefit obligation by approximately $1.4 million
and the aggregate of the service and interest cost components of the net
periodic postretirement benefit expense for the fiscal year by approximately
$114 thousand.
Amounts included in the table above, which are applicable to the Company's
pension plans with benefit obligations in excess of plan assets are as follows:
Foreign 2000 1999
------------------------------------------------------------------
Projected benefit obligation $ 9,819 $ 8,559
Accumulated benefit obligation 8,671 8,678
Fair value of plan assets 4,207 3,657
Domestic 2000 1999
------------------------------------------------------------------
Projected benefit obligation $23,715 $23,337
Accumulated benefit obligation 14,216 11,644
Fair value of plan assets 0 0
==================================================================
<PAGE>
28
Note 7 Share Purchase Rights Plan
In 1999, 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 1/200 of a share of Series A Junior Participating
Preferred Stock ("Preferred Stock") at an exercise price of $110, subject to
adjustment. The rights will become exercisable only if a person or group
acquires or announces a tender offer for 15% or more of the Company's
outstanding shares of common stock. Under certain circumstances, the Board of
Directors may reduce this threshold percentage to not less than 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 or 1/200 of a
share of Preferred 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, 2009.
Note 8 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, 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 plans become exercisable either one
year or six months after the date of grant. Options that become exercisable six
months after the date of grant qualify for reload options, which are also
exercisable six months after the date of grant. Most options expire ten years
after the date of grant.
A summary of the Company's stock option activity and related information
for the fiscal year ended June 30 follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- ------------------------ -----------------------
Average Average Average
Exercise Exercise Exercise
YEARS ENDED JUNE 30, Shares Price Shares Price Shares Price
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,700,999 $35.85 1,792,804 $34.55 1,224,473 $25.86
Granted 1,591,500 22.43 265,630 32.79 1,239,978 38.10
Exercised (618,000) 18.69 (357,435) 27.05 (671,647) 25.27
Outstanding, end of year 2,674,499 31.83 1,700,999 35.85 1,792,804 34.55
Exercisable 2,329,999 32.89 1,666,230 36.00 1,534,783 34.42
Available for grant 3,018,969 4,612,569 4,872,599
</TABLE>
Of those available for future grant: 2,920,279; 2,920,279; and 3,188,167 for
2000, 1999, and 1998, respectively, are reload options.
<PAGE>
29
Note 8 continued
The following table summarizes information concerning currently outstanding and
exercisable options as of June 30, 2000:
<TABLE>
<CAPTION>
Range of Exercise Prices, per Share $10 - $20 $ 20 - $30 $ 30 - $40 $40 - $50
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For options outstanding:
Number outstanding 4,842 1,152,423 1,401,077 116,157
Weighted average remaining contractual life 0.5 6.1 7.7 7.5
Weighted average exercise price, per share $ 11.06 $ 24.84 $ 36.96 $ 40.19
For options exercisable:
Number exercisable 4,842 807,923 1,401,077 116,157
Weighted average exercise price, per share $ 11.06 $ 24.90 $ 36.96 $ 40.19
</TABLE>
Certain potentially dilutive securities outstanding at June 30, 2000, 1999 and
1998, were not included in the computation of earnings per share, assuming
dilution, since their exercise prices were greater than the average market price
of the common shares during the period and, accordingly, their effect is
antidilutive. These shares totaled 2.67 million at a weighted-average exercise
price of $32.48 per share for 2000; 1.61 million shares at a weighted-average
exercise price of $37.75 per share in 1999; and 900 thousand shares at a
weighted-average exercise price of $40.90 per share in 1998.
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 2000, 1999 and 1998 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
$2.0 million or $.07 per share in 2000; $2.0 million or $.06 per share in 1999;
and $6.4 million or $.18 per share in 1998. 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.
The Black-Scholes option valuation model was used to estimate the fair
value of the options granted in fiscal year 2000, 1999 and 1998. 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 Plans have 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 along with the
results from the model were as follows:
YEARS ENDED JUNE 30, 2000 1999 1998
--------------------------------------------------------------------------
Assumptions:
Risk-free interest rate 6.26% 5.72% 5.83%
Expected life, in years 4.00 4.11 5.02
Expected volatility .324 .299 .298
Expected dividend yield 5.87% 4.22% 3.15%
Results:
Fair value of options granted $4.93 $7.08 $9.88
<PAGE>
30
Note 9 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, 2000, 1999, and 1998, one customer
accounted for revenues of $1.3 billion, $1.7 billion, and $1.7 billion,
respectively.
The Company provides guarantees for seasonal pre-export crop financing for
some of its subsidiaries and unconsolidated affiliates. In addition, certain
subsidiaries provide guarantees that ensure that value-added taxes will be
repaid if the crops are not exported. At June 30, 2000, total exposure under
guarantees issued for banking facilities of unconsolidated affiliates and
suppliers was approximately $53 million. Other contingent liabilities
approximate $30 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 contingent liabilities, including penalties and interest,
approximate $23 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 unsecured 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. 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):
AT JUNE 30, 2000 1999
----------------------------------------------------------------
Tobacco $ 226 $ 184
Lumber and building products 78 87
Agri-products 55 55
----------------------
$ 359 $ 326
================================================================
Note 10 Segment Information
In 1999, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information."
Prior-period amounts have been restated in accordance with the requirements of
the new standard.
The standard requires reporting information regarding operating segments on
the basis used internally by management to evaluate segment performance.
Segments are based on product categories. The Company evaluates performance
based on operating income and equity in pretax earnings of unconsolidated
affiliates.
The accounting policies of the segments are the same as those described in
Note 1. Sales between segments are insignificant. Sales and other operating
revenues are attributable to individual countries based on the location of the
subsidiary.
Equity in pretax earnings of unconsolidated affiliates relates primarily to
the tobacco segment.
Reportable segments are as follows:
Tobacco
Selecting, buying, shipping, processing, packing, storing, and financing leaf
tobacco in 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.
<PAGE>
31
Note 10 continued
<TABLE>
<CAPTION>
REPORTABLE SEGMENT DATA Sales and Other Operating Revenues Operating Income
----------------------------------- ---------------------------
YEARS ENDED JUNE 30, 2000 1999 1998 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tobacco $2,372,851 $2,944,762 $3,193,413 $223,471 $240,561 $272,031
Lumber and building products 543,850 547,794 550,901 26,029 24,427 20,361
Agri-products 485,268 512,347 542,890 14,403 17,538 18,852
-------------------------------------------------------------------------
Total segments 3,401,969 4,004,903 4,287,204 263,903 282,526 311,244
Corporate expenses (17,447) (13,904) (15,949)
Equity in pretax earnings of
unconsolidated affiliates (12,532) (14,066) (16,901)
-------------------------------------------------------------------------
Consolidated total $3,401,969 $4,004,903 $4,287,204 $233,924 $254,556 $278,394
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Segment Assets Depreciation and Amortization Capital Expenditures
----------------------------------- ----------------------------- --------------------------
YEARS ENDED JUNE 30, 2000 1999 1998 2000 1999 1998 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tobacco $1,363,424 $1,411,221 $1,557,825 $42,077 $42,459 $41,516 $51,330 $56,111 $89,407
Lumber and
building products 228,531 255,333 267,365 7,800 8,180 7,466 5,355 11,096 4,890
Agri-products 153,667 153,811 171,175 2,145 2,123 2,089 4,152 1,947 2,423
-----------------------------------------------------------------------------------------------------
Total segments 1,745,622 1,820,365 1,996,365 52,022 52,762 51,071 60,837 69,154 96,720
Corporate 2,482 2,758 2,137
-----------------------------------------------------------------------------------------------------
Consolidated total $1,748,104 $1,823,123 $1,998,502 $52,022 $52,762 $51,071 $60,837 $69,154 $96,720
=================================================================================================================================
</TABLE>
GEOGRAPHIC DATA (FOR YEARS ENDED JUNE 30)
<TABLE>
<CAPTION>
Sales and Other Operating Revenues 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
United States $1,594,835 $2,081,159 $2,146,575
The Netherlands 704,194 782,496 827,528
All other countries 1,102,940 1,141,248 1,313,101
----------------------------------------------------------
Consolidated total $3,401,969 $4,004,903 $4,287,204
<CAPTION>
Long-Lived Assets 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 213,842 $ 209,422 $ 206,866
The Netherlands 69,411 82,033 78,543
Brazil 77,110 75,563 76,869
All other countries 188,939 190,289 158,026
----------------------------------------------------------
Consolidated total $ 549,302 $ 557,307 $ 520,304
=================================================================================================================
</TABLE>
<PAGE>
32
Note 11 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.
Note 12 Unaudited Quarterly Financial Data
Due to the seasonal nature of the tobacco, lumber and building products, and
agri-products businesses, it is always more meaningful to focus on cumulative
rather than quarterly results.
<TABLE>
<CAPTION>
First Second Third Fourth
YEARS ENDED JUNE 30, Quarter Quarter Quarter Quarter
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $782,988 $1,032,453 $1,001,207 $585,321
Sales and other operating revenues 129,459 148,648 160,326 159,579
Gross profit 29,502 26,148 38,458 19,697
Net income .93 .85 1.29 .69
Net income per common share-Basic .93 .85 1.29 .69
Net income per common share-Diluted .30 .31 .31 .31
Cash dividends declared per common share
31 26 1/2 23 15/16 24 13/16
Market price range: High 25 1/8 20 3/4 13 9/16 16
Low
1999 $879,285 $1,297,719 $1,222,814 $605,085
Sales and other operating revenues 136,584 168,532 142,752 162,616
Gross profit 27,057 41,424 29,354 29,441
Net income 0.79 1.23 0.88 0.91
Net income per common share-Basic 0.78 1.23 0.88 0.91
Net income per common share-Diluted 0.28 0.30 0.30 0.30
Cash dividends declared per common share
38 3/4 38 1/16 34 11/16 28 13/16
Market price range: High 31 1/2 32 15/16 25 9/16 23 7/8
Low
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of fiscal years 2000 and 1999, the Company recorded
approximately $7 million and $6 million, respectively, in charges related to
tobacco inventory.
In the fourth quarter of fiscal year 2000, the Company
recorded a $11 million ($7 million net of tax) charge for restructuring.
<PAGE>
33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Universal Corporation:
We have audited the accompanying consolidated balance sheets of Universal
Corporation and subsidiaries as of June 30, 2000 and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Richmond, Virginia
August 10, 2000
<PAGE>
34
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.
/s/ Hartwell H Roper
Hartwell H. Roper
Vice President and Chief Financial Officer
August 10, 2000
<PAGE>
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
For the three years ended June 30, 2000 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>
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to the caption, "Election of Directors" in the September 22, 2000 Proxy
Statement which information is incorporated herein by reference. The following
are Executive Officers as of September 22, 2000.
Name Position Age
---- -------- ---
H. H. Harrell Chairman and Chief 61
Executive Officer
A. B. King President and Chief 54
Operating Officer
H. H. Roper Vice President and 52
Chief Financial Officer
W. L. Taylor Vice President and 59
Chief Administrative Officer
D.G. Cohen Tervaert Co-President and Co-Chairman of 47
the Board of Deli Universal, Inc.
J. M. M. van de Winkel Co-President and Co-Chairman of 51
the Board of Deli-Universal, Inc.
J. M. White, III Vice President, Secretary and 61
General Counsel
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 D.G Cohen Tervaert was President
and Chairman of Deli Universal, Inc. prior to August 1998, J.M.M. van de Winkel
was Executive Vice President and Vice Chairman of Deli Universal, Inc. prior to
August 1998 and J.M. White, III was Secretary and General Counsel of Universal
Corp. prior to October 1999.
<PAGE>
37
ITEM 11. EXECUTIVE COMPENSATION
Refer to the caption, "Executive Compensation," in the Company's September 22,
2000 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 22, 2000
Proxy Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the caption, "Certain Transactions" in the Company's September 22, 2000
Proxy Statement, which information is incorporated herein by reference.
<PAGE>
38
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,
2000, 1999 and 1998
Consolidated Balance Sheets at June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the years ended June
30, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements for the years
ended June 30, 2000, 1999 and 1998
Report of Ernst & Young LLP, Independent Auditors
(2) Financial Statement Schedules: None
(3) List of Exhibits:
3.1 Amended and Restated Articles of Incorporation (incorporated
herein by reference to the Registrant's Form 8-A
Registration Statement, dated December 22, 1998, File No.1-
652).
3.2 Bylaws.*
4.1 Indenture between the Registrant and Chemical Bank, as
trustee (incorporated herein by reference to Registrant's
Current Report on Form 8-K, dated February 25, 1991, File
No. 1-652).
4.2 Form of Fixed Rate Medium-Term Note, Series A (incorporated
herein by reference to the Registrant's Current Report on
Form 8-K, dated February 25,1991, File No. 1-652).
4.3 Form of 9 1/4% Note due February 15, 2001 (incorporated
herein by reference to the Registrant's Current Report on
Form 8-K, dated February 25, 1991, File No. 1-652).
4.4 Rights Agreement, dated as of December 3, 1998, between the
Registrant and Wachovia Bank, N.A., as Rights Agent
(incorporated herein by reference to the Registrant's
Current Report on Form 8-K, dated December 3, 1998, File No.
1-652).
4.5 First Amendment to the Rights Agreement, dated as of April
23, 1999, between the Registrant, Wachovia
<PAGE>
39
Bank, N.A., as Rights Agent, and Norwest Bank Minnesota,
N.A., as Successor Rights Agent (incorporated herein by
reference to the Registrant's Current Report on Form 8-K,
dated May 7, 1999, File No. 1-652).
4.6 Specimen Common Stock Certificate (incorporated herein by
reference to the Registrant's Amendment No. 1, dated May 7,
1999, to Registrant's Form 8-A Registration Statement dated
December 22, 1998, File No. 1-652).
4.7 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).
4.8 Form of 8.5% Note due February 2003.*
The Registrant, by signing this Report on Form 10-K, agrees
to furnish the Securities and Exchange Commission, upon its
request, a copy of any instrument which defines the rights
of holders of long-term debt of the Registrant and its
consolidated subsidiaries, and for any unconsolidated
subsidiaries for which financial statements are required to
be filed 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).
10.2 Universal Leaf Tobacco Company, Incorporated Supplemental
Stock Purchase Plan, (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 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).
<PAGE>
40
10.4 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).
10.5 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).
10.6 Universal Leaf Tobacco Company, Incorporated 1996 Benefit
Restoration Plan (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K, dated September
25, 1998, File No. 1-652).
10.7 Universal Corporation 1989 Executive Stock Plan, as amended
on December 2, 1999 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, File No. 1-652).
10.8 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).
10.9 Amendment to Universal Corporation 1991 Stock Option and
Equity Accumulation Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992, File No. 1-652).
10.10 Universal Leaf Tobacco Company, Incorporated 1994 Deferred
Income Plan, amended and restated as of September 1, 1998
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 1-652).
10.11 Universal Corporation Outside Directors' 1994 Deferred
Income Plan, restated as of October 1, 1998 (incorporated
herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File
No. 1-652).
10.12 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).
<PAGE>
41
10.13 Universal Corporation 1994 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, 1994, File No. 1-652).
10.14 Universal Corporation 1994 Amended and Restated 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, 1998, File
No. 1-652).
10.15 Universal Corporation Non-Employee Director Non-Qualified
Stock Option Agreement.*
10.16 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).
10.17 First Amendment to the Universal Leaf Tobacco Company,
Incorporated Benefit Restoration Trust, dated January 12,
1999, between Universal Leaf Tobacco Company, Incorporated
and Wachovia Bank, N.A., as trustee (incorporated herein
by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998, File No. 1-652).
10.18 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).
10.19 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).
10.20 Form of Universal Corporation Non-Employee Director
Restricted Stock Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1998, File No. 1-
652).
10.21 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).
10.22 Employment Agreement (dated January 15, 1998 between
<PAGE>
42
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).
10.23 364-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).
10.24 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).
10.25 Universal Corporation Charitable Award Program
(incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June
30, 1998, File No. 1-652).
10.26 Universal Corporation 1997 Executive Stock Plan, as
amended on December 2, 1999(incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1999, File No. 1-
652).
10.27 1997 Non-Qualified Stock Option Agreement between Deli
Universal, Inc. and J. M. M. van de Winkel (incorporated
herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998, File
No. 1-652).
10.28 Form of Universal Corporation 1999 Stock Option and Equity
Accumulation Agreement, with Schedule of Grants to
Executive Officers(incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, File No. 1-652).
10.29 Form of Universal Corporation Stock Option and Equity
Accumulation Agreements(incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999, File No. 1-652).
10.30 Form of Universal Corporation 2000 Special Non-Qualified
Stock Option Agreement, with Schedule of Grants and
Exercise Loans to Executive Officers.*
12 Ratio of Earnings to Fixed Charges*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.*
<PAGE>
43
27 Financial Data Schedule.*
* Filed herewith.
(b) Reports on Form 8-K
1. Form 8-K filed July 27, 2000 filing press release announcing earnings
expectations.
2. Form 8-K filed May 8, 2000 filing press release announcing third
quarter earnings.
(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>
44
SIGNATURES
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 26, 2000
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.
/s/ Henry H. Harrell Chairman, Chief Executive September 26, 2000
------------------------- Officer and Director ------------------
Henry H. Harrell (Principal Executive Officer)
/s/ Allen B. King President, Chief Operating September 26, 2000
------------------------- Officer and Director ------------------
Allen B. King
/s/ Hartwell H. Roper Vice President and September 26, 2000
------------------------- Chief Financial Officer ------------------
Hartwell H. Roper
/s/ William J. Coronado Controller (Principal September 26, 2000
------------------------- Accounting Officer) ------------------
William J. Coronado
/s/ William W. Berry Director September 26, 2000
------------------------- ------------------
William W. Berry
/s/ Charles H. Foster, Jr. Director September 26, 2000
-------------------------- ------------------
Charles H. Foster, Jr.
/s/ Eddie N. Moore, Jr. Director September 26, 2000
-------------------------- ------------------
Eddie N. Moore, Jr.
/s/ Joseph C. Farrell Director September 26, 2000
-------------------------- ------------------
Joseph C. Farrell
/s/ Hubert R. Stallard Director September 26, 2000
-------------------------- ------------------
Hubert R. Stallard
<PAGE>
45
EXHIBIT INDEX
Exhibit
Number Document
------- --------
3.1 Amended and Restated Articles of Incorporation (incorporated
herein by reference to the Registrant's Form 8-A
Registration Statement, dated December 22, 1998, File No.1-
652).
3.2 Bylaws.*
4.1 Indenture between the Registrant and Chemical Bank, as
trustee (incorporated herein by reference to Registrant's
Current Report on Form 8-K, dated February 25, 1991, File
No. 1-652).
4.2 Form of Fixed Rate Medium-Term Note, Series A (incorporated
herein by reference to the Registrant's Current Report on
Form 8-K, dated February 25,1991, File No. 1-652).
4.3 Form of 9 1/4% Note due February 15, 2001 (incorporated
herein by reference to the Registrant's Current Report on
Form 8-K, dated February 25, 1991, File No. 1-652).
4.4 Rights Agreement, dated as of December 3, 1998, between the
Registrant and Wachovia Bank, N.A., as Rights Agent
(incorporated herein by reference to the Registrant's
Current Report on Form 8-K, dated December 3, 1998, File No.
1-652).
4.5 First Amendment to the Rights Agreement, dated as of April
23, 1999, between the Registrant, Wachovia Bank, N.A., as
Rights Agent, and Norwest Bank Minnesota, N.A., as
Successor Rights Agent (incorporated herein by reference to
the Registrant's Current Report on Form 8-K, dated May 7,
1999, File No. 1-652).
4.6 Specimen Common Stock Certificate (incorporated herein by
reference to the Registrant's Amendment No. 1, dated May 7,
1999, to Registrant's Form 8-A Registration Statement dated
December 22, 1998, File No. 1-652).
4.7 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).
<PAGE>
46
4.8 Form of 8.5% Note due February 2003.*
The Registrant, by signing this Report on Form 10-K, agrees
to furnish the Securities and Exchange Commission, upon its
request, a copy of any instrument which defines the rights
of holders of long-term debt of the Registrant and its
consolidated subsidiaries, and for any unconsolidated
subsidiaries for which financial statements are required to
be filed 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).
10.2 Universal Leaf Tobacco Company, Incorporated Supplemental
Stock Purchase Plan, (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 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).
10.4 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).
10.5 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).
10.6 Universal Leaf Tobacco Company, Incorporated 1996 Benefit
Restoration Plan (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K, dated September
25, 1998, File No. 1-652).
10.7 Universal Corporation 1989 Executive Stock Plan, as amended
on December 2, 1999 (incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, File No. 1-652).
10.8 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).
10.9 Amendment to Universal Corporation 1991 Stock Option and
Equity Accumulation Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1992, File No. 1-652).
10.10 Universal Leaf Tobacco Company, Incorporated 1994 Deferred
Income Plan, amended and restated as of September 1, 1998
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 1-652).
10.11 Universal Corporation Outside Directors' 1994 Deferred
Income Plan, restated as of October 1, 1998 (incorporated
herein by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998, File
No. 1-652).
<PAGE>
47
10.12 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).
10.13 Universal Corporation 1994 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, 1994, File No. 1-652).
10.14 Universal Corporation 1994 Amended and Restated 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, 1998, File
No. 1-652).
10.15 Universal Corporation Non-Employee Director Non-Qualified
Stock Option Agreement.*
10.16 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).
10.17 First Amendment to the Universal Leaf Tobacco Company,
Incorporated Benefit Restoration Trust, dated January 12,
1999, between Universal Leaf Tobacco Company, Incorporated
and Wachovia Bank, N.A., as trustee (incorporated herein
by reference to Registrant's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998, File No. 1-652).
10.18 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).
10.19 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).
10.20 Form of Universal Corporation Non-Employee Director
Restricted Stock Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1998, File No. 1-
652).
10.21 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).
10.22 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).
<PAGE>
48
10.23 364-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).
10.24 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).
10.25 Universal Corporation Charitable Award Program
(incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June
30, 1998, File No. 1-652).
10.26 Universal Corporation 1997 Executive Stock Plan, as
amended on December 2, 1999(incorporated herein by
reference to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended December 31, 1999, File No. 1-
652).
10.27 1997 Non-Qualified Stock Option Agreement between Deli
Universal, Inc. and J. M. M. van de Winkel (incorporated
herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998, File
No. 1-652).
10.28 Form of Universal Corporation 1999 Stock Option and Equity
Accumulation Agreement, with Schedule of Grants to
Executive Officers(incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999, File No. 1-652).
10.29 Form of Universal Corporation Stock Option and Equity
Accumulation Agreements(incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999, File No. 1-652).
10.30 Form of Universal Corporation 2000 Special Non-Qualified
Stock Option Agreement, with Schedule of Grants and
Exercise Loans to Executive Officers.*
12 Ratio of Earnings to Fixed Charges*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.*
27 Financial Data Schedule.*
* Filed herewith.
