FORM 10−K
UNIVERSAL CORP /VA/ − UVV
Filed: September 16, 2003 (period: June 30, 2003)
Annual report which provides a comprehensive overview of the company for the past year
Table of Contents
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant s Common Equity and Related Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8−K
SIGNATURES
EXHIBIT INDEX
EX−10.7 (Material contracts)
EX−10.23 (Material contracts)
EX−10.36 (Material contracts)
EX−10.37 (Material contracts)
EX−10.38 (Material contracts)
EX−12 (Statement regarding computation of ratios)
EX−21 (Subsidiaries of the registrant)
EX−23 (Consents of experts and counsel)
EX−31.1
EX−31.2
EX−32.1
EX−32.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10−K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2003
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
UNIVERSAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
1501 North Hamilton Street,
Richmond, Virginia 23230
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, no par value
Preferred Share Purchase Rights
54−0414210
(I.R.S. Employer
Identification Number)
804−359−9311
(Registrant’s telephone number)
Name of each exchange on
which registered
New York Stock Exchange
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
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.
Indicate by “X” mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b−2). Yes
No
The aggregate market value of the registrant’s voting common stock held by non−affiliates was approximately $806 million at December 31, 2002. As of
September 8, 2003, the total number shares of common stock outstanding was 24,980,847.
Certain information contained in the September 23, 2003 Proxy Statement for the Annual Meeting of Shareholders of registrant is incorporated by reference into
Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
Item 1. Business
A. The Company
PART I
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 operations in agri−products and the distribution of lumber and building products. The Company’s consolidated revenues and total segment
operating income were approximately $2.6 billion and $275 million, respectively, in fiscal year 2003. 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, 2003, tobacco operations accounted for 60% of revenues and 85% of
segment operating income. In fiscal year 2003, Universal’s agri−products operations accounted for 17% of revenues and 4% of segment operating income.
Lumber and building products accounted for 23% of revenues and 11% of segment operating income in the same period. Universal conducts its operations in
numerous foreign countries. In fiscal year 2003, approximately 33% and 28% of the Company’s revenue was recognized in the United States and the
Netherlands, respectively. At June 30, 2003, approximately 44% of Universal’s long−lived assets were in the United States, approximately 21% were in the
Netherlands, and approximately 13% were in Brazil. See Note 10 of “Notes to Consolidated Financial Statements” for additional business segment and
geographical information.
Universal Corporation is a holding company that operates through numerous directly and indirectly owned subsidiaries. The Company’s two primary subsidiaries
are Universal Leaf Tobacco Company, Incorporated (“Universal Leaf”) and Deli Universal, Inc. (“Deli”). The Company’s tobacco business is generally
conducted through Universal Leaf, and the Company’s non−tobacco business is generally conducted through Deli, although Deli also owns some minor tobacco
business interests and approximately 10% of Universal Leaf’s major tobacco operations in Brazil. See Exhibit 21 of “Subsidiaries of the Registrant” for
additional subsidiary information.
The Company’s business strategy is to enhance shareholder value by achieving several key objectives:
•
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Management believes that it is essential that the Company operate as one entity worldwide with strong local management in major leaf tobacco source
markets.
In order to achieve growth in the current market for leaf tobacco, the Company will continue to foster strategic alliances with its customers to the
benefit of all parties. These alliances with major manufacturers are, in management’s opinion, especially appropriate to the leaf tobacco industry
where volume is a key factor in long−term profitability. Alliances also permit the optimization of the Company’s inventory levels to reduce risk of
loss during market downturns by enabling the Company to buy only the tobacco that a customer has indicated it wants.
Management will focus on increasing market share in traditional tobacco growing areas while continuing to find additional sources of export quality
tobacco.
The Company will strive to maintain diversified sources of leaf tobacco supply to minimize reliance on any one area. Historically, North America,
South America, and Africa each have provided between 20% and 30% of the aggregate volume of flue−cured and burley tobacco that Universal
handles. However, because of the decline in Zimbabwe crops, South
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America provided about 40% of the aggregate volume that Universal handled in fiscal year 2003. The Company is working to increase supply from
other sources.
The Company will strive to maintain a large presence in the major exporting markets for flue−cured and burley tobaccos in order to properly supply
its customers, many of whom are large manufacturers of tobacco products. Universal has usually purchased between 25% and 30% of such Brazilian
tobaccos and between 35% and 45% of such African tobacco. These percentages can change from one year to another with the size, price, and quality
of the crops. The Company also has major processing facilities in the United States, which normally process between 35% and 45% of U.S.
flue−cured and burley tobacco production.
Management will strive to maintain the Company’s financial strength including its current “investment grade” rating by Moody’s Investor Service
(Baa1) and Standard & Poor’s (A–).
The Company will develop its non−tobacco businesses in niche markets where it can add value and be a market leader.
•
•
•
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.”
The Company’s website address is www.universalcorp.com. On its website, the Company posts the following filings as soon as reasonably practicable after they
are electronically filed with or furnished to the Securities and Exchange Commission: annual reports on Form 10−K, quarterly reports on Form 10−Q, current
reports on Form 8−K, and Section 16 reports on Forms 3, 4 and 5, and any amendments to those reports filed with or furnished to the Securities and Exchange
Commission. All such filings on the Company’s website are available free of charge. Information on the Company’s website is not deemed to be incorporated by
reference into this Form 10−K.
B. Description of Tobacco Business
General
Universal’s tobacco business includes selecting, buying, shipping, processing, packing, storing, and financing of leaf tobacco in tobacco growing countries for
sale to, or for the account of, 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 sale of oriental tobacco through ownership of a 49% equity interest in what management believes to
be the largest oriental tobacco leaf merchant in the world, Socotab, L.L.C. According to industry sources, worldwide cigarette consumption increased, on
average, about 0.7% per year during the ten years that ended in 2002. During the same ten−year period, American−blend cigarette consumption increased about
1.2% per year, a faster growth rate than total world consumption, as the popularity of this style of cigarettes increased. Management believes that
American−blend consumption will continue to increase as a percent of the world total, which will increase demand for flavorful flue−cured and burley leaf from
areas where the Company sources tobacco. In addition, the growth of
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American−blend cigarette consumption will increase demand for oriental leaf tobacco, which is sold by Socotab L.L.C. 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 because tobacco is a perishable material. 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 generally requires investment in plants and machinery in areas where the tobacco is grown.
Universal believes it has a leading presence as a purchaser and processor in the major exporting regions for flue−cured and burley tobacco. The Company also
has a major presence in the United States in processing flue−cured and burley tobacco. 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
operations in all of the major source areas, its development of processing equipment and technologies, its financial position, its ability to meet customer demand,
and its long−standing relationships with customers. Universal also has a leading position in worldwide dark tobacco markets. Its dark tobacco operations are
located in most of the major producing countries (i.e., the United States, the Dominican Republic, Indonesia, and Brazil) and other markets. Dark tobaccos are
typically used in the manufacture of cigars, pipe tobacco, and smokeless tobacco products.
Sales are made by Universal’s sales force and, to a lesser degree, through the use of commissioned agents. Most customers are long−established tobacco product
manufacturers.
Universal purchases tobaccos in the United States directly from farmers under contract and is represented by its buyers on selected U.S. auction markets for
flue−cured, light air−cured (burley and Maryland), air−cured, dark fired, and dark air−cured tobaccos. The Company sells processed U.S. tobacco to several
foreign cigarette manufacturers. The Company also processes U.S. flue−cured and burley tobacco for Philip Morris USA Inc. pursuant to a non−exclusive
ten−year contract executed in May 2001.
In the United States, flue−cured and burley tobacco crops were traditionally sold at public auction, but these markets have undergone a fundamental change in
recent years. The U.S. Department of Agriculture has reported that, during the Company’s fiscal year 2003, nearly 80% of U.S. flue−cured tobacco and nearly
75% of the U.S. burley tobacco crops were sold pursuant to contracts with farmers. Management expects that comparable portions of those crops will be sold
under contract for the foreseeable future. Under the current U.S. contract system, purchasers generally buy a farmer’s entire tobacco crop. The shift to contract
purchasing in the United States has changed the risk characteristics of the U.S. flue−cured and burley tobacco markets for tobacco purchasers by increasing the
possibility of accumulation of inventories of grades of tobacco that customers do not desire. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Other Information Regarding Trends and Management’s Actions.”
The export market for U.S. tobacco continues to decline. The price of U.S. flue−cured and burley 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 much 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
4
marketing system, relative costs of production, and relative leaf quality. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Other Information Regarding Trends and Management’s Actions.”
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, 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, Uganda, the United Kingdom, Zambia, and
Zimbabwe. In addition, Socotab, L.L.C. has oriental tobacco operations in Bulgaria, Greece, Macedonia, and Turkey.
In the majority of countries where Universal operates, including Argentina, Brazil, Guatemala, Hungary, Italy, Mozambique, Mexico, Tanzania, the United
States, and Zambia, the Company contracts directly with tobacco farmers, in most cases before harvest, and thereby takes the risk that the delivered quality and
quantity will not meet market requirements. 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, India and the United States, is purchased under an auction system. The Company has substantial capital
investments in South America, particularly Brazil, and sub−Saharan 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 in Zimbabwe, which continues to experience political and
economic unrest. If the political situation in Zimbabwe were to deteriorate significantly, the Company’s ability to recover its assets there could be impaired. The
Company’s equity in its net assets of subsidiaries in Zimbabwe was $61 million at June 30, 2003. To the extent that the Company could not replace lost volumes
of tobacco with tobacco from other sources, its results of operations would suffer. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Factors that May Affect Future Results.”
Universal’s foreign operations are subject to 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 reducing 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
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
Universal’s tobacco operations are seasonal in nature. Farmers begin to sell U.S. flue−cured tobacco in the third week of July and the marketing season lasts for
approximately four months. U.S. burley tobacco farmers deliver their crop from late November through mid−February. Tobacco in Brazil is usually purchased
from January through May. The markets in Zimbabwe and Malawi generally open around April and continue into the fall. These different marketing periods
reduce the overall seasonality of the Company’s tobacco business.
5
Universal normally operates its processing plants for approximately seven to nine months of the year. 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 working capital in South America, Central America, and
Western Europe.
Customers
A material part of the Company’s tobacco business is dependent upon a few customers. For the year ended June 30, 2003, each of Altria Group, Inc. and Japan
Tobacco Inc., including its respective affiliates, accounted for more than 10% of the Company’s revenues. The loss of, or substantial reduction in business from,
either of these customers would have a material adverse effect on the Company. The Company has long−standing relationships with these two customers.
Universal had orders from customers of nearly $469 million for its tobacco inventories at June 30, 2003. Based upon historical experience, it is expected that at
least 90% of such orders will be delivered during the following twelve months. Typically, delays in the delivery of orders result from changing customer
requirements.
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.
Competition
The leaf tobacco industry is highly competitive. Competition among leaf tobacco merchants is based on the firm’s ability to satisfy customer specifications in the
buying, processing, and financing of tobacco as well as the price charged for products and services. Competition varies depending on the market or country
involved. The number of competitors in foreign markets varies from country to country, but there is competition in most areas to buy the available tobacco. The
Company’s principal competitors are DIMON Incorporated and Standard Commercial Corporation. In addition, British American Tobacco p.l.c., a multinational
tobacco product manufacturer, has subsidiaries that compete with the Company in some markets. Of the independent leaf tobacco industry competitors,
Universal believes that it holds the largest worldwide market share.
C. Description of Agri−Products Business
The Company’s agri−products business involves selecting, buying, processing, storing, shipping, financing, distributing as well as 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
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certain products or value−adding activities through modern processing facilities for tea, sunflower seeds, and nuts 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 retail 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 accounted for 10% or more of the Company’s consolidated 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, American Eagle, Centrotrade,
Dahlgren, Ennar, James Finlay, Global, Kaytee, LAB, Lipton, Pennington, Metallgeschellschaft/SAFIC Alcan, Stassens, STT/Wurfbain, Sunshine, and Universal
Tea.
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 and processing business in the Netherlands, Belgium, and other countries in Europe.
The majority of lumber products are purchased outside the Netherlands, principally in the Far East, North America, Russia, and Scandinavia.
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. In addition, some lumber and building products, such as garden timber, are seasonal in nature. 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. Labor costs are a significant portion of the total costs for this
segment, and most of the employees in the segment are subject to industry−wide collective labor agreements that determine wage increases for the entire
industry.
The Company’s activities in this segment are conducted through three business units: regional sales, wholesale 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
business unit supplies lumber merchants, ceiling and wall contractors, and do−it−yourself and garden centers with a wide range of lumber−related products,
including panel products, ceiling tiles, and doors and a number of outdoor living products, including garden timber and garden houses manufactured by the
Company. During fiscal year 2003, the Company acquired Willemstein’s Industriele Ondernemingen B.V. (“JéWé”), a leading manufacturer and distributor of
moldings and other related products to do−it−yourself chains. The acquisition was not material to the Company’s results of operations or financial condition. The
industrial sales unit primarily distributes value−added softwood products and window frames to the prefabrication and construction industries.
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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 inventory turns. It is traditional business practice in this industry in the Netherlands 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 accounted for 10% or more of the Company’s consolidated revenues.
The Company’s lumber and building products sales in fiscal year 2003 accounted for about 15% of the market volume for similar products in the Netherlands.
The Company’s share in the building and construction market is about 12%, which is similar to the market share of its largest competitor in this sector,
PontMeyer N.V. Five additional competitors in this sector accounted for approximately 30% of the market in this period, and the balance was held by
approximately 200 smaller competitors. However, traditional market boundaries are fading, and the Company increasingly competes in the wider building and
construction supplies market, which is approximately four times larger than the market for lumber and building products. The primary factors of competition are
quality, price, customer relationship, product range, and speed and reliability of logistics 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 2% in fiscal year 2003. 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 28,000 employees throughout the world during the fiscal year ended June 30, 2003. This figure is estimated because the majority
of the Company’s personnel are seasonal employees.
F. Research and Development
No material amounts were expended for research and development during the fiscal years ended June 30, 2003, 2002, and 2001.
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 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 and other
factors that may affect the Company’s business.
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Item 2. Properties
The following table lists the Company’s significant properties (greater than 500,000 square feet), all of which are owned by the Company:
Location
Tobacco segment:
Brazil
Venancio Aires
Santa Cruz
Canada
Simcoe
Malawi
Lilongwe
Tanzania
Morogoro
United States
Danville, Virginia
Nash County, North Carolina
Lancaster, Pennsylvania
1
1
Zimbabwe
Harare
Principal Use
Area
(Square Feet)
Factory and storages
Factory and storages
661,000
2,200,000
Factory and storages
569,000
Factory and storages
673,000
Factory and storages
779,000
Factory and storages
Factory and storages
Factory and storages
895,000
1,244,000
636,000
Factory and storages
1,065,000
1
Subject to encumbrances described under “Properties – Tobacco segment.”
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, which is more than adequate for the Company’s needs.
Tobacco segment
Universal’s tobacco business involves storing green tobacco, processing the green tobacco, and storing processed tobacco. Thus, the Company operates
processing facilities in major tobacco growing areas. In addition, Universal requires tobacco storage facilities that are in close proximity to the processing
facilities. Most of the storage facilities are owned by the Company, but it leases additional tobacco storage facilities, as the need arises, and expenses related to
such leases are not material. The Company believes that the properties currently utilized in its tobacco operations are maintained in good operating condition and
are suitable and adequate for their purposes at the Company’s current volumes. In its domestic tobacco processing operations, Universal currently owns and
operates two large, high−volume plants that have the capacity to thresh, separate, grade, and redry tobacco. These plants are located in Nash County, North
Carolina, and Danville, Virginia. In the summer of 2002, the Company completed the modernization of the Danville, Virginia, processing facility, and it recently
completed the new processing facility in Nash County, North Carolina. In the opinion of management, these plants employ the latest processing technology.
During fiscal year 2003, the Company closed a plant in Wilson, North Carolina.
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Management believes that the improvements to the Danville facility and the construction of the Nash County facility were required to meet customer
specifications. The Danville and Nash County facilities will provide efficiencies that were not attainable in the Company’s older domestic facilities. The decision
to proceed with these projects was made in conjunction with the Company’s execution of a ten−year processing agreement with Philip Morris USA Inc. in May
2001. The projects are expected to cost over $130 million, and they are being funded by internal cash flow and by a loan secured by the machinery in the
Danville facility and the real estate and machinery in the Nash County facility. The secured financing associated with these facilities was $72 million at June 30,
2003. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
Universal owns other processing facilities in the following countries: Brazil, Hungary, Italy, the Netherlands, Poland, and the United States. In addition, the
Company has ownership interests in processing plants in Guatemala and Mexico and has access to smaller processing facilities in other areas, such as Argentina,
India, the Philippines, the People’s Republic of China, South Africa, Uganda, and Zambia. Socotab L.L.C., a joint venture in which Universal owns a minority
interest, owns two oriental tobacco−processing plants in both Turkey and Macedonia, one in Greece, and a storage complex in the United States. Socotab L.L.C.
is currently building a new factory in Bulgaria. The first stage of the Bulgarian factory was completed in fiscal year 2003, and the second stage will be completed
in fiscal year 2004.
The facilities described above are engaged primarily in processing tobacco used by manufacturers in the production of cigarettes. In addition, Universal operates
plants in Pennsylvania, Virginia, the Dominican Republic, Germany, Indonesia, and Brazil that process tobacco used in making cigar, pipe, and smokeless
products.
Agri−products segment
The Company’s agri−products business involves processing and storing a number of products, including tea, sunflower seeds, and nuts. The Company owns
processing facilities for sunflower seeds, nuts, and beans in the United States as well as a tea blending facility in the Netherlands. None of these processing
facilities are leased. The Company leases agri−products trading facilities around the world, including locations in the United States, the United Kingdom, Egypt,
Indonesia, Kenya, Canada, Poland, Russia, and Malawi. The lease expense on these facilities is not material to the Company. Universal’s sunflower seed
processing plant in Colby, Kansas, was financed in part through a government industrial development authority bond. The outstanding principal balance on the
bond was approximately $355 thousand at June 30, 2003. None of the Company’s agri−products facilities exceeds 500 thousand square feet in floor space.
Lumber and building products segment
The lumber and building products business owns or leases 44 sales outlets and distribution facilities in the Netherlands and five facilities in Belgium. Most of
these locations are owned. In the Netherlands, the Company also owns a facility for large−scale sawing, planing, and finger jointing of softwood products, and a
manufacturing facility for building components. The Company also leases facilities for the processing of garden timber and production of garden houses in the
Netherlands, Hungary, and Poland. For these products, the Company owns and leases sales offices in France, Germany, Spain, and Austria. During fiscal year
2003, through its acquisition of JéWé, the Company
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acquired additional production facilities in the Netherlands, which added production capabilities for a wide range of wood products for the do−it−yourself
market. These items include moldings, paneling, and made−to−measure sliding doors and cupboard interiors. The lumber and building products business has
production plants, warehouses, and distribution centers covering over 6 million square feet, with no one facility in excess of 500 thousand square feet.
Item 3. Legal Proceedings
On February 26, 2001, Universal Leaf Tobacco Company, Incorporated, J.P. Taylor Company, Incorporated, and Southwestern Tobacco Company, Incorporated,
which are subsidiaries of Universal Corporation (the “Company Subsidiaries”), were served with the Third Amended Complaint, naming them and other leaf
tobacco merchants as defendants in DeLoach, et al. v. Philip Morris Inc., et al., a suit originally filed against U.S. cigarette manufacturers in the United States
District Court for the District of Columbia and now pending in the United States District Court for the Middle District of North Carolina, Greensboro Division
(Case No. 00−CV−1235) (the “DeLoach Suit”). The DeLoach Suit is a class action brought on behalf of U.S. tobacco growers and quota holders that alleges that
defendants violated antitrust laws by bid−rigging at tobacco auctions and by conspiring to undermine the tobacco quota and price support program administered
by the federal government. In May 2003, the Company Subsidiaries, along with several other domestic cigarette manufacturers and tobacco leaf dealers entered
into a settlement agreement with the plaintiffs.
Under the settlement agreement, the Company Subsidiaries will collectively pay $12 million for distribution to members of the class. The total amount to be paid
by all the settling defendants, of which there are five in addition to the Company Subsidiaries, to the class is approximately $212 million, plus commitments by
the three settling cigarette manufacturers (i) to purchase certain volumes of domestic flue−cured and burley tobacco for at least ten years and (ii) to pay the fees
of plaintiffs’ counsel when approved by the court. The settlement agreement is contingent on final approval by the court.
The Company maintains that none of its three subsidiaries party to this lawsuit or their employees have violated any antitrust laws. The Company decided to
enter into the settlement in order to avoid further expense, inconvenience, and burden of this litigation; to prevent the distraction and diversion of its employees;
and to put to rest this controversy with valued U.S. tobacco growers. The parties have agreed that the settlement agreement does not constitute an admission of
the truth of any of the claims or allegations in the lawsuit. Because management believes it is probable that the court will ultimately approve the settlement
agreement, the Company recorded a loss contingency of $12 million before taxes, or about $7.7 million after taxes, in the fourth quarter of fiscal year 2003.
The Competition Directorate−General of the European Commission (“DG Comp”) is investigating the buying practices of Spanish tobacco processors with the
stated aim of determining to what extent the tobacco processing companies have jointly agreed on raw tobacco qualities and prices offered to Spanish tobacco
growers. After conducting an investigation, the Company believes that Spanish tobacco processors, including the Company’s Spanish subsidiary, Tabacos
Espanoles, S.A. (“TAES”), have jointly agreed to the terms of sale of green tobacco and quantities to be purchased from associations of farmers and have jointly
negotiated with those associations. TAES is cooperating fully with the DG Comp in its investigation and believes that there are unusual, mitigating circumstances
peculiar to the highly structured market for green tobacco in Spain. At this time, no estimate can be made of the amount or timing of the fine, if any, that the DG
Comp may assess on TAES.
11
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended June 30, 2003, no matters were submitted to a vote of security holders.
PART II
Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters
Common Equity
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.
2003
Cash dividends declared
Market price range
2002
Cash dividends declared
Market price range
2001
Cash dividends declared
Market price range
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
High
Low
High
Low
High
Low
$ 0.34
39.23
31.81
$ 0.36
37.52
32.85
$ 0.36
39.28
35.40
$ 0.36
43.01
37.69
$ 0.32
43.05
33.37
$ 0.34
37.54
31.74
$ 0.34
39.45
34.90
$ 0.34
43.00
36.01
$ 0.31
29.88
20.63
$ 0.32
35.88
27.00
$ 0.32
39.43
31.19
$ 0.32
41.30
36.99
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. Under certain of its credit facilities, the Company must meet financial covenants relating to minimum tangible net worth, minimum working
capital, and maximum levels of long−term debt. If the Company were not in compliance with these covenants, they would restrict the Company’s ability to pay
dividends or repurchase shares of common stock under the Company’s repurchase plan. The Company was in compliance with all such covenants at June 30,
2003. At September 8, 2003, there were 2,347 holders of record of the Company’s common stock.
12
Common Equity Compensation Plans
Shares of the Company’s common stock are authorized for issuance with respect to the Company’s compensation plans. The following table sets forth
information as of June 30, 2003, with respect to compensation plans under which shares of the Company’s common stock are authorized for issuance.
Number of Securities to Be
Issued upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
1
464,937
974,973
62,000
1,240,386
2,742,296
$
$
$
$
$
39.09
37.07
30.22
37.53
37.46
26,000
966,624 2
992,624
Plan Category
Equity compensation plans approved by shareholders
1989 Executive Stock Plan
1997 Executive Stock Plan
1994 Amended and Restated Stock Option Plan for
Non−Employee Directors
2002 Executive Stock Plan
Equity compensation plans not approved by shareholders
3
Total
1
2
3
Amounts exclude any securities to be issued upon exercise of outstanding options, warrants, and rights.
The 2002 Executive Stock Plan permits grants of stock options and awards of common stock and restricted stock. Of the 966,624 shares of common stock
remaining available for future issuance under the 2002 Executive Stock Plan, 497,200 shares are available for awards of common stock or restricted stock.
The Company does not have any equity compensation plans that have not been approved by shareholders.
13
Item 6. Selected Financial Data
Summary of Operations
Sales and other operating revenues
Net income
Return on beginning common shareholders’ equity
Net income per common share: Basic
Diluted
Financial Position at Year End
Current ratio
Total assets
Long−term obligations
Working capital
Shareholders’ equity
General
Ratio of earnings to fixed charges
Number of common shareholders
Weighted average common shares outstanding:
Basic
Diluted
Dividends per common share
Book value per common share
For the Years Ended June 30,
2003
2002
2001
2000
1999
(in thousands except per share data, ratios and number of shareholders)
$ 2,636,776
110,594
$
$ 2,500,078
106,662
$
$ 3,017,579
112,669
$
$ 3,405,987
113,805
$
$ 4,004,903
127,276
$
18.8%
4.35
4.34
19.3%
4.01
4.00
$
$
$
$
22.6%
4.09
4.08
$
$
21.1%
3.77
3.77
$
$
23.2%
3.81
3.80
$
$
1.67
$ 2,243,074
614,994
$
550,716
$
620,278
$
4.43
2,267
25,420
25,499
1.42
24.89
$
$
1.64
$ 1,844,415
435,592
$
431,606
$
587,995
$
3.99
2,381
26,579
26,680
1.34
22.42
$
$
1.95
$ 1,782,373
515,349
$
550,881
$
552,129
$
3.75
2,528
27,534
27,645
1.27
20.31
$
$
1.23
$ 1,748,104
223,262
$
204,916
$
497,779
$
4.13
2,749
30,199
30,205
1.23
16.48
$
$
1.30
$ 1,824,361
221,545
$
271,825
$
539,036
$
4.44
2,951
33,437
33,477
1.18
16.12
$
$
The following table illustrates the impact of the adoption of the non−amortization provisions of Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets.” The Company adopted those provisions effective at the beginning of fiscal year 2002.
For the Years Ended June 30,
2003
2002
2001
2000
1999
Reported net income
Goodwill amortization
Tax effect of goodwill amortization
Net income, as adjusted
Net income, as adjusted, per common share:
Basic
Diluted
$ 110,594
$ 106,662
(in thousands except per share data)
$ 112,669
4,200
(1,470)
$ 113,805
4,100
(1,435)
$ 127,276
4,400
(1,540)
$ 110,594
$ 106,662
$ 115,399
$ 116,470
$ 130,136
$
$
4.35
4.34
$
$
4.01
4.00
$
$
4.19
4.17
$
$
3.86
3.86
$
$
3.89
3.89
14
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
During fiscal year 2003, Universal made substantial investments in its operations, investing about $75 million in leaf processing facilities in the United States
and about $72 million in acquiring operations for its non−tobacco segments. The replacement of tobacco volumes lost because of the Zimbabwe crop decline
required additional investment in working capital in Africa. The Company secured additional sources of liquidity to fund these needs, and it maintains a
relatively large portion of total debt as long−term to reduce liquidity risk.
Working capital increased by over $119 million to $551 million, and the current ratio increased from 1.64 to 1.67. Tobacco inventories increased about $76
million to $530 million as of June 30, 2003, but the Company’s uncommitted inventories remained relatively flat at approximately $61 million compared to $63
million at the end of fiscal year 2002. Lumber and building products inventories and accounts receivable increased by $60 million and $35 million, respectively,
due to the strong euro and the January 2003 acquisition of JéWé. Customer advances and deposits fell by approximately 50%, to $42 million, in part because
relative interest rates made funding by Universal more attractive than it had been last year. Advances to suppliers increased by about $62 million, and
approximately $33 million of that increase occurred in Africa where the Company has been making investments in several African countries to replace volume
declines in Zimbabwe.
The Company’s capital expenditures are generally limited to those that add value to the customer, replace equipment, increase efficiency, or position the
Company for future growth. Universal’s capital expenditures were approximately $115 million in fiscal year 2003 and $111 million in fiscal year 2002.
Approximately $75 million of the capital expenditures in fiscal 2003 were part of a major investment in leaf processing in the United States that was announced
in fiscal year 2001. The Company completed an upgrade of its facility in Danville, Virginia, in the summer of 2002, and has recently built a new facility in Nash
County, North Carolina, which is currently in start−up mode. The cost of the two projects is estimated to be over $130 million. The Company elected to partially
fund the projects using a secured, multi−draw $75 million term loan facility, which a wholly owned subsidiary obtained on December 28, 2001. The facility is
guaranteed by the Company and is secured by certain assets of the projects. The loan matures on December 28, 2007, and under certain conditions, the subsidiary
can exercise an extension option for an additional four years. As of June 30, 2003, approximately $72 million had been drawn under the facility.
Universal’s total debt increased by about $294 million during the year, and its total debt as a percentage of total capitalization (including deferred taxes and
minority interest) increased to about 60% from approximately 52% in fiscal year 2002. The increase in debt reflected the Company’s increased working capital
requirement, the JéWé acquisition, and increased capital spending. Total long−term obligations, including current maturities, increased by $155 million to $715
million while notes payable increased by $139 million to $266 million. The increase in long−term obligations was primarily due to the Company’s new bank
facilities entered into on April 7, 2003. Those facilities included a $125 million term loan that will mature on April 7, 2006. Earlier in fiscal year 2003, the
Company issued $99.5 million in medium−term notes, thereby completing the sale of all securities registered pursuant to a $400 million shelf registration filed in
2000. In 2003, the Company filed a new $400 million shelf registration for debt securities, and in August, the Securities and Exchange Commission declared it
effective. The Company expects to use the proceeds of sales of these securities for general corporate purposes, which may include the repayment of indebtedness,
capital expenditures, acquisitions, and
15
working capital. The Company also continued to draw on its secured multi−draw facility used to fund the U.S. processing expenditures.
As of June 30, 2003, the Company had interest rate swaps that effectively converted $123.5 million of fixed rate debt to variable rate debt. The purpose of these
interest rate swaps is to better match its effective interest rate to the market rates of interest that customers pay the Company for inventory purchased for their
accounts. These swaps were accounted for as fair value hedges. The estimated fair value of the swap agreements was approximately $6 million at June 30, 2003.
As of June 30, 2003, Universal had approximately $936 million in uncommitted lines of credit, of which approximately $670 million was unused and available to
support seasonal working capital needs. Effective April 7, 2003, the Company replaced its $295 million revolving credit facilities with new agreements totaling
$375 million. These agreements include a $250 million revolving credit facility and a $125 million term loan, each of which will mature on April 7, 2006. As of
June 30, 2003, the Company had no amounts outstanding under the revolving credit facility. Universal’s commercial paper program, which provides flexibility in
the Company’s short−term borrowings, is supported by the new revolving credit facility. Under the terms of its bank agreements, the Company must maintain
certain levels of tangible net worth and working capital and observe restrictions on debt levels. The Company was in compliance with all such covenants at June
30, 2003.
Management believes that the Company has adequate resources available to meet its needs, which have been predominantly short term in nature and primarily
relate to working capital required for tobacco crop purchases. Working capital needs are seasonal within each geographical region. The geographical dispersion
and the timing of working capital needs permit Universal to predict its general level of cash requirements. The marketing of the crop in each geographic area is
heavily influenced by weather conditions and 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 seasonal working capital needs with short−term lines of credit, customer advances, and trade payables. The Company estimates that its inventories of
flue−cured and burley tobaccos that were not committed to customers as of June 30, 2003, were approximately $61 million. As a percentage of inventory,
uncommitted inventories decreased from 13.9% of total tobacco inventory at June 30, 2002, to 11.5% of total tobacco inventory at June 30, 2003. Management
does not consider these levels to be excessive. During the next 12 to 24 months, management expects to continue to invest additional amounts in working capital
and operating facilities to increase African tobacco sources. For example, the Company has decided to invest about $45 million in a new processing facility in
Mozambique. The project will include infrastructure, such as school facilities and a clinic.
In May 1998, Universal’s Board of Directors approved a share purchase program that has since been expanded to permit the purchase of up to $450 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. Over time, the purchases have been, and are expected to be, funded primarily from operating cash flow of the Company. At
June 30, 2003, Universal had approximately 24.9 million common shares outstanding and had purchased approximately 12.1 million common shares for about
$353 million pursuant to the program.
16
Funds supporting the Company’s ERISA−regulated defined benefit pension plans were reduced to $104 million by negative market activity during fiscal year
2003 through the quarter ended March 31, 2003, the remeasurement date for the plan. Subsequent to that time markets have improved, and the market value of
the fund has increased. As of July 31, 2003, the market value of the fund was about $117 million, compared to the accumulated benefit obligation of $129
million and the projected benefit obligation of $149 million based on certain assumptions. See Note 6 of “Notes to Consolidated Financial Statements.” The
Company plans to contribute approximately $4.5 million to the pension fund during the next year, which is more than the contribution required by ERISA. It is
the Company’s policy to monitor the market performance of the funds and to review the adequacy of its funding and its contributions to those funds. The fund is
managed for long−term returns, and the Company has not changed its investment allocation in response to recent market returns.
Management believes that its financial resources are adequate to support its capital needs. Those resources include cash from operations, cash balances, the
potential to issue debt to the public under its new shelf registration statement, the amounts remaining on its multi−draw secured facility, and committed and
uncommitted bank lines. Any excess cash flow from operations after dividends and capital expenditures will be available to fund expansion, purchase the
Company’s stock, or otherwise enhance shareholder value.
The Company’s contractual obligations as of June 30, 2003, are as follows:
($ in 000’s)
Total
2004
2005−2006
2007−2008
Thereafter
Notes payable and current portion of long−term debt
Long−term debt
$ 366,129
614,994
$ 366,129
$ 221,946
$ 241,766
$ 151,282
Total
$ 981,123
$ 366,129
$ 221,946
$ 241,766
$ 151,282
Payments Due
Fiscal Year 2003 Compared to 2002
RESULTS OF OPERATIONS
“Sales and other operating revenues” were approximately $2.6 billion for the fiscal year 2003 compared to about $2.5 billion last year. The fiscal year benefited
from the impact of the stronger euro on translation of revenues from the Company’s Dutch lumber and building products operations into U.S. dollars and the
fourth quarter addition of the revenues of JéWé. Most of the tobacco segment revenue increase for the fiscal year came from the larger volumes shipped from
South America. Agri−products segment revenue was up modestly due to good results in the Company’s dried fruit and nuts business.
During fiscal year 2003, Universal recognized approximately $33 million in restructuring charges, of which $12.5 million resulted from the reduction of
operations in Zimbabwe due to the decline in crops there. The remaining $20.5 million represented costs of rationalizing U.S. operations. See Note 2 of “Notes to
Consolidated Financial Statements.” In May 2003, the Company entered an agreement to settle the DeLoach lawsuit, which involved alleged industry violation
of antitrust laws, and accordingly recorded a charge of $12 million in fiscal year 2003. The agreement is subject to the final approval of the court. In addition,
during the fourth quarter, the Company recognized a $9.0 million gain on the sale of assets in Africa and the Netherlands as well as a $20.2 million gain on
remeasurement of local currency liabilities after export rates were adjusted in Africa. The remeasurement gain was not taxable
17
in the country of origin, and consistent with Universal’s policy regarding permanently reinvested earnings, no provision for U.S. income taxes was made on the
gain. The aggregate of the charges and gains for the year was a charge of $15.8 million. In fiscal year 2002, the Company recorded charges of $7.5 million
related to the consolidation of U.S. operations and $10.3 million related to Argentine currency devaluation.
Summary of Charges and Gains
(In millions except per share amounts)
Restructuring charges
Tobacco segment
Settlement of lawsuit
African currency remeasurement gain
Fiscal year 2003 gain on asset sales
Argentine currency devaluation
Consolidation costs
Net gain (charge)
Lumber & building products segment
Fiscal year 2003 gain on asset sales
Increase (decrease) in operating income
Increase (decrease) in net income
Increase (decrease) in earnings per share
Fiscal
Fiscal
Year 2003
Year 2002
Change
$
(33.0)
$ (33.0)
(12.0)
20.2
6.3
$
(10.3)
(7.5)
14.5
(17.8)
32.3
2.7
(15.8)
(10.4)
(0.41)
$
$
$
$
$
$
2.7
2.0
1.2
(17.8)
(11.6)
$
$
(0.43)
$ 0.02
Fiscal year 2003 segment operating income as described in Note 10 of “Notes to Consolidated Financial Statements” was $275 million, up $35 million from that
of fiscal year 2002. As listed above, that increase included a $32.3 million net gain in the tobacco segment and a $2.7 million gain in lumber and building
products segment.
Tobacco segment earnings benefited from larger crops in Brazil, Argentina, and several African countries, and those increases more than offset the decline in
Zimbabwe crops. Shipments of Brazilian and Argentine tobaccos increased substantially, as customers shifted purchase requirements from Zimbabwe to Brazil
and purchased more Argentine tobacco following the currency devaluation there in 2002. Dark tobacco volumes were down for the fiscal year due to lower sales
of old crop tobacco this year and smaller crops in several origins. The oriental tobacco joint venture’s results also declined primarily due to customers’ delay of
shipments until fiscal year 2004, expenses related to the new plants in Greece and Bulgaria, and smaller shipments of old crop tobacco this year. Excluding the
$32.3 million net effect of the charges and gains listed in the table above, tobacco segment earnings decreased by $5.2 million for the fiscal year.
Buoyed by the strong euro, which gained more than 14% on average during fiscal year 2003 against the U.S. dollar, results from the lumber and building
products segment improved by $5.1 million, or 20.4% for the year, excluding the $2.7 million gain on sale of assets. Throughout the year, volume suffered from
the effects of an economic slowdown in the Netherlands and other European countries. However, the results benefited from the Company’s acquisition of JéWé.
Earnings from the agri−products segment were flat for the year as stronger results in the Company’s dried fruit and nut business offset the impact of difficult
market conditions in the remainder of the segment.
“Selling, general and administrative expenses” for fiscal year 2003 increased by $4 million or 1.3% due to the $12 million charge for the settlement of the
DeLoach lawsuit, the impact of the strong euro on euro−based expenses, the addition of JéWé, and higher legal expenses as well as insurance costs. These
amounts were partially offset by a net remeasurement gain of $12.6 million.
18
“Interest expense” decreased by $3 million to $45 million due to lower interest rates in fiscal year 2003 compared to 2002. The Company capitalized
approximately $2 million in interest related to the construction of the Nash facility in fiscal year 2003 and approximately $600 thousand last year.
Universal’s consolidated income tax rate for the current year is 30.7% compared to 35% in the prior year. The major factor that generated the decrease in the tax
rate for the Company was the impact of lower taxes in subsidiaries in which it is the Company’s policy to permanently reinvest earnings. The Company currently
does not record U.S. tax expense on earnings not distributed from most countries in Africa. The Company generated over $15 million in remeasurement gains
that were not subject to local tax expense in these countries. See Note 3 of “Notes to Consolidated Financial Statements.”
Fiscal Year 2002 Compared to 2001
“Sales and other operating revenues” for fiscal year 2002 decreased $518 million or 17% to $2.5 billion compared to fiscal year 2001. The majority of the decline
in fiscal year 2002 was in the tobacco segment, where revenue fell by $502 million. Although smaller crops in a number of key exporting areas reduced volumes,
the primary factor in the revenue reduction for fiscal year 2002 was the change in manufacturers’ purchasing methods in the United States. In fiscal year 2002, a
number of U.S. manufacturers bought tobacco directly from farmers through contracts and paid leaf merchants to process it. Prior to fiscal year 2002, leaf dealers
purchased tobacco for most U.S. manufacturers. For the years ended June 30, 2002 and 2001, revenue from subsidiaries and affiliates of Altria Group, Inc.
(formerly Philip Morris Companies Inc.), was $400 million and $900 million, respectively. Beginning with the U.S. burley crop in fiscal year 2001, followed by
both the U.S. flue−cured and burley crops in fiscal year 2002, Philip Morris USA Inc. began to purchase directly from growers under contract arrangements.
Although this change was the primary cause of the decline in revenue in fiscal year 2002, it did not have a commensurate effect on segment operating income in
fiscal year 2002 because the Company continued to process its normal share of the crops. See Note 10 of “Notes to Consolidated Financial Statements.”
Revenues of the agri−products segment were down by $31 million in fiscal year 2002 due to lower tea prices and sharply lower synthetic rubber sales in Europe.
Lumber and building products revenue increased by $15 million in fiscal year 2002 due to higher sales of garden timbers and garden houses by an acquired
company.
Segment operating income as disclosed in Note 10 of “Notes to Consolidated Financial Statements” was $240 million in 2002 compared to $279 million in 2001,
a decrease of $39 million. Tobacco operating profits in fiscal year 2002 were $203 million, a decline of $37 million compared to fiscal year 2001. Tobacco
operating profits declined in fiscal year 2002 due to smaller crops in several origins, including Zimbabwe, Malawi, and Poland. U.S. operations experienced
higher costs in fiscal year 2002 from staffing both contract receiving stations and the auction system, as well as a decline in green market service income
compared to fiscal year 2001. The Company no longer received purchasing fees on U.S. volumes for which it only provided processing services. In addition,
overall margins on sales of Brazilian tobacco in fiscal year 2002 were lower due to the mix of business there. During fiscal year 2002, the Company recognized
$10.3 million in expenses related to the Argentine currency devaluation and the Company accelerated the planned closure of its Henderson, North Carolina,
facility in fiscal year 2002. As a result of the closure and after U.S. consolidation measures, the Company recognized $7.5 million in costs in fiscal year 2002.
Increased earnings from higher volumes shipped from Argentina, Asia, Western Europe, and the Company’s oriental tobacco joint venture were not sufficient to
overcome these factors for fiscal year 2002. Results for the Company’s lumber and building operations were down for fiscal year 2002, reflecting, in part, the
impact of the strong U.S. dollar during
19
that year. Agri−products earnings declined for fiscal year 2002, as stronger results in the Company’s dried fruit and nut business were not sufficient to overcome
the impact of difficult market conditions in rubber, sunflower seeds, and tea.
“Selling, general and administrative expenses” for fiscal year 2002 increased $9 million due to higher lumber and building product selling costs and higher
pension expense.
“Interest expense” for fiscal year 2002 decreased by $14 million to $47.8 million due to lower interest rates in fiscal year 2002 compared to 2001.
The Company’s consolidated income tax rate for fiscal year 2002 declined from 35.4% for fiscal year 2001 to approximately 35.0% due to the mix of foreign and
domestic earnings. See Note 3 of “Notes to Consolidated Financial Statements.”
Accounting Pronouncements
In the third quarter of fiscal year 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation No. 45”). The interpretation addresses the
disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, it clarifies the
requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that
guarantee. The adoption of Interpretation No. 45 did not have a material impact on the Company’s financial statements. The disclosure requirements of
Interpretation No. 45 are presented in Note 9 of “Notes to Consolidated Financial Statements.”
In the third quarter of fiscal year 2003, the Company also adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock−Based
Compensation – Transition and Disclosure” (“Statement No. 148”). This statement amended Statement of Financial Accounting Standards No. 123, “Accounting
for Stock−Based Compensation” (“Statement No. 123”). As permitted under Statement No. 123, the Company continues to apply the Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Under Statement No. 148, the Company is required to report pro forma net income and
basic and diluted earnings per share each quarter as if the fair value−based method had been applied to all awards. See Notes 1 and 8 of “Notes to Consolidated
Financial Statements.”
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation No. 46”).
The interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Interpretation No. 46 requires that if a business enterprise has a controlling financial interest in a
variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in the consolidated financial statements
of the business enterprise. The provisions of Interpretation No. 46 were effective beginning in the Company’s third quarter of fiscal year 2003. The adoption of
Interpretation No. 46 did not have a material impact on the Company’s financial statements.
20
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
In preparing the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”), management is required to
make estimates and assumptions that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect
supplemental information disclosures of the Company, including information about contingencies, risk, and financial condition. The Company believes, given
current facts and circumstances, its estimates and assumptions are reasonable, adhere to GAAP, and are consistently applied. However, changes in the
assumptions used could result in a material adjustment to the financial statements. The Company’s most critical accounting estimates and assumptions are in the
following areas:
Inventories
Inventories of tobacco and agri−products are valued at the lower of cost or market with cost determined under the specific cost method. In the tobacco and
agri−product businesses, raw materials are clearly identified at the time of purchase. The Company tracks the costs associated with raw materials in the final
product lots, and maintains this identification through the time of sale. The Company also capitalizes direct and indirect costs related to processing raw materials.
This method of cost accounting is referred to as the specific cost or specific identification method. Lumber and building products inventory is valued at the lower
of cost or market, with cost determined under the first−in, first−out method. The Company writes down inventory for changes in market value based upon
assumptions related to future demand and market conditions. Future demand assumptions can be impacted by changes in customer sales, changes in customers’
inventory positions and policies, competitors’ pricing policies and inventory positions, changing customer needs, and varying crop sizes and qualities. Market
conditions that differ significantly from those assumed by management could result in additional write downs. The Company experiences inventory write downs
routinely. Inventory write downs in 2003, 2002, and 2001 were $3.3 million, $8.5 million, and $7.8 million, respectively.
Intangible Assets
The Company reviews the carrying value of goodwill as necessary, and at least annually, utilizing a discounted cash flow model. The preparation of discounted
future operating cash flow analyses requires significant management judgment with respect to operating earnings growth rates and the selection of an appropriate
discount rate. The majority of the Company’s goodwill is from acquisitions in the tobacco segment. Neither a one−percentage−point increase in the discount rate
assumption nor a one−percentage−point decline in the cash flow growth rate assumption would result in an impairment charge. However, significant changes in
estimates of future cash flows, such as those caused by unforeseen events or changes in market conditions, could result in an impairment charge.
Income Taxes
The Company’s effective tax rate is based on its expected income, statutory tax rates, and tax planning opportunities in the various jurisdictions in which the
Company operates. Significant judgment is required in determining the effective tax rate and evaluating the tax position of the Company. The effective tax rate is
applied to quarterly operating results. The Company, through its subsidiaries, is subject to the tax laws of many jurisdictions, and could be subject to a tax audit
in each of these jurisdictions, which could result in changes to estimated taxes. In the event that there is a significant, unusual, or one−time item recognized in the
Company’s results, the tax attributed to that item would be
21
recorded at the same time as the item. For example, in the current year, the remeasurement gains generated in Africa did not result in local taxation, and
consistent with Company policy regarding permanently reinvested earnings, no provision for U.S. income taxes was recorded on the gains, which reduced the
consolidated tax rate.
Tax regulations require items to be included in the tax return at different times than the items are reflected in the financial statements. As a result, the Company’s
effective tax rate reflected in the financial statements is different than that reported in its tax returns. Some of these differences are permanent, such as expenses
that are not tax deductible, while others are related to timing issues, such as differences in depreciation methods. Timing differences create deferred tax assets
and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future tax returns for which the Company has already
recorded the tax benefit in its financial statements. The Company has recorded valuation allowances for deferred tax assets when the amount of estimated future
taxable income was not likely to support the use of the deduction or credit. As of June 30, 2003, the Company had approximately $31 million in foreign tax
credit carryforwards. If not utilized earlier, credits of $7 million will expire at the end of fiscal year 2004, and $24 million will expire at the end of fiscal year
2008. Any significant reduction in future taxable income and changes in its sources or changes in U.S. or foreign tax laws could result in the expiration of foreign
tax credit carryforwards. Deferred tax liabilities generally represent tax expense recognized in the Company’s financial statements for which payment has been
deferred or an expense that has not yet been recognized in the financial statements and has been deducted in the Company’s tax return. For example, the
Company has recognized $20.1 million in U.S. income tax expense associated with foreign earnings, which the Company intends to distribute to the United
States in the future.
For additional disclosures on income taxes see Notes 1 and 3 of “Notes to Consolidated Financial Statements.”
Pension Plans and Postretirement Benefits
The measurement of the Company’s pension and postretirement obligations and costs are dependent on a variety of assumptions used by the Company’s
actuaries. These assumptions include estimating the present value of projected future pension payments to all plan participants, taking into consideration the
likelihood of potential future events such as salary increases and demographic experience. The assumptions made by the Company may have an effect on the
amount and timing of future contributions. The plan trustee conducts an independent valuation of the fair value of pension plan assets. The significant
assumptions used in the calculation of pension and postretirement obligations are:
Discount rate – The discount rate is based on investment yields available at the measurement date on corporate long−term bonds rated AA.
Salary growth – The salary growth assumption is a factor of the Company’s long−term actual experience, the near−term outlook, and assumed inflation.
Expected return on plan assets – The expected return reflects asset allocations and investment strategy.
Retirement and mortality rates – Retirement rates are based on actual plan experience along with the Company’s near−term outlook. Early retirement
assumptions are based on actual Company experience. Mortality rates are based on standard group annuity (GA−83) mortality tables.
22
Health care cost trends – For postretirement medical plan obligations and costs, the Company makes assumptions on future increases in medical costs.
These assumptions are based on the actual experience of the Company along with third−party forecasts of long−term medical cost trends.
The effect of actual results differing from the Company’s assumptions are accumulated and amortized over future periods and, therefore, generally affect its
recognized expense in such future periods.
Sensitivity Analysis. The effect of the indicated decrease or increase in the selected assumptions is shown below, assuming no change in benefit levels:
Change in Assumption (Pension Plans)
1% increase in discount rate
1% decrease in discount rate
1% increase in salary scale
1% decrease in salary scale
1% increase in rate of return on assets
1% decrease in rate of return on assets
Change in Assumption (Other Postretirement Benefits)
1% increase in discount rate
1% decrease in discount rate
1% increase in medical inflation
1% decrease in medical inflation
Effect on
2003 Projected
Benefit Obligation
Increase (Decrease)
(in 000’s)
Effect on
Annual Expense
Increase (Decrease)
(in 000’s)
$
$
$
$
$
$
$
$
(30,230)
36,928
7,430
(7,577)
(5,300)
5,300
2,349
(2,011)
$
$
$
$
$
$
$
$
$
$
(3,932)
6,972
2,981
(2,700)
(3,092)
3,092
(425)
425
148
(127)
See Note 6 of “Notes to the Consolidated Financial Statements” for additional information on pension and postretirement benefit plans.
OTHER INFORMATION REGARDING TRENDS
AND MANAGEMENT’S ACTIONS
World markets for flue−cured and burley tobaccos are currently approximately in balance and are expected to remain so through crop year 2004 as overall
availability should meet demand; however, worldwide inventories of oriental tobaccos remain high and no reduction is expected through next year. Management
expects world flue−cured production to decline in crop year 2003 as smaller crops are forecast in both Brazil and Zimbabwe. In crop year 2004, management
believes flue−cured production should increase again in all exporting regions, except Asia and North America. Burley production is also expected to decrease in
crop year 2003 primarily because of smaller crops in Brazil and Africa. Burley crops in 2004 are also expected to trend upward again in nearly all regions.
Generally, production changes in 2003 and 2004 will affect the Company’s fiscal years 2004 and 2005, respectively, as crops produced in crop year 2003 are
normally sold in fiscal year 2004.
23
After increasing at a compound annual growth rate in excess of 1% over the previous two years, cigarette production flattened in 2002. The earlier increases were
due in part to improving economic conditions in Asia and the former Soviet Union, and the stronger demand for leaf helped to reduce leaf inventories. The
Company expects that demand for leaf will be flat or declining slightly for the near term primarily due to the flattening trend in world cigarette consumption and
to improved leaf utilization by cigarette manufacturers. On a year−to−year basis, the Company is susceptible to fluctuations in leaf supply due to crop size and
leaf demand as manufacturers adjust inventories or respond to changes in the cigarette market.
Uncommitted worldwide industry flue−cured and burley inventories totaled 133 million kilos, excluding inventories of Asian government−owned monopolies.
Uncommitted inventories, which had been trending upward since mid−1997, have declined in each of the last three years. At June 30, 2003, the U.S. stabilization
cooperatives held about 45 million kilos.
Although cigar consumption continues to grow at a modest pace in the United States, consumption within the main European Union markets has declined
slightly. Supplies of filler and binder tobaccos remain in relative surplus due to overproduction in certain countries coupled with manufacturers’ downward
adjustment of inventory levels to match expected sales. Supply and demand of cigar wrapper continues to be firm. Within the smokeless segment of the dark
tobacco business, consumption of loose−leaf chewing tobacco continues to decline by about four percent annually, while the consumption of snuff products has
been growing between three and four percent per year. Management believes that there is an adequate supply of suitable dark tobacco in the world market to
meet the demand of the manufacturers of smokeless tobacco products.
The high price of U.S. leaf relative to the world market led to reduced exports, which, combined with declining purchases by U.S. manufacturers, have reduced
the amount of U.S. tobacco that can be produced and sold in the United States. The Company has responded to the decrease in demand for, and production of,
U.S. tobacco and the change in the U.S. marketing system by closing certain plants, restructuring operations, and reducing personnel. Since fiscal year 1999, the
Company has closed four large, high−volume, older tobacco processing plants and replaced them with a new state−of−the−art processing facility in Nash
County, North Carolina, and with an upgraded facility in Danville, Virginia. The Company has recorded over $42.5 million in charges associated with the
reduction in U.S. tobacco production and consolidation of U.S. operations since fiscal year 1999. Domestic leaf purchases are unlikely to increase because of the
continued decline of cigarette consumption in the United States. Exports of U.S. leaf are likely to continue to decline unless the U.S. tobacco program is
significantly modified or eliminated and the competitive position of U.S. leaf improves dramatically. Several proposals to change that program are currently
being discussed in the U.S. Congress. These proposals generally call for quota buy−out and some modifications in the existing tobacco program. Management
believes that a quota buy−out will not provide sufficient improvement unless the entire system of government supports is dismantled. Without substantial
improvement in the market attractiveness of U.S. leaf, foreign manufacturers are likely to continue to shift their purchases to other tobacco producing areas, such
as Brazil and Africa where the Company has significant operations.
The Company expects market conditions to remain challenging in the year ahead. Management continues to closely monitor the situation in Zimbabwe where the
political and economic environment remains extremely difficult. The size of the flue−cured crop now being marketed is expected to be about 50% below that of
last year. The volume decline is expected to be partially offset by production increases in Brazil and in other African origins. Early indications are that the
Zimbabwe crop to be marketed in fiscal year 2005 could be substantially smaller than the crop currently being marketed. That crop has not yet been planted.
Because the Company expects that most of the shortfall in Zimbabwe
24
tobacco will be replaced with crops from areas where the Company contracts with and provides financing to farmers, the Company could face increased
financing and inventory risk since Zimbabwe tobacco is purchased at auction. The Company has been working to expand sources of African tobacco, and those
efforts require investments in working capital and operating facilities.
An important trend in the tobacco industry has been consolidation among manufacturers of tobacco products. This trend is expected to continue, particularly as
further privatization of state monopolies occurs, providing opportunities for acquisitions by international manufacturers. This concentration could provide
additional opportunities for international leaf merchants, including Universal. A key success factor for leaf dealers in the future will be the ability to provide
customers with the quality of leaf and the level of service they desire at the lowest cost possible. In addition, the leaf dealers have larger historical market shares
with some customers than with others. Consequently, the Company’s potential growth will be affected by the growth of its major customers, and consolidation of
customers may have at least a short−term favorable or unfavorable impact on the Company’s business.
Reports and speculation with respect to the alleged harmful physical effects of 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. In addition, the major 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, 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. Significant decreases in consumption of tobacco products
could have a material adverse effect on the Company’s operating results. The European Union and other countries have also imposed limitations on the
advertising of cigarettes. A significant decrease in global sales of tobacco products brought about by health concerns, decreased social acceptance, advertisement
limitations, or other factors would reduce demand for the Company’s products and services.
In fiscal year 2003, the weakness in the U.S. dollar in relation to the euro has benefited the lumber and building products sector, which uses the euro as its
functional currency. Further changes in exchange rates will affect the translation of the euro earnings of the Company into U.S. dollars. In addition, a continued
decline in construction activity in the Netherlands could negatively affect sales volumes and margins. Conversely, an increase of such activity could provide an
opportunity for volume and margin expansion.
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, local tax rates of
subsidiaries, repatriation of foreign earnings, and the Company’s ability to utilize foreign tax credits.
In recent years, the Company’s domestic income has been declining while foreign income has been increasing. If this trend continues and tax rates remain
constant worldwide, the Company could be less able to utilize its foreign tax credits and the Company’s consolidated income tax rate would increase.
25
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.
Operating Factors
The leaf tobacco industry is highly competitive and Universal is heavily reliant on a few large customers.
The Company is one of three major independent global competitors in the highly competitive leaf tobacco industry, all of whom are reliant upon a few large
customers. The loss of one of those large customers or a significant decrease in their respective demand for the Company’s products or services could further
increase competition and significantly decrease the Company’s sales of products or services, which would have a material adverse effect on Universal’s results of
operations. The competition among leaf tobacco merchants is based on the ability to meet customer specifications in the buying, processing, and financing of
tobacco, as well as the price charged for products and services. However, because Universal, like its competitors, relies upon a few significant customers, the
consolidation or failure of any of these large or significant customers could contribute to a significant decrease in its sales of products and services.
The Company’s financial results can be significantly affected by the changes in the balance of supply and demand for leaf tobacco or other agricultural
products.
Because Universal is a tobacco leaf merchant, its financial results can be significantly affected by changes in the overall balance of worldwide supply and
demand for leaf tobacco. The demand for tobacco, which is based upon customers’ expectations of their future tobacco requirements, can change from time to
time depending upon internal and external factors affecting the demand for their products. The Company’s customers’ expectations, and thus their demand for
leaf tobacco, is influenced by a number of factors, including:
•
•
•
trends in the global consumption of cigarettes, such as the growth or decline in popularity of American−blend cigarettes, and health concerns;
trends in sales of cigars and other tobacco products; and
levels of competition.
26
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 such factors as:
•
•
•
the amount of tobacco planted by farmers throughout the world,
weather fluctuations, and
crop disease.
Any significant change in these factors could cause a material imbalance in the supply and demand for tobacco, which would affect the Company’s results of
operations. Similar factors can affect results for its agri−products businesses.
In areas where Universal purchases its leaf tobacco directly from farmers, the Company bears therisk that the tobacco it receives will not meet quality and
quantity requirements.
In a number of countries where Universal contracts directly with tobacco farmers, including Argentina, Brazil, Guatemala, Hungary, Italy, Mozambique, Mexico,
Tanzania, the United States, and Zambia, the Company bears the risk that the tobacco delivered will not meet quality and quantity requirements. If the tobacco
does not meet such market requirements, the Company may not be able to meet all of its customers’ orders, which would have an adverse effect on its
profitability and its results of operations. In U.S. markets, the high price of U.S. tobacco magnifies the risk of purchasing tobacco that does not meet those
requirements. In addition, in many foreign countries, when Universal purchases tobacco directly from farmers, it provides them with financing. Unless the
Company receives marketable tobacco that meets the quality and quantity specifications of its customers, it bears the risk that it will not be able to fully recover
its crop advances or recover them in a reasonable period of time. The Company also has dark leaf tobacco growing operations in Indonesia and Brazil, where it
has similar financing risks. Although the Company purchases a portion of its leaf tobacco through public auction, as well as privately−negotiated contract
purchases, several countries where auction markets are used today may be moving toward direct purchasing, thus increasing the areas subject to this risk.
Weather and other conditions can affect the marketability of the Company’s products.
Tobacco and many other agricultural crops that the Company buys, such as sunflower seeds and tea, are subject to vagaries of the weather and the environment
that can, in some cases, change the quality or size of the crops. If a weather event is particularly severe, such as a major drought or hurricane, the affected crop
could be destroyed or damaged to an extent that it would be less desirable to manufacturers, which would result in a reduction in revenues. If such an event is
also widespread, it could affect the Company’s ability to acquire the quantity of products required by its customers. In addition, other items can affect the
marketability of tobacco and other agricultural products, including, among other things:
•
•
•
the presence of foreign matter,
genetically modified organisms, and
excess residues of pesticides, fungicides, and herbicides.
27
A significant event impacting the condition or quality of a large amount of any of the crops that Universal buys could make it difficult for the Company to sell
these products or to fill customers’ orders.
Because the Company is heavily reliant on the home improvement and construction markets in the Netherlands to sell lumber and building products, a
significant slowdown in those markets could have an adverse effect on its results of operations.
The majority of the customers who purchase lumber and building products from Universal are located in the Netherlands. Therefore, a significant slowdown in
the home improvement or construction market in the Netherlands could reduce demand for these products, which would have an adverse effect on the
Company’s results of operations.
Regulatory and Governmental Factors
Government efforts to reduce tobacco consumption could have a significant impact on the businesses of Universal’s customers, which would, in turn, affect the
Company’s results of operations.
The U.S. federal government and certain state and local governments have taken or proposed actions that may have the effect of reducing U.S. consumption of
tobacco products and indirectly reducing demand for the Company’s products and services. These activities have included:
•
•
•
•
•
the U.S. Environmental Protection Agency’s decision to classify environmental tobacco smoke as a “Group A” (known human) carcinogen,
restrictions on the use of tobacco products in public places and places of employment,
proposals to have the U.S. Food and Drug Administration, or FDA, regulate nicotine as a drug and sharply restrict cigarette advertising and
promotion,
proposals to increase the federal and state excise taxes on cigarettes, and
the policy of the U.S. government to link certain federal grants to the enforcement of state laws restricting the sale of tobacco products.
Numerous other legislative and regulatory anti−smoking measures have been proposed at the federal, state, and local levels. Excluding the effect of tobacco
contained in cigarettes imported into the United States, the Company estimates that between 12% and 15% of the flue−cured and burley tobaccos that it handles
worldwide is ultimately consumed in the United States. Universal’s tobacco sales consist primarily of the flue−cured and burley tobaccos, which, along with
oriental tobaccos, are the major ingredients in American−blend cigarettes. 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. A number of such measures are
included in the recently adopted Framework Treaty on Tobacco Control, which was negotiated under the auspices of the World Health Organization. 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 the business of its primary customers. However, a significant decrease in worldwide tobacco consumption
brought about by existing or future governmental laws and
28
regulations would reduce demand for the Company’s products and services and could have a material adverse effect on its results of operations.
Because Universal conducts a significant portion of its operations internationally, political uncertainties in certain countries could have an adverse effect on its
performance and results of 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 economic regulations of foreign governments. These
uncertainties and risks, which include, among other factors, undeveloped or antiquated commercial law and the expropriation or nationalization of assets, may
adversely impact the Company’s ability to effectively manage its operations in those countries. For example, in the past, Universal has experienced significant
year−to−year fluctuations in earnings due to changes in the Brazilian government’s economic policies, and government actions in Zimbabwe have reduced the
tobacco crop there, causing the Company to shift sourcing of tobacco to other countries. Universal has substantial capital investments in South America and
Africa, and the performance of its operations in these regions can materially affect its earnings from tobacco operations. If the political situation in any of the
countries where the Company conducts business were to deteriorate significantly, the Company’s ability to recover assets located there could be impaired. To the
extent that Universal could not replace any lost volumes of tobacco with tobacco from other sources, or that the Company incurs increased costs related to such
replacement, its results of operations would suffer.
Financial Factors
Failure of Universal’s customers or farmers to repay extensions of credit could materially impact the Company’s results of operations.
Universal extends credit to both farmers and its customers. A significant delay in payment or a significant bad debt provision related to amounts due to the
Company could adversely affect its results of operations. In addition, crop advances to farmers are generally secured by the farmers’ agreement to deliver green
tobacco. In the event of crop failure, recovery of advances could be delayed until future crops are delivered.
Failure of foreign banks in which Universal’s subsidiaries deposit funds or the failure to transfer funds or honor withdrawals may affect its results of operations.
Funds held by the Company’s foreign subsidiaries are often deposited in their local banks. In certain circumstances, the Company’s ability to gain access to these
funds could be impaired, which could have a material adverse effect on Universal’s results of operations. Banks in certain foreign jurisdictions may be subject to
a higher rate of failure or may not honor withdrawals of deposited funds. In addition, the countries in which these local banks operate may lack sufficient
regulatory oversight or suffer from structural weaknesses in the local banking system. Due to uncertainties and risks relating to the political stability of certain
foreign governments, these local banks also may be subject to exchange controls and therefore unable to perform transfers of certain currencies.
Fluctuations in foreign currency exchange rates and interest rates may affect Universal’s results of operations.
Although 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, the
29
Company’s purchases of tobacco are often made in local currency. As a result, changes in local currency can make a particular crop more or less attractive in the
world market thereby affecting the profitability of such crop and Universal’s results of operations. Because there is no forward foreign exchange market in many
of the major countries where the Company sources tobacco, Universal manages its foreign exchange risk by matching funding for inventory purchases with the
currency of sale and by minimizing its net investment in these countries. To the extent that the Company is not able to continue match funding, or otherwise
hedge its exposure, the Company could have a disproportionate exposure to local currency in which the tobacco was purchased.
Certain of the Company’s operations use their local currency as the functional currency. For example, the lumber and building products operations, which are
based in the Netherlands, use the euro as their functional currency. In certain tobacco markets that are primarily domestic, the Company uses the local currency
as the functional currency. Examples of these domestic markets are Hungary and Poland. In each case, reported earnings are affected by the translation of the
local currency into the U.S. dollar. See also “Qualitative and Quantitative Disclosure About Market Risk.”
In Universal’s tobacco business, customers usually pre−finance purchases or pay market rates of interest for inventory purchased on order. Because of changes in
financial markets, the Company, like many others, has moved away from short−term credit markets. The Company is borrowing more long−term debt, and,
through hedging agreements, it is swapping the interest rates on its existing fixed−rate debt to floating market interest rates to better match the interest rates that
the Company charges its customers. To the extent Universal is unable to match these interest rates, a decrease in interest rates could increase its net financing
costs.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
Interest Rates
Interest rate risk is limited in the tobacco business because customers usually pre−finance purchases or pay market rates of interest for inventory purchased for
their accounts.
The Company’s tobacco customers pay interest on tobacco purchased for their order. That interest is paid at rates based on current markets for variable rate debt.
If Universal funds its committed tobacco inventory with fixed−rate debt, the Company may not be able to recover interest at that fixed rate if current market
interest rates fall. As of June 30, 2003, tobacco inventory of $530 million included $469 million in inventory that was committed for sale to customers and $61
million that was not committed. Committed inventory, after deducting $42.1 million in customer deposits, represents the Company’s net exposure of $427
million. To manage that interest rate risk, Universal maintains a substantial portion of its debt at variable interest rates either directly or through interest rate
exchange agreements. Debt carried at variable interest rates either on its face or through derivative instruments was $629 million, in order to substantially
mitigate interest rate risk related to carrying fixed−rate debt. Of the $629 million in variable−rate debt, $123.5 million represented hedges of fixed− rate debt in
which Universal receives fixed−rate payments and pays variable−rate payments based on LIBOR. Although a hypothetical 1% change in short−term interest
rates would result in a change in annual interest expense of approximately $6.3 million, about two−thirds of that amount could be offset with changes in charges
to customers.
Currency
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. Most of
30
the operations are accounted for using the U.S. dollar as the functional currency. Because there is no forward foreign exchange market in many of Universal’s
major countries of tobacco origin, the Company manages its foreign exchange risk by matching funding for inventory purchases with the currency of sale, which
is usually the U.S. dollar, and by minimizing its net investment in individual countries. In these countries, the Company is vulnerable to currency gains and losses
to the extent that any local currency balances do not offset each other. The Company recognized a $12.6 million exchange gain due to remeasurement in 2003,
and recorded remeasurement losses of $2.9 million and $1.7 million in 2002 and 2001, respectively. The consolidated $12.6 million gain in fiscal year 2003
included a $20.2 million gain generated on remeasurement of local currency liabilities after export rates were adjusted in Africa. Recognized exchange losses in
2003, 2002, and 2001 resulting from foreign currency transactions were $900 thousand, $1.4 million, and $1.7 million, respectively.
The lumber and building products operations, which are based in the Netherlands, use the euro as their functional currency. In certain tobacco markets that are
primarily domestic, the Company uses the local currency as the functional currency. Examples of these domestic markets are Hungary and Poland. In each case,
reported earnings are affected by the translation of the local currency into the U.S. dollar.
Commodity
Universal uses commodity futures in its rubber trading business to reduce the risk of price fluctuations. The Company does not enter into rubber contracts for
trading purposes. All forward commodity contracts are adjusted to fair market value during the year, and gains and losses are recorded in income at that time.
The amounts recorded during 2003, 2002, and 2001 were not material.
Derivatives Policies
Hedging interest rate exposure using swaps and hedging foreign exchange exposure using forward contracts are specifically contemplated to manage risk in
keeping with management’s policies. Universal may use derivative instruments, such as swaps, forwards, or futures, which are based directly or indirectly upon
interest rates, currencies, and commodities, to manage and reduce the risks inherent in interest rate, currency, and price fluctuations.
The Company does not utilize derivatives for speculative purposes, and it does not enter into market risk−sensitive instruments for trading purposes. Derivatives
are transaction specific so that a specific debt instrument, contract, or invoice determines the amount, maturity, and other specifics of the hedge. Counter party
risk is limited to institutions with long−term debt ratings of A or better.
31
Item 8. Financial Statements and Supplementary Data
UNIVERSAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Sales and other operating revenues
Costs and expenses
Cost of goods sold
Selling, general and administrative expenses
Restructuring costs
Operating income
Equity in pretax earnings of unconsolidated affiliates
Interest expense
Income before income taxes and other items
Income taxes
Minority interests
Net income
Net income:
Per common share
Per diluted common share
Basis for per−share calculations:
Weighted average common shares outstanding
Dilutive effect of stock options
Average common shares outstanding, assuming dilution
See accompanying notes.
32
Years Ended June 30,
2003
2002
2001
(in thousands, except per share data)
$ 2,636,776
$ 2,500,078
$ 3,017,579
2,098,625
297,335
33,001
207,815
10,439
45,270
172,984
53,094
9,296
2,006,727
292,844
200,507
18,311
47,831
170,987
59,821
4,504
2,486,275
283,777
8,745
238,782
10,189
61,576
187,395
66,336
8,390
$
110,594
$
106,662
$
112,669
$
$
4.35
4.34
$
$
4.01
4.00
$
$
4.09
4.08
25,420
79
26,579
101
27,534
111
25,499
26,680
27,645
ASSETS
UNIVERSAL CORPORATION
CONSOLIDATED BALANCE SHEETS
Current
Cash and cash equivalents
Accounts receivable
Advances to suppliers
Accounts receivable—unconsolidated affiliates
Inventories—at lower of cost or market:
Tobacco
Lumber and building products
Agri−products
Other
Prepaid income taxes
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment—at cost
Land
Buildings
Machinery and equipment
Less accumulated depreciation
Other assets
Goodwill and other intangibles
Investments in unconsolidated affiliates
Deferred income taxes
Other noncurrent assets
See accompanying notes.
33
June 30,
2003
2002
(in thousands of dollars)
$
44,659
370,784
115,928
7,595
529,736
140,647
82,527
30,377
12,375
6,168
34,201
$
58,003
301,197
53,684
5,647
453,417
80,848
83,634
32,103
6,297
5,945
24,262
1,374,997
1,105,037
51,110
303,916
679,556
1,034,582
521,201
27,214
252,831
565,414
845,459
452,963
513,381
392,496
132,903
90,119
45,466
86,208
125,269
89,762
45,346
86,505
354,696
346,882
$ 2,243,074
$ 1,844,415
UNIVERSAL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Notes payable and overdrafts
Accounts payable
Accounts payable—unconsolidated affiliates
Customer advances and deposits
Accrued compensation
Income taxes payable
Current portion of long−term obligations
Total current liabilities
Long−term obligations
Postretirement benefits other than pensions
Other long−term liabilities
Deferred income taxes
Minority interests
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 24,920,083 shares (26,224,954 at June
30, 2002)
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
See accompanying notes.
34
June 30,
2003
2002
(in thousands of dollars)
$
265,742
361,058
2,073
42,093
31,959
20,969
100,387
824,281
614,994
40,305
96,522
12,348
34,346
$
126,798
288,741
10,153
83,528
24,444
15,353
124,414
673,431
435,592
38,666
63,791
16,640
28,300
90,665
592,673
(63,060)
90,157
569,059
(71,221)
620,278
587,995
$ 2,243,074
$ 1,844,415
UNIVERSAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization
Translation (gain) loss, net
Restructuring costs, net of cash paid
Deferred taxes
Minority interests
Equity in net income of unconsolidated affiliates
Other
Changes in operating assets and liabilities net:
Accounts and notes receivable
Inventories and other assets
Income taxes
Accounts payable and other accrued liabilities
Net cash provided (used) by operating activities
Cash Flows From Investing Activities:
Purchase of property, plant and equipment
Purchase of business, net of cash acquired
Sales of property, plant and equipment and other
Net cash used in investing activities
Cash Flows From Financing Activities:
Issuance (repayment) of short−term debt, net
Repayment of long−term debt
Issuance of long−term debt
Dividends paid to minority shareholders
Issuance of common stock
Purchases of common stock
Dividends paid
Net cash provided (used) in financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
Supplemental information—cash paid:
Interest
Income taxes, net of refunds
See accompanying notes.
35
Years Ended June 30,
2003
2002
2001
(in thousands of dollars)
$ 110,594
$ 106,662
$ 112,669
47,969
5,535
(12,558)
16,340
(11,901)
9,296
(5,847)
(1,783)
(92,268)
(85,958)
12
(24,284)
49,026
5,961
2,930
4,845
4,504
(11,829)
3,022
37,226
(80,552)
2,950
45,638
46,024
10,375
1,665
8,745
(5,393)
8,390
(6,815)
(629)
25,981
(16,054)
(6,260)
(17,502)
(44,853)
170,383
161,196
(115,396)
(71,865)
11,133
(110,790)
(13,348)
3,907
(61,145)
(13,163)
14,946
(176,128)
(120,231)
(59,362)
142,875
(120,400)
273,655
(3,654)
3,923
(54,607)
(35,788)
(64,469)
(2,313)
43,050
(4,612)
7,482
(45,681)
(35,187)
(163,509)
(121,076)
292,000
(3,723)
17,364
(40,673)
(34,029)
206,004
(101,730)
(53,646)
1,633
(41)
(43)
(13,344)
58,003
(51,537)
109,540
(48,145)
61,395
$
44,659
$
58,003
$ 109,540
$
$
45,808
62,589
$
$
49,059
53,521
$
$
59,803
72,887
UNIVERSAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Common stock:
Balance at beginning of year
Issuance of common stock and exercise of stock options
Purchase of common stock
Balance at end of year
Retained earnings:
Beginning balance
Net income
Cash dividends declared ($1.42 per share in 2003; $1.34 in 2002; $1.27 in
2001)
Cost of common shares retired in excess of stated capital amount
Balance at end of year
Accumulated Comprehensive Income (Loss):
Beginning balance
Translation adjustments for the year, net of taxes
Minimum pension liability, net of taxes
Total comprehensive income
Balance at end of year
Shareholders’ Equity at End of Year
Common Shares Outstanding:
(in thousands of shares)
Balance at beginning of year
Issuance of common stock and exercise of stock options
Purchase of common stock
Balance at end of year
See accompanying notes.
Years Ended June 30,
2003
2002
2001
(in thousands of dollars)
$ 85,582
7,482
(2,907)
90,157
540,546
106,662
(35,375)
(42,774)
569,059
$ 66,274
22,398
(3,090)
85,582
499,490
112,669
(34,029)
(37,584)
540,546
$ 106,662
$ 112,669
$ 110,594
(73,999)
2,778
2,778
(67,985)
(6,014)
(6,014)
28,800
(20,639)
$ 118,755
$ 109,440
$ 106,655
(71,221)
(73,999)
$ 587,995
$ 552,129
27,185
304
(1,264)
26,225
28,148
382
(1,345)
27,185
$ 90,157
3,923
(3,415)
90,665
569,059
110,594
(35,788)
(51,192)
592,673
(71,221)
28,800
(20,639)
(63,060)
$ 620,278
26,225
182
(1,486)
24,921
36
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are in thousands except per share amounts or as otherwise noted.)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The financial statements include the accounts of Universal Corporation (which together with its subsidiaries is referred to herein as “Universal” or the
“Company”) and its domestic and foreign subsidiaries in which Universal has a voting interest of greater than 50%, such that Universal controls all significant
corporate activities of the subsidiary. All significant intercompany accounts and transactions are eliminated in consolidation. In each less than wholly owned
consolidated subsidiary, the subsidiary’s minority shareholders have no significant authority in ordinary business decisions. The fiscal years of foreign
subsidiaries generally end March 31 or April 30 to facilitate timely reporting. The Company discloses or recognizes the financial impact from intervening events
that materially affect its consolidated financial position or results of operations.
The equity method of accounting is used for investments in companies where Universal Corporation has a 20% to 50% voting interest. The investments are
accounted for under the equity method because Universal exercises significant influence over those companies, but not control. Investments where Universal has
a voting interest of less than 20% are not significant and are accounted for under the cost method. Under the cost method, the Company recognizes earnings upon
its receipt of dividends.
Investments in Unconsolidated Affiliates
The Company’s equity method investments are non−marketable securities. Universal reviews such investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of an investment may not be recovered. For example, the Company would test such an investment for
impairment if the investee were to lose a significant customer, suffer a large reduction in sales margins, experience a change in its business environment, or
undergo any other significant change in its normal business. In assessing the recoverability of equity method investments, the Company uses discounted cash
flow models. If the fair value of an equity investee is determined to be lower than its carrying value, an impairment loss is recognized. The preparation of
discounted future operating cash flow analysis requires significant management judgment with respect to operating earnings growth rates and the selection of an
appropriate discount rate. The use of different assumptions could increase or decrease estimated future operating cash flows and therefore could increase or
decrease any impairment charge.
Net Income per Share and Share Purchase
The Company calculates earnings per share in accordance with Statement of Financial Accounting Standards 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
37
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
common shares outstanding. Dilutive potential common shares are outstanding dilutive stock options that are assumed to be exercised.
Since May 1998, the Board of Directors of the Company has approved $450 million in stock purchase programs. These programs will expire on June 30, 2004.
The Company had purchased an aggregate of 12,078,292 shares at a total cost of $353 million by June 30, 2003, and 10,595,829 shares at a cost of about $298
million by June 30, 2002.
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.
Advances to Suppliers
The Company provides agronomy services and crop advances of, or for, seed, fertilizer, and other supplies. These advances are short term in nature and are
repaid upon delivery of tobacco to the Company.
Inventories
Inventories of tobacco and agri−products are valued at the lower of cost or market with cost determined under the specific cost method. In the tobacco and
agri−product businesses, raw materials are clearly identified at the time of purchase. The Company tracks the costs associated with raw materials in the final
product lots, and maintains this identification through the time of sale. The Company also capitalizes direct and indirect costs related to processing raw materials.
This method of cost accounting is referred to as the specific cost or specific identification method. 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 the lower of average cost or
market. Inventory valuation allowances for damaged or slow−moving items were $14 million and $12 million at June 30, 2003, and June 30, 2002, respectively.
The predominant cost components of the Company’s inventories are the costs of unprocessed tobacco, tea, seeds, and nuts, as well as hardwood and softwood
lumber. Direct and indirect processing costs related to these raw materials are capitalized and allocated to inventory in a systematic manner. The Company does
not capitalize any interest or sales−related costs in inventory.
Property, Plant and Equipment
Depreciation of plant and equipment is based upon historical cost and the estimated useful lives of the assets. Depreciation is calculated using 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
38
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
machinery—3 to 11 years; transportation equipment—3 to 10 years; and office and computer equipment—3 to 10 years. The Company capitalized approximately
$2 million in interest in fiscal year 2003 and approximately $600 thousand in interest last year on the construction of the Nash facility.
Goodwill and Other Intangibles
Goodwill and other intangibles include principally the excess of the purchase price of acquired companies over the net assets. The Company did not record any
charges for impairment of goodwill in fiscal years 2003, 2002, and 2001. The Company uses discounted cash flow models to assess recoverability of goodwill.
The preparation of discounted future operating cash flow analyses requires significant management judgment with respect to operating earnings growth rates, and
the selection of an appropriate discount rate. The use of different assumptions would increase or decrease estimated future operating cash flows and could
increase or decrease an impairment charge. With the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,”
goodwill amortization was zero in fiscal years 2003 and 2002 and $4.2 million in fiscal year 2001.
Income Taxes
The Company provides deferred income taxes on temporary differences between the book and tax basis of its assets and liabilities. Those differences arise
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, 2003, the cumulative amount of permanently reinvested earnings of foreign subsidiaries, on
which no provision for U.S. income taxes had been made, was $133 million.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists of :
Translation adjustment
Allocated income taxes
Minimum pension liability
Allocated income taxes
Years Ended June 30,
2003
2002
2001
$ (109,571)
38,350
$ (113,845)
39,846
$ (65,263)
22,842
(31,753)
11,114
Total accumulated other comprehensive income (loss)
$ (63,060)
$ (71,221)
$ (73,999)
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.
39
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Derivative Financial Instruments
The Company recognizes all derivatives on the balance sheet at fair value. The Company uses interest rate swaps and forward foreign exchange contracts to
minimize interest rate and foreign currency risk. 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. All interest rate swaps are accounted for as fair value
hedges. The average remaining life on the Company’s interest rate swaps approximated 4.6 years at June 30, 2003. A $7.5 million deferred gain on the
termination of certain interest rate swaps was recorded in fiscal year 2002. The gain is being amortized to interest expense over the life of the debt instrument that
was hedged. No material gain or loss was recorded during fiscal year 2003 from hedge ineffectiveness. In addition, the Company uses commodity futures in its
rubber business to reduce the risk of price fluctuations. The Company does not enter into contracts for trading purposes. All forward foreign exchange contracts
and forward commodity contracts are adjusted to fair market value during the year.
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. The Company recognized a $12.6 million exchange gain due to remeasurement in 2003, and recorded remeasurement losses of $2.9 million and $1.7
million in 2002 and 2001, respectively. The consolidated $12.6 million gain in fiscal year 2003 included a $20.2 million gain generated on remeasurement of
local currency liabilities after export rates were adjusted in Africa. Recognized exchange losses in 2003, 2002, and 2001 resulting from foreign currency
transactions were $900 thousand, $1.4 million, and $1.7 million, respectively.
The Company operates in the following highly inflationary economies: Malawi, Mozambique, Turkey (through an equity investment), Zambia, and Zimbabwe.
The Company uses the U.S. dollar as the functional currency for subsidiaries located in such economies, and remeasures the results of these subsidiaries.
Revenue Recognition
Revenue is recognized when title and risk of loss are passed to the customer, and the earnings process is complete. The majority of the revenue recognized in the
tobacco, lumber and building products, and agri−products segments is based on the physical transfer of products to customers. The
40
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
products delivered to customers can be readily inspected and approved for acceptance. Universal also processes tobacco owned by its customers, and revenue is
recognized when the processing is completed.
Stock−Based Compensation
During the third quarter of fiscal year 2003, the Company adopted Financial Accounting Standards No. 148 “Accounting for Stock−Based Compensation –
Transition and Disclosure” (“Statement No. 148”). This statement was an amendment to Statement of Financial Accounting Standards No. 123 “Accounting for
Stock−Based Compensation” (“Statement No. 123”). As permitted under Statement No. 123, the Company applies the Accounting Principles Board Opinion No.
25, “Accounting for Stock Issued to Employees,” and as required under Statement No. 148 discloses the pro forma net income and basic and diluted earnings per
share as if the fair value based method had been applied to all awards. The disclosure is as follows:
Net income
Stock−based employee compensation cost, net of tax effect, under fair value method
Pro forma net income under fair value method
Earnings per share – basic
Per share stock−based employee compensation cost, net of tax effect, under fair value method
Pro forma earnings per share – basic
Earnings per share – diluted
Per share stock−based employee compensation cost, net of tax effect, under fair value method
Pro forma earnings per share – diluted
Years Ended June 30,
2003
2002
2001
$ 110,594
6,639
$ 106,662
713
$ 112,669
1,125
$ 103,955
$ 105,949
$ 111,544
$
$
$
$
4.35
0.26
4.09
4.34
0.26
4.08
$
$
$
$
4.01
0.03
3.98
4.00
0.03
3.97
$
$
$
$
4.09
0.04
4.05
4.08
0.04
4.04
The Black−Scholes option valuation model was used to estimate the fair value of the options granted in the periods ending June 30, 2003, 2002, and 2001. The
model includes 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 Company’s stock−based employee compensation 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.
41
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Principal assumptions used in applying the Black−Scholes model along with the results from the model were as follows:
Assumptions:
Risk−free interest rate
Expected life, in years
Expected volatility
Expected dividend yield
Results:
Fair value per share of options granted
Estimates and Assumptions
Years Ended June 30,
2003
2002
2001
2.71%
4.64
.306
3.71%
2.53%
1.79
.310
3.59%
4.05%
1.37
.315
3.30%
$ 7.03
$ 5.13
$ 4.89
The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 the third quarter of fiscal year 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation No. 45”). The interpretation addresses the
disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. In addition, it clarifies the
requirements related to the recognition of a liability by a guarantor at the inception of a guarantee for the obligations the guarantor has undertaken in issuing that
guarantee. The adoption of Interpretation No. 45 did not have a material impact on the Company’s financial statements. The disclosure requirements of
Interpretation No. 45 are presented in Note 9 of “Notes to Consolidated Financial Statements.”
In the third quarter of fiscal year 2003, the Company also adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock−Based
Compensation – Transition and Disclosure” (“Statement No. 148”). This statement amended Statement of Financial Accounting Standards No. 123, “Accounting
for Stock−Based Compensation” (“Statement No. 123”). As permitted under Statement No. 123, the Company continues to apply the Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Under Statement No. 148, the Company is required to report pro forma net income and
basic and diluted earnings per share each quarter as if the fair value−based method had been applied to all awards. See Note 8 of “Notes to Consolidated
Financial Statements.”
In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation No. 46”).
The interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Interpretation No. 46 requires that if a business enterprise has a
42
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
controlling financial interest in a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in the
consolidated financial statements of the business enterprise. The provisions of Interpretation No. 46 were effective beginning in the Company’s third quarter of
fiscal year 2003. The adoption of Interpretation No. 46 did not have a material impact on the Company’s financial statements.
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 June 2001, the Company adopted restructuring plans for its U.S. and Polish tobacco operations. In the United States, direct contracting with farmers has
caused the Company to restructure its leaf purchasing operations, necessitating a reduction in personnel. The restructuring charge included approximately $3.9
million of severance costs related to 66 employees in purchasing, sales, and administrative support departments. In Poland, due to declining domestic tobacco
production, the Company closed one of its two processing plants, resulting in a $4.4 million restructuring charge. The restructuring charge included
approximately $1.1 million of severance costs for 136 production personnel and agronomists and a $3.3 million fixed asset impairment charge.
During 2003, the Company recognized approximately $33 million in restructuring charges, of which $12.5 million resulted from the reduction of operations in
Zimbabwe due to the decline in crops there. The Zimbabwe restructuring plan affected 268 salaried employees in production, sales, and administration. All
employees under this plan were paid by June 30, 2003. The remaining $20.5 million represented costs of rationalizing U.S. operations. In the United States, the
Company incurred $15.5 million in restructuring costs associated with severance costs for 98 salaried employees and 941 hourly employees. The salaried
employees were from the U.S. tobacco operation and the U.S. headquarters. The severance portion of the program will be paid over a period not to exceed two
years. The 941 hourly employees were production employees with the tobacco processing operation. The U.S. operations also incurred a $5 million impairment
charge on buildings and equipment associated with the closure of two redundant processing facilities. A summary of the restructuring charges in fiscal year 2003
is as follows:
Severance costs in Zimbabwe
Severance costs in the United States
Total severance costs
Impairment charges in the United States
Total restructuring costs
43
Fiscal Year
2003
$ 12,500
15,481
27,981
5,020
$ 33,001
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Changes in severance liabilities are described below:
Severance Liabilities
Balance as of June 30
Severance cost in restructuring charges
Payments
Balance as of June 30
NOTE 3. INCOME TAXES
Income taxes consist of the following:
Current
United States
State and local
Foreign
Deferred
United States
State and local
Foreign
Total
A reconciliation of the statutory U.S. federal rate to the effective income tax rate is as follows:
Years Ended June 30,
2003
2002
$
2,079
27,981
(16,661)
$ 7,099
(5,020)
$ 13,399
$ 2,079
Years Ended June 30,
2003
2002
2001
$ (2,878)
806
64,864
$ (8,745)
705
72,228
$ (14,165)
994
85,140
$ 62,792
$ 64,188
$ 71,969
$ (14,486)
(57)
4,845
$ (9,416)
264
4,785
$
1,567
722
(7,922)
(9,698)
(4,367)
(5,633)
$ 53,094
$ 59,821
$ 66,336
Years Ended June 30,
2003
2002
2001
Statutory tax rate
State income taxes, net of federal benefit
Impact of permanently reinvested earnings
Income taxed at other than the U.S. rate
Effective income tax rate
35.0% 35.0% 35.0%
0.4
0.3
(5.0)
0.4
(0.4)
0.6
(0.4)
0.2
30.7% 35.0% 35.4%
44
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Significant components of deferred tax liabilities and assets were as follows:
Liabilities
Undistributed earnings
Tax over book depreciation
Goodwill
All other
Total deferred tax liabilities
Assets
Employee benefit plans
Foreign currency translation
Minimum pension liability
Deferred compensation
Tax credits
All other
Valuation allowance
Total deferred tax assets
The components of income before income taxes and other items consist of the following:
United States
Foreign
Total
At June 30,
2003
2002
$20,074
14,093
19,719
6,104
$11,595
10,599
15,597
8,690
$59,990
$46,481
$30,078
12,125
11,114
8,541
39,232
8,218
(9,991)
$24,948
32,102
10,655
15,677
4,370
(7,053)
$99,317
$80,699
Years Ended June 30,
2003
2002
2001
$ (72,121)
245,105
$ (56,361)
227,348
$ (35,310)
222,705
$172,984
$170,987
$187,395
The Company has approximately $31 million in foreign tax credit carryforwards. If not utilized earlier, credits of $7 million will expire in fiscal year 2004, and
$24 million will expire in fiscal year 2008.
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, 2003, unused, uncommitted lines of credit were approximately $670 million. The weighted average interest rate on short−term borrowings
outstanding as of June 30, 2003 and 2002, was approximately 2.8% and 4.5%, respectively.
45
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 5. LONG−TERM OBLIGATIONS
Long−term obligations consist of the following:
6.5% notes due February 2006
8.5% notes due February 2003
Term loan due April 2006
Medium−term notes due from 2003 to 2012 at various rates
Secured loans due December 2007
Other
Less current portion
Long−term obligations
At June 30,
2003
2002
$ 100,000
125,000
400,000
83,705
6,676
$ 100,000
120,000
300,500
34,550
4,956
715,381
(100,387)
560,006
(124,414)
$ 614,994
$ 435,592
The fair value of the Company’s long−term obligations was approximately $665 million at June 30, 2003, and $469 million at June 30, 2002. Certain notes are
denominated in local currencies of foreign subsidiaries.
On April 7, 2003, the Company entered into new bank facilities totaling $375 million. The facilities replaced those totaling $295 million, which the Company
terminated on that date. Of the new facilities, $125 million represents a term loan that will mature on April 7, 2006. The Company received proceeds of that loan
on April 10, 2003, and used them to reduce short−term notes payable. The remaining $250 million is a revolving credit facility that also matures April 7, 2006.
The latter facility is intended to support short−term borrowings, including the issuance of commercial paper.
On December 28, 2001, one of the Company’s subsidiaries entered into a secured, multi−draw, $75 million term loan facility. This financing was put in place to
fund the construction of the new factory in Nash County, North Carolina, and the upgrade of an existing plant in Danville, Virginia. The facility is guaranteed by
the Company and is secured by assets of the projects. It matures on December 28, 2007, and under certain conditions, which include minimum credit ratings,
earnings levels, and the absence of default, the subsidiary can exercise an extension option for an additional four years. The Company had borrowed over $72
million under the loan facility as of June 30, 2003. On December 26, 2002, one of the Company’s subsidiaries entered into a secured $12 million term loan.
Universal guaranteed the loan, and it is secured by an aircraft. It matures on December 31, 2007, and under certain conditions, which include minimum credit
ratings, earnings levels, and the absence of default, the Company’s subsidiary can exercise an extension option for an additional four years. The proceeds of these
financings were used for general corporate purposes.
By December 31, 2002, the Company completed the sale of all securities registered pursuant to a $400 million shelf registration filed in 2000. All the securities
were issued as medium−term notes. The $400 million in medium−term notes issued have maturity dates from October 2003 to September 2012. The notes were
issued with both fixed and variable interest rates. At June 30, 2003, interest rates on the notes issued ranged from 2.63% to 8.5%. At June 30, 2003, the Company
had outstanding interest rate swap agreements on $123.5 million of long−term debt that effectively adjust interest rates from fixed to
46
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
variable, based on the LIBOR rate. These swaps were accounted for as fair value hedges. The estimated fair value of the swap agreements was about $6 million
at June 30, 2003.
Under certain of its credit facilities, the Company must meet financial covenants relating to minimum tangible net worth, minimum working capital, and
maximum levels of long−term debt. The Company was in compliance with all such covenants at June 30, 2003 and 2002.
Maturities of long−term debt for the fiscal years succeeding June 30, 2003, are as follows: 2004—$100,387; 2005—$55,716; 2006—$166,230; 2007—$64,297;
2008—$177,469; and 2009 and after—$151,282.
NOTE 6. PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has several defined benefit pension plans covering U.S. and foreign salaried employees and certain other employee groups. These plans provide
retirement benefits based primarily on employee compensation and years of service. 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 levels. 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 reserve account held by an insurance company. The Company reserves the right to amend or discontinue these
benefits at any time.
47
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Assumptions used for financial reporting purposes to compute net periodic benefit income or cost and benefit obligations, as well as the components of net
periodic benefit income or cost are as follows:
Foreign Pension
Benefits (April 30
Measurement Date)
Domestic Pension
Benefits (March 31
Measurement Date)
Other Postretirement
Benefits (March 31
Measurement Date)
2003
2002
2001
2003
2002
2001
2003
2002
2001
5.00%
5.00%
5.00%
3.00%
3.00%
3.00%
5.00%
5.00%
5.00%
6.25%
5.00%
8.00%
7.00%
5.00%
8.50%
7.00%
6.25%
7.00%
7.00%
5.00%
5.00%
5.00%
5.00%
8.75%
4.30%
4.30%
4.30%
11.50%
8.00%
8.50%
$ 2,112
5,284
(4,818)
987
(251)
$ 3,448
5,740
(3,549)
$ 3,174
5,325
(4,816)
(1,066)
(1,669)
$
4,962
11,956
(11,231)
158
2,676
$
5,377
11,664
(11,120)
$
4,656
10,575
(10,509)
8,406
7,253
$ 1,034
3,456
(181)
3,766
217
$ 771
2,807
(189)
$
893
2,832
(181)
(704)
(3,059)
Assumptions:
Discount rate, end of year
Rate of compensation
increases, end of year
Expected long−term return on
plan assets, end of year
Rate of increase in per−capita
cost of covered health care
benefits
Components of net periodic
benefits — cost (income):
Service cost
Interest cost
Expected return on plan assets
Settlement/curtailment cost
Net amortization and deferral
Net periodic benefit cost
$ 3,314
$ 4,573
$ 2,014
$
8,521
$ 14,327
$ 11,975
$ 8,292
$ 2,685
$
485
48
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table reconciles the changes in benefit obligations and plan assets in 2003 and 2002, and the funded status to prepaid or accrued cost at June 30,
2003 and 2002:
Change in projected benefit obligation:
Benefit obligation, beginning of year
Service cost
Interest cost
Effect of discount rate change
Foreign currency exchange rate changes
Purchase of business
Curtailment
Settlement
Other
Benefits paid
Foreign Pension
Benefits (April 30
Measurement Date)
Domestic Pension
Benefits (March 31)
Measurement Date)
Other Postretirement
Benefits (March 31
Measurement Date)
2003
2002
2003
2002
2003
2002
$ 116,958
2,112
5,284
21,400
7,934
(11,797)
(10,710)
1,693
(8,959)
$ 108,644
3,448
5,740
1,340
1,930
(4,144)
$ 174,900
4,962
11,956
14,221
(70)
(382)
2,134
(23,970)
$ 159,651
5,377
11,664
$ 51,216
1,034
3,456
3,975
$ 41,614
771
2,807
3,766
188
(2,957)
9,303
(3,279)
7,457
(9,249)
Projected benefit obligation, end of year
$ 123,915
$ 116,958
$ 183,751
$ 174,900
$ 60,678
$ 51,216
Change in plan assets:
Plan assets at fair value, beginning of year
Actual return on plan assets
Employer contributions
Purchase of business
Settlements
Foreign currency exchange rate changes
Benefits paid
$ 98,642
3,428
6,645
6,562
(14,626)
18,083
(8,959)
$ 96,096
2,759
2,833
$ 128,050
(16,693)
16,932
$ 126,321
9,481
1,497
$
5,030
224
2,133
$
5,067
143
3,099
(382)
1,098
(4,144)
(23,970)
(9,249)
(2,957)
(3,279)
Plan assets at fair value, end of year
$ 109,775
$ 98,642
$ 103,937
$ 128,050
$
4,430
$
5,030
Reconciliation of prepaid (accrued) cost:
Funded status of the plans
Contributions after measurement date
Unrecognized net transition (asset) obligation
Unrecognized prior service cost
Unrecognized gain on plan amendment
Unrecognized net (gain) loss
Additional minimum liability
$ (14,140)
211
(461)
(43)
10,442
(503)
$ (18,316)
(871)
(39)
13,825
(655)
$ (79,814)
4,245
1,898
60,040
(33,148)
$ (46,850)
287
576
2,312
$ (56,248)
754
$ (46,186)
(325)
(94)
17,729
11,748
7,614
Prepaid (accrued) cost, end of year
$ (4,494)
$ (6,056)
$ (46,779)
$ (25,946)
$ (44,071)
$ (38,666)
Prepaid pension costs of $8.9 million and $8.7 million at June 30, 2003 and 2002 are included in other noncurrent assets; accrued pension costs of $60.2 million
and $40.7 million were included in long−term liabilities at June 30, 2003 and 2002.
49
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In the first quarter of fiscal year 2003, the Company’s lumber and building products subsidiary in the Netherlands joined a multi−employer industry pension
fund. This change reduced the projected benefit obligation and fair value of assets by $22.5 million and $14.6 million, respectively, and resulted in a settlement
charge during fiscal year 2003 of $1.0 million. Lump−sum payments required by the non−qualified domestic pension plan, which is not funded, caused an
increase in contributions to cover benefits paid in fiscal year 2003.
As a result of the decrease in the discount rate used to value the pension liability and losses on plan assets caused by the downturn in worldwide equity markets,
an increase to the additional minimum pension liability resulted in a $33.1 million pre−tax or $20.6 million after−tax reduction of accumulated other
comprehensive income during fiscal year 2003. The rate of increase in per−capita cost of covered healthcare benefits is assumed to decrease gradually from
11.5% in 2003 to 6.0% for fiscal year 2014.
A one−percentage−point increase in the assumed health care cost trend would increase the June 30, 2003, accumulated benefit obligation by approximately $2.3
million and the aggregate of the service and interest cost components of the net periodic postretirement benefit expense for the 2004 fiscal year by approximately
$148 thousand. A one−percentage−point decrease in the assumed health care cost trend would decrease the June 30, 2003, accumulated benefit obligation by
approximately $2.0 million and the aggregate of the service and interest cost components of the net periodic postretirement benefit expense for the 2004 fiscal
year by approximately $127 thousand.
Amounts included in the preceding table that are applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as
follows:
Foreign
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Domestic
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
At June 30,
2003
2002
$ 32,088
29,087
17,526
$11,081
10,322
1,612
$183,751
153,302
103,937
$45,657
34,744
3,518
In fiscal year 2002, some of the Company’s domestic pension plans were not included in the above table because plan assets exceeded accumulated benefit
obligations in some of the plans. However, in fiscal year 2003, all domestic pension plans are included in the preceding table. Losses on plan assets of
approximately $17 million and increases in the accumulated benefit obligations of about $14 million, due to a decline in the discount rate assumption, resulted in
the accumulated benefit obligations exceeding the plan assets in each of the Company’s domestic pension plans.
Universal and several U.S. subsidiaries offer an employer−matched stock purchase plan. Amounts charged to expense for this defined contribution plan were
$1.3 million, $1.3 million, and $1.2 million for 2003, 2002, and 2001, respectively.
50
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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, and the 2002
Executive Stock Plan was approved by shareholders in the second quarter of fiscal year 2003 (together, the “Plans”). Under the Plans, officers, directors, and
employees of the Company and its subsidiaries may receive grants and 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 contemplated 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. However, under the 2002 Executive
Stock Plan only 500,000 shares of restricted stock may be awarded. 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 generally become exercisable either one to three years 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.
51
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the Company’s stock option activity and related information for the fiscal years ended June 30 follows:
Outstanding, beginning of year
Granted
Exercised
Outstanding, end of year
Exercisable
Available for grant
Years Ended June 30,
2003
2002
2001
Average
Exercise
Price
$ 36.92
37.09
34.58
37.46
37.07
Shares
2,033,408
826,111
(1,221,842)
1,637,677
1,113,930
222,438
Average
Exercise
Price
$ 33.95
37.80
32.58
36.92
36.89
Shares
2,674,499
373,818
(1,014,909)
2,033,408
1,673,506
135,670
Average
Exercise
Price
$ 31.83
33.85
28.33
33.95
34.89
Shares
1,637,677
1,625,713
(521,094)
2,742,296
1,860,041
992,624
The following table summarizes information concerning currently outstanding and exercisable options as of June 30, 2003:
For options outstanding:
Number outstanding
Weighted average remaining contractual life
Weighted average exercise price, per share
For options exercisable:
Number exercisable
Weighted average exercise price, per share
Range of Exercise Prices, per Share
$20−$30
$30−$40
$40−$50
134,053
6.14
24.74
$
134,053
24.74
$
2,196,643
7.19
37.34
$
1,636,309
37.91
$
411,600
7.76
42.25
89,679
40.19
$
$
Certain potentially dilutive securities outstanding at June 30, 2003, 2002, and 2001, were not included in the computation of earnings per diluted share 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 322 thousand at a weighted−average exercise price of $42.82 per share for 2003; 1.37 million shares at a weighted−average exercise price of $38.80 per
share in 2002; and 116 thousand shares at a weighted−average exercise price of $40.19 per share in 2001.
NOTE 9. COMMITMENTS AND OTHER MATTERS
A material part of the Company’s tobacco business is dependent upon a few customers. For the years ended June 30, 2003, 2002, and 2001, revenue from
subsidiaries and affiliates of Altria Group, Inc. was approximately $500 million, $400 million, and $900 million, respectively. Beginning with the U.S. burley
crop in fiscal year 2001, followed by both the U.S. flue−cured and burley crops in fiscal year 2002, Philip Morris made purchases directly from growers under
contract arrangements rather than through leaf merchants like Universal. This change was the primary cause of the decline in revenue, and it did not have a
commensurate effect on operating income because the Company continued to process its normal share of the crops for this customer. For the years ended June
30, 2003 and 2002, another customer accounted for revenue of approximately $300 million. The loss of, or substantial reduction in business from, either of these
customers would have a material adverse effect on the Company.
52
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has adopted Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others” (“Interpretation No. 45”). The adoption of Interpretation No. 45 did not have a material impact on the
Company’s financial statements. Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are
industry practice in Brazil and support the farmers’ production of tobacco there. At June 30, 2003, total exposure under subsidiaries’ guarantees issued for
banking facilities of Brazilian farmers was approximately $52.6 million. About 40% of these guarantees expire within one year, and the remainder expire within
five years. The Company withholds payments due to the farmers on delivery of tobacco and forwards those payments to the third−party bank. Failure of farmers
to deliver sufficient quantities of tobacco to the Company to cover their obligations to third−party banks could result in a liability for the Company; however, in
that case, the Company would have recourse against the farmers. The fair value of guarantees issued or last modified after December 31, 2002, was not material.
The maximum potential amount of future payments that the Company’s subsidiary could be required to make is the face amount, $52.6 million, and any unpaid
accrued interest. Other contingent liabilities totaled approximately $15.5 million and included value−added tax payments that would be required if subsidiaries
fail to export tobacco. They also included bid and performance bonds. The Company considers the possibility of a material loss on any of the guarantees and
other contingencies to be remote, and the accrual recorded for exposure under them was not material at June 30, 2003.
If the political situation in Zimbabwe were to deteriorate significantly, the Company’s ability to recover its assets there could be impaired. The Company’s equity
in its net assets of subsidiaries in Zimbabwe was $61 million at June 30, 2003.
On February 26, 2001, Universal Leaf Tobacco Company, Incorporated, J.P. Taylor Company, Incorporated, and Southwestern Tobacco Company, Incorporated,
which are subsidiaries of Universal Corporation (the “Company Subsidiaries”), were served with the Third Amended Complaint, naming them and other leaf
tobacco merchants as defendants in DeLoach, et al. v. Philip Morris Inc., et al., a suit originally filed against U.S. cigarette manufacturers in the United States
District Court for the District of Columbia and now pending in the United States District Court for the Middle District of North Carolina, Greensboro Division
(Case No. 00−CV−1235) (the “DeLoach Suit”). The DeLoach Suit is a class action brought on behalf of U.S. tobacco growers and quota holders that alleges that
defendants violated antitrust laws by bid−rigging at tobacco auctions and by conspiring to undermine the tobacco quota and price support program administered
by the federal government. In May 2003, the Company Subsidiaries, along with several other domestic cigarette manufacturers and tobacco−leaf dealers entered
into a settlement agreement with the plaintiffs.
Under the settlement agreement, the Company Subsidiaries will collectively pay $12 million for distribution to members of the class. The total amount to be paid
by all the settling defendants, of which there are five in addition to the Company Subsidiaries, to the class is approximately $212 million, plus commitments by
the three settling cigarette manufacturers (i) to purchase certain volumes of domestic flue−cured and burley tobacco for at least ten years and (ii) to pay the fees
of plaintiffs’ counsel when approved by the court. The settlement agreement is contingent on final approval by the court.
53
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company maintains that none of its three subsidiaries party to this lawsuit and none of their employees have violated any antitrust laws. The Company
decided to enter into the settlement in order to avoid further expense, inconvenience, and burden of this litigation; to prevent the distraction and diversion of our
employees; and to put to rest this controversy with valued U.S. tobacco growers. The parties have agreed that the settlement agreement does not constitute an
admission of the truth of any of the claims or allegations in the lawsuit. Because management believes it is probable that the court will ultimately approve the
settlement agreement, the Company has recorded an accrual of $12 million before taxes, or about $7.7 million after taxes, in the fourth quarter of fiscal year
2003.
The Competition Directorate−General of the European Commission (“DG Comp”) is investigating the buying practices of Spanish tobacco processors with the
stated aim of determining to what extent the tobacco processing companies have jointly agreed on raw tobacco qualities and prices offered to Spanish tobacco
growers. After conducting an investigation, the Company believes that Spanish tobacco processors, including the Company’s Spanish subsidiary, Tabacos
Espanoles, S.A. (“TAES”), have jointly agreed to the terms of sale of green tobacco and quantities to be purchased from associations of farmers and have jointly
negotiated with those associations. TAES is cooperating fully with the DG Comp in its investigation and believes that there are unusual, mitigating circumstances
peculiar to the highly structured market for green tobacco in Spain. At this time, no estimate can be made of the amount or timing of the fine, if any, that DG
Comp may assess on TAES.
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. The allowance for doubtful
accounts as of June 30, 2003 and 2002, was $21 million and $17 million, respectively. 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:
Tobacco
Lumber and building products
Agri−products
54
At June 30,
2003
2002
$193,585
118,723
58,478
$168,943
84,343
47,911
$370,786
$301,197
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 10. SEGMENT INFORMATION
The Company reports 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 of “Notes to Consolidated Financial Statements.” Sales between segments are
insignificant. Sales and other operating revenues are attributed to individual countries based on the location of the subsidiary.
Equity in pretax earnings of unconsolidated affiliates relates primarily to the tobacco segment.
Long−lived assets consist of net property, plant and equipment, goodwill, other intangibles, and other noncurrent assets.
Reportable segments are as follows:
Tobacco
Selecting, buying, shipping, processing, packing, storing, and financing of 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 related products to the construction markets and to do−it−yourself retailers in Europe, primarily in the Netherlands.
Agri−Products
Trading and processing tea, sunflower seeds, and nuts and trading of other products from the countries of origin to various customers throughout the world.
55
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Reportable Segment Data
Sales and Other Operating Revenues
Operating Income
Years Ended June 30,
2003
2002
2001
2003
2002
2001
Tobacco
Lumber and building products
Agri−products
$ 1,592,440
597,909
446,427
$ 1,559,811
514,084
426,183
$ 2,062,080
498,615
456,884
$ 230,125
32,494
12,604
$ 203,010
24,736
12,505
$ 239,557
25,527
13,703
Total segments
Corporate expenses
Restructuring costs
Equity in pretax earnings of unconsolidated affiliates
2,636,776
2,500,078
3,017,579
275,223
(23,968)
(33,001)
(10,439)
240,251
(21,433)
(18,311)
278,787
(21,071)
(8,745)
(10,189)
Consolidated total
$ 2,636,776
$ 2,500,078
$ 3,017,579
$ 207,815
$ 200,507
$ 238,782
Years Ended June 30,
Tobacco
Lumber and building products
Agri−products
Total segments
Corporate
Consolidated total
Years Ended June 30,
Tobacco
Lumber and building products
Agri−products
Total segments
Corporate
Consolidated total
Geographic Data
Years Ended June 30,
United States
The Netherlands
All other countries
Consolidated total
Segment Assets
Goodwill
2003
2002
2001
2003
2002
2001
$ 1,651,084
423,106
165,478
$ 1,425,050
260,256
156,974
$ 1,398,952
222,661
158,477
$ 100,916
24,727
750
$ 100,878
16,703
358
$ 101,105
9,883
353
2,239,668
3,406
1,842,280
2,135
1,780,090
2,283
126,393
117,939
111,341
$ 2,243,074
$ 1,844,415
$ 1,782,373
$ 126,393
$ 117,939
$ 111,341
Depreciation and Amortization
Capital Expenditures
2003
2002
2001
2003
2002
2001
$ 40,396
8,945
2,384
$ 45,432
7,354
2,201
$ 47,208
6,963
2,228
$ 103,860
10,031
1,505
$ 99,190
8,414
3,186
$ 53,656
5,886
1,603
51,725
54,987
56,399
115,396
110,790
61,145
$ 51,725
$ 54,987
$ 56,399
$ 115,396
$ 110,790
$ 61,145
Sales and Other Operating
Revenues
2003
2002
2001
$
857,286
730,568
1,048,922
$
908,846
655,239
935,993
$ 1,322,999
658,208
1,036,372
$ 2,636,776
$ 2,500,078
$ 3,017,579
Long−Lived Assets
2003
2002
2001
United States
The Netherlands
Brazil
All other countries
Consolidated total
$
323,614
150,387
93,217
165,273
$
266,734
80,274
85,962
171,300
$
217,721
66,956
72,778
175,793
$
732,491
$
604,270
$
533,248
56
UNIVERSAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 11. UNAUDITED QUARTERLY FINANCIAL DATA
Due to the seasonal nature of the tobacco, lumber and building products, and agri−products businesses, management believes it is generally more meaningful to
focus on cumulative rather than quarterly results.
2003
Sales and other operating revenues
Gross profit
Net income
Net income per common share: Basic
Diluted
Cash dividends declared per common share
Market price range: High
Low
2002
Sales and other operating revenues
Gross profit
Net income
Net income per common share: Basic
Diluted
Cash dividends declared per common share
Market price range: High
Low
NOTE 12. SUBSEQUENT EVENT
Years Ended June 30,
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$ 657,276
131,705
28,477
1.09
1.09
0.34
39.23
31.81
$ 616,377
116,466
28,329
1.04
1.04
0.32
43.05
33.37
$ 708,578
131,934
26,743
1.04
1.04
0.36
37.52
32.85
$ 744,275
133,685
29,091
1.09
1.09
0.34
37.54
31.74
$ 593,836
118,746
23,785
0.95
0.94
0.36
39.28
35.40
$ 547,073
127,077
33,114
1.26
1.26
0.34
39.45
34.90
$ 677,086
155,766
31,589
1.27
1.26
0.36
43.01
37.69
$ 592,353
116,123
16,128
0.61
0.61
0.34
43.00
36.01
The Company has decided to change its fiscal year−end to March 31 from June 30, bringing all consolidated subsidiaries to the same reporting date. The
Company plans to file a Transitional Report on Form 10−K for the nine months ending March 31, 2004.
57
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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the
period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States.
Richmond, Virginia
August 7, 2003
/s/ Ernst & Young LLP
58
To the Shareholders of Universal Corporation:
Report of Management
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 Audit 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.
August 7, 2003
59
/s/ H ARTWELL H. R OPER
Hartwell H. Roper
Vice President and Chief Financial
Officer
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
For the three years ended June 30, 2003, there were no changes in or disagreements between the Company and its independent auditors on any matter of
accounting principles, practices or financial disclosures.
Item 9A. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed by the Company
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. The Company’s Chief Executive
Officer and Chief Financial Officer evaluated, with the participation of other members of the Company’s management, the effectiveness of the Company’s
disclosure controls and procedures (as defined in Exchange Act Rule 15d−15(e)), as of the end of the period covered by this Annual Report on Form 10−K.
Based on this evaluation, the Company’s management concluded that the Company’s disclosure controls and procedures were effective. There were no
significant changes in the Company’s internal controls over financial reporting identified in connection with this evaluation that occurred during the Company’s
last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Item 10. Directors and Executive Officers of the Registrant
PART III
Refer to the captions “Election of Directors” and “Stock Ownership – Section 16(a) Beneficial Ownership Reporting Compliance” in the September 23, 2003
Proxy Statement, which information is incorporated herein by reference. The following are executive officers of Universal Corporation as of September 12,
2003.
Name
A. B. King
H. H. Roper
W. L. Taylor
J. M. M. van de Winkel
J. H. Starkey, III
G. C. Freeman, III
J. A. Huffman
Position
President and Chief Executive Officer
Vice President and Chief Financial Officer
Vice President and Chief Administrative Officer
President and Chairman of the Board of Deli Universal, Inc.
Vice President
General Counsel and Secretary
Controller
Age
57
55
62
54
62
40
41
There are no family relationships between any of the above officers.
All of the above officers, except Messrs. King, van de Winkel, Freeman, and Huffman, have been employed by the Company in the listed capacities during the
last five years. A. B. King served as President and Chief Operating Officer from December 1992 until December 2002 and was elected President and Chief
Executive Officer effective January 1, 2003. J. M. M. van de Winkel was Co−
60
President and Co−Chairman of Deli Universal, Inc. from August 1998 until August 5, 2003. G. C. Freeman, III served as Vice President, Associate General
Counsel and Assistant Secretary of Universal Leaf Tobacco Company, Incorporated from June 1998 to February 2001. J. A. Huffman was Director, Financial
Reporting prior to November 2000.
Item 11. Executive Compensation
Refer to the captions “Executive Compensation” and “Directors’ Compensation” in the Company’s September 23, 2003 Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See “Market for Registrant’s Common Equity and Related Shareholder Matters.” Refer also to the caption “Stock Ownership” in the Company’s September 23,
2003 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 23, 2003 Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Refer to the caption “Audit Information – Fees of Independent Auditors” in the Company’s September 23, 2003 Proxy Statement, which information is
incorporated herein by reference.
61
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8−K
PART IV
(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, 2003, 2002, and 2001
Consolidated Balance Sheets at June 30, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended June 30, 2003, 2002, and 2001
Consolidated Statements of Changes in Shareholders’ Equity for the years ended June 30, 2003, 2002, and 2001
Notes to Consolidated Financial Statements for the years ended June 30, 2003, 2002, and 2001
Report of Ernst & Young LLP, Independent Auditors
(2)
Financial Statement Schedules: None
(3)
List of Exhibits:
3.1
3.2
4.1
4.2
4.3
4.4
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).
Bylaws (incorporated herein by reference to the Registrant’s Annual Report on Form 10−K for the fiscal year ended
June 30, 2001, File No 1−652).
Indenture between the Registrant and Chemical Bank, as trustee (incorporated herein by reference to the Registrant’s
Current Report on Form 8−K dated February 25, 1991, File No. 1−652).
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).
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).
Specimen Common Stock Certificate (incorporated herein by reference to Amendment No. 1 to the Registrant’s
Form 8−A Registration Statement, dated May 7, 1999, File No. 1−652).
62
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
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).
Distribution Agreement dated September 6, 2000 (including forms of Terms Agreement, Pricing Supplement, Fixed Rate Note and Floating Rate
Note) (incorporated herein by reference to the Registrant’s Current Report on Report 8−K dated September 6, 2000, File No. 1−652).
Form of Fixed Rate Note due October 2, 2003 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated October 2,
2000, File No. 1−652).
Form of Fixed Rate Note due May 2, 2005 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November 13,
2000, File No. 1−652).
Form of Fixed Rate Note due November 21, 2007 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
21, 2000, File No. 1−652).
Form of Floating Rate Note due November 30, 2004 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated
December 1, 2000, File No. 1−652).
Form of Fixed Rate Note due December 15, 2005 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated December
8, 2000, File No. 1−652).
Form of Fixed Rate Note due December 15, 2010 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated December
15, 2000, File No. 1−652).
Form of Fixed Rate Note due January 26, 2004 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated January 30,
2001, File No. 1−652).
Form of Fixed Rate Note due February 15, 2008 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated February
12, 2001, File No. 1−652).
Form of Fixed Rate Note due February 15, 2007, (incorporated by reference to the Registrant’s Current Report on Form 8−K dated February 19,
2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
3, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
12, 2002, File No. 1−652).
Form of Fixed Rate Note due September 20, 2007 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
20, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
24, 2002, File No. 1−652).
Form of Fixed Rate Note due September 26, 2012 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
26, 2002, File No. 1−652).
63
4.21
4.22
4.23
4.24
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated October
31, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
4, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
7, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
8, 2002, File No. 1−652).
The Registrant, by signing this Report on Form 10−K, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long−term debt of the Registrant and its consolidated subsidiaries, and for any unconsolidated
subsidiaries for which financial statements are required to be filed, and 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.
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).
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).
Form of 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).
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).
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).
Universal Leaf Tobacco Company, Incorporated 1996 Benefit Restoration Plan (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).
Universal Corporation 1989 Executive Stock Plan, as amended on August 7, 2003.*
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).
64
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
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).
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).
Universal Corporation Outside Directors’ 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).
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).
Form of 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).
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).
Form of Universal Corporation Non−Employee Director Non−Qualified Stock Option Agreement (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2000, File No. 1−652).
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 herein by reference to the Registrant’s Annual Report on
Form 10−K for the fiscal year ended June 30, 1997, File No. 1−652).
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).
Form of Universal Corporation 1997 Restricted Stock Agreement with Schedule of Awards to named 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).
Form of Universal Corporation 1997 Stock Option and Equity Accumulation Agreement, with Schedule of Grants to named 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).
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).
65
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
Form of Employment Agreement dated January 15, 1998, between Universal Corporation and named executive officers (Henry H. Harrell, Allen B.
King, William L. Taylor, Hartwell H. Roper) (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).
Universal Corporation Director’s 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).
Universal Corporation 1997 Executive Stock Plan, as amended on August 7, 2003.*
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).
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 Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated December 31, 1999 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Universal Corporation 2000 Special Non−Qualified Stock Option Agreement, with Schedule of Grants and Exercise Loans to named
executive officers (incorporated herein by reference to the Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2000, File
No. 1−652).
Agreement for Stemming Services between Philip Morris Incorporated and Universal Leaf Tobacco Company, Incorporated, dated May 11, 2001
(incorporated herein by reference to the Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated March 15, 1999 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated December 8, 2000 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated June 11, 2001 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Non−Qualified Stock Option Agreements dated June 11, 2001 (incorporated herein by reference to the Registrant’s Annual
Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
66
10.33
10.34
10.35
10.36
10.37
10.38
10.39
12
21
23
31.1
31.2
32.1
32.2
Form of Amendment to 2000 Special Non−Qualified Stock Option Agreements dated June 15, 2001 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of 2001 Non−Qualified Stock Option Agreement, with Schedule of Grants to Executive Officers (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2002, File No. 1−652).
Amendment No. 1 to Stemming Services Agreement by and between Philip Morris Incorporated and Universal Leaf Tobacco Company
Incorporated dated August 29, 2002 (incorporated herein by reference to the Registrant’s Quarterly Report on Form 10−Q for the quarter ended
September 30, 2002, File No. 1−652).
Universal Corporation 2002 Executive Stock Plan, as amended on August 7, 2003.*
Form of 2002 Stock Option and Equity Accumulation Agreement, with Schedule of Grants to Executive Officers.*
Form of 2002 Non−Qualified Stock Option Agreement, with Schedule of Grants to Executive Officers.*
Term Loan Credit Agreement dated as of April 7, 2003, by and among the Registrant and the Registrant’s subsidiaries identified therein as a
“Guarantor” and such other entities as may from time to time become a party thereto, the lenders named therein and such other lenders as may
become a party thereto, and Wachovia Bank, National Association, as Administrative Agent (incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10−Q for the quarter ended March 31, 2003, File No. 1−652).
Ratio of Earnings to Fixed Charges.*
Subsidiaries of the Registrant.*
Consent of Independent Auditors.*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.*
Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.*
Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*
* Filed herewith.
67
(b)
Reports on Form 8−K
(1)
(2)
(3)
(4)
(5)
Form 8−K dated May 5, 2003, reporting Item 5 concerning appointment of new director and filing related press release under Item 7.
Form 8−K dated May 6, 2003, reporting Item 12 concerning earnings for quarter ended March 31, 2003 and furnishing related press release under
Item 7.
Form 8−K dated May 13, 2003, reporting Item 5 concerning remarks of Allen B. King at 2003 Tobacco Supplier Conference, May 13, 2003 and
filing transcript of remarks under Item 7.
Form 8−K dated May 16, 2003, reporting Item 5 concerning entering DeLoach Case Settlement Agreement and filing related press release under
Item 7.
Form 8−K dated August 7, 2003, reporting Item 12 concerning earnings for period ended June 30, 2003, reporting Item 8 concerning change in
fiscal year, and furnishing related press releases under Item 7.
(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.
68
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.
SIGNATURES
September 12, 2003
UNIVERSAL CORPORATION
By:
/s/ ALLEN B. KING
Allen B. King
President 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.
Signature
Title
Date
/s/ A LLEN B. K ING
Allen B. King
President and Chief Executive Officer and Director
(Principal Executive Officer)
September 12, 2003
/s/ H ARTWELL H. R OPER
Vice President and Chief Financial Officer
September 12, 2003
Hartwell H. Roper
/s/ J AMES A. H UFFMAN
Controller (Principal Accounting Officer)
September 12, 2003
James A. Huffman
/s/ H ENRY H. H ARRELL
Chairman and Director
September 12, 2003
Henry H. Harrell
/s/ J OHN B. A DAMS , J R.
Director
September 12, 2003
John B. Adams, Jr.
/s/ J OSEPH C. F ARRELL
Director
September 12, 2003
Joseph C. Farrell
/s/ C HARLES H. F OSTER , J R.
Director
September 12, 2003
Charles H. Foster, Jr.
/s/ T HOMAS H. J OHNSON
Director
September 12, 2003
Thomas H. Johnson
69
Signature
Title
Date
/s/ E DDIE N. M OORE
Director
September 12, 2003
Eddie N. Moore
/s/ J EREMIAH J. S HEEHAN
Director
September 12, 2003
Jeremiah J. Sheehan
/s/ H UBERT R. S TALLARD
Director
September 12, 2003
Hubert R. Stallard
/s/ W ALTER A. S TOSCH
Director
September 12, 2003
Walter A. Stosch
/s/ D R. E UGENE P.T RANI
Director
September 12, 2003
Dr. Eugene P. Trani
70
Exhibit
Number
Document
EXHIBIT INDEX
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
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).
Bylaws (incorporated herein by reference to the Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No.
1−652).
Indenture between the Registrant and Chemical Bank, as trustee (incorporated herein by reference to the Registrant’s Current Report on Form
8−K dated February 25, 1991, File No. 1−652).
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).
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).
Specimen Common Stock Certificate (incorporated herein by reference to the Registrant’s Amendment No. 1 to Registrant’s Form 8−A
Registration Statement, dated May 7, 1999, File No. 1−652).
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).
Distribution Agreement dated September 6, 2000 (including forms of Terms Agreement, Pricing Supplement, Fixed Rate Note and Floating
Rate Note) (incorporated herein by reference to Registrant’s Current Report on Report 8−K dated September 6, 2000, File No. 1−652).
Form of Fixed Rate Note due October 2, 2003 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated October
2, 2000, File No. 1−652).
Form of Fixed Rate Note due May 2, 2005 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
13, 2000, File No. 1−652).
Form of Fixed Rate Note due November 21, 2007 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated
November 21, 2000, File No. 1−652).
Form of Floating Rate Note due November 30, 2004 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated
December 1, 2000, File No. 1−652).
Form of Fixed Rate Note due December 15, 2005 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated
December 8, 2000, File No. 1−652).
1
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
Form of Fixed Rate Note due December 15, 2010 (incorporated herein by reference to the Registrant’s Current Report on
Form 8−K dated December 15, 2000, File No. 1−652).
Form of Fixed Rate Note due January 26, 2004 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated January 30,
2001, File No. 1−652).
Form of Fixed Rate Note due February 15, 2008 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated February
12, 2001, File No. 1−652).
Form of Fixed Rate Note due February 15, 2007 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated February
19, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
3, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
12, 2002, File No. 1−652).
Form of Fixed Rate Note due September 20, 2007 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
20, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
24, 2002, File No. 1−652).
Form of Fixed Rate Note due September 26, 2012 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated September
26, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated October
31, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
4, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
7, 2002, File No. 1−652).
Form of Fixed Rate Note due September 15, 2009 (incorporated herein by reference to the Registrant’s Current Report on Form 8−K dated November
8, 2002, File No. 1−652).
The Registrant, by signing this Report on Form 10−K, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long−term debt of the Registrant and its consolidated subsidiaries, and for any unconsolidated
subsidiaries for which financial statements are required to be filed and 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.
2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
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).
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).
Form of 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).
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).
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).
Universal Leaf Tobacco Company, Incorporated 1996 Benefit Restoration Plan (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).
Universal Corporation 1989 Executive Stock Plan, as amended on August 7, 2003.*
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).
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).
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).
Universal Corporation Outside Directors’ 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).
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).
3
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Form of 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).
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).
Form of Universal Corporation Non−Employee Director Non−Qualified Stock Option Agreement (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2000, File No. 1−652).
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 herein by reference to the Registrant’s Annual Report on
Form 10−K for the fiscal year ended June 30, 1997, File No. 1−652).
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).
Form of Universal Corporation 1997 Restricted Stock Agreement with Schedule of Awards to named 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).
Form of Universal Corporation 1997 Stock Option and Equity Accumulation Agreement, with Schedule of Grants to named 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).
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).
Form of Employment Agreement dated January 15, 1998, between Universal Corporation and named executive officers (Henry H. Harrell, Allen B.
King, William L. Taylor, Hartwell H. Roper) (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).
Universal Corporation Director’s 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).
10.23
Universal Corporation 1997 Executive Stock Plan, as amended on August 7, 2003.*
4
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
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).
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 Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated December 31, 1999 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Universal Corporation 2000 Special Non−Qualified Stock Option Agreement, with Schedule of Grants and Exercise Loans to named
executive officers (incorporated herein by reference to the Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2000, File
No. 1−652).
Agreement for Stemming Services between Philip Morris Incorporated and Universal Leaf Tobacco Company, Incorporated, dated May 11, 2001
(incorporated herein by reference to the Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated March 15, 1999 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated December 8, 2000 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Stock Option and Equity Accumulation Agreements dated June 11, 2001 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to Non−Qualified Stock Option Agreements dated June 11, 2001 (incorporated herein by reference to the Registrant’s Annual
Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
Form of Amendment to 2000 Special Non−Qualified Stock Option Agreements dated June 15, 2001 (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2001, File No. 1−652).
5
10.34
10.35
10.36
10.37
10.38
10.39
12
21
23
31.1
31.2
32.1
32.2
Form of 2001 Non−Qualified Stock Option Agreement, with Schedule of Grants to Executive Officers (incorporated herein by reference to the
Registrant’s Annual Report on Form 10−K for the fiscal year ended June 30, 2002, File No. 1−652).
Amendment No. 1 to Stemming Services Agreement by and between Philip Morris Incorporated and Universal Leaf Tobacco Company
Incorporated dated August 29, 2002 (incorporated herein by reference to the Registrant’s Quarterly Report on Form 10−Q for the quarter ended
September 30, 2002, File No. 1−652).
Universal Corporation 2002 Executive Stock Plan as amended on August 7, 2003.*
Form of 2002 Stock Option and Equity Accumulation Agreement, with Schedule of Grants to Executive Officers.*
Form of 2002 Non−Qualified Stock Option Agreement, with Schedule of Grants to Executive Officers.*
Term Loan Credit Agreement dated as of April 7, 2003, by and among the Registrant and the Registrant’s subsidiaries identified therein as a
“Guarantor” and such other entities as may from time to time become a party thereto, the lenders named therein and such other lenders as may
become a party thereto, and Wachovia Bank, National Association, as Administrative Agent (incorporated herein by reference to the Registrant’s
Quarterly Report on Form 10−Q for the quarter ended March 31, 2003, File No. 1−652).
Ratio of Earnings to Fixed Charges.*
Subsidiaries of the Registrant.*
Consent of Independent Auditors.*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes−Oxley Act of 2002.*
Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.*
Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*
* Filed herewith.
6
Exhibit 10.7
UNIVERSAL CORPORATION
1989 EXECUTIVE STOCK PLAN
(As Amended on August 7, 2003)
Article 1
DEFINITIONS
1.01 Affiliate means any "subsidiary" or "parent corporation" (within the
meaning of Section 424 of the Code) of the Company.
1.02 Agreement means a written agreement (including any amendment or supplement thereto) between
the Company and a Participant specifying the terms and conditions of a Grant or an Award issued
to such Participant.
1.03 Award means an award of Common Stock and/or Restricted Stock.
1.04 Board means the Board of Directors of the Company.
1.05 Change of Control means and shall be deemed to have taken place if: (i) a third person,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes the beneficial owner of shares of the Company having 20 percent or more of the total
number of votes that may be cast for the election of Directors of the Company; or, (ii) as the
result of, or in connection with, any cash tender or exchange offer, merger or other business
combination, sale of assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or any successor
to the Company.
1.06 Change of Control Date is the date on which an event described in
(i) or (ii) of Section 1.05 occurs.
1.07 Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.08 Committee means the Executive Compensation Committee of the Board.
1.09 Common Stock means the Common Stock of the Company.
1.10 Company means Universal Corporation.
1.11 Fair Market Value of a share of Common Stock as of any given date (i) prior to August 7,
2003, means the closing sale price of a share of Common Stock on the New York Stock Exchange
Composite Tape on such date, or (ii) on or after August 7, 2003, means the closing sale price
of a share of Common Stock on the New York Stock Exchange Composite
Tape on the next preceding date that the Common Stock was traded on such
exchange, in either case as reported by such source as the Committee may select.
1.12 Grant means the grant of an Option.
1.13 Incentive Stock Option means an Option that is intended to qualify as
an "incentive stock option" under Section 422 of the Code.
1.14 Non−Qualified Stock Option means an option other than an Incentive
Stock Option.
1.15 Option means a stock option that entitles the holder to purchase from the Company a stated
number of shares of Common Stock at the price set forth in an Agreement.
1.16 Option Price means the price per share for Common Stock purchased on
the exercise of an Option as provided in Article VI.
1.17 Participant means an employee of the Company or of a Subsidiary, including an employee who
is a member of the Board, who satisfies the requirements of Article IV and is selected by the
Committee to receive a Grant or an Award.
1.18 Plan means the Universal Corporation 1989 Executive Stock Plan, as
amended.
1.19 Restricted Stock means shares of Common Stock awarded to a Participant under Article IX.
Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms of
the applicable Agreement, they become transferable and free of substantial risks of forfeiture.
1.20 Rule 16b−3 means Rule 16b−3, as promulgated by the Securities and
Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934,
as amended from time to time.
1.21 Securities Broker means the registered securities broker acceptable to the Company who
agrees to effect the cashless exercise of an Option pursuant to Section 8.04 hereof.
1.22 Subsidiary means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations in the chain (other than the last corporation) owns stock
possessing at least 50 percent of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
Article II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining key employees with
ability and initiative by enabling employees who contribute significantly to the Company or an
− 2 −
Affiliate to participate in its future success and to associate their interests with those of
the Company and its shareholders. The Plan is intended to permit the award of Common Stock and
Restricted Stock, and the issuance of Options qualifying as Incentive Stock Options or
Non−Qualified Stock Options as designated by the Committee at time of grant. No Option that is
intended to be an Incentive Stock Option, however, shall be invalid for failure to qualify as
an Incentive Stock Option under Section 422 of the Code but shall be treated as a Non−Qualified
Stock Option.
Article III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have authority to issue
Grants and Awards upon such terms (not inconsistent with the provisions of this Plan) as the
Committee may consider appropriate. The terms of such Grants and Awards may include conditions
(in addition to those contained in this Plan) on (i) the exercisability of all or any part of
an Option and (ii) the transferability or forfeitability of Restricted Stock. In addition, the
Committee shall have complete authority to interpret all provisions of this Plan; to prescribe
the form of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. To fulfill the purposes of the Plan without amending the Plan, the
Committee may also modify any Grants or Awards issued to Participants who are nonresident
aliens or employed outside of the United States to recognize differences in local law, tax
policy or custom.
The express grant in the Plan of any specific power to the Committee shall
not be construed as limiting any power or authority of the Committee. Any
decision made, or action taken, by the Committee or in connection with the
administration of this Plan shall be final and conclusive. All expenses of
administering this Plan shall be borne by the Company.
Article IV
ELIGIBILITY
4.01 General. Any employee of the Company or of any Subsidiary (including any corporation that
becomes a Subsidiary after the adoption of this Plan) who, in the judgment of the Committee, has
contributed significantly or can be expected to contribute significantly to the profits or
growth of the Company or a Subsidiary may receive one or more Awards or Grants, or any
combination or type thereof. Directors of the Company who are employees are eligible to
participate in this Plan. A person who is a member of the Committee may not be issued Awards or
Grants while he is a member of the Committee.
4.02 Grants and Awards. The Committee will designate individuals to whom
Grants and/or Awards are to be issued and will specify the number of shares of
Common Stock subject to each such Grant or Award. All Grants or Awards issued
under this Plan shall be evidenced by
− 3 −
Agreements which shall be subject to applicable provisions of this Plan and to such other
provisions as the Committee may adopt. No Participant may be granted Options that are Incentive
Stock Options (under all Incentive Stock Option Plans of the Company and Affiliates) which are
first exercisable in any calendar year for stock having an aggregate Fair Market Value
(determined as of the date an Option is granted) exceeding $100,000. A Participant may not
receive Grants and Awards under this Plan with respect to more than 200,000 shares of Common
Stock during any calendar year.
4.03 Reload Options. The Committee shall have the authority to specify at
the time of Grant that an optionee shall be granted the right to a further
Non−Qualified Stock Option (a "Reload Option") in the event such optionee
exercises all or a part of an Option, including a Reload Option (an "Original
Option"), by surrendering in accordance with Section 8.02 hereof already owned
shares of Common Stock in full or partial payment of the Option Price under such
Original Option. Each Reload Option shall be granted on the date of exercise of
the Original Option, shall cover a number of shares of Common Stock not
exceeding the whole number of shares of Common Stock surrendered in payment of
the Option Price under such Original Option, shall have an Option Price equal to
the Fair Market Value on the date of Grant of such Reload Option, shall expire
on the stated expiration date of the Original Option and shall be subject to
such other terms and conditions as the Committee may determine.
4.04 Designation of Option as an Incentive Stock Option or a Non−Qualified Stock Option. The
Committee will designate at the time an Option is granted whether the Option is to be treated
as an Incentive Stock Option or a Non−Qualified Stock Option. In the absence, however, of any
such designation, such Option shall be treated as a Non−Qualified Stock Option.
Article V
STOCK SUBJECT TO PLAN
The maximum number of shares of Common Stock available for Grants (other than Grants of Reload
Options) and Awards under the Plan shall be 2,000,000. The maximum number of shares of Common
Stock available for Grants of Reload Options under the Plan shall be 500,000, which amount,
beginning on July 1, 1993 and ending on June 30, 1998, shall be increased in each fiscal year
of the Company by an amount equal to two percent (2%) of the total number of shares of Common
Stock outstanding as of the first day of each such fiscal year. Each such maximum number of
shares of Common Stock is subject to adjustment (after taking into account the preceding annual
increase in the maximum number of shares of Common Stock available for Grants of Reload Options)
as provided in Article X. Shares of Common Stock subject to Grants and Awards under the Plan may
be authorized but previously unissued shares of Common Stock or previously issued shares of
Common Stock reacquired by the Company. The grant of a Reload Option under the Plan, by
restoring an option opportunity on the number of shares of Common Stock surrendered to exercise
an Original Option, will encourage a Participant to maximize his ownership interest in the
Company without reducing the percentage interests of shareholders.
− 4 −
If any shares of Restricted Stock are forfeited for which the Participant did not receive any
benefits of ownership (other than voting rights), or if any Option (other than a Reload Option)
terminates without being exercised, shares of Common Stock subject to such Grants or Awards
shall be available for distribution in connection with Grants (other than Grants of Reload
Options) or Awards under the Plan. If any Reload Option terminates without being exercised, the
shares of Common Stock subject to such terminated Reload Option shall be available for
distribution in connection with Grants of Reload Options under the Plan.
Article VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an Option shall be fixed by
the Committee, but shall not be less than the Fair Market Value on the date of grant.
Article VII
EXERCISE OF OPTIONS
7.01 Maximum Option Period. The period in which an Option may be exercised shall be determined
by the Committee on the date of grant; provided, however that an Incentive Stock Option shall
not be exercisable after the expiration of 10 years from the date the Incentive Stock Option was
granted.
7.02 Transferability of Options. Non−Qualified Stock Options may be
transferable by a Participant and exercisable by a person other than a
Participant, but only to the extent specifically provided in an Option
Agreement. Incentive Stock Options, by their terms, shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the Participant. No
right or interest of a Participant in any Option shall be liable for, or subject
to, any lien, obligation or liability of such Participant.
7.03 Employee Status. For purposes of determining the applicability of Section 422 of the Code
(relating to incentive stock options), or in the event that the terms of any Grant provide that
it may be exercised only during employment or within a specified period of time after
termination of employment, the Committee may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
− 5 −
Article VIII
METHOD OF EXERCISE
8.01 Exercise. Subject to the provisions of Articles VII and XI, an Option may be exercised in
whole at any time or in part from time to time at such times and in compliance with such
requirements as the Committee shall determine. An Option granted under this Plan may be
exercised with respect to any number of whole shares less than the full number for which the
Option could be exercised. Such partial exercise of an Option shall not affect the right to
exercise the Option from time to time in accordance with this Plan with respect to remaining
shares subject to the Option.
8.02 Payment. Unless otherwise provided by the Agreement, payment of the
Option Price shall be made in cash. If the Agreement provides, payment of all or
part of the Option Price may be made by surrendering already owned shares of
Common Stock to the Company, provided the shares surrendered have a Fair Market
Value (determined as of the day preceding the date of exercise) that is not less
than such price or part thereof. In addition, the Committee may establish such
payment or other terms as it may deem to be appropriate and consistent with
these purposes.
8.03 Shareholder Rights. No participant shall have any rights as a shareholder with respect to
shares subject to his Option until the date he exercises such Option.
8.04 Cashless Exercise. To the extent permitted under the applicable laws
and regulations, at the request of the Participant and with the consent of the
Committee, the Company agrees to cooperate in a "cashless exercise" of the
Option. The cashless exercise shall be effected by the Participant delivering to
the Securities Broker instructions to exercise all or part of the Option,
including instructions to sell a sufficient number of shares of Common Stock to
cover the costs and expenses associated therewith.
Article IX
COMMON STOCK AND RESTRICTED STOCK
9.01 Award. In accordance with the provisions of Article IV, the Committee will designate
employees to whom an award of Common Stock and/or Restricted Stock is to be made and will
specify the number of shares of Common Stock covered by such award or awards.
9.02 Vesting. In the case of Restricted Stock, on the date of the award,
the Committee may prescribe that the Participant's rights in the Restricted
Stock shall be forfeitable or otherwise restricted for a period of time set
forth in the Agreement and/or until certain financial performance objectives are
satisfied as determined by the Committee in its sole discretion. Subject to the
provisions of Article XI hereof, the Committee may award Common Stock to a
Participant which is not forfeitable and is free of any restrictions or
transferability.
− 6 −
9.03 Shareholder Rights. Prior to their forfeiture in accordance with the terms of the Agreement
and while the shares are Restricted Stock, a Participant will have all rights of a shareholder
with respect to Restricted Stock, including the right to receive dividends and vote the shares;
provided, however, that (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of
the certificates evidencing shares of Restricted Stock, and (iii) the Participant will deliver
to the Company a stock power, endorsed in blank, with respect to each award of Restricted
Stock.
Article X
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Company effect one or more (x) stock dividends, stock split−ups, subdivisions or
consolidations of shares or other similar changes in capitalization; (y) spin−offs, spin−outs,
split−ups, split−offs, or other such distribution of assets to shareholders; or (z) direct or
indirect assumptions and/or conversions of outstanding Options due to an acquisition of the
Company, then the maximum number of shares as to which Grants and Awards may be issued under
this Plan shall be proportionately adjusted and their terms shall be adjusted as the Committee
shall determine to be equitably required, provided that the number of shares subject to any
Grant or Award shall always be a whole number. Any determination made under this Article X by
the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property or for labor
or services, either upon direct sale or upon the exercise of rights or warrants
to subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not affect, and
no adjustment by reason thereof shall be made with respect to any Grant or
Award.
Article XI
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Grant shall be exercisable, no Common Stock shall be issued, no certificates for shares of
Common Stock shall be delivered, and no payment shall be made under this Plan except in
compliance with all applicable Federal and state laws and regulations (including, without
limitation, withholding tax requirements) and the rules of all domestic stock exchanges on
which the Company's shares may be listed. The Company may rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock for which a Grant is
exercised or an Award is issued may bear such legends and statements as the Committee may deem
advisable to assure compliance with Federal and state laws and regulations. No Grant shall be
exercisable, no Common Stock shall be issued, no certificate for shares shall be delivered, and
no payment shall be made under this Plan until the Company has obtained such consent or approval
as the Committee may deem advisable from regulatory bodies having jurisdiction over such
matters.
− 7 −
Article XII
GENERAL PROVISIONS
12.01 Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof) shall confer upon any employee any
right to continue in the employ of the Company or a Subsidiary or in any way affect any right
and power of the Company or a Subsidiary to terminate the employment of any employee at any time
with or without assigning a reason therefor.
12.02 Unfunded Plan. The Plan, insofar as it provides for a Grant, is not
required to be funded, and the Company shall not be required to segregate any
assets that may at any time be represented by a Grant under this Plan.
12.03 Change of Control. At the discretion of the Committee, a Participant's interest in
Restricted Stock may be made nonforfeitable and transferable as of a Change of Control Date. The
Committee may also provide in an Agreement that a Participant may elect, by written notice to
the Company within 60 days after a Change of Control Date, to receive, in exchange for shares
that were Restricted Stock immediately before the Change of Control Date, a cash payment equal
to the Fair Market Value of the shares surrendered on the last business day the Common Stock is
traded on the New York Stock Exchange prior to receipt by the Company of such written notice.
Notwithstanding any other provision in this Plan to the contrary, unless the Committee provides
otherwise in an Agreement, a Grant may be exercised immediately in full upon a Change of
Control.
12.04 Rules of Construction. Headings are given to the articles and
sections of this Plan for ease of reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
12.05 Amendment. The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is obtained if the
amendment (i) materially increases the aggregate number of shares that may be issued pursuant
to Options and Common Stock and Restricted Stock awards, (ii) materially increases the benefits
to Participants under the Plan, or (iii) materially changes the class of employees eligible to
become Participants. No amendment shall, without a Participant's consent, adversely affect any
rights of such Participant under any Grant or Award outstanding at the time such amendment is
made, except such an amendment made to cause the Plan to qualify for the Rule 16b−3 exemption.
No amendment shall be made if it would disqualify the Plan from the exemption provided by Rule
16b−3. The Committee may amend the terms of any Grant or Award theretofore issued under this
Plan, prospectively or retrospectively, and include in such amendment the right of the Committee
to pay a Participant cash in lieu of shares of Common Stock upon the termination (by exercise
or otherwise) of an Option, but no such amendment shall impair the rights of any Participant
without the Participant's consent except such an amendment made to cause the Plan, or Grant or
Award, to qualify for the exemption provided by Rule 16b−3.
− 8 −
12.06 Duration of Plan. No Grant or Award may be issued under this Plan before July 1, 1989, or
after June 30, 1998; provided, however, a Grant of a Reload Option may be issued after June 30,
1998, upon the exercise of an Original Option as provided in Section 4.03 hereof. Grants and
Awards issued on or after July 1, 1989, but on or before June 30, 1998, and Grants of Reload
Options issued after June 30, 1998 upon the exercise of an Original Option as provided in
Section 4.03 hereof, shall remain valid in accordance with their terms.
12.07 Shareholder Approval. This Plan was initially approved by the Board
of Directors of the Company, effective as of July 1, 1989, and was approved by
the shareholders of the Company entitled to vote at the 1989 Annual Meeting of
Shareholders. Amendments to the Plan were approved by the Board of Directors of
the Company, effective as of October 27, 1992, and by the shareholders of the
Company entitled to vote at the 1992 Annual Meeting of Shareholders. Amendments
to the Plan were approved by the Board of Directors of the Company, effective as
of October 25, 1994, and by the shareholders of the Company entitled to vote at
the 1994 Annual Meeting of Shareholders. Amendments to the Plan were approved by
the Board of Directors of the Company effective as of December 1, 1994.
Amendments to the Plan were approved by the Board of Directors of the Company
effective as of December 2, 1999. Amendments to the Plan were approved by the
Board of Directors of the Company effective as of August 7, 2003.
− 9 −
EXHIBIT 10.23
UNIVERSAL CORPORATION
1997 EXECUTIVE STOCK PLAN
(As Amended on August 7, 2003)
Article I
DEFINITIONS
1.1. Affiliate means any "subsidiary" or "parent corporation" (within the
meaning of Section 424 of the Code) of the Company.
1.2. Agreement means a written agreement (including any amendment or supplement thereto) between
the Company and a Participant specifying the terms and conditions of a Grant or an Award issued
to such Participant.
1.3. Award means an award of Common Stock and/or Restricted Stock.
1.4. Board means the Board of Directors of the Company.
1.5. Change of Control means and shall be deemed to have taken place if: (i) any individual,
entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act)
becomes the beneficial owner of shares of the Company having 20 percent or more of the total
number of votes that may be cast for the election of directors of the Company, other than (a)
as a result of any acquisition directly from the Company, or (b) as a result of any acquisition
by any employee benefit plans (or related trusts) sponsored or maintained by the Company or its
Subsidiaries; or (ii) there is a change in the composition of the Board such that the
individuals who, as of the date hereof, constitute the Board (the Board as of the date hereof
shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, for purposes of this Section, that any
individual who becomes a member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; but, provided further, that any such
individual whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a−11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board shall not be so considered as a
member of the Incumbent Board; or (iii) if at any time, (w) the Company shall consolidate with,
or merge with, any other Person and the Company shall not be the continuing or surviving
corporation, (x) any Person shall consolidate with, or merge with, the Company, and the Company
shall be the continuing or
surviving corporation and in connection therewith, all or part of the outstanding Common Stock
shall be changed into or exchanged for stock or other securities of any other person or cash or
any other property, (y) the Company shall be a party to a statutory share exchange with any
other Person after which the Company is a Subsidiary of any other Person, or (z) the Company
shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any Person or Persons.
1.6. Change of Control Date is the date on which an event described in (i),
(ii) or (iii) of Section 1.5 occurs.
1.7. Code means the Internal Revenue Code of 1986, as amended from time to time. References to
the Code shall include the valid and binding governmental regulations, court decisions and
other regulatory and judicial authority issued or rendered thereunder.
1.8. Commission means the Securities and Exchange Commission or any
successor agency.
1.9. Committee means the Executive Compensation Committee of the Board.
1.10. Common Stock means the Common Stock of the Company.
1.11. Company means Universal Corporation.
1.12. Disability, with respect to a Participant, means "disability" as defined from time to time
under any long−term disability plan of the Company or Subsidiary with which the Participant is
employed.
1.13. Exchange Act means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
1.14. Fair Market Value of a share of Common Stock as of any given date (i) prior to August 7,
2003, means the closing sale price of a share of Common Stock on the New York Stock Exchange
Composite Tape on such date, or (ii) on or after August 7, 2003, means the closing sale price
of a share of Common Stock on the New York Stock Exchange Composite Tape on the next preceding
date that the Common Stock was traded on such exchange, in either case as reported by such
source as the Committee may select.
1.15. Grant means the grant of an Option.
1.16. Incentive Stock Option means an Option that is intended to qualify as
an "incentive stock option" under Section 422 of the Code.
1.17. Non−Qualified Stock Option means an Option other than an Incentive
Stock Option.
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1.18. Option means a stock option that entitles the holder to purchase from the Company a
stated number of shares of Common Stock at the price set forth in an Agreement.
1.19. Option Price means the price per share for Common Stock purchased on
the exercise of an Option as provided in Article VI.
1.20. Participant means an officer, director or employee of the Company or of a Subsidiary who
satisfies the requirements of Article IV and is selected by the Committee to receive a Grant or
an Award.
1.21. Plan means the Universal Corporation 1997 Executive Stock Plan.
1.22. Prior Plan means the Universal Corporation 1989 Executive Stock Plan.
1.23. Restricted Stock means shares of Common Stock awarded to a Participant under Article IX.
Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms of
the applicable Agreement, they become transferable and free of substantial risks of forfeiture.
1.24. Rule 16b−3 means Rule 16b−3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
1.25. Securities Broker means the registered securities broker acceptable to the Company who
agrees to effect the cashless exercise of an Option pursuant to Section 8.4 hereof.
1.26. Subsidiary means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations in the chain (other than the last corporation) owns stock
possessing at least 50 percent of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
Article II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining officers, directors and
key employees with ability and initiative by enabling such persons who contribute significantly
to the Company or an Affiliate to participate in its future success and to associate their
interests with those of the Company and its shareholders. The Plan is intended to permit the
award of Common Stock and Restricted Stock, and the issuance of Options qualifying as Incentive
Stock Options or Non−Qualified Stock Options as designated by the Committee at time of grant.
No Option that is intended to be an Incentive Stock Option, however, shall be invalid for
failure to qualify as an Incentive Stock Option under Section 422 of the Code but shall be
treated as a Non−Qualified Stock Option.
− 3 −
Article III
ADMINISTRATION
The Plan shall be administered by the Committee. No Person shall be appointed to or shall serve
as a member of the Committee unless at the time of such appointment and service he shall be a
"non−employee director," as defined in Rule 16b−3 and an "outside director," as defined in
Section 162(m)(4)(C)(i) of the Code. The Committee shall have authority to issue Grants and
Awards upon such terms (not inconsistent with the provisions of this Plan) as the Committee may
consider appropriate. The terms of such Grants and Awards may include conditions (in addition
to those contained in this Plan) on (i) the exercisability of all or any part of an Option and
(ii) the transferability or forfeitability of Restricted Stock. In addition, the Committee
shall have complete authority to interpret all provisions of this Plan; to prescribe the form
of Agreements; to adopt, amend, and rescind rules and regulations pertaining to the
administration of the Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. To fulfill the purposes of the Plan without amending the Plan, the
Committee may also modify any Grants or Awards issued to Participants who are nonresident
aliens or employed outside of the United States to recognize differences in local law, tax
policy or custom.
The express grant in the Plan of any specific power to the Committee shall
not be construed as limiting any power or authority of the Committee. Any
decision made, or action taken, by the Committee or in connection with the
administration of this Plan shall be final and conclusive. All expenses of
administering this Plan shall be borne by the Company.
Article IV
ELIGIBILITY
4.1. General. Any officer, director or employee of the Company or of any Subsidiary (including
any corporation that becomes a Subsidiary after the adoption of this Plan) who, in the judgment
of the Committee, has contributed significantly or can be expected to contribute significantly
to the profits or growth of the Company or a Subsidiary may receive one or more Awards or
Grants, or any combination or type thereof. Employee and non−employee directors of the Company
are eligible to participate in this Plan.
4.2. Grants and Awards. The Committee will designate individuals to whom
Grants and/or Awards are to be issued and will specify the number of shares of
Common Stock subject to each such Grant or Award. An Option may be granted alone
or in addition to other Grants and/or Awards under the Plan. The Committee shall
have the authority to grant any Participant Incentive Stock Options,
Non−Qualified Stock Options or both types of Options; provided, however, that
Incentive Stock Options may be granted only to employees of the Company and its
subsidiaries (within the meaning of Section 424(f) of the Code). All Grants or
Awards issued under this Plan shall be evidenced by Agreements which shall be
subject to applicable provisions of this Plan and to such other provisions as
the Committee may determine. No Participant may
− 4 −
be granted Options that are Incentive Stock Options (under all Incentive Stock Option plans of
the Companyand Affiliates) which are first exercisable in any calendar year for stock having an
aggregate Fair Market Value (determined as of the date an Option is granted) exceeding $100,000.
A Participant may not receive Grants and Awards under this Plan with respect to more than
200,000 shares of Common Stock during any calendar year.
4.3. Reload Options. The Committee shall have the authority to specify at
the time of Grant that an optionee shall be granted the right to a further
Non−Qualified Stock Option (a "Reload Option") in the event such optionee
exercises all or a part of an Option, including a Reload Option (an "Original
Option"), by surrendering in accordance with Section 8.2 hereof already owned
shares of Common Stock in full or partial payment of the Option Price under such
Original Option. Each Reload Option shall be granted on the date of exercise of
the Original Option, shall cover a number of shares of Common Stock not
exceeding the whole number of shares of Common Stock surrendered in payment of
the Option Price under such Original Option, shall have an Option Price equal to
the Fair Market Value on the date of Grant of such Reload Option, shall expire
on the stated expiration date of the Original Option and shall be subject to
such other terms and conditions as the Committee may determine.
4.4. Designation of Option as an Incentive Stock Option or a Non−Qualified Stock Option. The
Committee will designate at the time an Option is granted whether the Option is to be treated
as an Incentive Stock Option or a Non−Qualified Stock Option. In the absence, however, of any
such designation, such Option shall be treated as a Non−Qualified Stock Option.
4.5. Qualification of Incentive Stock Option under Section 422 of the Code.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Article V
STOCK SUBJECT TO PLAN
Subject to the adjustment provisions of Article X and the provisions of (a) through (c) of this
Article V, up to 2,000,000 shares of Common Stock may be issued under the Plan. In addition to
such authorization, the following shares of Common Stock may be issued under the Plan:
(a) Shares of Common Stock that are forfeited under the Prior Plan and
shares of Common Stock that are not issued under the Prior Plan because of a
payment of cash in lieu of shares of Common Stock, the cancellation, termination
or expiration of Grants and Awards, and/or other similar events under the Prior
Plan shall be available for issuance under this Plan.
− 5 −
(b) If a Participant tenders, or has withheld, shares of Common Stock in payment of all or part
of the Option Price under an Option granted under the Plan, or in satisfaction of withholding
tax obligations thereunder, the shares of Common Stock so tendered by the Participant or so
withheld shall become available for issuance under the Plan.
(c) If shares of Common Stock that are issued under the Plan are
subsequently forfeited in accordance with the terms of the Grant or Award, the
forfeited shares of Common Stock shall become available for issuance under the
Plan.
Notwithstanding (a) above, any shares of Common Stock that are authorized to be issued under the
Prior Plan prior to the expiration of its term, but that are not issued or covered by Grants or
Awards under the Prior Plan, shall not be available for issuance under this Plan.
Subject to the adjustment provisions of Article X, not more than 200,000
shares of Common Stock shall be issued under Awards of Common Stock and/or
Restricted Stock.
Subject to the foregoing provisions of this Article V, if a Grant or an Award may be paid only
in shares of Common Stock, or in either cash or shares of Common Stock, the shares of Common
Stock shall be deemed to be issued hereunder only when and to the extent that payment is
actually made in shares of Common Stock. However, the Committee may authorize a cash payment
under a Grant or an Award in lieu of shares of Common Stock if there are insufficient shares of
Common Stock available for issuance under the Plan.
Article VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an
Option shall be fixed by the Committee, but shall not be less than the Fair
Market Value on the date of grant.
Article VII
EXERCISE OF OPTIONS
7.1. Maximum Option Period. The period in which an Option may be exercised shall be determined
by the Committee on the date of grant; provided, however that an Incentive Stock Option shall
not be exercisable after the expiration of 10 years from the date the Incentive Stock Option was
granted.
7.2. Non−Transferability. Non−Qualified Stock Options may be transferable
by a Participant and exercisable by a person other than a Participant, but only
to the extent specifically provided in an Option Agreement. Incentive Stock
Options, by their terms, shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable, during the Participant's
lifetime, only by the Participant. No right or interest of a Participant in any
Option shall be liable for, or subject to, any lien, obligation or liability of
such Participant.
− 6 −
7.3. Employee Status. For purposes of determining the applicability of Section 422 of the Code
(relating to Incentive Stock Options), or in the event that the terms of any Grant provide that
it may be exercised only during employment or within a specified period of time after
termination of employment, the Committee may decide to what extent leaves of absence for
governmental or military service, illness, temporary Disability, or other reasons shall not be
deemed interruptions of continuous employment.
Article VIII
METHOD OF EXERCISE
8.1. Exercise. Subject to the provisions of Articles VII and XI, an Option may be exercised in
whole at any time or in part from time to time at such times and in compliance with such
requirements as the Committee shall determine. An Option granted under this Plan may be
exercised with respect to any number of whole shares less than the full number for which the
Option could be exercised. Such partial exercise of an Option shall not affect the right to
exercise the Option from time to time in accordance with this Plan with respect to remaining
shares subject to the Option.
8.2. Payment. Unless otherwise provided by the Agreement, payment of the
Option Price shall be made in cash. If the Agreement provides, payment of all or
part of the Option Price (and any applicable withholding taxes) may be made by
surrendering already owned shares of Common Stock to the Company or by the
Company withholding shares of Common Stock from the Participant upon exercise,
provided the shares surrendered or withheld have a Fair Market Value (determined
as of the day preceding the date of exercise) that is not less than such price
or part thereof and any such withholding taxes. In addition, the Committee may
establish such payment or other terms as it may deem to be appropriate and
consistent with these purposes.
8.3. Shareholder Rights. No participant shall have any rights as a shareholder with respect to
shares subject to his Option until the date he exercises such Option.
8.4. Cashless Exercise. To the extent permitted under the applicable laws
and regulations, at the request of the Participant and with the consent of the
Committee, the Company agrees to cooperate in a "cashless exercise" of the
Option. The cashless exercise shall be effected by the Participant delivering to
the Securities Broker instructions to exercise all or part of the Option,
including instructions to sell a sufficient number of shares of Common Stock to
cover the costs and expenses associated therewith. The Committee may permit a
Participant to elect to pay any applicable withholding taxes by requesting that
the Company withhold the number of shares of Common Stock equivalent at current
Fair Market Value to the withholding taxes due.
− 7 −
Article IX
COMMON STOCK AND RESTRICTED STOCK
9.1. Award. In accordance with the provisions of Article IV, the Committee will designate
persons to whom an Award of Common Stock and/or Restricted Stock is to be made and will specify
the number of shares of Common Stock covered by such Award or Awards.
9.2. Vesting. In the case of Restricted Stock, on the date of the Award,
the Committee may prescribe that the Participant's rights in the Restricted
Stock shall be forfeitable or otherwise restricted for a period of time set
forth in the Agreement and/or until certain financial performance objectives are
satisfied as determined by the Committee in its sole discretion. Subject to the
provisions of Article XI hereof, the Committee may award Common Stock to a
Participant which is not forfeitable and is free of any restrictions on
transferability.
9.3. Shareholder Rights. Prior to their forfeiture in accordance with the terms of the Agreement
and while the shares are Restricted Stock, a Participant will have all rights of a shareholder
with respect to Restricted Stock, including the right to receive dividends and vote the shares;
provided, however, that (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of
the certificates evidencing shares of Restricted Stock, and (iii) the Participant will deliver
to the Company a stock power, endorsed in blank, with respect to each award of Restricted
Stock.
Article X
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Company effect one or more (x) stock dividends, stock split−ups, subdivisions or
consolidations of shares or other similar changes in capitalization; (y) spin−offs, spin−outs,
split−ups, split−offs, or other such distribution of assets to shareholders; or (z) direct or
indirect assumptions and/or conversions of outstanding Options due to an acquisition of the
Company, then the maximum number of shares as to which Grants and Awards may be issued under
this Plan shall be proportionately adjusted and their terms shall be adjusted as the Committee
shall determine to be equitably required, provided that the number of shares subject to any
Grant or Award shall always be a whole number. Any determination made under this Article X by
the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property or for labor
or services, either upon direct sale or upon the exercise of rights or warrants
to subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not affect, and
no adjustment by reason thereof shall be made with respect to any Grant or
Award.
− 8 −
Article XI
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Grant shall be exercisable, no Common Stock shall be issued, no certificates for shares of
Common Stock shall be delivered, and no payment shall be made under this Plan except in
compliance with all applicable federal and state laws and regulations (including, without
limitation, withholding tax requirements) and the rules of all domestic stock exchanges on
which the Company's shares may be listed. The Company may rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock for which a Grant is
exercised or an Award is issued may bear such legends and statements as the Committee may deem
advisable to assure compliance with federal and state laws and regulations. No Grant shall be
exercisable, no Common Stock shall be issued, no certificate for shares shall be delivered, and
no payment shall be made under this Plan until the Company has obtained such consent or approval
as the Committee may deem advisable from regulatory bodies having jurisdiction over such
matters.
Article XII
GENERAL PROVISIONS
12.1. Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof) shall confer upon any employee any
right to continue in the employ of the Company or a Subsidiary or in any way affect any right
and power of the Company or a Subsidiary to terminate the employment of any employee at any time
with or without assigning a reason therefor.
12.2. Unfunded Plan. The Plan, insofar as it provides for a Grant, is not
required to be funded, and the Company shall not be required to segregate any
assets that may at any time be represented by a Grant under this Plan.
12.3. Change of Control. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change of Control:
(a) Unless otherwise provided by the Committee in an Agreement, any outstanding Option which is
not presently exercisable and vested as of a Change of Control Date shall become fully
exercisable and vested to the full extent of the original Grant upon such Change of Control
Date.
(b) Unless otherwise provided by the Committee in an Agreement, the
restrictions applicable to any outstanding Restricted Stock shall lapse, and
such Restricted Stock shall become free of all restrictions and become fully
vested, nonforfeitable and transferable to the full extent of the original
Award. The Committee may also provide in an Agreement that a Participant may
elect, by written notice to the Company within 60 days after a Change of Control
Date, to receive, in exchange for shares that were Restricted Stock immediately
before the
− 9 −
Change of Control Date, a cash payment equal to the Fair Market Value of the shares
surrenderedon the last business day the Common Stock is traded on the New York Stock Exchange
prior to receipt by the Company of such written notice.
(c) The Committee may, in its complete discretion, cause the acceleration
or release of any and all restrictions or conditions related to a Grant or
Award, in such manner, in the case of officers and directors of the Company who
are subject to Section 16(b) of the Exchange Act, as to conform to the
provisions of Rule 16b−3.
12.4. Rules of Construction. Headings are given to the articles and sections of this Plan for
ease of reference. The reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
12.5. Rule 16b−3 Requirements. Notwithstanding any other provisions of the
Plan, the Committee may impose such conditions on any Grant or Award, and the
Board may amend the Plan in any such respects, as they may determine, on the
advice of counsel, are necessary or desirable to satisfy the provisions of Rule
16b−3. Any provision of the Plan to the contrary notwithstanding, and except to
the extent that the Committee determines otherwise: (a) transactions by and with
respect to officers and directors of the Company who are subject to Section
16(b) of the Exchange Act shall comply with any applicable conditions of Rule
16b−3; and (b) every provision of the Plan shall be administered, interpreted,
and construed to carry out the foregoing provisions of this sentence.
12.6. Amendment, Modification, and Termination. At any time and from time to time, the Board may
terminate, amend, or modify the Plan. Such amendment or modification may be without shareholder
approval except to the extent that such approval is required by the Code, pursuant to the rules
under Section 16 of the Exchange Act, by any national securities exchange or system on which the
Common Stock is then listed or reported, by any regulatory body having jurisdiction with
respect thereto, or under any other applicable laws, rules, or regulations. No termination,
amendment, or modification of the Plan, other than pursuant to Section 12.5 herein, shall in any
manner adversely affect any Grant or Award theretofore issued under the Plan, without the
written consent of the Participant. The Committee may amend the terms of any Grant or Award
theretofore issued under this Plan, prospectively or retrospectively, but no such amendment
shall impair the rights of any Participant without the Participant's written consent except an
amendment provided for or contemplated in the terms of the Grant or Award, an amendment made to
cause the Plan, or Grant or Award, to qualify for the exemption provided by Rule 16b−3, or an
amendment to make an adjustment under Article X. Except as provided in Article X, the Option
Price of any outstanding Option may not be adjusted or amended, whether through amendment,
cancellation or replacement, unless such adjustment or amendment is approved by the
shareholders of the Company.
12.7. Governing Law. The validity, construction and effect of the Plan and
any actions taken or related to the Plan shall be determined in accordance with
the laws of the Commonwealth of Virginia and applicable federal law.
− 10 −
12.8. Successors and Assigns. All obligations of the Company under the Plan, with respect to
Grants and Awards issued hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or assets of the
Company. The Plan shall be binding on all successors and permitted assigns of a Participant,
including, but not limited to, the estate of such Participant and the executor, administrator
or trustee of such estate, and the guardians or legal representative of the Participant.
12.9. Effect on Prior Plan and Other Compensation Arrangements. The
adoption of this Plan shall have no effect on Grants and Awards made or to be
made pursuant to the Prior Plan and the Company's other compensation
arrangements. Nothing contained in this Plan shall prevent the Company from
adopting other or additional compensation plans or arrangements for its
officers, directors or employees.
12.10. Duration of Plan. No Grant or Award may be issued under this Plan before July 1, 1997,
or after June 30, 2007; provided, however, a Grant of a Reload Option may be issued after June
30, 2007, upon the exercise of an Original Option as provided in Section 4.3 hereof. Grants and
Awards issued on or after July 1, 1997, but on or before June 30, 2007, and Grants of Reload
Options issued after June 30, 2007 upon the exercise of an Original Option as provided in
Section 4.3 hereof, shall remain valid in accordance with their terms.
12.11. Effective Date. This Plan has been approved by the Board of
Directors of the Company, effective as of July 1, 1997, and by the shareholders
of the Company entitled to vote at the 1997 Annual Meeting of Shareholders.
Amendments to the Plan were approved by the Board of Directors of the Company
effective as of December 2, 1999. Amendments to the Plan were approved by the
Board of Directors of the Company effective as of August 7, 2003.
− 11 −
EXHIBIT 10.36
UNIVERSAL CORPORATION
2002 EXECUTIVE STOCK PLAN
(as amended and restated August 7, 2003)
Article I
DEFINITIONS
1.1. Affiliate means any "subsidiary" or "parent corporation" (within
the meaning of Section 424 of the Code) of the Company.
1.2. Agreement means a written agreement (including any amendment or supplement thereto) between
the Company and a Participant specifying the terms and conditions of a Grant or an Award issued
to such Participant.
1.3. Award means an award of Common Stock, Restricted Stock and/or
Phantom Stock.
1.4. Board means the Board of Directors of the Company.
1.5. Change of Control means and shall be deemed to have taken place
if: (i) any individual, entity or "group" (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner of shares
of the Company having 20 percent or more of the total number of votes that may
be cast for the election of directors of the Company, other than (a) as a result
of any acquisition directly from the Company, or (b) as a result of any
acquisition by any employee benefit plans (or related trusts) sponsored or
maintained by the Company or its Subsidiaries; or (ii) there is a change in the
composition of the Board such that the individuals who, as of the date hereof,
constitute the Board (the Board as of the date hereof shall be hereinafter
referred to as the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, for purposes of this Section,
that any individual who becomes a member of the Board subsequent to the date
hereof whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board (or deemed
to be such pursuant to this proviso) shall be considered as though such
individual were a member of the Incumbent Board; but, provided further, that any
such individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule 14a−11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person other
than the Board shall not be so considered as a member of the Incumbent Board; or
(iii) if at any time, (w) the Company shall consolidate with, or merge with, any
other Person and the Company shall not be the continuing or surviving
corporation, (x) any Person shall consolidate with, or merge with, the Company,
and the Company shall be the continuing or
surviving corporation and in connection therewith, all or part of the outstanding Common Stock
shall be changed into or exchanged for stock or other securities of any other person or cash or
any other property, (y) the Company shall be a party to a statutory share exchange with any
other Person after which the Company is a Subsidiary of any other Person, or (z) the Company
shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any Person or Persons.
1.6. Change of Control Date is the date on which an event described in
(i), (ii) or (iii) of Section 1.5 occurs.
1.7. Code means the Internal Revenue Code of 1986, as amended from time
to time. References to the Code shall include the valid and binding governmental
regulations, court decisions and other regulatory and judicial authority issued
or rendered thereunder.
1.8. Commission means the Securities and Exchange Commission or any
successor agency.
1.9. Committee means the Executive Compensation and Nominating
Committee of the Board.
1.10. Common Stock means the Common Stock of the Company.
1.11. Company means Universal Corporation.
1.12. Disability, with respect to a Participant, means "disability" as defined from time to time
under any long−term disability plan of the Company or Subsidiary with which the Participant is
employed.
1.13. Exchange Act means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
1.14. Fair Market Value of a share of Common Stock as of any given date
(i) prior to August 7, 2003, means the closing sale price of a share of Common
Stock on the New York Stock Exchange Composite Tape on such date, or (ii) on or
after August 7, 2003, means the closing sale price of a share of Common Stock on
the New York Stock Exchange Composite Tape on the next preceding date that the
Common Stock was traded on such exchange, in either case as reported by such
source as the Committee may select.
1.15. Grant means the grant of an Option or an SAR, or both.
1.16. Incentive Stock Option means an Option that is intended to
qualify as an "incentive stock option" under Section 422 of the Code.
1.17. Initial Value means, with respect to an SAR, the Fair Market
Value of one share of Common Stock on the date of grant, as set forth in an
Agreement.
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1.18. Non−Qualified Stock Option means an Option other than an
Incentive Stock Option.
1.19. Option means a stock option that entitles the holder to purchase from the Company a
stated number of shares of Common Stock at the price set forth in an Agreement.
1.20. Option Price means the price per share for Common Stock purchased
on the exercise of an Option as provided in Article VI.
1.21. Participant means an officer, director or employee of the Company or of a Subsidiary who
satisfies the requirements of Article IV and is selected by the Committee to receive a Grant or
an Award.
1.22. Phantom Stock means a bookkeeping entry on behalf of a
Participant by which his account is credited (but not funded) as though Common
Stock had been transferred to such account.
1.23. Plan means the Universal Corporation 2002 Executive Stock Plan,
as amended.
1.24. Prior Plans mean, collectively, the Universal Corporation 1997
Executive Stock Plan and the Universal Corporation 1989 Executive Stock Plan.
1.25. Restricted Stock means shares of Common Stock awarded to a
Participant under Article IX. Shares of Common Stock shall cease to be
Restricted Stock when, in accordance with the terms of the applicable Agreement,
they become transferable and free of substantial risks of forfeiture.
1.26. Rule 16b−3 means Rule 16b−3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
1.27. SAR means a stock appreciation right granted pursuant to this Plan that entitles the
holder to receive, with respect to each share of Common Stock encompassed by the exercise of
such SAR, the excess of the Fair Market Value at the time of exercise over the Initial Value of
the SAR; provided, that any limited stock appreciation right granted by the Committee and
exercisable upon a Change of Control shall entitle the holder to receive, with respect to each
share of Common Stock encompassed by the exercise of such SAR, the higher of (x) the highest
sales price of a share of Common Stock as reported on the New York Stock Exchange composite tape
during the 60−day period prior to and including the Change of Control Date, or (y) the highest
price per share paid in a Change of Control transaction, over the Initial Value of such SAR,
except that in the case of SARs related to Incentive Stock Options, such price shall be based
only on the Fair Market Value of the Common Stock on the date that the Incentive Stock Option
is exercised.
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1.28. Securities Broker means the registered securities broker acceptable to the Company who
agrees to effect the cashless exercise of an Option pursuant to Section 8.4 hereof.
1.29. Subsidiary means any corporation, partnership, joint venture or
other entity during any period in which at least a 50% voting or profits
interest is owned, directly or indirectly, by the Company (or by any entity that
is a successor to the Company), and any other business venture designated by the
Committee in which the Company (or an entity that is a successor to the Company)
has a significant interest, as determined in the discretion of the Committee.
Article II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining officers, directors and
key employees with ability and initiative by enabling such persons who contribute significantly
to the Company or an Affiliate to participate in its future success and to associate their
interests with those of the Company and its shareholders. The Plan is intended to permit the
award of Common Stock, Restricted Stock and Phantom Stock, and the issuance of Options
qualifying as Incentive Stock Options or Non−Qualified Stock Options as designated by the
Committee at time of grant, and SARs. No Option that is intended to be an Incentive Stock
Option, however, shall be invalid for failure to qualify as an Incentive Stock Option under
Section 422 of the Code but shall be treated as a Non−Qualified Stock Option.
Article III
ADMINISTRATION
The Plan shall be administered by the Committee. No Person shall be
appointed to or serve as a member of the Committee unless at the time of such
appointment and service he shall be a "non−employee director" as defined in Rule
16b−3, an "outside director" within the meaning of Section 162(m) of the Code,
and an "independent director" within the meaning of any applicable listing
requirement of the New York Stock Exchange applicable to the Committee. The
Committee shall have authority to issue Grants and Awards upon such terms (not
inconsistent with the provisions of this Plan) as the Committee may consider
appropriate. The terms of such Grants and Awards may include conditions (in
addition to those contained in this Plan) on (i) the exercisability of all or
any part of an Option or SAR and (ii) the transferability or forfeitability of
Restricted Stock or Phantom Stock. In addition, the Committee shall have
complete authority to interpret all provisions of this Plan; to prescribe the
form of Agreements; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of this Plan. To
fulfill the purposes of the Plan without amending the Plan, the Committee may
also modify any Grants or Awards issued to Participants who are nonresident
aliens or employed outside of the United States to recognize differences in
local law, tax policy or custom.
4
The express grant in the Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee. Any
decision made, or action taken, by the Committee or in connection with the
administration of this Plan shall be final and conclusive. All expenses of
administering this Plan shall be borne by the Company.
Article IV
ELIGIBILITY
4.1. General. Any officer, director or employee of the Company or of
any Subsidiary (including any corporation that becomes a Subsidiary after the
adoption of this Plan) who, in the judgment of the Committee, has contributed
significantly or can be expected to contribute significantly to the profits or
growth of the Company or a Subsidiary may receive one or more Awards or Grants,
or any combination or type thereof. Employee and non−employee directors of the
Company are eligible to participate in this Plan.
4.2. Grants and Awards. The Committee will designate individuals to whom Grants and/or Awards
are to be issued and will specify the number of shares of Common Stock subject to each such
Grant or Award. An Option may be granted alone or in addition to other Grants and/or Awards
under the Plan. The Committee shall have the authority to grant any Participant Incentive Stock
Options, Non−Qualified Stock Options or both types of Options (in each case with or without a
related SAR); provided, however, that Incentive Stock Options may be granted only to employees
of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). An SAR
may be granted with or without a related Option. All Grants or Awards issued under this Plan
shall be evidenced by Agreements, which shall be subject to applicable provisions of this Plan
and to such other provisions as the Committee may determine. No Participant may be granted
Options that are Incentive Stock Options, or related SARs (under all Incentive Stock Option
plans of the Company and Affiliates) which are first exercisable in any calendar year for stock
having an aggregate Fair Market Value (determined as of the date an Option is granted) exceeding
$100,000. A Participant may not receive Grants and Awards under this Plan with respect to more
than 200,000 shares of Common Stock during any calendar year.
4.3. Reload Options. The Committee shall have the authority to specify
at the time of Grant that an optionee shall be granted the right to a further
Non−Qualified Stock Option (a "Reload Option") in the event such optionee
exercises all or a part of an Option, including a Reload Option (an "Original
Option"), by surrendering in accordance with Section 8.2 hereof already owned
shares of Common Stock in full or partial payment of the Option Price under such
Original Option. Each Reload Option shall be granted on the date of exercise of
the Original Option, shall cover a number of shares of Common Stock not
exceeding the whole number of shares of Common Stock surrendered in payment of
the Option Price under such Original Option, shall have an Option Price equal to
the Fair Market Value on the date of Grant of such Reload Option, shall expire
on the stated expiration date of the Original Option and shall be subject to
such other terms and conditions as the Committee may determine.
5
4.4. Designation of Option as an Incentive Stock Option or a
Non−Qualified Stock Option. The Committee will designate at the time an Option
is granted whether the Option is to be treated as an Incentive Stock Option or a
Non−Qualified Stock Option. In the absence, however, of any such designation,
such Option shall be treated as a Non−Qualified Stock Option.
4.5. Qualification of Incentive Stock Option under Section 422 of the Code. Anything in the Plan
to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered nor shall any discretion or authority granted under the Plan
be exercised so as to disqualify the Plan under Section 422 of the Code or, without the consent
of the optionee affected, to disqualify any Incentive Stock Option under such Section 422. No
Option that is intended to be an Incentive Stock Option, however, shall be invalid for failure
to qualify as an Incentive Stock Option under Section 422 of the Code but shall be treated as a
Non−Qualified Stock Option.
Article V
STOCK SUBJECT TO PLAN
5.1. Maximum Number of Shares to be Issued. Subject to the adjustment provisions of Article XI
and the provisions of (a) through (c) of this Article V, up to 2,000,000 shares of Common Stock
may be issued under the Plan. In addition to such authorization, the following shares of Common
Stock may be issued under the Plan:
(a) Shares of Common Stock that are forfeited under the Prior
Plans and shares of Common Stock that are not issued under the Prior Plans
because of a payment of cash in lieu of shares of Common Stock, the
cancellation, termination or expiration of Grants and Awards, and/or other
similar events under the Prior Plans shall be available for issuance under this
Plan.
(b) If a Participant tenders, or has withheld, shares of Common
Stock in payment of all or part of the Option Price under an Option granted
under the Plan, or in satisfaction of withholding tax obligations thereunder,
the shares of Common Stock so tendered by the Participant or so withheld shall
become available for issuance under the Plan.
(c) If shares of Common Stock that are issued under the Plan are
subsequently forfeited in accordance with the terms of the Grant or Award, the
forfeited shares of Common Stock shall become available for issuance under the
Plan.
Notwithstanding (a) above, any shares of Common Stock that are authorized to be issued under the
Prior Plans prior to the expiration of its term, but that are not issued or covered by Grants
or Awards under the Prior Plans, shall not be available for issuance under this Plan.
Subject to the adjustment provisions of Article XI, not more than
500,000 shares of Common Stock shall be issued under this Plan pursuant to
Awards of Common Stock, Restricted Stock and/or Phantom Stock.
6
Subject to the foregoing provisions of this Article V, if a Grant or an
Award may be paid only in shares of Common Stock, or in either cash or shares of
Common Stock, the shares of Common Stock shall be deemed to be issued hereunder
only when and to the extent that payment is actually made in shares of Common
Stock. However, the Committee may authorize a cash payment under a Grant or an
Award in lieu of shares of Common Stock if there are insufficient shares of
Common Stock available for issuance under the Plan.
5.2. Independent SARs. Upon the exercise of an SAR granted
independently of an Option, the Company may deliver to the Participant
authorized but previously unissued Common Stock, cash, or a combination thereof
as provided in Section 8.6. The maximum aggregate number of shares of Common
Stock that may be issued pursuant to SARs that are granted independently of
Options is subject to the provisions of Section 5.1. hereof.
Article VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an
Option shall be fixed by the Committee, but shall not be less than the Fair
Market Value on the date of grant.
Article VII
EXERCISE OF OPTIONS AND SARS
7.1. Maximum Option Period or SAR Period. The period in which an Option
or SAR may be exercised shall be determined by the Committee on the date of
grant; provided, however that an Incentive Stock Option shall not be exercisable
after the expiration of 10 years from the date the Incentive Stock Option was
granted and any SAR related to an Incentive Stock Option may not be exercised
after the expiration of the underlying Incentive Stock Option.
7.2. Non−Transferability of Options and SARs. Non−Qualified Stock Options and SARs may be
transferable by a Participant and exercisable by a person other than a Participant, but only to
the extent specifically provided in an Option or SAR Agreement. Incentive Stock Options and any
related SARs, by their terms, shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable, during the Participant's lifetime, only by the
Participant. No right or interest of a Participant in any Option or SAR shall be liable for, or
subject to, any lien, obligation or liability of such Participant.
7.3. Employee Status. For purposes of determining the applicability of
Section 422 of the Code (relating to Incentive Stock Options), or in the event
that the terms of any Grant provide that it may be exercised only during
employment or within a specified period of time after termination of employment,
the Committee may decide to what extent leaves of absence for governmental or
military service, illness, temporary Disability, or other reasons shall not be
deemed interruptions of continuous employment.
7
Article VIII
METHOD OF EXERCISE
8.1. Exercise. Subject to the provisions of Articles VII and XII, an
Option or SAR may be exercised in whole at any time or in part from time to time
at such times and in compliance with such requirements as the Committee shall
determine; provided, however, that an SAR that is related to an Incentive Stock
Option may be exercised only to the extent that the related Option is
exercisable and when the Fair Market Value exceeds the Option Price of the
related Option. An Option or SAR granted under this Plan may be exercised with
respect to any number of whole shares less than the full number for which the
Option or SAR could be exercised. Such partial exercise of an Option or SAR
shall not affect the right to exercise the Option or SAR from time to time in
accordance with this Plan with respect to remaining shares subject to the Option
or SAR. The exercise of an Option shall result in the termination of any related
SAR to the extent of the number of shares with respect to which the Option is
exercised.
8.2. Payment. Unless otherwise provided by the Agreement, payment of the Option Price shall be
made in cash. If the Agreement provides, payment of all or part of the Option Price may be made
by surrendering (by either actual delivery or attestation) already owned shares of Common Stock
to the Company and the payment of applicable withholding taxes may be made by the Company
withholding shares of Common Stock from the Participant upon exercise, provided the shares
surrendered or withheld have a Fair Market Value (determined as of the day preceding the date
of exercise) that is not less than such price or part thereof and any such withholding taxes.
In addition, the Committee may establish such payment or other terms as it may deem to be
appropriate and consistent with these purposes.
8.3. Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares subject to his Option or SAR until the date
he exercises such Option or SAR.
8.4. Cashless Exercise. To the extent permitted under the applicable laws and regulations, at
the request of the Participant and with the consent of the Committee, the Company agrees to
cooperate in a "cashless exercise" of the Option. The cashless exercise shall be effected by the
Participant delivering to the Securities Broker instructions to exercise all or part of the
Option, including instructions to sell a sufficient number of shares of Common Stock to cover
the costs and expenses associated therewith. The Committee may permit a Participant to elect to
pay any applicable withholding taxes by requesting that the Company withhold the number of
shares of Common Stock equivalent at current Fair Market Value to the withholding taxes due.
8.5. Cashing Out of Option. The Committee may elect to cash out all or
part of the portion of any Option to be exercised by paying the optionee an
amount, in cash or Common Stock, equal to the excess of the Fair Market Value of
the Common Stock that is the subject of the portion of the Option to be
exercised over the Option Price times the number of shares of Common Stock
subject to the portion of the Option to be exercised on the effective date of
such cash out.
8
8.6. Determination of Payment of Cash and/or Common Stock Upon Exercise of SAR. At the
Committee's discretion, the amount payable as a result of the exercise of an SAR may be settled
in cash, Common Stock, or a combination of cash and Common Stock. No fractional shares shall be
delivered upon the exercise of an SAR but a cash payment will be made in lieu thereof.
Article IX
COMMON STOCK AND RESTRICTED STOCK
9.1. Award. In accordance with the provisions of Article IV, the
Committee will designate persons to whom an Award of Common Stock and/or
Restricted Stock is to be made and will specify the number of shares of Common
Stock covered by such Award or Awards.
9.2. Vesting. In the case of Restricted Stock, on the date of the
Award, the Committee may prescribe that the Participant's rights in the
Restricted Stock shall be forfeitable or otherwise restricted. Subject to the
provisions of Article XII hereof, the Committee may award Common Stock to a
Participant which is not forfeitable and is free of any restrictions on
transferability.
9.3. Shareholder Rights. Prior to their forfeiture in accordance with the terms of the Agreement
and while the shares are Restricted Stock, a Participant will have all rights of a shareholder
with respect to Restricted Stock, including the right to receive dividends and vote the shares;
provided, however, that (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of
the certificates evidencing shares of Restricted Stock, and (iii) the Participant will deliver
to the Company a stock power, endorsed in blank, with respect to each award of Restricted
Stock.
Article X
PHANTOM STOCK
10.1 Award. Pursuant to this Plan or an Agreement establishing additional terms and conditions,
the Committee may designate employees to whom Awards of Phantom Stock may be made and will
specify the number of shares of Common Stock covered by the Award.
10.2 Vesting. On the date of the Award, the Committee may prescribe
that the Participant's right to receive payment for Phantom Stock shall be
forfeitable or otherwise restricted in any manner in the discretion of the
Committee for such period of time set forth in the Agreement.
10.3 Shareholder Rights. A Participant for whom Phantom Stock has been credited generally shall
have none of the rights of a shareholder with respect to such Phantom Stock. However, a plan or
Agreement for the use of Phantom Stock may provide for the crediting of a
9
Participant's Phantom Stock account with cash or stock dividends declared with
respect to Common Stock represented by such Phantom Stock.
10.4 Payment. At the Committee's discretion, the amount payable to a Participant for Phantom
Stock credited to his account shall be made in cash, Common Stock or a combination of cash and
Common Stock.
10.5 Transferability of Phantom Stock. Phantom Stock may be
transferable by a Participant, but only to the extent specifically provided in
the Agreement. No right or interest of a Participant in any Phantom Stock shall
be liable for, or subject to, any lien, obligation or liability of such
Participant.
Article XI
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Company effect one or more (x) stock dividends, stock
split−ups, subdivisions or consolidations of shares or other similar changes in
capitalization; (y) spin−offs, spin−outs, split−ups, split−offs, or other such
distribution of assets to shareholders; or (z) direct or indirect assumptions
and/or conversions of outstanding Options due to an acquisition of the Company,
then the maximum number of shares as to which Grants and Awards may be issued
under this Plan shall be proportionately adjusted and their terms shall be
adjusted as the Committee shall determine to be equitably required, provided
that the number of shares subject to any Grant or Award shall always be a whole
number. Any determination made under this Article XI by the Committee shall be
final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to any
Grant or Award.
Article XII
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Grant shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal and
state laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company may rely on an opinion of its
counsel as to such compliance. Any share certificate issued to evidence Common
Stock for which a Grant is exercised or an Award is issued may bear such legends
and statements as the Committee may deem advisable to assure compliance with
federal and state laws and regulations. No Grant shall be exercisable, no Common
Stock shall be issued, no certificate for shares shall
10
be delivered, and no payment shall be made under this Plan until the Company has obtained such
consent orapproval as the Committee may deem advisable from regulatory bodies having
jurisdiction over such matters.
Article XIII
GENERAL PROVISIONS
13.1 Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents
describing or referring to this Plan (or any part thereof) shall confer upon any employee any
right to continue in the employ of the Company or a Subsidiary or in any way affect any right
and power of the Company or a Subsidiary to terminate the employment of any employee at any time
with or without assigning a reason therefor.
13.2 Unfunded Plan. The Plan, insofar as it provides for a Grant or an
Award of Phantom Stock, is not required to be funded, and the Company shall not
be required to segregate any assets that may at any time be represented by a
Grant or an Award of Phantom Stock under this Plan.
13.3 Change of Control. Notwithstanding any other provision of the Plan
to the contrary, in the event of a Change of Control:
(a) Unless otherwise provided by the Committee in an Agreement,
any outstanding Option or SAR (including any limited SAR) or Phantom Stock which
is not presently exercisable and vested as of a Change of Control Date shall
become fully exercisable and vested to the full extent of the original Grant
upon such Change of Control Date.
(b) Unless otherwise provided by the Committee in an Agreement,
the restrictions applicable to any outstanding Restricted Stock shall lapse, and
such Restricted Stock shall become free of all restrictions and become fully
vested, nonforfeitable and transferable to the full extent of the original
Award. The Committee may also provide in an Agreement that a Participant may
elect, by written notice to the Company within 60 days after a Change of Control
Date, to receive, in exchange for shares that were Restricted Stock immediately
before the Change of Control Date, a cash payment equal to the Fair Market Value
of the shares surrendered on the last business day the Common Stock is traded on
the New York Stock Exchange prior to receipt by the Company of such written
notice.
(c) The Committee may, in its complete discretion, cause the
acceleration or release of any and all restrictions or conditions related to a
Grant or Award, in such manner, in the case of officers and directors of the
Company who are subject to Section 16(b) of the Exchange Act, as to conform to
the provisions of Rule 16b−3.
13.4 Rules of Construction. Headings are given to the articles and sections of this Plan solely
for ease of reference and are not to be considered in construing the terms and
11
conditions of the Plan. The reference to any statute, regulation, or other provision of law
shall be construed to refer to any amendment to or successor of such provision of law.
13.5 Rule 16b−3 Requirements. Notwithstanding any other provisions of
the Plan, the Committee may impose such conditions on any Grant or Award, and
the Board may amend the Plan in any such respects, as they may determine, on the
advice of counsel, are necessary or desirable to satisfy the provisions of Rule
16b−3. Any provision of the Plan to the contrary notwithstanding, and except to
the extent that the Committee determines otherwise: (a) transactions by and with
respect to officers and directors of the Company who are subject to Section
16(b) of the Exchange Act shall comply with any applicable conditions of Rule
16b−3; and (b) every provision of the Plan shall be administered, interpreted,
and construed to carry out the foregoing provisions of this sentence.
13.6 Amendment, Modification, and Termination. At any time and from time to time, the Board may
terminate, amend, or modify the Plan. Such amendment or modification may be without shareholder
approval except to the extent that such approval is required by the Code, pursuant to the rules
under Section 16 of the Exchange Act, by any national securities exchange or system on which the
Common Stock is then listed or reported, by any regulatory body having jurisdiction with
respect thereto, or under any other applicable laws, rules, or regulations. No termination,
amendment, or modification of the Plan, other than pursuant to Section 13.5 herein, shall in any
manner adversely affect any Grant or Award theretofore issued under the Plan, without the
written consent of the Participant. The Committee may amend the terms of any Grant or Award
theretofore issued under this Plan, prospectively or retrospectively, but no such amendment
shall impair the rights of any Participant without the Participant's written consent except an
amendment provided for or contemplated in the terms of the Grant or Award, an amendment made to
cause the Plan, or Grant or Award, to qualify for the exemption provided by Rule 16b−3, or an
amendment to make an adjustment under Article XI. Except as provided in Article XI, the Option
Price of any outstanding Option may not be adjusted or amended, whether through amendment,
cancellation or replacement, unless such adjustment or amendment is approved by the
shareholders of the Company.
13.7 Governing Law. The validity, construction and effect of the Plan
and any actions taken or related to the Plan shall be determined in accordance
with the laws of the Commonwealth of Virginia and applicable federal law.
13.8 Successors and Assigns. All obligations of the Company under the Plan, with respect to
Grants and Awards issued hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or assets of the
Company. The Plan shall be binding on all successors and permitted assigns of a Participant,
including, but not limited to, the estate of such Participant and the executor, administrator
or trustee of such estate, and the guardians or legal representative of the Participant.
13.9 Effect on Prior Plans and Other Compensation Arrangements. The
adoption of this Plan shall have no effect on Grants and Awards made or to be
made pursuant to the Prior
12
Plans and the Company's other compensation arrangements. Nothing contained in this Plan shall
prevent the Company from adopting other or additional compensation plans or arrangements for its
officers, directors or employees.
13.10 Limitation of Implied Rights. Neither a Participant nor any other
person shall, by reason of participation in the Plan, acquire any right in or
title to any assets, funds or property of the Company or any Subsidiary
whatsoever, including, without limitation, any specific funds, assets, or other
property which the Company or any Subsidiary, in its sole discretion, may set
aside in anticipation of a liability under the Plan. Except for those rights in
Restricted Stock specifically set forth in subsection 9.3 hereof, a Participant
shall have only a contractual right to the Stock or amounts if any, payable
under the Plan, unsecured by any assets of the Company or any Subsidiary, and
nothing contained in the Plan shall constitute a guarantee that the assets of
the Company or any Subsidiary shall be sufficient to pay any benefits to any
person. The Plan does not constitute a contract of employment, and selection as
a Participant will not give any participating employee the right to be retained
in the employ of the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan. Except as otherwise provided in the Plan, no Award
or Grant under the Plan shall confer upon the holder thereof any rights as a
shareholder of the Company prior to the date on which the individual fulfills
all conditions for receipt of such rights.
13.11 Duration of Plan. No Grant or Award may be issued under this Plan
before July 1, 2002, or after June 30, 2012; provided, however, a Grant of a
Reload Option may be issued after June 30, 2012, upon the exercise of an
Original Option as provided in Section 4.3 hereof. Grants and Awards issued on
or after July 1, 2002, but on or before June 30, 2012, and Grants of Reload
Options issued after June 30, 2012 upon the exercise of an Original Option as
provided in Section 4.3 hereof, shall remain valid in accordance with their
terms.
13.12 Effective Date. This Plan has been approved by the Board,
effective as of July 1, 2002, and by the shareholders of the Company entitled to
vote at the 2002 Annual Meeting of the Shareholders. Amendments to the Plan were
approved by the Executive Committee of the Board, effective as of January 14,
2003, and such action of the Executive Committee was approved and ratified by
the Board on February 6, 2003. Amendments to the Plan were approved by the Board
of Directors of the Company effective as of August 7, 2003.
13
Exhibit 10.37
UNIVERSAL CORPORATION
2002 STOCK OPTION AND EQUITY ACCUMULATION AGREEMENT
THIS AGREEMENT, dated this 5/th/ day of December 2002, between Universal Corporation, a Virginia
corporation (the "Company") and ______________ (the "Optionee"), is made pursuant and subject
to the provisions of the Company's 2002 Executive Stock Plan, which is incorporated herein by
reference, and any future amendments thereto (the "Plan"). All terms used herein that are
defined in the Plan shall have the same meanings given them in the Plan.
1. Grant of Long Term Option and Reload Options. Pursuant to the Plan, and
upon action taken on December 5, 2002, by the Executive Compensation and
Nominating Committee (the "Committee") of the Board of Directors of the Company
effective as of December 5, 2002, the Company grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions set forth herein, the right and option to purchase __________ shares
of Common Stock (the "Long Term Option") and the Reload Options as described in
subparagraph 5E. The Long Term Option and Reload Options are non−qualified stock
options. The option price of the Long Term Option shall be the Fair Market Value
of Common Stock at the close of business on December 5, 2002, or $35.67 per
share.
2. Expiration Date. The expiration date of the Long Term Option and any Reload Options granted
hereunder shall be December 5, 2012 (the "Expiration Date").
3. Date Options Become Exercisable. Except as provided in subparagraph 6A,
any Option granted hereunder may not be exercised until at least six (6) months
after the date of grant thereof.
4. Eligibility to Participate. In order to participate and receive the Options granted under
this Agreement, the Optionee must sign and return a copy of this Agreement by January 31, 2003.
5. Automatic Exercise Program.
A. Method of Automatic Exercise. Until the Automatic Exercise Program terminates as provided in
subparagraph 5G, the Optionee authorizes the Company on any Automatic Exercise Date (as
hereinafter defined), including the Initial Exercise Date (as hereinafter defined),
automatically to exercise the lowest price Long Term or Reload Options granted the Optionee
under this Program only by means of a stock−for−stock swap using shares of Common Stock then
credited to the Optionee's Account. On the Initial Exercise Date, such Options shall be
automatically exercised to purchase the number of shares of Common Stock which can be purchased
from shares of Common Stock credited to the Optionee's Account. With respect to subsequent
Automatic Exercise Dates, the Optionee authorizes the Company to automatically exercise such
Options for the amount of shares of Common Stock which can be purchased from shares of Common
Stock held in the Optionee's Account received on previous Automatic Exercise Dates and shares
of Common Stock, if any, contributed to the Optionee's Account pursuant to subparagraph 5D, less
the number of shares sold for payment of taxes under subparagraph 5F of this Agreement. The
automatic exercise shall only occur if the Fair Market Value on the Automatic Exercise Date
exceeds by one percent (1%) or more the exercise price of the lowest priced Option held by the
Optionee under this Program (the "Automatic Exercise Criterion"). The Optionee grants the
Company or any of its officers the power of attorney to endorse and transfer the share
certificates credited to the Optionee's Account in accordance with the Automatic Exercise
Program.
Page 2
The power of attorney shall cease upon the termination of the Optionee's
participation in the Automatic Exercise Program.
B. Other Options Granted by Universal to the Optionee. Options granted to the Optionee under
agreements other than this Agreement, the Universal Corporation 1999 Stock Option and Equity
Accumulation Agreement, as amended (the "1999 Agreement"), Universal Corporation 1997 Stock
Option and Equity Accumulation Agreement, as amended (the "1997 Agreement"), the Universal
Corporation 1994 Stock Option and Equity Accumulation Agreement, as amended (the "1994
Agreement") or the Universal Corporation 1991 Stock Option and Equity Accumulation Agreement,
as amended (the "1991 Agreement") are not eligible to be included in the Automatic Exercise
Program under this Agreement, the 1999 Agreement, the 1997 Agreement, the 1994 Agreement and the
1991 Agreement.
C. Automatic Exercise Dates; Amendment of 1999 Agreement, 1997 Agreement,
1994 Agreement and 1991 Agreement. The initial automatic exercise date under the
Automatic Exercise Program for Options granted under this Agreement shall be
June 5, 2003, or the first business day thereafter on which the Automatic
Exercise Criterion is met (the "Initial Exercise Date"), and subsequent
automatic exercise dates for such Options shall occur upon the first business
day on which the New York Stock Exchange trades stock which occurs after a six
month interval has elapsed since the last automatic exercise date, or the first
business day thereafter on which the Automatic Exercise Criterion is met (the
"Automatic Exercise Date(s)"); provided, however, that any Automatic Exercise
Date for Options granted under this Agreement, the 1999 Agreement, the 1997
Agreement, the 1994 Agreement or the 1991 Agreement shall be at least six
Page 3
months after the last Automatic Exercise Date for any such Options. Subparagraph
5C of the 1999 Agreement is amended to read as follows:
C. The initial automatic exercise date under the Automatic Exercise
Program for Options granted under this Agreement shall be June 2, 2000, or
the first business day thereafter on which the Automatic Exercise Criterion
is met (the "Initial Exercise Date"), and subsequent automatic exercise
dates for such Options shall occur upon the first business day on which the
New York Stock Exchange trades stock which occurs after a six month
interval has elapsed since the last such automatic exercise date, or the
first business day thereafter on which the Automatic Exercise Criterion is
met (the "Automatic Exercise Date(s)"); provided, however, that any
Automatic Exercise Date for Options granted under this Agreement, the
Universal Corporation 2002 Stock Option and Equity Accumulation Agreement,
the Universal Corporation 1997 Stock Option and Equity Accumulation
Agreement, the Universal Corporation 1994 Stock Option and Equity
Accumulation Agreement, or the Universal Corporation 1991 Stock Option and
Equity Accumulation Agreement shall be at least six months after the last
Automatic Exercise Date for any such Options.
Subparagraph 5C of the 1997 Agreement is amended to read as follows:
C. The initial automatic exercise date under the Automatic Exercise
Program for Options granted under this Agreement shall be June 15, 1998, or
the first business day thereafter on which the Automatic Exercise Criterion
is met (the "Initial Exercise Date"), and subsequent automatic exercise
dates for such Options shall occur upon the first business day on which the
New York Stock Exchange trades stock which occurs after a six month
interval has elapsed since the last such automatic exercise date, or the
first business day thereafter on which the Automatic Exercise Criterion is
met (the "Automatic Exercise Date(s)"); provided, however, that any
Automatic Exercise Date for Options granted under this Agreement, the
Universal Corporation 2002 Stock Option and Equity Accumulation Agreement,
the Universal Corporation 1999 Stock Option and Equity Accumulation
Agreement, the Universal Corporation 1994 Stock Option and Equity
Accumulation Agreement, or the Universal Corporation 1991 Stock Option and
Equity Accumulation Agreement shall be at least six months after the last
Automatic Exercise Date for any such Options.
Subparagraph 5C of the 1994 Agreement is amended to read as follows:
C. The initial automatic exercise date under the Automatic Exercise
Program for Options granted under this Agreement shall be June 1, 1995, or
the first business day thereafter on which the Automatic Exercise Criterion
is met (the "Initial Exercise Date"), and subsequent automatic exercise
dates for such Options
Page 4
shall occur upon the first business day on which the New York Stock
Exchange trades stock which occurs after a six month interval has elapsed
since the last such automatic exercise date, or the first business day
thereafter on which the Automatic Exercise Criterion is met (the "Automatic
Exercise Date(s)"); provided, however, that any Automatic Exercise Date for
Options granted under this Agreement, the Universal Corporation 2002 Stock
Option and Equity Accumulation Agreement, the Universal Corporation 1999
Stock Option and Equity Accumulation Agreement, the Universal Corporation
1997 Stock Option and Equity Accumulation Agreement, or the Universal
Corporation 1991 Stock Option and Equity Accumulation Agreement shall be at
least six months after the last Automatic Exercise Date for any such
Options.
Subparagraph 5C of the 1991 Agreement is amended to read as follows:
C. The initial automatic exercise date under the Automatic Exercise
Program shall be November 1, 1992, or the first business day thereafter on
which the Automatic Exercise Criterion is met (the "Initial Exercise
Date"), and subsequent automatic exercise dates shall occur upon the first
business day on which the New York Stock Exchange trades stock which occurs
after a six month interval has elapsed since the last automatic exercise
date, or the first business day thereafter on which the Automatic Exercise
Criterion is met (the "Automatic Exercise Date(s)"); provided, however,
that any Automatic Exercise Date for Options granted under this Agreement,
the Universal Corporation 2002 Stock Option and Equity Accumulation
Agreement, the Universal Corporation 1999 Stock Option and Equity
Accumulation Agreement, the Universal Corporation 1997 Stock Option and
Equity Accumulation Agreement, or the Universal Corporation 1994 Stock
Option and Equity Accumulation Agreement shall be at least six months after
the last Automatic Exercise Date for any such Options.
D. Method of Payment Under Automatic Exercise Program; Amendment of 1999 Agreement, 1997
Agreement, 1994 Agreement and 1991 Agreement. Other than the payment on the Initial Exercise
Date from shares of Common Stock then credited to the Optionee's Account pursuant to the 1999
Agreement, the 1997 Agreement, the 1994 Agreement, the 1991 Agreement and the Universal
Corporation 1997 Restricted Stock Agreement (the "1997 Restricted Stock Agreement"), payment by
the Optionee under the Automatic Exercise Program shall be only from shares of Common Stock
received from the previous exercise under the Program and from
Page 5
additional shares of Common Stock delivered to the Optionee's Account as
provided in this subparagraph 5D.
Prior to termination of the Automatic Exercise Program as provided in subparagraph 5G, the
Committee may permit the Optionee to deliver additional shares of Common Stock to the Company
for credit to the Optionee's Account for inclusion in the Program. The Committee may limit the
total number of such additional shares that may be contributed by the Optionee. Such additional
shares may be delivered from time−to−time during the term of the Program. However, for purposes
of the Program, the delivery of shares shall be made at least six (6) months prior to the
Automatic Exercise Date on which such shares shall be used for a stock swap pursuant to the
Program.
E. Reload Options. Only participants in the Automatic Exercise Program
will be eligible to receive Reload Options. A Reload Option is an automatic
grant of a new Option each time the Company executes an automatic
stock−for−stock swap exercise. The number of shares granted in the Reload Option
shall equal the number of shares exchanged in payment of the exercise price on
an Automatic Exercise Date. The Reload Options will be fully vested six (6)
months from the date of grant and will have a term that expires on the same date
as the automatically exercised Option. The exercise price for a Reload Option
shall be the Fair Market Value on the date of the Reload Option grant.
The grant of a Reload Option shall be subject to there being sufficient shares available for
such grants under the Plan, the Company's 1997 Executive Stock Plan, as amended and the
Company's 1989 Executive Stock Plan, as amended. If there are not sufficient shares available
to fully meet the obligation of the Automatic Exercise Program as described above, then the
Page 6
Committee will, in its sole discretion, allocate the available shares to participants. In
addition, should the Committee, in its sole discretion, determine that continuing to grant
Reload Options is no longer in the best interest of the Company, it may, by means of written
notice to participants, cause the discontinuance of the granting of Reload Options.
F. Payment of Taxes Under the Automatic Exercise Program. Unless at least
six (6) months prior to an Automatic Exercise Date the Optionee gives written
notice to the Company, directed to the attention of its Secretary, that he or
she will pay the Company, on a timely basis, cash for the payment of withholding
taxes on the gain realized from the exercise of an Option under the Automatic
Exercise Program, the Company shall (i) withhold from the shares of Common Stock
issuable to the Optionee upon such exercise only the number of whole shares of
Common Stock which on such exercise date best approximates but does not exceed
the minimum statutory amount of taxes required to be withheld by the Company and
(ii) immediately after such exercise deliver from the Optionee's account to the
broker hereinafter designated by the Optionee, free of all restrictions, the
number of whole shares of Common Stock which best approximates the amount of
taxes to be withheld in excess of the minimum statutory amount required to be
withheld by the Company. For purposes of the preceding sentence, the Optionee
designates Legg Mason Wood Walker, Inc., Riverfront Plaza, Suite 810, 951 East
Byrd Street, Richmond, Virginia 23219−4027, Account No. _________, as his or her
broker and authorizes and directs the Company to deliver such shares to said
broker and authorizes and directs the broker to sell the shares and remit the
proceeds to the Company for the payment of withholding taxes.
G. Termination of the Automatic Exercise Program. The Automatic Exercise Program shall terminate
upon the earlier of (i) the date on which the Optionee gives written notice
Page 7
to the Company that he or she irrevocably elects to terminate participation in such Program,
provided that such notice may not be given before the second business day after the Initial
Exercise Date; or (ii) the date the Optionee's employment with the Company is terminated; or
(iii) the failure by the Company to be in a position to grant Reload Options on any Automatic
Exercise Date pursuant to subparagraph 5E in which case the Company shall promptly notify the
Optionee.
H. Restriction on Sales and Encumbrance of Shares. During the Optionee's
participation in the Automatic Exercise Program, the Optionee agrees that unless
otherwise permitted by the Committee in its sole discretion, (i) shares of
Common Stock contributed to or received by and on behalf of the Optionee
pursuant to the Program and (ii) shares of Common Stock representing the
after−tax gain on each automatic exercise, rounded to the nearest whole share,
shall be held in the Optionee's Account and shall not be available for sale,
transfer, pledge, hypothecation or other disposition except for payment of tax
obligations as provided in subparagraph 5F of this Agreement, and
stock−for−stock Option exercises pursuant to paragraph 5 of this Agreement. All
shares of Common Stock held in the Optionee's Account shall be owned by and
registered in the name of the Optionee, and the Optionee shall have all rights
of ownership with respect thereto, including voting rights and the right to
receive dividends. Such shares shall be held by the Company and a legend on the
stock certificate(s) shall note the restrictions. The restrictions on the shares
of Common Stock held in the Optionee's Account shall lapse upon termination of
the Automatic Exercise Program as provided in subparagraph 5G.
I. Maintenance of Shares. The Company shall establish and maintain an individual account in the
Optionee's name (the "Optionee's Account") to hold shares of Common Stock registered in the
Optionee's name contributed to or obtained through the Automatic Exercise
Page 8
Program under this Agreement, the 1999 Agreement, the 1997 Agreement, the 1994 Agreement, the
1991 Agreement and the 1997 Restricted Stock Agreement. The Company shall deliver a written
report to the Optionee on the status of the Optionee's Account following each Automatic Exercise
Date. Upon termination of the Automatic Exercise Program as provided in subparagraph 5G, all
shares of Common Stock held in the Optionee's Account shall be delivered to the Optionee free
of all restrictions.
6. Nonautomatic Exercises by the Optionee.
A. Subject to Automatic Exercise Program Termination. Except for exercises under the Automatic
Exercise Program as provided in paragraph 5, the Optionee shall not be able to exercise the Long
Term and Reload Options until the earlier of (i) the date the Program terminates as provided in
subparagraph 5G or (ii) the date one (1) year prior to the Expiration Date. On such date, such
Options that have vested pursuant to paragraph 3 and that have not been previously exercised
under the Automatic Exercise Program may be exercised in the manner provided in this paragraph
6. During the one (1) year period prior to the Expiration Date, such Options that have not
vested pursuant to paragraph 3 and that have not been previously exercised under the Automatic
Exercise Program may only be exercised in the manner provided in this paragraph 6.
B. Nonautomatic Exercises. After termination of the Automatic Exercise
Program in accordance with subparagraphs 5G(ii) or (iii), or on the date one (1)
year prior to the Expiration Date, all vested and unexercised Long Term and
Reload options shall continue to be exercisable by the Optionee until the
earlier of the termination of the Optionee's rights hereunder pursuant to
subparagraphs 6E and 6F, or the Expiration Date. A partial exercise of such
Options pursuant to subparagraphs 6E or 6F shall not affect Optionee's right to
exercise such Options with
Page 9
respect to the remaining shares, subject to the six month vesting period set forth in paragraph
3 and the conditions of the Plan and this Agreement. If the Optionee terminates the Automatic
Exercise Program pursuant to subparagraph 5G(i), such Options may only be exercised in the
manner provided in subparagraph 6H.
C. Method of Exercising and Payment for Shares. An Option exercised
pursuant to this paragraph 6 shall be exercised by written notice of the
Optionee delivered to the attention of the Company's Secretary at the Company's
principal office in Richmond, Virginia. The written notice shall specify the
number of shares being acquired pursuant to the exercise of the Option when such
Option is being exercised in part pursuant to subparagraphs 6E or 6F. The
exercise date shall be the date specified in such notice or, if no date is
specified, the date such notice is otherwise received by the Company. Such
notice shall provide for or be accompanied by payment in full of the Option
Price for each share of Common Stock being acquired pursuant to such exercise,
in cash or cash equivalent acceptable to the Committee, by the surrender (by
physical delivery or attestation) to the Company of mature shares of Common
Stock (shares held by the Optionee for at least six months or as otherwise
required by applicable laws and regulations) with a Fair Market Value at the
time of exercise equal to the Option Price, or by any combination of cash or
acceptable cash equivalent and Common Stock having an aggregate Fair Market
Value equal to the Option Price.
D. Cashless Exercise. To the extent permitted under the applicable laws and regulations, at the
request of the Optionee, the Company agrees to cooperate in a "cashless exercise" of a Long Term
or Reload Option pursuant to this paragraph 6. The cashless exercise shall be effected by the
Optionee delivering to the Securities Broker instructions to exercise all or
Page 10
part of the Option, including instructions to sell a sufficient number of shares
of Common Stock to cover the costs and expenses associated therewith.
E. Exercise During Employment. Subject to (i) the provisions of subparagraph 6F which shall
apply to exercise in the event of retirement, death, disability or Committee approval, and (ii)
the provisions of subparagraph 6H which shall apply to exercise in the event Optionee
terminates his or her participation in the Automatic Exercise Program as provided in
subparagraph 5G(i), all vested and unexercised Long Term and Reload Options may be exercised in
whole or in part during Optionee's employment with the Company or an Affiliate from the date
such Options are exercisable pursuant to subparagraph 6B until the earlier of the expiration of
ninety (90) days from the date the Optionee's employment with the Company or an Affiliate is
terminated or the Expiration Date; provided, however, that the Optionee's right to exercise the
Options shall terminate immediately in the event the Optionee's employment with the Company or
an Affiliate is terminated for cause as hereinafter defined or the Optionee is in violation of
the provisions of paragraph 7 hereof. For purposes of the preceding sentence, the Optionee's
employment shall be deemed to have been terminated for cause if the Optionee's employment is
terminated as result of fraud, dishonesty or embezzlement from the Company or an Affiliate.
F. Exercise in the Event of Retirement, Death, or Disability or Approval
by the Committee. Subject to the provisions of subparagraph 6H which shall apply
to exercise in the event the Optionee terminates his or her participation in the
Automatic Exercise Program as provided in subparagraph 5G(i), all unexercised
Long Term and Reload Options that have vested pursuant to paragraph 3 shall be
exercisable in whole or in part in the event that prior to the Expiration Date
(i) the Optionee retires (early, after age 55, normal, at age 65, or delayed)
or, (ii)
Page 11
the Optionee dies or becomes permanently and totally disabled (as defined in the Disability
Benefits Plan of Universal Leaf Tobacco Company, Incorporated and Domestic Subsidiaries) while
employed by the Company or an Affiliate or (iii) for any reason approved by the Committee in its
absolute discretion. In the event of death, such Options may be exercised by the Optionee's
estate, or the person or persons to whom his or her rights under this Agreement shall pass by
will or the laws of descent and distribution. Options that become exercisable pursuant to this
subparagraph 6F will continue to be exercisable for the remainder of the period proceeding the
Expiration Date.
G. Exercise in the Event of Liquidation or Reorganization. In the event
of a dissolution or liquidation of the Company or a merger or consolidation in
which the Company is not the surviving corporation, the Optionee shall have the
right immediately prior to such dissolution or liquidation, or merger or
consolidation, to exercise all unexercised Long Term and Reload Options in full.
H. Exercise in the Event the Optionee Terminates Automatic Exercise Program. In the event the
Optionee irrevocably elects to terminate his or her participation in the Automatic Exercise
Program as provided in subparagraph 5G(i), the Optionee may (i) exercise all, but not a part,
of all unexercised Long Term and Reload Options which have vested pursuant to paragraph 3 for a
period of thirty (30) days from the date the Optionee gives written notice as provided in
subparagraph 5G(i), (ii) exercise unexercised Reload Options which have not vested pursuant to
paragraph 3 for a period of thirty (30) days from the date each such Option vests, (iii)
exercise all vested and unexercised Long Term and Reload Options in whole or in part during the
one (1) year period prior to the Expiration Date, and (iv) exercise all vested and unexercised
Long Term and Reload Options in whole or in part pursuant to subparagraph 6F. An exercise
pursuant to
Page 12
subparagraph 6H(iii) may only be made during the Optionee's employment with the
Company or an Affiliate.
I. Payment of Withholding Taxes. Unless the Optionee pays to the Company in cash (or provides
for the payment of) the withholding taxes on the gain realized from the exercise of the Option
prior to or at the time of the date of exercise, the Company shall (i) withhold from the shares
of Common Stock issuable to the Optionee upon such exercise only the number of whole shares of
Common Stock which on such exercise date best approximates but does not exceed the minimum
statutory amount of taxes required to be withheld by the Company and (ii) immediately after such
exercise deliver to the Securities Broker, free of all restrictions, the number of whole shares
of Common Stock, from the shares issued upon exercise, which best approximates the amount of
taxes to be withheld in excess of the minimum statutory amount required to be withheld by the
Company. The Optionee authorizes and directs the Company to deliver such shares to the
Securities Broker and authorizes and directs the Securities Broker to sell the shares and remit
the proceeds to the Company for the payment of withholding taxes.
7. Optionee Covenants. The Optionee recognizes that over a period of many
years the Company and its Affiliates (including any predecessors or entities
from which it might have acquired goodwill) have developed, at considerable
expense, relationships with customers and prospective customers which constitute
a major part of the value of the goodwill of the Company and the Affiliates.
During the course of his or her employment by the Company, the Optionee will
have substantial contact with these customers and prospective customers. In
order to protect the goodwill of the Company's and the Affiliates' businesses,
the Optionee covenants and agrees that, in the event of the termination of his
or her employment, whether voluntary or involuntary, he or
Page 13
she shall forfeit the Options granted under this Agreement if he or she directly or indirectly
as an owner, shareholder, director, employee, partner, agent, broker, consultant or other
participant, for the period during which such Options are exercisable:
(a) calls upon or causes to be called upon, or solicits or
assists in the solicitation of any person, firm,
association, or corporation, listed as a customer of the
Company or any Affiliate on the date of termination of the
Optionee's employment, for the purpose of selling, renting
or supplying any product or service competitive with the
products or services of the Company or any Affiliate; or
(b) performs or contracts to perform for a competitor of the
Company or any Affiliate the same or similar services he or
she performed for the Company or such Affiliate.
Subparagraphs (a) and (b) of this paragraph 7 are separate and divisible covenants; if for any
reason any one covenant is held to be invalid or unenforceable, in whole or in part, the same
shall not be held to affect the validity or enforceability of the others, or of any other
provision of this Agreement. The period and scope of the restrictions set forth in this
paragraph 7 shall be reduced to the maximum permitted by the law actually applied to determine
the validity of each subparagraph.
8. Fractional Shares. Fractional shares shall not be issuable hereunder,
and when any provision hereof may entitle the Optionee to a fractional share
such fraction shall be disregarded.
9. No Right to Continued Employment. This Agreement does not confer upon the Optionee any right
with respect to continuance of employment by the Company or an Affiliate, nor
Page 14
shall it interfere in any way with the right of the Company or an Affiliate to
terminate his or her employment at any time.
10. Investment Representation. The Optionee agrees that unless such shares previously have been
registered under the Securities Act of 1933 (i) any shares of Common Stock purchased by him or
her hereunder will be purchased for investment and not with a view to distribution or resale and
(ii) until such registration, certificates representing such shares may bear an appropriate
legend to assure compliance with such Act. This investment representation shall terminate when
such shares have been registered under the Securities Act of 1933.
11. Administration and Interpretation. The Plan Administrator shall be the
Company; however, this Agreement shall be operated under the supervision and
authority of the Committee. The Committee shall have the authority to terminate
the Automatic Exercise Program and the issuance of any Reload Options. Also, the
Committee may issue additional Reload Options and Long Term Options under this
Agreement if authorized by the Plans or any amendment thereto, or any successor
plan. Any interpretation of this Agreement shall be made by the Committee. Any
amendment to this Agreement must be authorized by the Committee.
12. Change in Capital Structure. Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by the Long Term and Reload Options, and
the price per share thereof, shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock of the Company resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on the Common Stock), a
stock split−up or any other increase or decrease in the number of such shares effected without
receipt of cash or property or labor or services by the Company.
Page 15
Subject to any required action by the shareholders of the Company, if the Company shall be the
surviving corporation in any merger or consolidation, the Long Term and Reload Options shall
pertain to and apply to the securities to which a holder of the number of shares of Common
Stock subject to such Options would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving corporation,
shall cause such Options to terminate, provided that the Optionee shall, in such event, have the
right immediately prior to such dissolution or liquidation, or merger or consolidation in which
the Company is not the surviving corporation, to exercise such Options.
In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares without par value into the same number of shares with a different par
value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
Except as hereinbefore expressly provided in this paragraph 12, the Optionee shall have no
rights by reason of any subdivision or consolidation of shares of stock of any class or the
payment of any stock dividend or any other increase or decrease in the number of shares of
stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or
spin−off of assets or stock of another corporation, and any issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof
Page 16
shall be made with respect to, the number or price of shares of Common Stock
subject to the Options granted under this Agreement.
The grant of the Long Term and Reload Options pursuant to this
Agreement shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
13. Governing Law. This Agreement shall be governed by and construed and enforced in accordance
with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be
deemed to apply.
14. Conflicts. In the event of any conflict between the provisions of
the Plan as in effect on the date hereof and the provisions of this Agreement,
the provisions of the Plan shall govern. All references herein to the Plan shall
mean the Plan as in effect on the date hereof.
15. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
16. Binding Effect. Subject to the limitations stated herein and in the
Plan, this Agreement shall be binding upon and inure to the benefit of the
legatees, distributees, and personal representatives of the Optionee and the
successors of the Company.
17. Nontransferability. The Long Term Option and Reload Options granted under this Agreement
shall be nontransferable except by will or by the laws of descent and distribution; provided,
however, that the Optionee shall be entitled, in the manner provided in paragraph 18 hereof, to
designate a beneficiary to exercise his or her rights, and to receive any shares of Common
Stock issuable, with respect to such Options upon the death of the Optionee. The Long Term
Page 17
Option and Reload Options may be exercised during the lifetime of the Optionee only by the
Optionee or, if permitted by applicable law, the Optionee's guardian or legal representative.
18. Designation of Beneficiary. The Optionee may designate a
beneficiary by completing a beneficiary designation form approved by the
Committee and delivering the completed designation form to the Human Resources
Department of the Company. The person who is the Optionee's named beneficiary at
the time of his or her death (herein referred to as the "Beneficiary") shall be
entitled to exercise the Option, to the extent it is exercisable, after the
death of the Optionee. The Optionee may from time to time revoke or change his
or her Beneficiary without the consent of any prior Beneficiary by filing a new
designation with the Human Resources Department of the Company. The last such
designation received by the Company shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Company prior to the Optionee's death, and in no event shall any
designation be effective as of a date prior to such receipt. If the Committee is
in doubt as to the right of any person to exercise the Long Term Option and
Reload Options, the Company may refuse to recognize such exercise, without
liability for any interest or dividends thereon, until the Committee determines
the person entitled to exercise such Options, which determination shall be final
and conclusive.
Page 18
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized
officer, and the Optionee has affixed his or her signature hereto.
UNIVERSAL CORPORATION OPTIONEE
By: ____________________________ ___________________________________
Title: ____________________________ [Name]
Page 19
UNIVERSAL CORPORATION
Schedule of Grants to Executive Officers
Optionees Options Awarded
−−−−−−−−− −−−−−−−−−−−−−−−
A. B. King 225,000
W. L. Taylor 105,000
H. H. Roper 105,000
J. H. Starkey 67,500
G. C. Freeman 48,000
Exhibit 10.38
UNIVERSAL CORPORATION
2002 NON−QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of December 5, 2002, between Universal Corporation, a corporation
organized under the laws of Virginia (the "Company"), and ______________ (the "Optionee"), is
made pursuant and subject to the provisions of the Company's 2002 Executive Stock Plan, which
is incorporated herein by reference, and any future amendments thereto (the "Plan").
Capitalized terms not otherwise defined herein have the meanings given them in the Plan.
1. Grant of Option. Pursuant to the Plan, the Company, on December 5, 2002,
granted to the Optionee, subject to the terms and conditions of the Plan and
subject further to the terms and conditions herein set forth, the right and
option to purchase from the Company all or any part of an aggregate of ______
shares of common stock of the Company ("Common Stock") at the option price of
$35.67 per share. Such option will be exercisable as hereinafter provided.
2. Terms and Conditions. This option is subject to the following terms and
conditions:
(a) Expiration Date. The Expiration Date of this option is December 5,
2012.
(b) Exercise of Option. Except as provided in paragraphs 4 and 5, this
option shall be exercisable, with respect to one−third (1/3) of the
total number of shares of Common Stock covered by this option, as
set forth in paragraph 1 above, for each full 12 month period after
the date hereof and each anniversary of such date, up to a total of
three (3) such periods, that the Optionee continues to be employed
by the Company or an Affiliate after the date of the granting of
this option. Once this option has become exercisable with respect
to a particular number of shares in accordance with the preceding
sentence, it shall continue to be exercisable with
respect to such shares until the earlier of (i) termination of the
Optionee's rights hereunder pursuant to paragraph 3 or (ii) the
Expiration Date. A partial exercise of this option shall not affect
the Optionee's right to exercise this option subsequently with respect
to the remaining shares that are exercisable subject to the conditions
of the Plan and this Agreement.
(c) Method of Exercising and Payment for Shares. This option shall be
exercised by written notice delivered to the attention of the
Company's Secretary at the Company's principal office in Richmond,
Virginia. The written notice shall specify the number of shares being
acquired pursuant to the exercise of the option when such option is
being exercised in part in accordance with subparagraph 2(b) hereof.
The exercise date shall be the date specified in such notice or, if no
date is specified, the date such notice is otherwise received by the
Company. Such notice shall provide for or be accompanied by payment of
the option price in full for each share of Common Stock being acquired
pursuant to such exercise, in cash or cash equivalent acceptable to
the Committee, by the surrender (by physical delivery or attestation)
of mature shares of Common Stock (shares held by the Optionee for at
least six months or as otherwise required by applicable laws and
regulations) with a Fair Market Value at the time of exercise equal to
the option price or by any combination of cash or acceptable cash
equivalent and Common Stock having an aggregate Fair Market Value
equal to the option price.
(d) Cashless Exercise. To the extent permitted under the applicable laws
and regulations, at the request of the Optionee, the Company agrees to
cooperate in a "cashless exercise" of the option pursuant to this
paragraph 2. The cashless exercise shall be effected by the Optionee
delivering to the Securities Broker instructions to exercise all or
part of the option, including
Page 2
instructions to sell a sufficient number of shares of Common Stock to
cover the costs and expenses associated therewith.
(e) Payment of Withholding Taxes. Unless the Optionee pays to the Company
in cash (or provides for the payment of) the withholding taxes on the
gain realized from the exercise of the Option prior to or at the time
of the date of exercise, the Company shall (i) withhold from the
shares of Common Stock issuable to the Optionee upon such exercise
only the number of whole shares of Common Stock which on such exercise
date best approximates but does not exceed the minimum statutory
amount of taxes required to be withheld by the Company and (ii)
immediately after such exercise deliver to the Securities Broker, free
of all restrictions, the number of whole shares of Common Stock, from
the shares issued upon exercise, which best approximates the amount of
taxes to be withheld in excess of the minimum statutory amount
required to be withheld by the Company. The Optionee authorizes and
directs the Company to deliver such shares to the Securities Broker
and authorizes and directs the Securities Broker to sell the shares
and remit the proceeds to the Company for the payment of withholding
taxes.
(f) Nontransferability. The Option granted under this Agreement shall be
nontransferable except by will or by the laws of descent and
distribution; provided, however, that the Optionee shall be entitled,
in the manner provided in subparagraph 2(f) hereof, to designate a
beneficiary to exercise his or her rights, and to receive any shares
of Common Stock issuable, with respect to such Option upon the death
of the Optionee. The Option may be exercised during the lifetime of
the Optionee only by the Optionee or, if permitted by applicable law,
the Optionee's guardian or legal representative.
(g) Designation of Beneficiary. The Optionee may designate a beneficiary
by completing a beneficiary designation form approved by the Committee
and
Page 3
delivering the completed designation form to the Human Resources
Department of the Company. The person who is the Optionee's named
beneficiary at the time of his or her death (herein referred to
as the "Beneficiary") shall be entitled to exercise the Option,
to the extent it is exercisable, after the death of the Optionee.
The Optionee may from time to time revoke or change his or her
Beneficiary without the consent of any prior Beneficiary by
filing a new designation with the Human Resources Department of
the Company. The last such designation received by the Company
shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received
by the Company prior to the Optionee's death, and in no event
shall any designation be effective as of a date prior to such
receipt. If the Committee is in doubt as to the right of any
person to exercise the Option, the Company may refuse to
recognize such exercise, without liability for any interest or
dividends thereon, until the Committee determines the person
entitled to exercise such Option, which determination shall be
final and conclusive.
3. Exercise During Employment. Subject to the vesting periods set forth in subparagraph 2(b),
this option may not be exercised in whole or in part after the earlier of (i) the date ninety
days after the date the Optionee terminates his or her employment with the Company or an
Affiliate or (ii) the Expiration Date; provided, however, that the Optionee's right to exercise
this option shall terminate immediately in the event the Optionee's employment with the Company
or an Affiliate is terminated for cause as hereinafter defined or the Optionee is in violation
of paragraph 6 hereof. For purposes of the preceding sentence, the Optionee's
Page 4
employment shall be deemed to have been terminated for cause if the Optionee's employment is
terminated as a result of fraud, dishonesty or embezzlement from the Company or an Affiliate.
4. Exercise in the Event of Retirement, Death, Disability. Notwithstanding
the vesting requirement set forth in subparagraph 2(b), this option shall become
exercisable in full in the event that prior to the Expiration Date of this
option the Optionee (i) retires (early, after age 55, normal, at age 65, or
delayed retirement) or for any reason approved by the Committee in its absolute
discretion or, (ii) dies or becomes totally and permanently disabled (as defined
below) while employed by the Company or an Affiliate. In the event of death this
option may be exercised by the Optionee's estate, or the person or persons to
whom his or her rights under this option shall pass by will or the laws of
descent and distribution. For purposes of this Agreement, "totally and
permanently disabled" shall mean the incapacity of the Optionee by reason of
bodily injury or disease which prevents the Optionee from performing the
customary duties of his or her position with the Company or an Affiliate,
provided such disability can be expected to continue for a lifetime. Options
that become exercisable pursuant to this paragraph 4 will continue to be
exercisable for the remainder of the period preceding the Expiration Date.
5. Exercise in the Event of Liquidation or Reorganization. In the event of a dissolution or
liquidation of the Company or a merger or consolidation in which the Company is not the
surviving corporation, the Optionee shall have the right immediately prior to such dissolution
or liquidation, or merger or consolidation, to exercise his or her option in full.
6. Optionee Covenants. The Optionee recognizes that over a period of many
years the Company and its Affiliates (including any predecessors or entities
from which they might have acquired goodwill) have developed, at considerable
expense, relationships with customers and prospective customers which constitute
a major part of the value of the goodwill of the Company and its Affiliates.
During the course of his or her employment by the Company, the
Page 5
Optionee will have substantial contact with these customers and prospective customers. In order
to protect the goodwill of the Company's and the Affiliate's businesses, the Optionee covenants
and agrees that, in the event of the termination of his or her employment, whether voluntary or
involuntary, he shall forfeit the option if he directly or indirectly as an owner, shareholder,
director, employee, partner, agent, broker, consultant or other participant, for the period
during which the option is exercisable:
(a) calls upon or causes to be called upon, or solicits or
assists in the solicitation of any person, firm,
association, or corporation, listed as a customer of the
Company or any of its Affiliates on the date of termination
of the Optionee's employment, for the purpose of selling,
renting or supplying any product or service competitive with
the products or services of the Company or any of its
Affiliates; or
(b) performs for a competitor of the Company the same or
similar services he or she performed for the Company.
Subparagraphs (a) and (b) are separate and divisible covenants; if for any reason any one
covenant is held to be invalid or unenforceable, in whole or in part, the same shall not be held
to affect the validity or enforceability of the others, or of any provision of this Agreement.
The period and scope of the restrictions set forth in this paragraph shall be reduced to the
maximum permitted by the law actually applied to determine the validity of each subparagraph.
7. Fractional Shares. Fractional shares shall not be issuable hereunder,
and when any provision hereof may entitle the Optionee to a fractional share
such fraction shall be disregarded.
8. No Right to Continued Employment. This option does not confer upon the Optionee any right
with respect to continuance of employment by the Company or an Affiliate, nor shall it interfere
in any way with the right of the Company or an Affiliate to terminate his or her employment at
any time.
Page 6
9. Investment Representation. The Optionee agrees that unless such shares previously have been
registered under the Securities Act of 1933 (i) any shares purchased by him hereunder will be
purchased for investment and not with a view to distribution or resale and (ii) until such
registration, certificates representing such shares may bear an appropriate legend to assure
compliance with such Act. This investment representation shall terminate when such shares have
been registered under the Securities Act of 1933.
10. Change in Capital Structure. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
this option, and the price per share thereof, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock of
the Company resulting from a subdivision or consolidation of shares or the
payment of a stock dividend (but only on the Common Stock), a stock split−up or
any other increase or decrease in the number of such shares effected without
receipt of cash or property or labor or services by the Company.
Subject to any required action by the shareholders of the Company, if the Company shall be the
surviving corporation in any merger or consolidation, this option shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock subject to this option
would have been entitled. A dissolution or liquidation of the Company or a merger or
consolidation in which the Company is not the surviving corporation, shall cause this option to
terminate, provided that the Optionee shall, in such event, have the right immediately prior to
such dissolution or liquidation, or merger or consolidation in which the Company is not the
surviving corporation, to exercise this option.
In the event of a change in the Common Stock of the Company as presently
constituted, which is limited to a change of all of its authorized shares with
par value into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
Page 7
To the extent that the foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Committee, whose determination in that respect shall be final,
binding and conclusive.
Except as hereinbefore expressly provided in this paragraph 10, the
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger, or consolidation or spin−off of assets
or stock of another corporation, and any issue by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to this option.
The grant of the option pursuant to the Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of Virginia.
12. Conflicts. In the event of any conflict between the provisions of the Plan as in effect on
the date hereof and the provisions of this Agreement, the provisions of the Plan shall govern.
All references herein to the Plan shall mean the Plan as in effect on the date hereof.
13. Optionee Bound by Plan. The Optionee hereby acknowledges receipt of a
copy of the Plan and agrees to be bound by all the terms and provisions thereof.
14. Binding Effect. Subject to the limitations stated above and in the Plan, this Agreement
shall be binding upon and inure to the benefit of the legatees, distributees, and personal
representatives of the Optionee and the successors of the Company.
Page 8
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized
officer, and the Optionee has affixed his or her signature hereto.
UNIVERSAL CORPORATION OPTIONEE
By: _________________________________ _____________________________
Title:________________________________ [Name]
Page 9
UNIVERSAL CORPORATION
Schedule of Grants to Executive Officers
Optionees Options Awarded
−−−−−−−−− −−−−−−−−−−−−−−−
J. M. M. van de Winkel 52,500
J. A. Huffman 19,500
Mr. van de Winkel's options expire five years from the date of grant (instead of 10 years) and
are exercisable immediately after grant (instead of three−year ratable vesting).
Mr. Huffman's options vest ratably over three years unless such options are
to be exercised in connection with his entrance into the Registrant's Career
Equity Ownership Program.
EXHIBIT 12
UNIVERSAL CORPORATION AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
For the years ended June 30,
2003 2002 2001 2000 1999
−−−−−−−−− −−−−−−−−− −−−−−−−−−− −−−−−−−−−− −−−−−−−−−−
Pretax income from continuing operations $162,545 $152,676 $ 177,206 $ 177,055 $ 197,719
Distribution of earnings from
unconsolidated affiliates 7,088 639 527 4,220 840
Fixed charges 49,416 50,459 64,553 57,907 57,744
−−−−−−−− −−−−−−−− −−−−−−−−− −−−−−−−−− −−−−−−−−−
Earnings 219,049 203,774 $ 242,286 $ 239,182 $ 256,303
Interest $ 45,270 $ 47,831 $ 61,576 $ 56,869 56,837
Interest Capitalized 1,957 610
Amortization of premiums and other 2,189 2,628 2,977 1,038 907
−−−−−−−− −−−−−−−− −−−−−−−−− −−−−−−−−− −−−−−−−−−
Fixed Charges $ 49,416 $ 51,069 $ 64,553 $ 57,907 $ 57,744
Ratio of Earnings to Fixed Charges 4.43 3.99 3.75 4.13 4.44
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
−−−−−−−−−−−−−−−−−−−−−−−−−
Organized under law of
−−−−−−−−−−−−−−−−−−−−−−−−−
UNIVERSAL CORPORATION Virginia
Astrimex B.V. Netherlands
Beleggings−en Beheermaatschappij B. V. Netherlands
Blending Services International, Inc. Virginia
Casa Export, Limited Virginia
Casalee−Transtobac (Pvt) Ltd. Zimbabwe
Continental Tobacco S.A. Switzerland
Corrie MacColl & Son Ltd. United Kingdom
Crailo B.V. Netherlands
Deli Services B.V. Netherlands
Deli Universal, Inc. Virginia
Deli−HTL Tabak Maatschappij B. V. Netherlands
Deli−Mij Holdings Ltd. United Kingdom
Deltafina, S.p.A. Italy
Ermor Tabarama−Tabacos do Brasil Ltda. Brazil
European Tobacco Company B. V. Netherlands
Gebrueder Kulenkampff AG Germany
Global Laboratory Services, Inc. Virginia
Gouderak Holding B.V. Netherlands
Handelmaatschappij Steffex B. V. Netherlands
Harkema Services, Inc. Virginia
Heuvelman Holding B.V. Netherlands
Heuvelman Hout Beheer B.V. Netherlands
Hungaropro Kft. Hungary
Imperial Commodities Corporation California
Indoco International B.V. Netherlands
Industria AG Switzerland
Itofina, S.A. Switzerland
Jongeneel B.V. Netherlands
Jongeneel Holding B.V. Netherlands
L'Agricola, S.r.L. Italy
Lancaster Leaf Tobacco Company of Pennsylvania, Inc. Virginia
Lancaster Philippines, Incorporated Philippines
Latin America Tobacco Company Virginia
Limbe Leaf Tobacco Company Limited Malawi
Lytton Tobacco Company (Malawi) Limited Malawi
Lytton Tobacco Company (Private), Limited Zimbabwe
N.V. Deli Universal Netherlands
Outdoor Life Products B.V. Netherlands
Red River Commodities, Inc. North Dakota
Red River Foods, Inc. Virginia
Simcoe Leaf Tobacco Company Limited Canada
Steffex Beheer B.V. Netherlands
Tabacos Del Pacifico Norte, S.A. De C.V. Mexico
Tabacos Espanoles S. A. Spain
Tanzania Leaf Tobacco Co., Ltd Tanzania
Tanzania Tobacco Processors Ltd. Tanzania
T. B. & Z. Holding B. V. Netherlands
Timmerfabriek Bouter en Zonen B. V. Netherlands
Tobacco Trading International, Inc. British Virgin Isles
Toutiana, S.A. Switzerland
Ultoco, S.A. Switzerland
Universal Eastern Europe Limited United Kingdom
Universal Leaf (Asia) Pte Ltd. Singapore
Universal Leaf (UK) Limited USA/United Kingdom
Universal Leaf International, S.A. Switzerland
Universal Leaf North America U. S., Inc. North Carolina
Universal Leaf Services International Limited United Kingdom
Universal Leaf Tabacos Ltda. Brazil
Universal Leaf Tabacos S. A. Argentina
Universal Leaf Tobacco Company, Inc. Virginia
Universal Leaf Tobacco Hungary Limited Hungary
Universal Leaf Tobacco Poland Sp. z o.o. Poland
Van Rees B.V. Netherlands
Van Rees Ceylon B.V. Netherlands
Van Rees Ltd. United Kingdom
Willemstein's Industriele Ondernemingen B.V. Netherlands
Zimbabwe Leaf Tobacco Company (Private) Limited Zimbabwe
Zimleaf Holdings (Private) Limited Zimbabwe
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration Statements of our
report dated August 7, 2003, with respect to the consolidated financial statements of Universal
Corporation and subsidiaries included in the Annual Report (Form 10−K) for the year ended June
30, 2003.
Registration Statement Number Description
−−−−−−−−−−−−−−−−−−−−−−−−−−−−− −−−−−−−−−−−
33−55140 Form S−8
33−38148 Form S−8
33−56719 Form S−8
333−39297 Form S−8
333−45497 Form S−8
333−43522 Form S−3
333−103155 Form S−3
333−101825 Form S−8
/s/ ERNST & YOUNG LLP
Richmond, Virginia
September 12, 2003
Exhibit 31.1
CERTIFICATION
I, Allen B. King, President and Chief Executive Officer of Universal
Corporation, certify that:
1. I have reviewed this annual report on Form 10−K of Universal
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a−15(e) and 15d−15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this annual report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by
this report based on such evaluation;
(c) Disclosed in this annual report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the
registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: September 12, 2003
/s/ Allen B. King
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Allen B. King
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Hartwell H. Roper, Vice President and Chief Financial Officer of
Universal Corporation, certify that:
1. I have reviewed this annual report on Form 10−K of Universal
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a−15(e) and 15d−15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made
known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
(b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in
this annual report our conclusions about the
effectiveness of the disclosure controls and
procedures, as of the end of the period covered by
this report based on such evaluation;
(c) Disclosed in this annual report any change in the
registrant's internal control over financial
reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the
registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses
in the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal control over
financial reporting.
Date: September 12, 2003
/s/ Hartwell H. Roper
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Hartwell H. Roper
Vice President and Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002
In connection with the Annual Report of Universal Corporation (the "Company") on Form 10−K for
the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date
hereof (the "Report") and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes−Oxley Act of 2002, I, Allen B. King, President and Chief Executive Officer of
the Company, certify, to the best of my knowledge and belief, that
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Dated: September 12, 2003
/s/ Allen B. King
−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−−
Allen B. King
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES−OXLEY ACT OF 2002
In connection with the Annual Report of Universal Corporation (the "Company") on Form 10−K for
the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date
hereof (the "Report") and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes−Oxley Act of 2002, I, Hartwell H. Roper, Vice President and Chief Financial
Officer of the Company, certify, to the best of my knowledge and belief, that
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Dated: September 12, 2003
/s/ Hartwell H. Roper
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Hartwell H. Roper
Vice President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange
Commission or its staff upon request.
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