Universal Corporation Annual Report 2012

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2012

U N I V E R S A L C O R P O R A T I O N
A N N U A L R E P O R T

A B O U T T H E C O M P A N Y

Universal Corporation, headquartered in Richmond, Virginia, is the leading global leaf tobacco supplier.

Tobacco has been its principal focus since its founding in 1918. The largest portion of the company’s

business involves procuring and processing ﬂ ue-cured and burley leaf tobacco for manufacturers of

consumer tobacco products. Universal conducts its business in more than 30 countries on 5 continents

and employs over 26,000 permanent and seasonal workers.

F I N A N C I A L H I G H L I G H T S

in thousands, except per share data

March 31, 2012

March 31, 2011

March 31, 2010

Fiscal Year Ended

O P E R A T I O N S

Sales and other operating revenues

$ 2,446,877

$ 2,571,527

$ 2,491,738

Operating income

Segment operating income

Net income

Net income attributable to Universal Corporation

180,304 *

223,548

100,819 *

92,057 *

254,600 *

257,925

164,550 *

156,565 *

257,209

279,585

170,345

168,397

P E R C O M M O N S H A R E

Net income attributable to Universal Corporation

common shareholders—diluted

$ 3.25 *

$ 5.42 *

$ 5.68

Dividends declared

Indicated 12-month dividend rate

Market price at year end

A T Y E A R E N D

Working capital

1.94

1.96

46.60

1.90

1.92

43.54

1.86

1.88

52.69

$ 1,297,921

$ 1,065,883

$ 1,078,077

Total Universal Corporation shareholders’ equity

1,183,451

1,185,606

1,122,570

Net Income per Diluted Share**

Dividends Declared

Operating Income

in dollars

in millions of dollars

*
2
4
.
5

8
6
.
5

2
3
.
4

0
7
.
3

*
5
2
.
3

4
9
.
1

0
9
.
1

6
8
.
1

2
8
.
1

8
7
.
1

*
6
.
4
5
2

2
.
7
5
2

*
3
.
0
8
1

9
.
9
0
2

5
.
1
9
1

* Includes unusual items outlined in the table on page 20 of the accompanying Annual Report on Form 10-K.
** Attributable to Universal Corporation after deducting amounts attributable to noncontrolling interests in consolidated subsidiaries.

20 12 ANNUAL REPOR T

B O A R D O F D I R E C T O R S U N I V E R S A L C O R P O R A T I O N

George C. Freeman, III 1* 3
Chairman, President, and
Chief Executive Ofﬁ cer
Universal Corporation

John B. Adams, Jr. 3 4
President and
Chief Executive Ofﬁ cer
Bowman Companies

Chester A. Crocker 2 3
Professor of Strategic Studies
Walsh School of Foreign Service
Georgetown University

Charles H. Foster, Jr. 1 3 * 5
Retired Chairman and
Chief Executive Ofﬁ cer
LandAmerica Financial
Group, Inc.

Thomas H. Johnson 1 5
Chief Executive Ofﬁ cer
The Taffrail Group, L.L.C.

Eddie N. Moore, Jr. 2 3 4 *
President, Emeritus
Virginia State University

Jeremiah J. Sheehan 1 4 5 *
Retired Chairman and
Chief Executive Ofﬁ cer
Reynolds Metals Company

Robert C. Sledd 2 * 4
Managing Partner
Pinnacle Ventures, L.L.C.

Dr. Eugene P. Trani 2 4 6
University Distinguished Professor
Virginia Commonwealth University

1 Executive Committee
2 Pension Investment Committee
3 Finance Committee
4 Audit Committee
5

Executive Compensation, Nominating,
and Corporate Governance Committee

6 Retires August 7, 2012
* Committee Chairman

C H A I R M E N E M E R I T U S

Henry H. Harrell
Allen B. King

O F F I C E R S U N I V E R S A L C O R P O R A T I O N

George C. Freeman, III
Chairman, President, and
Chief Executive Ofﬁ cer

W. Keith Brewer
Executive Vice President and
Chief Operating Ofﬁ cer

David C. Moore
Senior Vice President and
Chief Financial Ofﬁ cer

➀

Karen M. L. Whelan
Vice President and
Treasurer

➁

Candace C. Formacek
Vice President and
Treasurer

Preston D. Wigner
Vice President,
General Counsel,
Secretary, and Chief
Compliance Ofﬁ cer

Robert M. Peebles
Vice President and
Controller

Joseph W. Hearington, Jr.
Corporate Director,
Internal Auditing

Pamela J. Kepple
Corporate Director, Taxes

Catherine H. Claiborne
Assistant Secretary

➀ Retired March 31, 2012
➁ Elected April 1, 2012

UNIV ERSAL C ORP ORATION

T O O U R S H A R E H O L D E R S

I am pleased with our successful execution of our business

strategy this year. Following two years of record results, we ended

ﬁ scal year 2012 in a solid position. Segment operating income

for the year was strong at about $224 million. We effectively

managed our balance sheet throughout the period and ended

the year with reduced uncommitted inventory levels and a higher

cash position. We also increased our common stock dividend

for the 41st consecutive year. Despite oversupply conditions

that reduced green tobacco prices in many major markets and

pressured margins, we earned net income of $3.25 per diluted

share, including the effect of unusual items which reduced

diluted earnings per share by $1.42. The largest component of those items was a charge related to a

European Union court’s decision to reject an application to reinstate immunity in an antitrust case. We

are appealing that decision. As the current season unfolds, we are seeing crop sizes come down in most

of the key sourcing areas for ﬂ ue-cured tobacco, and global markets are beginning to strike a balance

between supply and demand. However, a production shortfall in the current crop in Malawi is causing a

sharp reduction in burley tobacco supply.

We are often asked how our company is able to consistently perform well, and I believe that one

of our core strategic advantages is our competence and experience in the ever changing global market.

We have strong regional management teams with deep local roots in the industry and in the more than 30

countries and 5 continents where we operate. This helps us better identify and react in a timely manner

to constantly evolving market conditions and provides us with market-speciﬁ c knowledge quickly. With

20 12 ANNUAL REPOR T

our strong local operations, we are also able to make changes at the farm level with our contracted

growers. As an example of our strong local relationships, our senior regional and corporate executives

were recently invited to meet with President Joyce Banda, the new president of the Republic of Malawi,

to discuss sustainable tobacco production there. We couple our local expertise with global coordination

to efﬁ ciently address customers’ needs. We focus on understanding what our customer wants and bring

ninety years of experience and an unparalleled depth of industry knowledge to the table.

We also adapt to meet new challenges. In recent years we have dealt with a wide array of

challenges including changes in some of our customer sourcing arrangements, cyclical market supply

imbalances, and a developing regulatory environment. We have evolved from a leaf dealer to a leaf

service provider as the quality requirements of our customers have expanded to include the need

for compliant leaf. We closely monitor regulatory developments such as FDA regulation of tobacco

products and Framework Convention on Tobacco Control (“FCTC”) guidelines to understand how these

regulations may impact our customers’ leaf needs.

We take a long-term approach to this business as demonstrated by our longstanding involvement

in initiatives promoting sustainability. We understand the importance of a strong, consistent supplier

base. We are committed to strengthening the integrity of the supply chain, which includes measureable

efforts to promote sustainable production. We work to ensure that tobacco we source is grown using

Good Agricultural Practices (GAP), providing a reasonable return to the grower, minimizing long-term

UNIV ERSAL C ORP ORATION

impacts on the environment, and without the use of child labor. We strive to maintain processing facilities

that are environmentally sound, efﬁ ciently use energy and natural resources, and provide a safe working

environment. We also work to make a positive impact in the communities in which we operate through

our support of social programs designed to address issues such as access to schools and clean water. We

are currently adopting an internal sustainability monitoring program modeled after the Global Reporting

Initiative (GRI). This program will help us measure the effectiveness of our sustainability activities and

set priorities related to future initiatives. I am very pleased with these undertakings, and as we move

into ﬁ scal year 2013, I believe that our company will continue to succeed by meeting the needs of our

shareholders, customers, employees, growers, and communities.

Dr. Eugene Trani has served on the Finance, Pension Investment, and Audit Committees of our

Board of Directors and will retire from the Board in August. I would like to thank Dr. Trani for his twelve

years of dedicated service to the Company. We have greatly beneﬁ ted from his leadership and strategic

vision. We will miss him and wish him well.

George C. Freeman, III
Chairman, President, and Chief Executive Ofﬁ cer

20 12 ANNUAL REPOR T

REGIONAL MANAGEMENT

Due to the global nature of our business, our operations are geographically widespread. We have taken an approach to managing

these diverse operations that is unique in the tobacco industry. We have in place a network of strong local management teams

providing timely, detailed knowledge of conditions in their areas.

At the head of these local teams stand our seven regional directors, who oversee our local operations and support multiple tobacco

growing origins, each of which has different requirements and characteristics and are often widely geographically dispersed. These

leaders have extensive knowledge of not only the crops, markets, and customer base for tobacco produced in their region, but also

an understanding of local procedures, agricultural requirements, and governmental and regulatory issues. They oversee agronomy

programs guiding tens of thousands of growers, ranging from sophisticated commercial operations to tiny family farms; they manage

state-of-the-art factories; and at the same time, they are constantly identifying opportunities to meet and exceed the expectations

of our customers. Our regional directors are passionate about their business, support one another through global cooperation, and

ensure our high ethical standards while balancing the needs of local constituents and meeting stringent customer requirements.

We believe that having strong regional management with deep local roots in each leaf origin helps us better identify and adjust

to constantly changing conditions and provides us with market-speciﬁ c knowledge quickly. We also believe that strong local

management teams coupled with our global coordination strategy is a key factor in our continued success.

ORLANDO ASTUTI

PAUL G. BEEVOR

Universal is the only independent, global leaf supplier with signiﬁ cant operations in Europe. Orlando

Astuti has 29 years of experience in the tobacco industry and has served as the Regional Director

of our European Region for 6 years. The region consists of Italy, Spain, France, Hungary, Poland,

Germany, and the Netherlands. Over 750 full-time, hourly and seasonal employees work within

Universal’s European operations.

A large portion of our Asian business involves trading tobaccos. Headquartered in Singapore, the

Asian region conducts business in the Philippines, China, India, and Bangladesh and is led by Paul

Beevor who has 26 years of industry experience. Over 3,200 full-time, hourly and seasonal employees

work within Universal’s Asian operations.

We have a leading position in worldwide dark air-cured tobacco markets. Friedrich G. Bossert leads

this business, and has 33 years of experience in this niche market. The global nature of this operation

casts a large net over the world including the United States, Indonesia, Dominican Republic,

Brazil, Paraguay, Nicaragua, Germany, and the Philippines as well as having a presence in all of

Universal’s other regions. Over 8,700 full-time, hourly and seasonal employees work in Universal’s

Dark Air-Cured operations.

FRIEDRICH G. BOSSERT

UNIV ERSAL C ORP ORATION

The United States has long been an important source of good quality ﬂ avored tobacco. Our

operations in the United States, Guatemala, Mexico, and Canada are overseen by Clayton G. Frazier.

Clay has over 27 years of experience in the industry. Over 1,100 full-time, hourly and seasonal

employees are employed by Universal’s North American operations.

Universal has been instrumental in the development and expansion of tobacco production in

Africa. Charles A. M. Graham has 38 years of industry experience and heads our African region,

which includes Mozambique, Tanzania, Malawi, Zambia, Zimbabwe, and South Africa. Over 10,200

full-time, hourly and seasonal employees are employed by Universal’s African operations.

Brazil is the second largest producer of tobacco and the largest tobacco exporter in the world. Our

South American region, which includes Brazil, Argentina, and Ecuador, is led by Airton Luis Hentschke.

Airton has 22 years of experience in this market and oversees operations employing over 2,300 full-

time, hourly and seasonal employees.

CLAYTON G. FRAZIER

CHARLES A. M. GRAHAM

AIRTON L. HENTSCHKE

Universal participates in oriental leaf tobacco through a strategic partnership with what we believe to

be the leading oriental leaf merchant in the world, Socotab, L.L.C. Jonathan R. Wertheimer is the Chief

Executive Ofﬁ cer of Socotab. His 23 years of experience encompass all of the oriental tobacco markets

that we operate within, which include Turkey, Bulgaria, Macedonia, and Greece. Socotab employs over

2,500 full-time, hourly and seasonal employees.

JONATHAN R. WERTHEIMER

20 12 ANNUAL REPOR T

PERFOR M ANCE GR APH
Co m p a ri s o n of 5 Ye a r Cu mu lative Total Retu r n*

*$100 invested on 3/31/07 in stock or index, including reinvestment of dividends. Fiscal year ending March 31.

The performance graph compares the cumulative total shareholder return on Universal Corporation common stock

for the last ﬁ ve ﬁ scal years with the cumulative total return for the same period of the Standard & Poor’s Midcap 400 Stock

Index and the peer group index. The peer group represents Alliance One International, Inc. The graph assumes that $100 was

invested in Universal Corporation common stock at the end of the Company’s 2007 ﬁ scal year, and in each of the comparative

indices, in each case with dividends reinvested.

CU MUL ATI VE TOTAL RE TURN ON
UNIVER SAL CORPOR ATION COMMON S TOCK

2007

2008

2009

2010

2011

2012

At March 31

Universal Corporation

$ 100.00

$ 110.16

$ 52.49

$ 97.00

$ 83.75

$ 93.89

S & P Midcap 400

Peer Group

100.00

93.03

65.44

59.45

41.60

97.54

55.15

123.83

43.55

126.28

40.85

UNIVERSAL CORP ORATION

2012

U N I V E R S A L C O R P O R A T I O N
1 0 – K

UNITED STATES
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 MARCH 31, 2012
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: 001-00652
UNIVERSAL CORPORATION
(Exact name of registrant as specified in its charter)

Virginia
(State or other jurisdiction of
incorporation or organization)

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

54-0414210
(I.R.S. Employer
Identification Number)

23235
(Zip Code)

Registrant's telephone number, including area code: 804-359-9311
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, no par value

Name of each exchange on
which registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [x] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act.
Yes [ ] No [x]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [ x ] No [ ]

Indicate by check 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 check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):

Large accelerated filer [x] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [x]

The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates, based upon the closing
sales price on the New York Stock Exchange of the registrant's common stock on September 30, 2011, the last day of the registrant's
most recently completed second fiscal quarter, was approximately $710 million.

As of May 22, 2012, the total number of shares of common stock outstanding was 23,257,175.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the 2012 Proxy Statement for the Annual Meeting of Shareholders of the registrant is incorporated
by reference into Part III hereof.

UNIVERSAL CORPORATION
FORM 10-K
TABLE OF CONTENTS

Item No.

Page

PART I

1A.

1B.

Business ....................................................................................................................................................

Risk Factors...............................................................................................................................................

Unresolved Staff Comments .....................................................................................................................

Properties ..................................................................................................................................................

Legal Proceedings .....................................................................................................................................

Mine Safety Disclosures ...........................................................................................................................

PART II

Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.................................................................................................

Selected Financial Data.............................................................................................................................

Management's Discussion and Analysis of Financial Condition and Results of Operations....................

7A.

Quantitative and Qualitative Disclosures About Market Risk ..................................................................

9A.

9B.

10.

11.

12.

13.

14.

Financial Statements and Supplementary Data.........................................................................................

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...................

Controls and Procedures ...........................................................................................................................

Other Information .....................................................................................................................................

PART III

Directors, Executive Officers, and Corporate Governance.......................................................................

Executive Compensation...........................................................................................................................

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Certain Relationships and Related Transactions, and Director Independence..........................................

Principal Accounting Fees and Services ...................................................................................................

PART IV

15.

Exhibits, Financial Statement Schedules ..................................................................................................

Signatures..................................................................................................................................................

General

This Annual Report on Form 10-K, which we refer to herein as our Annual Report, contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Among other things, these statements relate to Universal Corporation’s financial condition, results
of operations and future business plans, operations, opportunities, and prospects. In addition, Universal Corporation and its
representatives may from time to time make written or oral forward-looking statements, including statements contained in other
filings with the Securities and Exchange Commission (the “SEC”) and in reports to shareholders. These forward-looking statements
are generally identified by the use of words such as we “expect,” “believe,” “anticipate,” “could,” “should,” “may,” “plan,” “will,”
“predict,” “estimate,” and similar expressions or words of similar import. These forward-looking statements are based upon
management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual
results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or
achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited
to: anticipated levels of demand for and supply of our products and services; costs incurred in providing these products and services;
timing of shipments to customers; changes in market structure; government regulation; product taxation; industry consolidation
and evolution; changes in exchange rates; and general economic, political, market, and weather conditions. For a description of
factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors.” We
caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when
made, and we undertake no obligation to update any forward-looking statements made in this report. In addition, the discussion
of the impact of current trends on our business in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Other Information Regarding Trends and Management’s Actions” in Item 7 should be read carefully in connection
with evaluating our business and the forward-looking statements contained in this Annual Report.

This Annual Report uses the terms “Universal,” “the Company,” “we,” “us,” and “our” to refer to Universal Corporation
and its subsidiaries when it is not necessary to distinguish among Universal Corporation and its various operating subsidiaries or
when any distinction is clear from the context in which it is used.

PART I

Item 1. Business

The Company

Overview

We are the leading global leaf tobacco supplier. We operate in over 30 countries on five continents. Tobacco has been our
principal focus since our founding in 1918. The largest portion of our business involves the procuring and processing of flue-cured
and burley leaf tobacco for manufacturers of consumer tobacco products. Our reportable segments for our flue-cured and burley
tobacco operations are North America and Other Regions. We also have a third reportable segment, Other Tobacco Operations,
which comprises our dark tobacco business, our oriental tobacco joint venture, and certain tobacco-related services. We generated
approximately $2.4 billion in consolidated revenues and earned approximately $223.5 million in total segment operating income
in fiscal year 2012. Universal Corporation is a holding company that operates through numerous directly and indirectly owned
subsidiaries. Universal Corporation’s primary subsidiary is Universal Leaf Tobacco Company, Incorporated. See Exhibit 21,
“Subsidiaries of the Registrant,” for additional subsidiary information.

Key Operating Principles

We believe that by following several key operating principles we can continue to produce good financial returns from our

business and enhance shareholder value. These key operating principles are:

•

Strategic market position. We work closely with both our customers and suppliers to ensure that we deliver a product
that meets our customers' needs and promotes a strong sustainable supplier base. We believe that developing and
maintaining these relationships is particularly valuable in the leaf tobacco industry where volume at an appropriate
price is a key factor in long-term profitability. Balancing these relationships allows us to optimize our inventory levels
to reduce risk during market downturns by enabling us to target our tobacco production contracts against customer
purchase indications. Our challenge is to adapt our business model to meet our customers' evolving needs while
continuing to provide stability of supply of compliant products and the high level of service that distinguishes our
company.

Strong local management. We operate with strong local management. We believe that having strong local management
in each leaf tobacco origin helps us better identify and adjust to constantly changing market conditions and provides
us with specific market knowledge quickly. We believe that this, coupled with global coordination, is a key factor in
our ability to continue to deliver the high quality, competitively priced products that our customers expect.

• Compliant products. We focus on sourcing a compliant product that meets customer requirements in a competitive,
yet sustainable manner. We sponsor programs to educate farmers in good agricultural practices, the reduction of non-
tobacco related materials, product traceability, environmental sustainability, and social responsibility, among others.

• Diversified sources. We strive to maintain diversified sources of leaf tobacco to minimize reliance on any one sourcing
area. We operate in over 30 countries on five continents and maintain a presence in all major flue-cured, burley,
oriental, and dark air-cured tobacco growing regions in the world. Our global reach allows us to meet our customers'
diverse and dynamic leaf requirements and helps minimize the impact of crop failures or other localized supply
interruptions.

• Financial strength. We believe that our financial strength is important, because it enables us to fund our business
efficiently and make investments in our business when appropriate opportunities are identified. We believe that lower
interest and capital costs give us a competitive advantage. Our financial strength also affords us financial flexibility
in dealing with customer requirements and market changes. We work to sustain our creditworthiness.

Additional Information

Our website address is www.universalcorp.com. We post regulatory filings on this website as soon as reasonably practicable
after they are electronically filed with or furnished to the SEC. These filings include annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, Section 16 reports on Forms 3, 4, and 5, and any amendments to those reports filed
with or furnished to the SEC. Access to these filings on our website is available free of charge. Copies are also available, without
charge, from Universal Corporation Investor Relations, 9201 Forest Hill Avenue, Richmond, VA 23235. Reports filed with the SEC
may be viewed at www.sec.gov or obtained at the SEC Public Reference Room in Washington, D.C. Information regarding the
operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. We also post our press releases
on our website. Information on our website is not deemed to be incorporated by reference into this Annual Report.

In addition, our Corporate Governance Guidelines, Code of Conduct, and charters for the Audit Committee, the Executive
Committee, the Executive Compensation, Nominating and Corporate Governance Committee, the Pension Investment Committee,
and the Finance Committee are available free of charge to shareholders and the public through the “Corporate Governance” section
of our website. Printed copies of the foregoing are available to any shareholder upon written request to our Treasurer at the address
set forth on the cover of this Annual Report or may be requested through our website, www.universalcorp.com.

Description of Business

General

Our business is procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to, or for the account
of, manufacturers of consumer tobacco products throughout the world. Procuring leaf tobacco involves contracting with, providing
agronomy support to, and financing farmers in many origins. We do not manufacture cigarettes or other consumer tobacco products.
Through various operating subsidiaries and unconsolidated affiliates located in tobacco-growing countries around the world, we
process and sell flue-cured and burley tobaccos, as well as dark air-cured and oriental tobaccos. We also provide value-added
services to our customers, including blending, chemical and physical testing of tobacco, managing just-in-time inventory, and
manufacturing reconstituted leaf tobacco. Flue-cured, burley, and oriental tobaccos are used principally in the manufacture of
cigarettes, and dark air-cured tobaccos are used mainly in the manufacture of cigars, pipe tobacco, and smokeless tobacco products.
We generate our revenues from product sales, processing fees, and fees for other services. Over 75% of our volume is derived from
sales to customers with major positions in their respective markets and with whom we have long-standing relationships. Our sales
consist primarily of flue-cured and burley tobaccos. For the fiscal year ended March 31, 2012, our flue-cured and burley operations
accounted for 90% of our revenues and 94% of our segment operating income.

Because unprocessed, or “green,” tobacco is a perishable product, processing of leaf tobacco is an essential service to our
customers. Our processing of leaf tobacco includes grading in the factories, blending, removal of non-tobacco material, separation
of leaf from the stems, drying, packing to precise moisture targets for proper aging, as well as temporary storage. Accomplishing
these tasks generally requires investments in plants and machinery in areas where the tobacco is grown. Processed tobacco that
has been properly packed can be stored by customers for a number of years prior to use, but most processed tobacco is used within
two to three years.

We are a major purchaser and processor in the chief exporting regions for flue-cured and burley tobacco throughout the
world. We estimate that we have historically handled between 20% and 30% of the annual production of such tobaccos in Brazil
and between 35% and 45% in Africa. These percentages can change from year to year based on the size, price, and quality of the
crops. Recently, as tobacco growing regions have expanded in Africa, we have handled a larger proportion of the crops there. We
also handled between 20% and 30% of the flue-cured and burley tobacco produced in North America in fiscal year 2012. The
majority of this tobacco was sourced in the United States, where we sell processed U.S. tobacco to cigarette manufacturers and
process U.S. flue-cured and burley tobacco on a fee basis. We participate in the procurement, processing, storage, and sale of
oriental tobacco through ownership of a 49% equity interest in what we believe to be the largest oriental leaf tobacco merchant in
the world, Socotab, L.L.C. In addition, we maintain a presence, and in certain cases, a leading presence, in virtually all other major
tobacco growing regions in the world. We believe that our leading position in the leaf tobacco industry is based on our operating
presence in all of the major sourcing areas, our ability to meet customer style, volume, and quality requirements, our expertise in
dealing with large numbers of farmers, our long-standing relationships with customers, our development of processing equipment
and technologies, and our financial position.

We also have a leading position in worldwide dark tobacco markets. Our dark tobacco operations are located in most of
the major producing countries and in other smaller markets. We operate in major dark tobacco producing countries, including the
United States, the Dominican Republic, Indonesia, Paraguay, the Philippines, Nicaragua, and Brazil. Dark tobaccos are typically
used in the manufacture of cigars, pipe tobacco, and smokeless tobacco products, and as components of certain “roll-your-own”
cigarette products.

Sales are made by our sales force and, to a much smaller degree, through the use of commissioned agents. Most customers

are long-established tobacco product manufacturers.

We conduct our business in varying degrees in a number of countries, including Argentina, Bangladesh, Brazil, Canada,
the Dominican Republic, Ecuador, France, Germany, Guatemala, Hungary, India, Indonesia, Italy, Malawi, Mexico, Mozambique,
the Netherlands, Nicaragua, Paraguay, the People’s Republic of China, the Philippines, Poland, Russia, Singapore, South Africa,
Spain, Switzerland, Tanzania, the United States, Zambia, and Zimbabwe. In addition, Socotab, L.L.C. has oriental tobacco operations
in Bulgaria, Greece, Macedonia, and Turkey.

In the majority of the countries where we operate, including Argentina, Brazil, Guatemala, Hungary, Indonesia, Italy,
Mexico, Mozambique, the Philippines, Poland, Tanzania, the United States, Zambia, and Zimbabwe, we contract directly with
tobacco farmers or tobacco farmer cooperatives, in most cases before harvest, and thereby take the risk that the delivered quality
and quantity may not meet market requirements. In many countries outside the United States, we also provide agronomy services
and crop advances of, or for, seed, fertilizer, and other supplies. In Malawi, Zambia, and Zimbabwe, we also purchase tobacco
under auction systems.

Our 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, we advance funds, guarantee local loans, or do both, each in substantial amounts, for the eventual purchase of tobacco.
The majority of these seasonal advances and loan guarantees mature in one year or less upon the farmers’ delivery of contracted
tobaccos. Most advances to farmers are denominated in local currency, which is a source of foreign currency exchange rate risk.
Most tobacco sales are denominated in U.S. dollars, which reduces our foreign currency exchange risk after the tobacco has been
purchased. See Item 1A, “Risk Factors” for more information about our foreign currency exchange risk.

For a discussion of recent developments and trends in our business, along with factors that may affect our business, see
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 1A, “Risk Factors.”

Seasonality

Our operations are seasonal in nature. Tobacco in Brazil is usually purchased from January through July, while buying in
Malawi, Mozambique, and other African countries typically begins around April and continues through late fall. Farmers begin to
sell U.S. flue-cured tobacco in late July, and the marketing season lasts for approximately four months. These overlapping marketing
periods tend to mitigate the overall effects of seasonality on our financial performance in most fiscal years.

We normally operate each of our processing plants for seven to nine months of the year. During this period for each region,
inventories of green tobacco, inventories of processed tobacco, and trade accounts receivable normally reach peak levels in
succession. We normally finance this expansion of current assets with cash, short-term notes payable to banks, and customer
advances, and these funding sources normally reach their peak usage in each region during its respective purchasing or processing
period. Our balance sheet at our fiscal year end reflects seasonal expansions in working capital in South America, Central America,
and Western Europe.

Customers

A material part of our business is dependent upon a few customers. For the fiscal year ended March 31, 2012, each of
Philip Morris International, Inc. and Imperial Tobacco Group, PLC, including their respective affiliates, accounted for 10% or more
of our revenues. We also have three other customers, who in fiscal year 2012, each accounted for between 5% and 10% of our
revenues. The loss of, or substantial reduction in business from, any of these customers could have a material adverse effect on our
results. We have long-standing relationships with these customers. For additional information, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Overview” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Other Information Regarding Management’s Actions and Trends.”

We had commitments from customers for approximately $539 million of the tobacco in our inventories at March 31, 2012.
Based upon historical experience, we expect that at least 85% of such orders will be delivered during fiscal year 2013. Most of our
product requires shipment via trucks and oceangoing vessels to reach customer destinations. Delays in the delivery of orders can
result from such factors as truck and container availability, port access and capacity, vessel scheduling, and changing customer
requirements for shipment.

As more fully described in Note 1 to the consolidated financial statements in Item 8 of this Annual Report, we recognize
sales revenue at the time that title to the tobacco and risk of loss passes to our customer. Individual shipments may be large, and
since the customer typically specifies shipping dates, our financial results may vary significantly between reporting periods due to
timing of sales. In some markets, including the United States and Brazil, we process tobacco that is owned by our customers, and
we recognize the revenue for that service when the processing is completed.

Competition

The leaf tobacco industry is highly competitive. Competition among leaf tobacco merchants is based on the ability to meet
customer specifications in the buying, processing, and financing of tobacco, and on the price charged for products and services.
Competition varies depending on the market or country involved. The number of competitors varies from country to country, but
there is competition in most areas to buy and sell the available tobacco. Our principal competitor is Alliance One International,
Inc. (“Alliance One”). Alliance One operates in many of the countries where we operate. Based on our estimates, we do not believe
that worldwide market shares differ substantially between the two companies. Most of our major customers are partially vertically
integrated, and thus, also compete with us for the purchase of leaf tobacco in several of the major markets.

In most major markets, smaller competitors are very active. These competitors typically have lower overhead requirements
and provide less support to customers and farmers. Due to their lower cost structures, they can often offer a price on products that
is lower than our price. However, we believe that we provide quality controls and farm programs that add value for our customers

in an increasingly regulated world and make our products highly desirable. For example, we have established worldwide farm
programs designed to prevent non-tobacco related materials from being introduced into the green tobacco delivered to our factories.
In addition, we have established programs for good agricultural practices and have been active in social responsibility endeavors
in many of the developing countries in which we do business. We believe that our major customers value these services and that
our programs increase the quality of the products and services we offer. We also believe that our customers value the security of
supply that we are able to provide due to our strong relationships with our farmer base.

Reportable Segments

We evaluate the performance of our business by geographic region, although the dark air-cured and oriental tobacco
businesses are each evaluated on the basis of their worldwide operations. Performance of the oriental tobacco operations is evaluated
based on our equity in the pretax earnings of our affiliate. Under this structure, we have the following primary operating segments:
North America, South America, Africa, Europe, Asia, Dark Air-Cured, Oriental, and Special Services. North America, South
America, Africa, Europe, and Asia are primarily involved in flue-cured and burley leaf tobacco operations for supply to cigarette
manufacturers. Dark Air-Cured supplies dark air-cured tobacco principally to manufacturers of cigars, pipe tobacco, and smokeless
tobacco products, and Oriental supplies oriental tobacco to cigarette manufacturers. From time to time, the segments may trade in
tobaccos that differ from their main varieties, but those activities are not significant to their overall results. Special Services provides
laboratory services, including physical and chemical product testing and smoke testing for customers.

The five regional operating segments serving our cigarette manufacturer customers share similar characteristics in the
nature of their products and services, production processes, class of customer, product distribution methods, and regulatory
environment. Based on the applicable accounting guidance, four of the regions – South America, Africa, Europe, and Asia – are
aggregated into a single reporting segment, Other Regions, because they also have similar economic characteristics. North America
is reported as an individual operating segment, because its economic characteristics differ from the other regions, generally because
its operations do not require significant working capital investments for crop financing and inventory. The Dark Air-Cured, Oriental,
and Special Services segments, which have differing characteristics in some of the categories mentioned above, are reported together
as Other Tobacco Operations, because each is below the measurement threshold for separate reporting.

Financial Information about Segments

Our North America and Other Regions reportable segments, which represent our flue-cured and burley tobacco operations,
accounted for 13% and 77% of our revenues and 13% and 81% of our segment operating income, respectively, in fiscal year 2012.
Our Other Tobacco Operations reportable segment accounted for 10% of our revenues and 6% of our segment operating income in
fiscal year 2012. Sales and other operating revenues and operating income attributable to our reportable segments for each of the
last three fiscal years, along with segment assets for each reportable segment at March 31, 2012, 2011, and 2010, are set forth in
Note 15 to the consolidated financial statements, which are included in Item 8 of this Annual Report. Information with respect to
the geographic distribution of our revenues and long-lived assets is also set forth in Note 15 to the consolidated financial statements.

Employees

We employed over 26,000 employees throughout the world during the fiscal year ended March 31, 2012. We estimated

this figure because the majority of our personnel are seasonal employees.

Research and Development

We did not expend material amounts for research and development during the fiscal years ended March 31, 2012, 2011,

or 2010.

Patents, etc.

We hold no material patents, licenses, franchises, or concessions.

Government Regulation, Environmental Matters, and Other Matters

Our business is subject to general governmental regulation in the United States and in foreign jurisdictions where we
conduct 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 our capital expenditures,
earnings, or competitive position. See Item 1A, “Risk Factors” for a discussion of government regulations and other factors that
may affect our business.

Item 1A. Risk Factors

Operating Factors

The leaf tobacco industry is highly competitive, and we are heavily reliant on a few large customers.

We are one of two major independent global competitors in the highly competitive leaf tobacco industry, both of whom
are reliant upon a few large customers. The loss of one of those large customers or a significant decrease in their demand for our
products or services could significantly decrease our sales of products or services, which would have a material adverse effect on
our results of operations. The competition among leaf tobacco suppliers and dealers is based on the ability to meet customer
requirements in the buying, processing, and financing of tobacco, and on the price charged for products and services. We believe
that we consistently meet our customers’ requirements and charge competitive prices. Because we rely upon a few significant
customers, the consolidation, significant increase in vertical integration, or failure of any of these large or significant customers
could contribute to a significant decrease in our sales of products and services.

We compete for both the purchase and sale of leaf with smaller leaf tobacco merchants in some of the markets where we
conduct business. Some of these smaller leaf tobacco merchants operate in more than one country. Since they typically provide
little or no support to farmers, these leaf tobacco merchants typically have lower overhead requirements than we do. Due to their
lower cost structures, they often can offer a price on products that is lower than our price. Our customers also directly source leaf
tobacco from farmers to meet some of their raw material needs. Direct sourcing provides our customers with some quantities of
tobacco which they prefer not to use in their existing blends and that may be offered for sale. This competition for both the sale
and purchase of leaf could reduce the volume of the leaf we handle and could negatively impact our financial results.

Our financial results can be significantly affected by changes in the balance of supply and demand for leaf tobacco.

Because we are a leaf tobacco merchant, our 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 requirements, can change from time to time depending upon factors affecting the demand for their products. Our customers’
expectations and their demand for leaf tobacco are influenced by a number of factors, including:

•
•
•

trends in the global consumption of cigarettes,
trends in sales of cigars and other tobacco products, and
levels of competition among our customers.

The world supply of leaf tobacco at any given time is a function of current tobacco production, inventories held by
manufacturers, and the volumes of uncommitted stocks of leaf tobacco held by leaf tobacco merchants. Production of tobacco in
a given year may be significantly affected by such factors as:

• weather and natural disasters, including any adverse weather conditions that may result from climate change,
•
•
•
•
•
•

crop infestation and disease,
availability of crop inputs,
volume of annual tobacco plantings and yields realized by farmers,
farmer elections to grow crops other than tobacco,
elimination of government subsidies to farmers, and
demographic shifts that change the number of farmers or the amount of land available to grow tobacco.

Any significant change in these factors could cause a material imbalance in the supply of and demand for tobacco, which

would affect our results of operations.

Our financial results will vary according to growing conditions, customer requirements, and other factors. These factors also limit
the ability to accurately forecast our future performance and increase the risk of an investment in our common stock or other
securities.

Our financial results, particularly our year-over-year quarterly comparisons, may be significantly affected by variations in
tobacco growing seasons and fluctuations in crop sizes. The timing of the cultivation and delivery of tobacco is dependent upon a
number of factors, including weather and other natural events, and our processing schedules and results of operations can be
significantly altered by these factors. In addition, the potential impact of climate change is uncertain and may vary by geographic
region. The possible effects, as described in various public accounts, could include changes in rainfall patterns, water shortages,
changing storm patterns and intensities, and changing temperature levels that could adversely impact our costs and business
operations and the supply and demand for leaf tobacco. Our operations also rely on dependable and efficient transportation services.
A disruption in transportation services, as a result of climate change or otherwise, may also significantly impact our results of
operations.

Further, the timing and unpredictability of customer orders and shipments may require us to keep tobacco in inventory and
may also result in variations in quarterly and annual financial results. We base sales recognition on the passage of ownership,
usually with shipment of product. Since individual shipments may represent significant amounts of revenue, our quarterly and
annual financial results may vary significantly depending on the needs and shipping instructions of our customers and the availability
of transportation services. These fluctuations result in varying volumes and sales in given periods, which also reduce the
comparability of financial results.

Major shifts in customer requirements for tobacco supply may significantly affect our operating results.

If our customers significantly alter their requirements for tobacco volumes from certain regions, we may have to change
our production facilities and alter our fixed asset base in certain origins. Permanent or long-term reduction in demand for tobacco
from origins where we have operations may trigger restructuring and impairment charges. We may also need to make significant
capital investments in other regions to develop the needed infrastructure to meet customer supply requirements.

In areas where we purchase leaf tobacco directly from farmers, we bear the risk that the tobacco we receive will not meet quality
and quantity requirements.

When we contract directly with tobacco farmers or tobacco farmer cooperatives, which is the method we use to purchase
tobacco in most countries, we bear the risk that the tobacco delivered may not meet customer quality and quantity requirements. If
the tobacco does not meet such market requirements, we may not be able to meet all of our customers’ orders, and such failure
would have an adverse effect on profitability and results of operations. Because in a contract market we buy all of the farmers’
production, which encompasses many leaf styles, we also have a risk that not all of that production will be readily marketable. In
addition, in many foreign countries where we purchase tobacco directly from farmers, we provide them with financing. Unless we
receive marketable tobacco that meets the quality and quantity specifications of our customers, we bear the risk that we will not be
able to fully recover our crop advances or recover them in a reasonable period of time.

Weather and other conditions can affect the marketability of our products.

Tobacco crops are subject to vagaries of 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 our ability to acquire the quantity of products required by our customers. In addition, other
factors can affect the marketability of tobacco, including, among other things, the presence of:

•
•
•

excess residues of crop protection agents,
non-tobacco related materials, and
genetically modified organisms.

A significant event impacting the condition or quality of a large amount of any of the crops that we buy could make it

difficult for us to sell these products or to fill customers’ orders.

Regulatory and Governmental Factors

Government efforts to regulate the production and consumption of tobacco products could have a significant impact on the businesses
of our customers, which would, in turn, affect our 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 our products and services. These
activities have included:

•
•

restrictions on the use of tobacco products in public places and places of employment,
legislation authorizing the U.S. Food and Drug Administration (the “FDA”) to regulate the manufacturing and
marketing of tobacco products,
increases in the federal, state, and local excise taxes on cigarettes and other tobacco products, 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.

The United States only produces about 8% of the cigarettes manufactured outside of the People’s Republic of China.

A number of foreign governments and global non-government organizations also have taken or proposed steps to restrict
or prohibit tobacco product advertising and promotion, to increase taxes on tobacco products, to indirectly limit the use of certain
types of tobacco, and to discourage tobacco product consumption. A number of such measures are included in the Framework
Convention on Tobacco Control (“FCTC”), which was negotiated and promoted globally under the auspices of the World Health
Organization (“WHO”). We cannot predict the extent to which the efforts of governments or non-governmental agencies to reduce
tobacco consumption might affect the business of our primary customers. However, a significant decrease in worldwide tobacco
consumption brought about by existing or future governmental laws and regulations would reduce demand for tobacco products
and services and could have a material adverse effect on our results of operations.

Government actions can have a significant effect on the sourcing of tobacco. If some of the current efforts are successful, we could
have difficulty obtaining sufficient tobacco to meet our customers’ requirements, which could have an adverse effect on our
performance and results of operations.

The WHO, through the FCTC, has created a formal study group to identify and assess crop diversification initiatives and
alternatives to leaf tobacco growing in countries whose economies depend upon tobacco production. The study group began its
work in February 2007. If certain countries were to partner with the FCTC study group and seek to eliminate or significantly reduce
leaf tobacco production, we could encounter difficulty in sourcing leaf tobacco to fill customer requirements, which could have an
adverse effect on our results of operations.

Certain recommendations by the WHO, through the FCTC, may cause shifts in customer usage of certain styles of tobacco.
As seen in countries like Canada and Brazil, efforts have been taken to eliminate ingredients from the manufacturing process for
tobacco products. Such decisions could cause a change in requirements for certain styles of tobacco in particular countries. Shifts
in customer demand from one type of tobacco to another could create sourcing difficulties as requirements move from one origin
to another.

In addition, continued government and public emphasis on environmental issues, including climate change, conservation,
and natural resource management, could result in new or more stringent forms of regulatory oversight of industry activities, which
may lead to increased levels of expenditures for environmental controls, land use restrictions affecting us or our suppliers, and other
conditions that could have a material adverse effect on our business, financial condition, and results of operations. For example,
certain aspects of our business generate carbon emissions. Regulatory restrictions on greenhouse gas emissions have been proposed.
These may include limitations on such emissions, taxes or emission allowance fees on such emissions, various restrictions on
industrial operations, and other measures that could affect land-use decisions, the cost of agricultural production, and the cost and
means of processing and transporting our products. These actions could adversely affect our business, financial condition, and
results of operations.

Because we conduct a significant portion of our operations internationally, political and economic uncertainties in certain countries
could have an adverse effect on our performance and results of operations.

Our 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 also to the effects of changes in the trade policies and
economic regulations of foreign governments. These uncertainties and risks, which include undeveloped or antiquated commercial
law, the expropriation or nationalization of assets, and the authority to revoke or refuse to renew business licenses and work permits,
may adversely impact our ability to effectively manage our operations in those countries. For example, in the past, we have
experienced significant year-to-year fluctuations in earnings due to changes in the Brazilian government’s economic policies, and
government actions in Zimbabwe reduced tobacco production there, causing us to shift sourcing of tobacco to other countries. We
have substantial capital investments in South America and Africa, and the performance of our operations in those regions can
materially affect our earnings. If the political situation in any of the countries where we conduct business were to deteriorate
significantly, our ability to recover assets located there could be impaired. To the extent that we do not replace any lost volumes
of tobacco with tobacco from other sources, or we incur increased costs related to such replacement, our financial condition, results
of operations, or both would suffer.

Changes in tax laws in the countries where we do business may adversely affect our results of operations.

Through our subsidiaries, we are subject to the tax laws of many jurisdictions. Changes in tax laws or the interpretation
of tax laws can affect our earnings, as can the resolution of various pending and contested tax issues. In most jurisdictions, we
regularly have audits and examinations by the designated tax authorities, and additional tax assessments are common. We believe
that we routinely comply with applicable tax laws in the jurisdictions where we operate, and we vigorously contest all significant
tax assessments where we believe we are in compliance with the tax laws.

Financial Factors

Failure of our customers or suppliers to repay extensions of credit could materially impact our results of operations.

We extend credit to both suppliers and customers. A significant bad debt provision related to amounts due could adversely
affect our 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, delivery failure, or permanent reductions in crop sizes, full recovery of advances may
never be realized, or otherwise could be delayed until future crops are delivered. See Notes 1 and 14 to the consolidated financial
statements in Item 8 for more information on these extensions of credit.

Fluctuations in foreign currency exchange rates may affect our results of operations.

We account for most of our tobacco operations using the U.S. dollar as the functional currency. The international tobacco
trade generally is conducted in U.S. dollars, and we finance most of our tobacco operations in U.S. dollars. Although this generally
limits foreign exchange risk to the economic risk that is related to leaf purchase and production costs, overhead, and income taxes
in the source country, significant currency movements could materially impact our results of operations. Changes in exchange rates
can make a particular crop more or less expensive in U.S. dollar terms. If a particular crop is viewed as expensive in U.S. dollar
terms, it may be less attractive in the world market. This could negatively affect the profitability of that crop and our results of
operations. In certain tobacco markets that are primarily domestic, the local currency is the functional currency. Examples of these
markets are Hungary and Poland. Similarly the local currency is the functional currency in other markets, such as Western Europe,
where export sales have been denominated primarily in local currencies. In these markets, reported earnings are affected by the
translation of the local currency into the U.S. dollar. See Item 7A, “Qualitative and Quantitative Disclosure About Market Risk”
for additional discussion related to foreign currency exchange risk.

Our purchases of tobacco are generally made in local currency, and we also provide farmer advances that are denominated
in the local currency. We account for currency remeasurement gains or losses on those advances as period costs, and they are usually
accompanied by offsetting increases or decreases in the purchase cost of tobacco, which is priced in the local currency. The effect
of differences in the cost of tobacco is generally not realized in our earnings until the tobacco is sold, which often occurs in a quarter
or fiscal year subsequent to the recognition of the related remeasurement gains or losses. The difference in timing could affect our
profitability in a given quarter or fiscal year.

We have used currency hedging strategies to reduce our foreign currency exchange rate risks in some markets. In addition,
where we source tobacco in countries with illiquid or nonexistent forward foreign exchange markets, we often manage our foreign
exchange risk by matching funding for inventory purchases with the currency of sale and by minimizing our net investment in these
countries. To the extent that we have net monetary assets or liabilities in local currency, we may have currency remeasurement
gains or losses that will affect our results of operations.

Changes in interest rates may affect our results of operations.

In our business, customers usually either pre-finance purchases or pay market rates of interest for inventory purchased on
order. From time to time, we borrow long-term debt at fixed rates. Through hedging agreements, we may swap the interest rates
on our existing fixed-rate debt to floating market interest rates to better match the interest rates that we charge our customers. To
the extent we are unable to match these interest rates, a decrease in short-term interest rates could increase our net financing costs.
In addition, at times we may have significant amounts of cash invested. Decreases in short-term interest rates reduce the income
we derive from those investments. Changes in interest rates also affect expense related to our defined benefit pension plan, as
described below.

Low investment performance by our defined benefit pension plan assets may increase our pension expense and may require us to
fund a larger portion of our pension obligations, thus, diverting funds from other potential uses.

We sponsor a domestic defined benefit pension plan that covers certain eligible employees. Our results of operations may
be positively or negatively affected by the amount of income or expense we record for this plan. U.S. generally accepted accounting
principles (GAAP) require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect
assumptions about financial market and other economic conditions, which may change based on changes in key economic indicators.
The most significant year-end assumptions we used to estimate pension income or expense for fiscal year 2012 were the discount
rate and the expected long-term rate of return on plan assets. In addition, we are required to make an annual measurement of plan
assets and liabilities, which may result in a significant change to shareholders’ equity through a reduction or increase to “Pension
and other postretirement benefits plan adjustments.” At the end of fiscal year 2012, the projected benefit obligation of our U.S.
pension plans was $270 million and plan assets were $177 million. For a discussion regarding how our financial statements can
be affected by pension plan accounting policies, see “Critical Accounting Estimates – Pension and Other Postretirement Benefit
Plans” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and in Note 11 to
the consolidated financial statements in Item 8. Although GAAP expense and pension funding contributions are not directly related,
key economic factors that affect GAAP expense would also likely affect the amount of cash we would contribute to pension plans
under requirements of the Employee Retirement Income Security Act (ERISA). Failure to achieve expected returns on plan assets
could also result in an increase to the amount of cash we would be required to contribute to our pension plans.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Except as noted, we own the following significant properties (greater than 500,000 square feet):

Location

Flue-Cured and Burley Leaf Tobacco Operations:
North America:
United States

Principal Use

Building Area
(Square Feet)

Nash County, North Carolina ......................................................................... Factory and storages

1,312,000

Other Regions:

Brazil

Santa Cruz....................................................................................................... Factory and storages
Joinville (1)..................................................................................................... Factory and storages

2,386,000
964,000

Malawi

Lilongwe ......................................................................................................... Factory and storages

942,000

Mozambique

Tete ................................................................................................................. Factory and storages

748,000

Philippines

Agoo, La Union .............................................................................................. Factory and storages

672,000

Tanzania

Morogoro ........................................................................................................ Factory and storages

803,000

Zimbabwe

Harare (2)........................................................................................................ Factory and storages

1,445,000

Other Tobacco Operations:

United States

Lancaster, Pennsylvania.................................................................................. Factory and storages

793,000

(1) Leased from a third party.
(2) Owned by an unconsolidated subsidiary.

We lease headquarters office space of about 45,000 square feet at 9201 Forest Hill Avenue in Richmond, Virginia, which

we believe is adequate for our current needs.

Our business involves, among other things, storing and processing green tobacco and storing processed tobacco. We
operate processing facilities in major tobacco growing areas. In addition, we require tobacco storage facilities that are in close
proximity to the processing facilities. We own most of the tobacco storage facilities, but we lease additional space as needs arise,
and expenses related to such leases are not material. We believe that the properties currently utilized in our tobacco operations are
maintained in good operating condition and are suitable and adequate for our purposes at our current volumes.

In addition to our significant properties listed above, we own other processing facilities in the following countries: Germany,
Hungary, Italy, the Netherlands, Poland, and the United States. In addition, we have ownership interests in processing plants in
Guatemala and Mexico and have access to processing facilities in other areas, such as Argentina, India, the People’s Republic of
China, South Africa, and Zambia. Socotab L.L.C., an oriental tobacco joint venture in which we own a noncontrolling interest,
owns tobacco processing plants in Turkey, Macedonia, and Bulgaria.

Except for the Lancaster, Pennsylvania facility, the facilities described above are engaged primarily in processing tobacco
used by manufacturers in the production of cigarettes. The Lancaster facility, as well as facilities in Brazil, the Dominican Republic,
Indonesia, and Paraguay, process tobacco used in making cigar, pipe, and smokeless products, as well as components of certain
“roll-your-own” products.

Item 3. Legal Proceedings

European Commission Fines in Italy

In 2002, we reported that we were aware that the Commission was investigating certain aspects of the leaf tobacco markets
in Italy. Deltafina buys and processes tobacco in Italy. We reported that we did not believe that the Commission investigation in
Italy would result in penalties being assessed against us or our subsidiaries that would be material to our earnings. The reason we
held this belief was that we had received conditional immunity from the Commission because Deltafina had voluntarily informed
the Commission of the activities that were the basis of the investigation.

On December 28, 2004, we received a preliminary indication that the Commission intended to revoke Deltafina’s immunity
for disclosing in April 2002 that it had applied for immunity. Neither the Commission’s Leniency Notice of February 19, 2002, nor
Deltafina’s letter of provisional immunity, contains a specific requirement of confidentiality. The potential for such disclosure was
discussed with the Commission in March 2002, and the Commission never told Deltafina that the disclosure would affect Deltafina’s
immunity. On November 15, 2005, we received notification from the Commission that the Commission had imposed fines totaling
€30 million on Deltafina and Universal Corporation jointly for infringing European Union antitrust law in connection with the
purchase and processing of tobacco in the Italian raw tobacco market. In January 2006, Universal Corporation and Deltafina each
filed appeals in the General Court. Deltafina’s appeal was held on September 28, 2010. For strategic reasons related to the defense
of the Deltafina appeal, we withdrew our appeal. On September 9, 2011, the General Court issued its decision, in which it rejected
Deltafina’s application to reinstate immunity. Deltafina has appealed the decision of the General Court to the European Court of
Justice. Effective with the September 9, 2011 General Court decision, we recorded a charge for the full amount of the fine (€30
million) plus accumulated interest (€5.9 million). The charge totaled $49.1 million at the exchange rate in effect on the date of the
General Court decision. Deltafina maintains a bank guarantee in favor of the Commission in the amount of the fine plus accumulated
interest in order to stay execution during the appeals process. We expect the appeal to take up to two years, and any fine and interest
Deltafina may ultimately be required to pay would not be due until the European Court of Justice issues its decision.

Other Legal Matters

We have been named along with multiple other defendants in Hupan, et al. v. Alliance One International, Inc., et al., and
Chalanuk, et al. v. Alliance One International, Inc., et al., which are separate but related lawsuits filed in New Castle County,
Delaware state court on February 14, 2012, and April 5, 2012, respectively. The lawsuits were brought by eight Argentine minor
children born between 1996 and 2008 and their parents in Hupan, and forty-one minor Argentine children born between 1986 and
2009 and their parents in Chalanuk. The parent-plaintiffs allege that they grew tobacco in Argentina under contract with Tabacos
Norte S.A., beginning in the 1980's and that they and their infant children were exposed directly and in utero to herbicides and
pesticides used in the production and cultivation of tobacco that caused various alleged birth defects. We have been sued based
upon our alleged business dealings with co-defendants in the production of tobacco by Tabacos Norte, S.A. The plaintiffs seek
compensatory and punitive damages against all defendants under U.S. and Argentine law. Because we have only recently been
named in the lawsuits, it is not possible to predict the ultimate outcome of this matter or what liability, if any, we may incur.

In addition to the above-mentioned matters, some of our subsidiaries are involved in other litigation or legal matters
incidental to their business activities. While the outcome of these matters cannot be predicted with certainty, we are vigorously
defending the matters and do not currently expect that any of them will have a material adverse effect on our business or financial
position. However, should one or more of these matters be resolved in a manner adverse to our current expectation, the effect on
our results of operations for a particular fiscal reporting period could be material.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

PART II

Common Equity

Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “UVV.” The following table
sets forth the high and low sales prices per share of the common stock on the NYSE Composite Tape, based upon published financial
sources, and the dividends declared on each share of common stock for the quarter indicated.

First Quarter

Second Quarter Third Quarter

Fourth Quarter

2012

Cash dividends declared ..........................................................................

Market price range ................................................................................... High

Low

2011

Cash dividends declared ..........................................................................

Market price range ................................................................................... High

Low

0.48 $

0.49 $

45.72

36.94

41.48

35.11

47.38

35.78

0.47 $

0.48 $

55.92

38.38

44.82

35.44

43.34

37.05

0.49

48.60

44.88

0.48

43.72

37.74

Our current dividend policy anticipates the payment of quarterly dividends in the future. However, the declaration and
payment of dividends to holders of common stock is at the discretion of the Board of Directors and will be dependent upon our
future earnings, financial condition, and capital requirements. Under the terms of our Series B 6.75% Convertible Perpetual Preferred
Stock (the “Preferred Stock”), we may not declare or pay dividends on our common stock unless dividends on the Preferred Stock
for the four most recent consecutive dividend periods have been declared and paid. The Preferred Stock contains provisions that
prohibit the payment of cash dividends if certain income and shareholders’ equity levels are not met. Under certain of our credit
facilities, we must meet financial covenants relating to minimum tangible net worth and maximum levels of debt. If we were not
in compliance with them, these financial covenants could restrict our ability to pay dividends. We were in compliance with all such
covenants at March 31, 2012. At May 22, 2012, there were 1,408 holders of record of our common stock. See Notes 6 and 12 to
the consolidated financial statements in Item 8 for more information on debt covenants and equity securities.

Purchases of Equity Securities

As indicated in the following table, we did not repurchase shares of our common stock during the three-month period

ended March 31, 2012:

Period (1)

Total Number of
Shares
Repurchased

Average Price Paid
Per
Share (2)

Total Number of
Shares
Repurchased as
Part of Publicly
Announced Plans
or Programs (3)

Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs (3)

January 1, 2012 to January 31, 2012..........................................

February 1, 2012 to February 29, 2012......................................

March 1, 2012 to March 31, 2012..............................................

Total ...........................................................................................

— $

—

— $

—

— $

100,000,000

—

— $

100,000,000

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

repurchases is based on the date the transactions were settled.

(2) Amounts listed for average price paid per share include broker commissions paid in the transactions.
(3) A stock repurchase plan, which was authorized by our Board of Directors, became effective and was publicly announced on November 8, 2011. This stock
repurchase plan authorizes the purchase of up to $100 million in common stock in open market or privately negotiated transactions, subject to market conditions
and other factors. This stock repurchase program will expire on the earlier of November 15, 2013, or when we have exhausted the funds authorized for the
program.

Item 6. Selected Financial Data

Fiscal Year Ended March 31,

2012

2011

2010

2009

2008

(in thousands, except per share data, ratios, and number of shareholders)

Summary of Operations

Sales and other operating revenues................................................................... $ 2,446,877

$ 2,571,527

$ 2,491,738

$ 2,554,659

$ 2,145,822

Income from continuing operations .................................................................. $

100,819

164,550

170,345

132,561

116,484

Income (loss) from discontinued operations..................................................... $

— $

(145)

Net income ........................................................................................................ $

100,819

Net income attributable to Universal Corporation (1)........................................ $

92,057

Earnings available to Universal Corporation common shareholders................ $

77,207

164,550

156,565

141,715

170,345

168,397

153,547

132,561

131,739

116,889

116,339

119,156

104,306

Return on beginning common shareholders’ equity .........................................

7.9%

15.6%

18.8%

13.0%

12.8%

Earnings (loss) per share attributable to

Universal Corporation common shareholders:

Basic:

From continuing operations ........................................................................ $

3.32

5.94

6.21

4.57

3.83

From discontinued operations..................................................................... $

— $

(0.01)

Net income .................................................................................................. $

3.32

Diluted:

From continuing operations ........................................................................ $

3.25

5.94

5.42

6.21

5.68

4.57

4.32

3.82

3.71

From discontinued operations..................................................................... $

— $

(0.01)

Net income .................................................................................................. $

3.25

5.42

5.68

4.32

3.70

Financial Position at Year End

Current ratio ......................................................................................................

4.31

3.08

2.75

2.74

3.33

Total assets........................................................................................................ $ 2,266,919

$ 2,227,867

$ 2,371,040

$ 2,138,176

$ 2,186,761

Long-term obligations....................................................................................... $

392,500

320,193

414,764

331,808

402,942

Working capital................................................................................................. $ 1,297,921

$ 1,065,883

$ 1,078,077

954,044

$ 1,028,732

Total Universal Corporation shareholders’ equity............................................ $ 1,183,451

$ 1,185,606

$ 1,122,570

$ 1,029,473

$ 1,115,631

General

Ratio of earnings to fixed charges ....................................................................

Ratio of earnings to combined fixed charges and preference dividends...........

7.53

4.07

Number of common shareholders.....................................................................

1,408

Weighted average common shares outstanding:

Basic...............................................................................................................

Diluted............................................................................................................

23,228

28,339

Dividends per share of convertible perpetual preferred stock (annual)............ $

67.50

Dividends per share of common stock (annual) ............................................... $

1.94

Book value per common share.......................................................................... $

41.73

9.41

5.17

1,447

23,859

28,888

67.50

1.90

41.85

9.43

5.29

1,518

24,732

29,662

67.50

1.86

37.39

5.54

3.55

1,597

25,570

30,466

67.50

1.82

32.66

4.66

3.16

1,708

27,263

32,186

67.50

1.78

33.23

(1) We hold less than a 100% financial interest in certain consolidated subsidiaries, and a portion of net income is attributable to the noncontrolling interests in

those subsidiaries.

Our operations consist solely of our worldwide tobacco business. Previously, we also owned lumber and building products
and agri-products operations. We completed the sale of the lumber and building products operations in fiscal year 2007 and the
agri-products operations in fiscal year 2008. The revenues and expenses of the agri-products businesses are reflected as discontinued
operations for fiscal year 2008 in the above table.

The calculations of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preference
dividends are shown in Exhibit 12. Fixed charges primarily represent interest expense we incurred during the designated reporting
period, and preference dividends represent the pre-tax equivalent of dividends on preferred stock.

Significant items included in the operating results in the above table are as follows:

•

Fiscal Year 2012 – a $49.1 million charge to accrue a fine and accumulated interest imposed jointly on the Company
and Deltafina, S.p.A. (“Deltafina”), an Italian subsidiary, by the European Commission related to tobacco buying
practices in Italy. The charge reflected a September 2011 appeals court decision rejecting Deltafina's application to
reinstate its immunity in the case. No income tax benefit was recorded on the non-deductible fine portion of the
charge. In addition to that charge, we recorded restructuring costs of $11.7 million, including approximately $8.6
million for employee termination benefits, primarily related to our operations in the U.S. and South America, and $3.1
million for costs to exit a supplier arrangement in Europe. Results for the year also included a gain of $11.1 million
on the sale of land and buildings in Brazil that were most recently used for storage activities and a $9.6 million gain
on insurance settlement proceeds to replace factory and equipment lost in a fire at a plant in Europe. On a combined
basis, the net effect of these items decreased income before income taxes by $40.0 million and net income by $40.3
million, or $1.42 per diluted share.

Fiscal Year 2011 – $7.4 million reversal of a portion of a charge recorded in fiscal year 2005 to accrue a fine imposed
by the European Commission on Deltafina, S.p.A., our subsidiary in Italy, related to tobacco buying practices in Spain.
The reversal reflected a favorable European Union’s General Court decision in Deltafina’s appeal of the fine. We also
recorded a $19.4 million gain on the assignment of farmer contracts and sale of related assets in Brazil to an operating
subsidiary of a major customer. In addition to those items, which benefited fiscal year 2011 earnings, we recorded
$21.5 million in restructuring and impairment costs during the year. A significant portion of those costs related to our
decision to close our leaf tobacco processing operations in Canada and sell the assets of those operations. Restructuring
charges were also recorded to recognize costs associated with voluntary early retirement offers in our U.S. operations
and additional voluntary and involuntary separations in various other locations. On a combined basis, the net effect
of these items increased income before income taxes by $5.3 million, and increased net income by $3.3 million, or
about $0.12 per diluted share.

Fiscal Year 2009 – $50.6 million in losses from currency remeasurement and exchange, primarily caused by the effect
of the rapid devaluation of the Brazilian currency between June and December 2008. The effect of these losses was
a reduction in net income of $32.9 million, or $1.08 per diluted share.

Fiscal Year 2008 – $29.3 million in gains from currency remeasurement and exchange, reflecting the general
strengthening of world currencies against the U.S. dollar and mark-to-market gains realized on forward contracts to
hedge tobacco purchases in Brazil. We also recorded $12.9 million in restructuring costs, consisting partly of $7.9
million in severance and voluntary termination benefits associated with the downsizing of our operations in Canada,
the release of farm managers and workers employed in flue-cured tobacco growing projects that we exited in Zambia
and Malawi, a workforce reduction in our operations in Malawi, a decision to close and consolidate a sales and logistics
office in Europe, and other cost reduction initiatives at several smaller locations. In addition, restructuring costs
included $5.0 million of curtailment losses associated with actions taken to terminate a small defined benefit pension
plan and freeze another small plan. We also recorded a separate charge of $7.8 million to accrue an obligation
established by Malawi court rulings that required employers there to provide severance benefits in addition to company-
sponsored pension benefits in employee retirement or termination situations. Those rulings also expanded the qualified
compensation on which the severance benefit was based. In addition to these costs, our results for the fiscal year
included a gain of $6.5 million on the sale of surplus timberland in Brazil. On a combined basis, the net effect of
these items increased income before noncontrolling interest and income taxes by $15.1 million, and increased income
from continuing operations and net income by $10.3 million, or $0.32 per diluted share.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of,
and should be read in conjunction with, Part I, Item 1, “Business” and Item 8, “Financial Statements and Supplementary Data.”
For information on risks and uncertainties related to our business that may make past performance not indicative of future results,
or cause actual results to differ materially from any forward-looking statements, see “General,” and Part I, Item 1A, “Risk Factors.”

OVERVIEW

We are the leading global leaf tobacco supplier. We derive most of our revenues from sales of processed tobacco to
manufacturers of tobacco products throughout the world and from fees and commissions for specific services. We hold a strategic
position in the world leaf markets where we work closely with both our customers and farmers to ensure that we deliver a product
that meets our customers' needs while promoting a strong supplier base. We continually adapt to meet changes in customer needs
as well as broader changes in the leaf markets while continuing to provide the stability of supply and high level of service that
distinguishes us in the marketplace. Over the last three fiscal years, we have contended with increased direct sourcing by some
customers, oversupply in the leaf markets, and reduced processing volumes in the United States.

In fiscal year 2010, supply and demand for leaf tobacco was in balance with no significant amounts of uncommitted
inventory in the hands of leaf suppliers and dealers. Large African burley crops that had threatened to create some excess were
absorbed by the market. Although we began to see increased customer concern about costs, the higher cost of leaf was passed
through in selling prices. One of our customers, Japan Tobacco, Inc., responded to higher crop costs and leaf supply concerns by
announcing that they were preparing to source some of their leaf directly in the United States, Brazil, and Malawi.

In fiscal year 2011, we continued to see large burley crops while flue-cured production was reduced somewhat by a weather
issue in Brazil. During the year, we began to see the signs of oversupply in lower margins and elevated supplier and dealer inventories.
In addition, we assigned farmer contracts in Brazil to a subsidiary of Philip Morris International as part of their efforts to increase
their direct sourcing capability there. In response to the customer efforts in direct sourcing and our need to reduce costs in an
oversupplied market, we began a process of reviewing each of our operations with the purpose of rationalizing global operations
to fit the new market conditions. That process gave rise to numerous cost-saving initiatives which continued into fiscal year 2012.

In fiscal year 2012, we had a slow start to the tobacco buying season, which is typical in a cycle of oversupply as both
customers and farmers delayed action to evaluate market development. However, selling activity increased after prices declined at
both the farm and the supplier and dealer levels. We experienced lower margins as a result of the oversupplied market conditions.
In Brazil, we also saw the effect in our first quarter of reduced sales of leaf due to the assignment of some of our farmer contracts
to a subsidiary of Philip Morris International during fiscal year 2011. Processing volumes in North America decreased due to
processing contracts that expired in 2011. We continued to make progress on our restructuring programs in several regions, to
further reduce operating cost structures where necessary. Earnings were negatively impacted by a charge related to the rejection
of our European Commission fine appeal, although we are appealing that decision to a higher court.

We delivered sound results in fiscal year 2012 despite oversupply conditions that reduced green tobacco prices in many
of the major markets and pressured margins. We operate with strong local management in our leaf origins and the knowledge of
these management teams, coupled with our global coordination efforts, enabled us to execute well in the difficult environment. We
successfully managed our risk of excess inventories and ended the year with lower uncommitted inventory levels than in fiscal year
2011. We also maintained our focus on fiscal conservatism and ended the period with a stronger balance sheet position, including
an increase in cash of about $120 million.

As we move into fiscal year 2013, we are seeing crop sizes come down in most of the key sourcing areas for flue-cured
and burley tobacco, and consequently, we expect that our overall sales volumes will decline. In the United States, crop levels should
recover after last year's hurricane damage. However, we do not expect to benefit from the same level of sales of uncommitted
inventories there, as those stocks have been depleted. These crop and inventory reductions reflect the cyclical nature of our business.
With smaller crop sizes, global markets are beginning to strike a balance between supply and demand. Overall, green leaf prices
have stabilized, and we are also seeing higher prices for certain types of tobacco such as quality flavor flue-cured and burley leaf,
as well as oriental tobacco.

Our entire organization continues to focus on delivering a consistent, compliant product that is valued by our customers,
especially in today's increasingly regulated world. We are committed to strengthening the integrity of the leaf tobacco supply chain,
which includes measurable efforts to promote sustainable production. We believe our global reach, our strong regional management
teams, and our long-term focus on being a global quality leaf service provider will continue to differentiate us from the other suppliers
and dealers in the industry.

Fiscal Year Ended March 31, 2012, Compared to the Fiscal Year Ended March 31, 2011

RESULTS OF OPERATIONS

Net income for the fiscal year ended March 31, 2012, was $92.1 million, or $3.25 per diluted share, including the effect
of the charge in the second fiscal quarter for the European Commission fine described below. That charge and other unusual items
during the year amounted to a net pretax charge of $40.1 million ($1.42 per diluted share). Those results compare to fiscal year
2011 net income of $156.6 million, or $5.42 per diluted share, which included unusual items amounting to a net pretax benefit of
$5.3 million ($0.12 per diluted share). Segment operating income for the year, which excludes those unusual items, was $223.5
million, down $34.4 million compared with the prior year as lower results in our North America and Other Tobacco Operations
segments were partially offset by improved performance in our Other Regions segment. The fiscal year 2012 results reflected the
full impact of the previous year's assignment of Brazilian farmer contracts to Philip Morris International, as well as the decline in
processing volumes in the North America segment related to the expiration of customer contracts. Operating income in this period
included $12 million in dividend income from unconsolidated subsidiaries. Revenues for fiscal year 2012 fell to $2.4 billion from
$2.6 billion in the previous year, primarily due to lower leaf prices on slightly higher volumes.

The following table sets forth the unusual items included in reported results, none of which are included in segment results:

(in millions of dollars, except per share amounts)

(Charges) and gains

Fiscal Year Ended
March 31,

2012

2011

(Charge for) reversal of European Commission fines in Italy and Spain (1)................................................................................

(49.1)

Restructuring and impairment costs, primarily in the United States, South America, and Europe (2) ........................................

Gain on fire loss insurance settlement in Europe (3) ....................................................................................................................

Gain on sale of facility in Brazil (4) .............................................................................................................................................

Gain on assignment of farmer contracts and sale of related assets in Brazil (5) ..........................................................................

Total effect on operating income.................................................................................................................................................

Total effect on net income...........................................................................................................................................................

Total effect on diluted earnings per share....................................................................................................................................

(11.7)

9.6

11.1

—

(40.1)

(40.3)

(1.42)

7.4

(21.5)

—

19.4

5.3

3.3

0.12

(1) Fiscal year 2012 - fines and accumulated interest related to the September 9, 2011 decision by the General Court of the European Union rejecting an Italian

subsidiary's application to reinstate immunity related to infringements of European Union antitrust law in the Italian raw tobacco market.
Fiscal year 2011 - the reversal of a portion of a European Commission fine recorded by an Italian subsidiary in 2005 related to the Spanish tobacco processing
market, following a decision of the General Court of the European Union that reduced the amount of the fine by half.
(2) Restructuring and impairment charges, primarily related to plant closures and workforce reductions in several areas.
(3) Fire loss insurance settlement in June 2011 related to a plant fire in Europe in 2010. The operating assets have been replaced.
(4) Sale of land and storage buildings in Brazil in November 2011.
(5) Assignment of farmer production contracts and related assets in Brazil in October 2010.

Flue-cured and Burley Leaf Tobacco Operations

For the fiscal year ended March 31, 2012, operating income for the flue-cured and burley leaf tobacco operations, which
includes the North America and Other Regions segments, was about $211 million, an 8% decrease compared to the prior year's
results of about $229 million. The decline reflected improved operating results for the year in the Other Regions segment, which
were outweighed by reduced earnings in the North America segment. Revenues for the group were down about 3%, to $2.2 billion
due to lower leaf prices, despite higher volumes for the year.

Operating income of $180.7 million for the Other Regions segment was up 6%, compared to $170 million for the prior
year. In Africa, higher sales volumes in some origins, partly due to completion of more shipments prior to fiscal year-end, mitigated
tighter margins and lower third-party processing income. Earnings also benefited from the reversal of statutory severance obligations
there. Earnings in the South America region were down, although the effect of reduced sales volumes related to last year's assignment
of farmer contracts was moderated significantly by increased sales to new and existing customers, as well as lower costs from
restructuring activities and a smaller farmer base in Brazil. In Europe, results improved on higher shipments and an insurance
recovery, while Asia experienced declines in the period, primarily due to reduced trading volumes and inventory adjustments.
Selling, general, and administrative expenses for the segment were flat for the year, and cost of goods sold declined about 4% due
mostly to reduced green leaf prices and the effect of increased toll processing in Brazil. In addition, results for the Other Regions
segment included $12 million in dividend income from unconsolidated subsidiaries. Revenues for the segment of $1.9 billion were
relatively flat as higher overall volumes combined with lower prices in most regions and a less favorable mix.

Operating income for the North America segment declined by $29.2 million to $30.0 million for fiscal year 2012, as results
included the full impact of lower toll processing volumes there. The lower processing volumes were partly mitigated by reduced
overhead costs, including savings from restructuring initiatives. Results for both fiscal years 2012 and 2011 also reflected sales of
uncommitted leaf inventories. Revenues for the segment were down 8% to $314.2 million.

Other Tobacco Operations

In the Other Tobacco Operations segment, operating income for fiscal year 2012 declined by $15.8 million to $12.8 million,
due primarily to lower volumes and margins in the dark tobacco operations as a result of a decline in global market sales. The
oriental joint venture also experienced lower overall sales volumes and margins for the year, partially mitigated by reduced overhead
costs and the benefit from business realignment charges taken in the prior year. Revenues for this segment for fiscal year 2012
decreased by $47.5 million, to $239.2 million. The majority of this change was due to the transfer of Special Services business to
the Other Regions segment and lower dark tobacco volumes.

Other Items

Cost of goods sold decreased by about 4% to $2.0 billion for the year ended March 31, 2012, primarily as a result of reduced
green leaf prices in most origins, offset somewhat by higher volumes. Selling, general, and administrative costs fell by $7.4 million
for the year. The decline included a favorable comparison on costs related to a smaller farmer base in South America and a positive
variance from the reversal of non-income tax provisions due to a favorable tax ruling in South America, partially offset by unfavorable
variances on currency remeasurement primarily in South America and Asia.

Interest expense was down 1% to $22.8 million for the year ended March 31, 2012, primarily reflecting lower average
borrowing levels. Interest income for fiscal year 2012 was about $1.4 million lower, due to the previous year's recognition of interest
income on the return of funds that had been escrowed to bond the appeal of the European Commission fine in Spain.

The consolidated effective income tax rate on pretax earnings was approximately 38% for the fiscal year ended March 31,
2012. The rate was higher than the 35% U.S. statutory tax rate because we did not record an income tax benefit on the non-deductible
fine portion of the charge for the European Commission fine and interest in Italy. Without that item, the effective income tax rate
for the year would have been approximately 29%. That rate was lower than the U.S. statutory rate primarily due to the effect of
exchange rate movements on deferred taxes and recognition of benefits on prior year operating losses of certain foreign subsidiaries,
and to recoveries of state income taxes. The effective income tax rate for the year ended March 31, 2011 was approximately 32%.
The effective rate for 2011 was less than the statutory rate due to the reversal of previously recorded liabilities for uncertain tax
positions and recognition of benefits on prior year operating losses of certain foreign subsidiaries.

In September 2011, we announced that the General Court of the European Union issued a decision rejecting the appeal of
Deltafina, S.p.A, our Italian subsidiary. That appeal related to the European Commission's revocation of Deltafina's immunity from
a fine of €30 million (about $41 million on September 9, 2011) assessed against Deltafina and Universal jointly for actions in
connection with Deltafina's purchase and processing of tobacco in the Italian raw tobacco market between 1995 and 2002. Deltafina
has appealed the decision of the General Court to the European Court of Justice. The appeal process could take up to two years.
Effective with the September 9, 2011 General Court decision, we recorded a charge for the full amount of the fine (€30 million)
plus accumulated interest (€5.9 million). The charge totaled $49.1 million at the exchange rate in effect on the date of the General
Court decision.

In November 2011, we sold land and storage buildings in Brazil in exchange for other property and $9.4 million in cash.

The transaction resulted in a gain of $11.1 million, which is reported in other income in the consolidated statements of income.

Fiscal Year Ended March 31, 2011, Compared to the Fiscal Year Ended March 31, 2010

For the fiscal year ended March 31, 2011, diluted earnings per share were $5.42, down about 5% from record earnings of
$5.68 per diluted share for the fiscal year ended March 31, 2010. Net income attributable to Universal Corporation for fiscal year
2011 was $156.6 million, a decrease of 7% compared to $168.4 million for fiscal year 2010, primarily due to lower results in our
South American operations and Oriental tobacco joint venture. Revenues for fiscal year 2011 were $2.6 billion, a 3% increase
compared to fiscal year 2010, reflecting higher selling prices on lower volumes shipped during the period. The price increases were
generally related to higher green leaf costs and the effects of a weak U.S. dollar.

Results for fiscal year 2011 also included the effects of several non-recurring items, which provided a net pretax benefit
of $5.3 million, or about $0.12 per diluted share. During the quarter ended December 31, 2010, we recorded a net gain of $19.4
million before taxes, or $0.44 per diluted share, to recognize the assignment of tobacco production contracts with approximately
8,100 farmers in Brazil, along with the sale of related assets, to a subsidiary of Philip Morris International. In addition, the quarter
ended September 30, 2010, included a benefit of $7.4 million before taxes, or $0.17 per diluted share, for the reversal of a portion
of a previously recorded European Commission fine after a favorable court ruling. These gains were largely offset by the effects
of combined restructuring and impairment charges associated with our initiatives to adjust various operations and reduce costs,
including a significant portion related to the closure of our Simcoe operations in Canada. Most of the restructuring costs represented
accruals for employee termination benefits at operating locations in North America, South America, Africa, and Europe and at
corporate headquarters. Total restructuring and impairment costs for the fiscal year ended March 31, 2011, were $21.5 million, or
$0.49 per diluted share, of which about $5.6 million were noncash charges.

Flue-cured and Burley Leaf Tobacco Operations

For the fiscal year ended March 31, 2011, operating income for the flue-cured and burley tobacco operations was about
$229.3 million, a 4% decrease compared to fiscal year 2010’s record $239.5 million results. The decrease was caused primarily by
reduced volumes and margins in some operations within the Other Regions segment. Revenues for the group were relatively flat
as reduced volumes for fiscal year 2011 in South America, Europe, and North America were balanced by higher volumes in Africa
and Asia.

Operating income of $170.0 million for the Other Regions segment was down about 7% compared to fiscal year 2010.
Earnings in Africa increased over fiscal year 2010 on higher sales volumes as well as additional third-party processing. The region
also benefited from net gains on foreign currency remeasurement and exchange compared to net losses in fiscal year 2010. Asia
results were improved for fiscal year 2011 as well, primarily due to higher volumes from larger crops in the Philippines and better
margins related to lower unit costs on those volumes. South America results were down significantly, affected by lower volumes
sold from both Brazil and Argentina. A smaller Brazilian crop due to weather conditions, significantly lower customer demand for
Argentine leaf, and the effects of customer inventory corrections all reduced volumes. Margins also declined on higher unit production
costs and higher green leaf prices. Earnings in Europe were also down for fiscal year 2011 on lower volumes and margins, lower
exchange gains, and the translation effects of a stronger dollar against the Euro and other European currencies. Overall results for
this segment benefited from lower selling, general, and administrative expenses caused by the previously mentioned currency gains
as well as lower overhead expenses, in part related to FCPA and employment costs in fiscal year 2010. Although overall volumes
for the Other Regions segment were down, cost of sales increased on higher leaf costs, in part due to the weaker dollar. Overall
segment revenues were up as those higher costs of leaf were reflected in selling prices.

The North America segment reported improved operating income of $59.3 million as lower U.S. volumes from the fiscal
year 2011 crop were offset by sales of carryover crops, additional third-party processing business in the United States, and lower
overhead charges. Revenues for the segment were down by about 5% on reduced sales volumes despite improved product mix.
Cost of sales for this segment was lower on overall lower volumes sold, while selling, general and administrative costs benefited
from overhead reductions.

Other Tobacco Operations

In the Other Tobacco Operations segment, operating income for fiscal year 2011 declined by 28% to about $29 million,
due primarily to significantly lower results from the oriental tobacco joint venture on reduced sales volumes on customer inventory
adjustments as well as lower margins and smaller currency remeasurement gains. Dark tobacco results were flat compared with
fiscal year 2010 as the effects of increased volumes and reductions in domestic overhead costs were reduced by lower earnings
resulting from the weather-damaged Indonesian crop. Revenues for this segment increased by 20% to $287 million, primarily
related to higher sales in the just-in-time services group, increased dark tobacco shipments after a soft beginning to fiscal year 2010,
and higher imports of oriental tobacco into the United States. Those higher volumes also caused an increase in cost of sales while
selling general and administrative costs were flat.

Other Items

Cost of goods sold increased by nearly 6% due to the influence on leaf prices of a weaker U.S. dollar and higher farm input
costs, as well as a lower proportion of stem in the sales mix. Selling, general, and administrative expenses decreased by $26 million,
or 9%, compared to fiscal year 2010. Predominant factors in the reduced expense for fiscal year 2011 included an $11 million
comparative benefit from net currency remeasurement and exchange gains in fiscal year 2011 compared with net losses in fiscal
year 2010, accruals in fiscal year 2010 for costs associated with the Foreign Corrupt Practices Act (“FCPA”) matter, and lower
compensation expense.

Interest expense for fiscal year 2011 decreased by $1.2 million as the impact of higher average debt balances was outweighed
by lower average effective interest rates. Interest income increased by $1.5 million compared to fiscal year 2010 primarily due to
the recognition of interest income on the return of funds escrowed to bond the appeal of the European Commission fine.

The consolidated effective income tax rate for the fiscal year ended March 31, 2011, was approximately 32% versus nearly
34% for fiscal year 2010. In both cases, the full year rate was lower than the 35% U.S. federal statutory rate due to the recognition
of foreign tax credits and to the reversal of previously recorded liabilities for uncertain tax positions based on favorable resolution
or expiration of statutes of limitations for the related tax years.

Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2011-08,
“Testing for Goodwill Impairment” (“ASU 2011-08”). The objective of ASU 2011-08 is to simplify the process of testing for
goodwill impairment by permitting companies to first assess qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. Companies will only be required to calculate the fair value of a
reporting unit if the qualitative evaluation indicates that it is more likely than not that the fair value is less than the carrying amount.
ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December
15, 2011, with earlier adoption permitted. We are currently evaluating the new guidance but we do not expect it to have a significant
effect on our financial statements.

Overview

LIQUIDITY AND CAPITAL RESOURCES

During the fiscal year ended March 31, 2012, our operations generated positive operating cash flows. Seasonal working
capital requirements were lower during the year as prices for green tobacco were lower in most areas, and in some areas we purchased
less leaf. We had more than sufficient liquidity to meet our needs. We also continued our conservative financial policies, maintained
our discipline on using our free cash flow, ended the fiscal year with lower uncommitted tobacco inventory levels, and reduced our
leverage ratios while returning funds to shareholders.

Our liquidity and capital resource requirements are predominantly short-term in nature and primarily relate to working
capital required for tobacco crop purchases. Working capital needs are seasonal within each geographic region. The geographic
dispersion and the timing of working capital needs permit us to predict our general level of cash requirements, although crop size,
prices paid to farmers, shipment and delivery timing, and currency fluctuations affect requirements each year. Peak working capital
requirements are generally reached during the first and second fiscal quarters. Each geographic area follows a cycle of buying,
processing, and shipping, although in many regions, we also provide agricultural materials to farmers during the growing season.
The timing of the elements of each cycle is influenced by such factors as local weather conditions and individual customer shipping
requirements, which may change the level or the duration of crop financing. Despite a predominance of short-term needs, we
maintain a relatively large portion of our total debt as long-term to reduce liquidity risk. We also periodically have large cash
balances that we utilize to meet our working capital requirements.

We believe that our financial resources are adequate to support our capital needs for at least the next twelve months. Our
seasonal borrowing requirements typically increase from March to September by as much as $300 million. That funding requirement
is primarily related to our Other Regions segment and includes purchasing crops in South America and Africa. The amount can
vary significantly depending upon such factors as crop sizes, the price of leaf, the relative strength of the U.S. dollar, and shipment
and customer payment timing differences. We deal with this uncertainty by maintaining substantial credit lines and cash balances.
In addition to our operating requirements for working capital, we have $16 million of long-term debt maturing in fiscal year 2013,
and we expect to provide around $17 million in funding to our pension plans. Available capital resources from our cash balances,
a committed credit facility, and uncommitted credit lines exceed those anticipated needs. After balancing our capital structure, any
excess cash flow from operations after dividends and capital expenditures will be available to fund expansion, purchase our stock,
or otherwise enhance shareholder value.

Cash Flow

Our operations provided about $200 million in operating cash flows in fiscal year 2012, and we received $18 million in
proceeds from the sale of fixed assets, including the sale of our Canadian facilities and land and storage buildings in Brazil. We
also received $10 million from an insurance settlement related to a fire. Using those funds, we spent $38 million on capital projects,
returned $60 million to shareholders in the form of dividends, reduced our total debt by $14 million, and spent $4 million on
repurchases of our common stock. At March 31, 2012, cash balances totaled $262 million.

Working Capital

Working capital at March 31, 2012, was nearly $1.3 billion, up $232 million over last year's level. Cash and cash equivalents
increased by over $120 million and notes payable and the current portion of long-term obligations together declined by about $100
million. That decline in debt was offset by the issuance of a $100 million term loan. Accounts receivable balances were $55 million
higher, largely due to higher shipments in some regions near the end of the year. Accounts payable decreased by $25 million in
large part due to decreased tobacco purchases in South America.

Tobacco inventories at March 31, 2012, were down $60 million. Inventories were lower due to reduced purchases from
the hurricane damaged crop and sales of uncommitted inventories in North America, and the effects of a change in supply
arrangements in Europe. We usually finance inventory with a mix of cash, notes payable, and customer deposits, depending on our
borrowing capabilities, interest rates, and exchange rates, as well as those of our customers. We generally do not purchase material
quantities of tobacco on a speculative basis. However, when we contract directly with farmers, we are obligated to buy their entire
crop. Our uncommitted tobacco inventories decreased by approximately $28 million to $143 million, or about 21% of tobacco
inventory. Uncommitted inventories at March 31, 2011, were $171 million, which represented 23% of tobacco inventory.

Share Repurchase Activity

In November 2009, our Board of Directors approved a $150 million share repurchase program that was replaced in
November 2011. The purchases under the 2009 program were carried out from time to time on the open market at prevailing market
rates. During fiscal year 2012, we purchased 80,191 shares of common stock at an aggregate cost of $3.5 million (average price
per share of $43.49), based on trading dates, which brought our total purchases under the program to 1,589,701 shares at an aggregate
cost of $70 million (average price per share of $44.02). On November 8, 2011, we announced that our Board of Directors had
approved a new authorization for the purchase of up to $100 million of equity securities through November 8, 2013. Purchases
under the program may be carried out from time to time on the open market or in privately negotiated transactions at prices not
exceeding prevailing market rates. In determining our level of common share repurchase activity, our intent is to use only cash
available after meeting our capital investment, dividend, and working capital requirements. As a result, our execution of the
repurchase program may vary as we realize changes in cash flow generation and availability. At March 31, 2012, our available
authorization under our current share repurchase program was $100 million, and approximately 23.3 million common shares were
outstanding.

Capital Spending

Our capital expenditures are generally limited to those that add value for the customer, replace or maintain equipment,
increase efficiency, or position us for future growth. Our capital expenditures were approximately $38 million in fiscal year 2012,
$39 million in fiscal year 2011, and $58 million in fiscal year 2010. Depreciation expense was approximately $42 million, $44
million, and $41 million, respectively, in each of fiscal years 2012, 2011, and 2010. Our intent is to limit routine capital spending
to a level below depreciation expense in order to maintain strong cash flow. However, from time to time, we may undertake projects
that increase spending beyond those limits. We currently have no major capital expenditures planned in fiscal year 2013.

Outstanding Debt and Other Financing Arrangements

We consider the sum of notes payable and overdrafts, long-term debt (including current portion), and customer advances
and deposits, less cash, cash equivalents, and short-term investments on our balance sheet to be our net debt. We also consider our
net debt plus shareholders' equity to be our total capitalization. Net debt decreased by $140 million to $292 million during the
twelve months ended March 31, 2012. The decrease primarily reflects higher cash balances and lower notes payable. Net debt as
a percentage of capitalization was approximately 19% at March 31, 2012, down from 26% at March 31, 2011, and it was lower
than our target range of 35% to 45% of total capitalization.

In November 2011, we entered into a new bank credit agreement that established a five-year committed revolving credit
facility of $450 million and a funded five-year amortizing term loan facility of $100 million. The new revolving credit facility
replaced a $400 million revolving credit facility that would have matured in August 2012. The new term loan facility replaced a
$95 million medium-term note that matured in September 2011, and was funded under the previous revolving credit facility. Both
new facilities mature in November 2016. We paid approximately $3.5 million in fees and related costs in connection with the new
facilities, and those costs will be amortized over the term of the agreement. The financial covenants under the new facilities are
similar to those of the previous facility and require that we maintain a minimum level of tangible net worth and observe limits on
debt levels. As of March 31, 2012, we were in compliance with all covenants of our debt agreements.

As of March 31, 2012, we, together with our consolidated affiliates, had approximately $513 million in uncommitted lines
of credit, of which approximately $385 million were unused and available to support seasonal working capital needs. We also have
an active, undenominated universal shelf registration filed with the SEC in November 2011, which provides for future issuance of
additional debt or equity securities.

Derivatives

From time to time, we use interest rate swap agreements to manage our exposure to changes in interest rates. During fiscal
year 2012, interest rate swap agreements in the notional amount of $50 million expired at the maturity of the underlying debt, and
other outstanding contracts, in the total notional amount of $195 million, were settled prior to maturity at an aggregate gain of
approximately $13 million. That gain is being amortized as a reduction in interest expense over the remaining terms of the underlying
debt instruments, which mature in fiscal years 2014 and 2015.

In November 2011, we entered into interest rate swaps to eliminate the variability of cash flows in the interest payments
on our $100 million variable-rate amortizing term loan, the sole source of which is changes in the LIBOR interest rate. Changes
in the cash flows of the interest rate swaps are expected to exactly offset the changes in cash flows attributable to fluctuations in
the LIBOR interest rates on the debt. We will receive variable LIBOR and pay fixed rate interest. The swaps are accounted for as
cash flow hedges. The aggregate notional amount of the interest rate swaps will be reduced over a five-year period as payments
are made on the term loan. At March 31, 2012, the fair value of our outstanding interest rate swap agreements was a liability of
$1.1 million, and the notional amount of the interest rate swaps outstanding was $99 million.

We also enter forward contracts from time to time to hedge certain foreign currency exposures, primarily related to forecast
purchases of tobacco and related processing costs in Brazil, as well as our net monetary asset exposure in local currency there. We
generally account for our hedges of forecast tobacco purchases as cash flow hedges. At March 31, 2012, the fair value of our open
contracts was not material. We also had other forward contracts outstanding that were not designated as hedges, and the fair value
of those contracts was not material at March 31, 2011. For additional information, see Note 9 to the consolidated financial statements
in Item 8.

Pension Funding

Funds supporting our ERISA-regulated U.S. defined benefit pension plans decreased by $1 million to $177 million, as
benefit payments exceeded contributions and asset returns by a small amount. The accumulated benefit obligation (“ABO”) and
the projected benefit obligation (“PBO”) were approximately $218 million and $238 million, respectively, as of March 31, 2012.
The ABO and PBO are calculated on the basis of certain assumptions that are outlined in Note 11 to the consolidated financial
statements in Item 8. We expect to make contributions of about $17 million to our pension plans, including $7 million to our
ERISA-regulated plans, during the next year. It is our policy to regularly monitor the performance of the funds and to review the
adequacy of our funding and plan contributions.

Contractual Obligations

Our contractual obligations as of March 31, 2012, were as follows:

(in thousands of dollars)

Total

2013

2014-2015

2016-2017

After 2017

Notes payable and long-term debt (1) ................................................................ $

582,218

166,165

348,842

67,211

Operating lease obligations...............................................................................

43,576

15,851

13,351

8,229

Inventory purchase obligations:

Tobacco...........................................................................................................

613,919

597,731

16,188

Agricultural materials .....................................................................................

Other purchase obligations ...............................................................................

45,483

12,928

45,483

12,892

—

6,145

—

Total................................................................................................................ $ 1,298,124

838,122

378,417

75,440

6,145

(1)

Includes interest payments. Interest payments on $128.0 million of variable rate debt were estimated based on rates as of March 31, 2012. The Company has
entered interest rate swaps that effectively convert the interest payments on the $98.8 million outstanding balance of its amortizing bank term loan from variable
to fixed. The fixed rate has been used to determine the contractual interest payments for all periods.

In addition to principal and interest payments on notes payable and long-term debt, our contractual obligations include
operating lease payments, inventory purchase commitments, and capital expenditure commitments. Operating lease obligations
represent minimum payments due under leases for various production, storage, distribution, and other facilities, as well as vehicles
and equipment. Tobacco inventory purchase obligations primarily represent contracts to purchase tobacco from farmers. The
amounts shown above are estimates since actual quantities purchased will depend on crop yield, and prices will depend on the
quality of the tobacco delivered. About 60% of our crop year contracts to purchase tobacco are with farmers in Brazil. We have
partially funded our tobacco purchases in Brazil and in other regions with advances to farmers and other suppliers, which totaled
approximately $135 million at March 31, 2012. In addition, we have guaranteed bank loans to farmers in Brazil that relate to a
portion of our tobacco purchase obligations there. At March 31, 2012, we were contingently liable under those guarantees for
outstanding balances of approximately $26 million (including accrued interest), and we had recorded a liability of approximately
$6 million for the fair value of those guarantees. As tobacco is purchased and the related bank loans are repaid, our contingent
liability is reduced.

CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

In preparing the financial statements in accordance with GAAP, we are required to make estimates and assumptions that
have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect our supplemental
information disclosures, including information about contingencies, risk, and financial condition. We believe, given current facts
and circumstances, that our 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. Our critical accounting estimates
and assumptions are in the following areas:

Inventories

Inventories of tobacco are valued at the lower of cost or market with cost determined under the specific cost method. Raw
materials are clearly identified at the time of purchase. We track the costs associated with raw materials in the final product lots,
and maintain this identification through the time of sale. We also capitalize 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. We write down
inventory for changes in market value based upon assumptions related to future demand and market conditions if the indicated
market value is below cost. 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. We experience inventory write-downs routinely. Inventory write-downs in fiscal years 2012, 2011, and 2010 were $8.3
million, $8.5 million, and $1.3 million, respectively.

Advances to Suppliers and Guarantees of Bank Loans to Suppliers

We provide agronomy services and seasonal crop advances of, or for, seed, fertilizer, and other supplies. These advances
are short term in nature and are customarily repaid upon delivery of tobacco to us. Primarily in Brazil, we have also made long-
term advances to tobacco farmers to finance curing barns and other farm infrastructure. In Brazil, we also guarantee both short-
term and long-term loans made to farmers for the same purposes. In some years, due to low crop yields and other factors, individual
farmers may not deliver sufficient volumes of tobacco to repay maturing advances. In that case, we may extend repayment of the
advances into the following crop year or satisfy the guarantee by acquiring the loan from the bank. In either situation, we will incur
losses whenever we are unable to recover the full amount of the loans and advances. At each reporting period, we must make
estimates and assumptions in determining the valuation allowance for advances to farmers and the liability to accrue for our
obligations under bank loan guarantees.

Recoverable Value-Added Tax Credits

In many foreign countries, we pay significant amounts of value-added tax (“VAT”) on purchases of unprocessed and
processed tobacco, crop inputs, packing materials, and various other goods and services. In some countries, VAT is a national tax,
and in other countries it is assessed at the state level. Items subject to VAT vary from jurisdiction to jurisdiction, as do the rates at
which the tax is assessed. When we sell tobacco to customers in the country of origin, we generally collect VAT on those sales.
We are normally permitted to offset our VAT payments against those collections and remit only the incremental VAT collections to
the tax authorities. When tobacco is sold for export, VAT is normally not assessed. In countries where our tobacco sales are
predominately for export markets, we often do not generate enough VAT collections on downstream sales to fully offset our VAT
payments. In those situations, we can accumulate unused VAT credits. Some jurisdictions have procedures that allow companies
to apply for refunds of unused VAT credits from the tax authorities, but the refund process often takes an extended period of time
and it is not uncommon for refund applications to be challenged or rejected in part on technical grounds. Other jurisdictions may
permit companies to sell or transfer unused VAT credits to third parties in private transactions, although approval for such transactions
must normally be obtained from the tax authorities, limits on the amounts that can be transferred are usually imposed, and the
proceeds realized may be heavily discounted from the face value of the credits. Due to these factors, in some countries we can
accumulate significant balances of VAT credits over time. We review these balances on a regular basis, and we record valuation
allowances on the credits to reflect amounts that we do not expect to recover, as well as discounts anticipated on credits we expect
to sell or transfer. In determining the appropriate valuation allowance to record in a given jurisdiction, we must make various
estimates and assumptions about factors affecting the ultimate recovery of the VAT credits. At March 31, 2012, the gross balance
of recoverable tax credits (primarily VAT) totaled approximately $82 million, and the related valuation allowance totaled
approximately $25 million.

Goodwill

We review the carrying value of goodwill for potential impairment on an annual basis and at any time that events or business
conditions indicate that it may be impaired. We follow applicable accounting guidance in determining the fair value of goodwill,
which normally involves the use of discounted cash flow models (Level 3 of the fair value hierarchy under GAAP). The calculations
in these models are normally not based on observable market data from independent sources and therefore require significant
management judgment with respect to operating earnings growth rates and the selection of an appropriate discount rate. 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. The majority of our goodwill
relates to our reporting unit in Brazil.

Fair Value Measurements

We hold various financial assets and financial liabilities that are required to be measured and reported at fair value in our
financial statements, including money market funds, trading securities associated with deferred compensation plans, interest rate
swaps, forward foreign currency exchange contracts, and guarantees of bank loans to tobacco growers in Brazil. We follow the
relevant accounting guidance in determining the fair values of these financial assets and liabilities. Quoted market prices (Level 1
of the fair value hierarchy) are used in most cases to determine the fair values of money market funds and trading securities. Interest
rate swaps and forward foreign currency exchange contracts are valued based on dealer quotes using discounted cash flow models
matched to the contractual terms of each instrument (Level 2 of the fair value hierarchy). The fair value of the guarantees of bank
loans to tobacco growers, which was approximately $6 million at March 31, 2012, is derived using an internally-developed discounted
cash flow model. The model requires various inputs, including historical loss percentages for comparable loans and a risk-adjusted
interest rate. Because significant management judgment is required in determining and applying these inputs to the valuation model,
our process for determining the fair value of these guarantees is classified as Level 3 of the fair value hierarchy. At March 31, 2012,
a 1% increase in the expected loss percentage for all guaranteed farmer loans would not have had a material effect on the fair value
of the guarantee obligation. In addition, a 1% change in the risk-adjusted interest rate would not have had a material effect on the
fair value of the guarantee obligation. We incorporate credit risk in determining the fair values of our financial assets and financial
liabilities, but that risk did not materially affect the fair values of any of those assets or liabilities at March 31, 2012.

Income Taxes

Our consolidated effective income tax rate is based on our expected taxable income, tax laws and statutory tax rates, and
tax planning opportunities in the various jurisdictions in which we operate. Significant judgment is required in determining the
effective tax rate and evaluating our tax position. The effective tax rate is applied to quarterly operating results. We are 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 adjustments
to tax expense in future periods. In the event that there is a significant, unusual, or one-time item recognized in our results, the tax
attributed to that discrete item would be recorded at the same time as the item.

Our accounting for uncertain tax positions requires that we review all significant tax positions taken, or expected to be
taken, in income tax returns for all jurisdictions in which we operate. In this review, we must assume that all tax positions will
ultimately be audited, and either accepted or rejected based on the applicable tax regulations by the tax authorities for those
jurisdictions. We must recognize in our financial statements only the tax benefits associated with tax positions that are “more likely
than not” to be accepted upon audit, at the greatest amount that is considered “more likely than not” to be accepted. These
determinations require significant management judgment, and changes in any given quarterly or annual reporting period could affect
our consolidated income 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, our effective tax rate reflected in the financial statements is different than that reported in our 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 liabilities
generally represent tax expense recognized in our financial statements for which payment has been deferred or income taxes related
to expenses that have not yet been recognized in the financial statements, but have been deducted in our tax return. Deferred tax
assets generally represent items that can be used as a tax deduction or credit in future tax returns for which we have already recorded
the tax benefit in our financial statements. We record valuation allowances for deferred tax assets when the amount of estimated
future taxable income is not likely to support the use of the deduction or credit. Determining the amount of such valuation allowances
requires significant management judgment, including estimates of future taxable income in multiple tax jurisdictions where we
operate. Based on our periodic earnings forecasts, we project the upcoming year’s taxable income to help us evaluate our ability
to realize deferred tax assets.

At the beginning of fiscal year 2010, we had approximately $52 million of undistributed earnings of foreign subsidiaries
on which no provision for U.S. income taxes had been recorded because those earnings were designated as permanently reinvested.
Effective March 31, 2010, we changed the classification of those earnings to reflect a change in our intent to repatriate the earnings
consistent with appropriate tax planning and good business practice in the respective foreign countries. As a result of this change,
approximately $3.5 million of additional income tax expense was recognized in fiscal year 2010 to record the applicable U.S. tax
liability. We no longer have any undistributed earnings of consolidated foreign subsidiaries that are classified as permanently
reinvested.

The functional currency in most of our significant foreign operations is the U.S. dollar, as export tobacco sales are generally
made in dollars. Purchasing and processing costs are usually incurred in local currency. When the U.S. dollar is weakening relative
to the local currency, purchasing and processing costs increase in dollar terms, resulting in higher cost inventory. The sale of that
inventory in dollars generates less taxable income in local currency, which results in lower income taxes owed when translated into
U.S. dollars. This causes the effective income tax rate on dollar income to be lower than the statutory rate in the local country. The
reverse can occur when the local currency is weakening relative to the U.S. dollar, thereby causing the effective income tax rate on
dollar earnings to be above the statutory rate. This impact on our effective income tax rate in a country can be significant during a
normal crop cycle. A prolonged period of strengthening or weakening over more than one crop may increase the impact if we sell
material quantities of old crop inventories. Lower-taxed foreign source income increases our ability to use foreign tax credits.
Higher-taxed foreign source income has the reverse effect. When these changes occur in our larger operations, such as our operations
in Brazil, they can have a material impact on our overall tax position.

For additional disclosures on income taxes, see Notes 1 and 5 to the consolidated financial statements in Item 8.

Pension and Other Postretirement Benefit Plans

The measurement of our pension and postretirement obligations and costs are dependent on a variety of assumptions
determined by management and used by our 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 we have made 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 on a hypothetical portfolio of actual long-term corporate

bonds rated AA that align with the cash flows for our benefit obligations.

•

Salary scale – The salary scale assumption is based on our long-term actual experience for salary increases, the near-
term outlook, and expected inflation.

• Expected long-term return on plan assets – The expected long-term return on plan assets reflects asset allocations and

investment strategy adopted by the Pension Investment Committee of the Board of Directors.

• Retirement and mortality rates – Retirement rates are based on actual plan experience along with our near-term outlook.
Early retirement assumptions are based on our actual experience. Mortality rates are based on standard group annuity
(RP-2000) mortality tables which have been updated to reflect improvements in projected life expectancy.

• Healthcare cost trend rates – For postretirement medical plan obligations and costs, we make assumptions on future
inflationary increases in medical costs. These assumptions are based on our actual experience, along with third-party
forecasts of long-term medical cost trends.

The effects of actual results differing from our assumptions are accumulated and amortized over future periods and,

therefore, generally affect our recognized expense in such future periods.

The effect of the indicated increase or decrease in the selected pension and other postretirement benefit valuation

assumptions is shown below. The effect assumes no change in benefit levels.

(in thousands of dollars)

Changes in Assumptions for Pension Benefits

Discount Rate:

Effect on
2012 Projected
Benefit
Obligation
Increase
(Decrease)

Effect on
2013 Annual
Expense
Increase
(Decrease)

1% increase ......................................................................................................................................................................... $

(31,759) $

1% decrease ........................................................................................................................................................................

38,667

Salary Scale:

1% increase .........................................................................................................................................................................

1% decrease ........................................................................................................................................................................

Long-Term Rate of Return on Assets:

1% increase .........................................................................................................................................................................

1% decrease ........................................................................................................................................................................

Changes in Assumptions for Other Postretirement Benefits

Discount Rate:

1% increase .........................................................................................................................................................................

1% decrease ........................................................................................................................................................................

Healthcare Cost Trend Rate:

1% increase .........................................................................................................................................................................

1% decrease ........................................................................................................................................................................

6,572

(6,218)

—

(4,461)

5,328

1,777

(1,617)

(3,307)

3,869

1,602

(1,504)

(1,873)

1,872

(514)

(207)

(80)

See Note 11 to the consolidated financial statements in Item 8 for additional information on pension and postretirement

benefit plans.

Other Estimates and Assumptions

Other management estimates and assumptions are routinely required in preparing our financial statements, including the
determination of valuation allowances on accounts receivable and advances to suppliers, as well as the determination of the fair
value of long-lived assets. Changes in market and economic conditions, local tax laws, and other related factors are considered
each reporting period, and adjustments to the accounts are made based on management’s best judgment.

OTHER INFORMATION REGARDING TRENDS
AND MANAGEMENT’S ACTIONS

Our financial performance depends on our ability to obtain an appropriate price for our products and services, to secure
the tobacco volumes and quality desired by our customers, and to maintain efficient, competitive operations. We continually monitor
issues and opportunities that may impact the supply of and demand for leaf tobacco, and the volumes of leaf tobacco that we handle.

Supply

Oversupply, evidenced by larger crops, lower green tobacco prices and margin pressures from customers, affected our
results in fiscal year 2012. As we begin our fiscal year 2013, we are seeing crop sizes come down in most of the key sourcing areas
for flue-cured and burley tobacco, including Brazil, Tanzania, and Malawi. In the United States, crop levels should recover after
the hurricane there in fiscal year 2012. With lower crop sizes, global markets are beginning to strike a balance between supply and
demand for leaf tobacco. Overall, green leaf prices have stabilized, and we are also seeing higher prices for certain types of tobacco,
such as quality flavor flue-cured and burley leaf, as well as oriental tobacco.

Periodic cycles of under- and oversupply of leaf are not unusual in our business, and we have successfully navigated
oversupplied markets throughout our history. Although each one has unique features, the process is generally the same -- crop sizes
are lowered to permit supply to match demand. We are beginning to see this reduction as we enter fiscal year 2013. We have done
a good job managing our unsold inventories, and current levels are lower than last year's levels.

Production

Worldwide flue-cured tobacco production in fiscal year 2012 remained flat at 4.5 billion kilos. The total includes China,
an extremely large market that is primarily domestic. Because very little of that tobacco is available outside of that country to trade,
we generally exclude Chinese crops when we consider worldwide production. On that basis, worldwide flue-cured tobacco
production in fiscal year 2012 increased by about 3%, to 2.1 billion kilos. Burley crops increased by about 4% in fiscal year 2012.
We estimate that at March 31, 2012, industry uncommitted flue-cured and burley inventories totaled about 85 million kilos, a
decrease of about 26% from March 31, 2011 levels, signaling the easing of oversupply conditions. Uncommitted inventories in the
hands of suppliers and dealers remain reasonable.

We believe flue-cured production (excluding China) will decrease by about 6%, to about 2.0 billion kilos in fiscal year
2013. Most of the decrease will occur in Brazil. Burley production is forecast to decrease by about 20%, with most of this decrease
coming from Malawi. Oriental tobacco has moved into undersupply, and we believe that it will take up to two years for production
levels to increase sufficiently to meet demand.

Pricing

Factors that affect green tobacco prices include global supply and demand, market conditions, production costs, and
competition from other crops. We work with farmers to maintain tobacco production and to secure product at price levels that are
attractive to both the farmers and our customers. Tobacco competes with agricultural commodity products for farmer production.
As prices for soybeans, wheat, rice, and seed oils rise, green tobacco prices may have to rise to maintain tobacco production levels.
This factor could provide momentum to efforts of the WHO to shift farmer production away from leaf tobacco to other crops. After
reductions through early 2009, commodity prices and crop production costs have risen dramatically. Any current increase in farm
input costs would affect crops sold in fiscal year 2014. In the past, market shortages have also led to green tobacco price increases.

Evolving European Market

We have seen some decrease in production of tobacco in some origins within the European Union (E.U.) as the staged
reduction in the subsidy system there has taken effect. Although various countries have offered replacement schemes, those programs
cover less of the high farm production cost, mostly connected with labor costs. So farm prices have risen to compensate for those
costs, making it more difficult for E.U. tobacco to compete in the world market. We believe that the possibility for sustainable
tobacco production in the E.U. exists due to the current efforts to streamline the cost structure at all levels (from farms to factories
to services) and the importance of European leaf to some manufacturers. Within the general discussion on the future of the E.U.
Common Agricultural Policy, it looks probable that a major driving factor will be the support of employment in the rural areas,
creating a framework in which farmers producing tobacco could reasonably be considered eligible for adequate support. We believe
that if farmer commercial income does not increase, as the level of support available to farmers decreases, the volume of tobacco
produced in Europe will decline over time.

Demand

We expect that ongoing demand for leaf tobacco will be flat primarily due to the flattening trend in world cigarette
consumption. However, demand is affected by many factors, including regulation and product taxation. On a year-to-year basis,
we are susceptible to fluctuations in leaf supply due to crop size and leaf demand as manufacturers adjust inventories or respond
to changes in cigarette markets. We believe that some manufacturers may have purchased tobacco in excess of their normal
requirements in fiscal year 2012, allowing the market to absorb the higher leaf volumes produced in the strong South American and
African crops. We also believe smaller crops in fiscal year 2013 will bring markets closer into balance.

Our sales consist primarily of flue-cured and burley tobaccos. Those types of tobacco, along with oriental tobaccos, are
the major ingredients in American-blend cigarettes. Industry data shows that consumption of American-blend cigarettes has declined
at a compound annual rate of 2.2% for the ten years that ended in 2011. Over the past ten years, industry data also shows that total
world consumption of cigarettes grew at the compound annual rate of 0.6%, including annual growth of about 3.9% in China, which
experienced higher increases during the second half of the period. Outside China, consumption fell by 1.1% during the ten-year
period. These patterns indicate a shift in demand, reducing the need for burley and oriental tobaccos that are used in addition to
flue-cured tobacco in American-blend cigarettes and increasing the need for flue-cured tobacco that is used in English-blend
cigarettes, which are predominant in China. In addition, to the extent that domestic leaf production in China does not meet increasing
quality expectations for Chinese cigarette brands, those styles of tobacco could be sourced from other origins.

In 2011, total cigar consumption in the United States increased by almost 4% to approximately 14 billion units. Most of
the consumption was in the large cigars category. Premium cigar consumption in the United States increased by about 8%, to
approximately 278 million units. Cigar consumption within the main E.U. markets remained stable at about 6 billion units. Within
the smokeless segment of the dark tobacco business, 2011 U.S. consumption of loose-leaf chewing tobacco declined by about 10%,
while the consumption of moist snuff products grew by about 4%. We believe that supplies of dark air-cured filler tobaccos worldwide
are generally in line with demand. Wrapper tobacco, particularly bright wrapper tobacco, continues to be in very tight supply due
to low inventory levels following a 2010 weather-related crop disaster in Indonesia, the largest producer of that type of leaf. In
addition, a new product category in Europe, the ECO-Cigarillo, is gaining market share, and we believe that this product will increase
demand for low and medium grade wrapper tobacco.

Regulation

Decreased social acceptance of smoking and increased pressure from anti-smoking groups have had an ongoing adverse
effect on the percentage of the population using tobacco products, particularly in the United States and Western Europe. Also, a
number of foreign governments have taken or proposed steps to restrict or prohibit cigarette advertising and promotion, to increase
taxes on cigarettes, to prohibit smoking in public areas, and to discourage cigarette consumption. A number of such measures are
included in the Framework Convention on Tobacco Control (“FCTC”), which was negotiated under the auspices of the WHO and
offers guidelines. Countries which are parties to the FCTC may choose the level of implementation of the guidelines which is most
suitable with their approach to tobacco control. In some cases, such restrictions are more onerous than those proposed or in effect
in the United States. We cannot predict the extent to which government efforts to reduce tobacco consumption might affect the
business of our primary customers. However, a significant decrease in worldwide tobacco consumption and shifts to modified risk
tobacco products brought about by existing or future governmental laws and regulations would reduce demand for our products
and services and could have a material adverse effect on our results of operations. Given recent consumption growth in Asia and
worldwide population increases, it seems unlikely that world consumption of tobacco products will decrease sharply in the next
few years.

In addition, certain recommendations by the WHO, through the FCTC, may cause shifts in customer usage of certain types
and styles of tobacco. As seen in countries like Canada and Brazil, efforts have been taken to eliminate from the manufacturing
process additives that enhance flavor and aroma of tobacco products. Such decisions could cause a change in requirements for
certain tobaccos in particular countries. Shifts in customer demand from one type of tobacco to another could create sourcing issues
as requirements move from one origin to another. Furthermore, instruction at the farm level may be required to produce the changing
styles of tobacco needed by tobacco product manufacturers. Given our established and well-developed programs at the farm level
worldwide, we are particularly well positioned to meet manufacturer requirements.

In 2009, the U.S. Congress passed the Family Smoking Prevention and Tobacco Control Act (“the Act”). This legislation
authorizes the FDA to regulate the manufacturing and marketing of tobacco products. To date, the FDA has banned flavored
cigarettes, restricted youth access to tobacco products, banned advertising claims regarding certain tobacco products, established
new smokeless tobacco warnings, and issued new cigarette health warnings. In addition, the FDA established the Center for Tobacco
Products (“CTP”). To date, the CTP has focused on establishing the scientific foundation and regulatory framework for regulating
tobacco products in the United States, with most recent announcements focused on harmful and potentially harmful constituents
present in tobacco smoke. Regulations impacting our customer base that change the requirements for leaf tobacco will inherently
impact our business. As discussed, we have established programs that begin at the farm level to assist our customers with raw
material information to support leaf traceability and customer testing requirements. Additionally, given our global presence, we
also have the ability to source different types and styles of tobacco for our customers should their needs change due to regulation
of ingredients.

Product Taxation

A number of governments, particularly federal and local governments in the United States and the E.U., impose excise or
similar taxes on tobacco products. There has been, and will likely continue to be, new legislation proposing new or increased taxes
on tobacco products. In some cases, proposed legislation seeks to significantly increase existing taxes on tobacco products, or
impose new taxes on products that to date have not been subject to tax.

Industry Consolidation

An important trend in the tobacco industry has been consolidation among manufacturers of tobacco products. A recent
example is the acquisition of Fortune Tobacco Corporation by an affiliate of Philip Morris International in 2010. This activity is
expected to continue, particularly as further privatization of state monopolies occurs, providing opportunities for acquisitions by
international manufacturers, and as multinational manufacturers expand their product and brand offerings by acquisition.
Consolidation has increased the size of many of these multinational manufacturers and has increased the quantities of leaf tobacco
that each one requires. This concentration trend could provide additional opportunities for us and also increase the importance of
each individual customer to our results. It has also created an environment where security of supply is of increasing importance.
A key success factor for leaf suppliers is the ability to provide customers with the quality of leaf and the level of service they desire
on a global basis at competitive prices, consistent with stability of supply. In addition, the international leaf merchants have larger
historical market shares with some customers than with others, which can have a disproportionate effect on our volumes.

Industry Evolution

Customer efforts to procure leaf directly from farmers has changed parts of our business. Japan Tobacco and Philip Morris
International took steps to procure more of their leaf needs directly from farmers in fiscal years 2011 and 2012, respectively. We
believe that the manufacturers took these actions for several reasons, including the desire to enhance internal expertise in leaf
procurement, actively manage the leaf supply chain in an increasingly regulated environment, ensure supply, and work more directly
with tobacco growers.

Direct leaf procurement by manufacturers has been a factor in our business for many years. Our challenge continues to
be to adapt our way of doing business to meet customer needs, and we have been working with some of our customers to examine
our arrangements in certain markets. Some customers may purchase green tobacco from us or from farmers in markets they deem
to be strategic, and contract with us through long-term agreements for individual services, such as agronomy, logistics, and processing.
Most of our customers do not utilize the entire run of the crop, and so these new arrangements are likely to be supplemented by
traditional purchases of processed leaf tobacco from us or other supplier and dealers.

We believe that these customer efforts are likely to strengthen our relationships over the long term. As the leading global
leaf tobacco merchant and processor, we add significant value to the system, providing expertise in dealing with large numbers of
farmers, providing a clearinghouse for various qualities of leaf produced in each crop, and delivering products that meet stringent
customer quality specifications. We also help stabilize the tobacco markets and influence the crop at the farm level. Our key
objective is to continually adapt our business model to meet our customers' evolving needs while continuing to provide stability of
supply and the quality that distinguishes our products and services.

Sustainability

Sustainability has long been a focus for our company. We sponsor numerous efforts to enhance the integrity of the supply
chain, including farmer programs in good agricultural practices, the reduction of non-tobacco related materials, product traceability,
environmental sustainability, and social responsibility. Many of our customers have also adopted sustainability programs. As
customers continue to develop their own sustainability programs and look at these efforts throughout the supply chain, we believe
that customers may favor suppliers with demonstrable sustainability programs.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rates

After inventory is purchased, interest rate risk is limited in our business because customers usually pre-finance purchases
or pay market rates of interest for inventory purchased for their accounts. We bill our customers interest on tobacco purchased for
their order at certain points in the inventory cycle. That interest is paid at rates based on current markets for variable rate debt. If
we fund our committed tobacco inventory with fixed-rate debt, we might not be able to recover interest at that fixed rate if current
market interest rates were to fall. As of March 31, 2012, tobacco inventory of $682 million included $539 million in inventory that
was committed for sale to customers and $143 million that was not committed. Committed inventory, after deducting about $17
million in customer deposits, represents our potential net exposure of about $523 million. We normally maintain a portion of our
debt at variable interest rates in order to mitigate such interest rate risk related to carrying fixed-rate debt. At March 31, 2012, we
had large cash balances that we plan to use to fund seasonal purchases of tobacco, and thus, debt carried at variable interest rates,
at $128 million, was at a cyclical low point. Although a hypothetical 1% change in short-term interest rates would result in a change
in annual interest expense of approximately $1 million, that amount would be at least partially mitigated by changes in charges to
customers. Our policy is to work toward a level of floating-rate liabilities, including customer deposits, that reflects our average
committed inventory levels over time.

In addition, changes in interest rates affect the calculation of liabilities of our pension plan. As rates increase, the liability
for present value of amounts expected to be paid under the plans decreases. Rate changes also affect expense. As of the March 31,
2012 measurement date, a 1% increase in the discount rate would have reduced the projected benefit obligation (“PBO”) for pensions
by $32 million and decreased annual pension expense by $3 million. Conversely, a 1% decrease in the discount rate would have
increased the PBO by $39 million and increased annual pension expense by $4 million.

Currency

The international leaf tobacco trade generally is conducted in U.S. dollars, thereby limiting foreign exchange risk to that
which is related to leaf purchase and production costs, overhead, and income taxes in the source country. We also provide farmer
advances that are directly related to leaf purchases and are denominated in the local currency. Any currency gains or losses on those
advances are usually offset by decreases or increases in the cost of tobacco, which is priced in the local currency. However, the
effect of the offset may not occur until a subsequent quarter or fiscal year. Most of our tobacco operations are accounted for using
the U.S. dollar as the functional currency. Because there are no forward foreign exchange markets in many of our major countries
of tobacco origin, we often manage our foreign exchange risk by matching funding for inventory purchases with the currency of
sale, which is usually the U.S. dollar, and by minimizing our net local currency monetary position in individual countries. We are
vulnerable to currency remeasurement gains and losses to the extent that monetary assets and liabilities denominated in local currency
do not offset each other. We recognized $2.3 million in net remeasurement losses in fiscal year 2012, compared to $4.4 million in
net remeasurement gains in fiscal year 2011, and $9.3 million in net remeasurement losses in fiscal year 2010. We recognized $4.2
million in net foreign currency transaction gains in fiscal year 2012, compared to net transaction gains of $1.7 million in fiscal year
2011, and net transaction gains of $4.0 million in fiscal year 2010. In addition to foreign exchange gains and losses, we are exposed
to changes in the cost of tobacco due to changes in the value of the local currency in relation to the U.S. dollar. We have entered
forward currency exchange contracts to hedge against the effects of currency movements on purchases of tobacco to reduce the
volatility of costs. In addition, we have entered some forward contracts to hedge balance sheet exposures. See Note 9 to the
consolidated financial statements in Item 8 for additional information about our hedging activities.

In certain tobacco markets that are primarily domestic, we use the local currency as the functional currency. Examples of
these markets are Hungary, Poland, and the Philippines. In other markets, such as Western Europe, where export sales have been
primarily in local currencies, we also use the local currency as the functional currency. In each case, reported earnings are affected
by the translation of the local currency into the U.S. dollar.

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. We may use derivative instruments, such as swaps, forwards,
or futures, which are based directly or indirectly upon interest rates and currencies to manage and reduce the risks inherent in interest
rate and currency fluctuations. When we use foreign currency derivatives to mitigate our exposure to exchange rate fluctuations,
we may choose not to designate them as hedges for accounting purposes, which may result in the effects of the derivatives being
recognized in our earnings in periods different from the items that created the exposure.

We do not utilize derivatives for speculative purposes, and we do not enter into market risk-sensitive instruments for trading
purposes. Derivatives are transaction specific so that a specific debt instrument, forecast purchase, contract, or invoice determines
the amount, maturity, and other specifics of the hedge. We routinely review counterparty risk as part of our derivative program.

Item 8. Financial Statements and Supplementary Data

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of dollars, except per share data)

2012

2011

2010

Fiscal Year Ended March 31,

Sales and other operating revenues....................................................................................................... $

2,446,877

2,571,527

2,491,738

Costs and expenses

Cost of goods sold..............................................................................................................................

1,974,885

2,063,194

1,949,473

Selling, general and administrative expenses ....................................................................................

Other income......................................................................................................................................

Restructuring and impairment costs...................................................................................................

Charge for (reversal of) European Commission fines in Italy & Spain.............................................

251,639

(20,703)

11,661

49,091

259,042

(19,368)

21,504

(7,445)

285,056

—

Operating income..................................................................................................................................

180,304

254,600

257,209

Equity in pretax earnings of unconsolidated affiliates.......................................................................

Interest income...................................................................................................................................

Interest expense..................................................................................................................................

Income before income taxes .................................................................................................................

Income taxes ......................................................................................................................................

Net income ............................................................................................................................................

Less: net income attributable to noncontrolling interests in subsidiaries ............................................

Net income attributable to Universal Corporation................................................................................

3,195

1,314

22,835

161,978

61,159

100,819

8,762

92,057

8,634

2,723

23,058

242,899

78,349

164,550

7,985

156,565

22,376

1,253

24,210

256,628

86,283

170,345

1,948

168,397

Dividends on Universal Corporation convertible perpetual preferred stock ........................................

(14,850)

Earnings available to Universal Corporation common shareholders.................................................... $

77,207

141,715

153,547

Earnings per share attributable to Universal Corporation common shareholders:

Basic................................................................................................................................................... $

Diluted................................................................................................................................................ $

3.32

3.25

5.94

5.42

6.21

5.68

See accompanying notes.

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of dollars)

Fiscal Year Ended March 31,

2012

2011

2010

Net income ............................................................................................................................................ $

100,819

164,550

170,345

Other comprehensive income (loss):

Foreign currency translation adjustments, net of income taxes.........................................................

Foreign currency hedge adjustment, net of income taxes..................................................................

Interest rate hedge adjustment, net of income taxes ..........................................................................

Pension and other postretirement benefit plan adjustments, net of income taxes .............................

Total other comprehensive income (loss), net of income taxes...................................................

Total comprehensive income .......................................................................................................

Less: comprehensive income attributable to noncontrolling interests..................................................

(8,158)

(3,424)

(727)

(23,195)

(35,504)

65,315

(8,843)

7,297

2,961

—

(2,258)

8,000

172,550

(8,094)

4,701

13,386

—

(6,017)

12,070

182,415

(2,138)

Comprehensive income attributable to Universal Corporation ............................................................ $

56,472

164,456

180,277

See accompanying notes.

UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of dollars)

Current assets

ASSETS

March 31,

2012

2011

Cash and cash equivalents .................................................................................................................................................. $

261,699 $

Accounts receivable, net .....................................................................................................................................................

Advances to suppliers, net ..................................................................................................................................................

Accounts receivable—unconsolidated affiliates.................................................................................................................

390,790

135,317

7,370

141,007

335,575

160,616

10,433

Inventories—at lower of cost or market:

Tobacco............................................................................................................................................................................

682,095

742,422

Other ................................................................................................................................................................................

Prepaid income taxes ..........................................................................................................................................................

Deferred income taxes ........................................................................................................................................................

Other current assets.............................................................................................................................................................

53,197

20,819

51,025

88,317

48,647

18,661

47,009

73,864

Total current assets...........................................................................................................................................................

1,690,629

1,578,234

Property, plant and equipment

Land ....................................................................................................................................................................................

Buildings .............................................................................................................................................................................

Machinery and equipment...................................................................................................................................................

17,087

228,982

537,031

783,100

14,851

257,380

555,316

827,547

Less accumulated depreciation ........................................................................................................................................

(479,908)

(510,844)

Other assets

Goodwill and other intangibles...........................................................................................................................................

Investments in unconsolidated affiliates.............................................................................................................................

Deferred income taxes ........................................................................................................................................................

Other noncurrent assets.......................................................................................................................................................

303,192

316,703

99,266

93,312

23,634

56,886

99,546

115,478

18,177

99,729

273,098

332,930

Total assets....................................................................................................................................................................... $

2,266,919 $

2,227,867

UNIVERSAL CORPORATION

CONSOLIDATED BALANCE SHEETS—(Continued)

(in thousands of dollars)

Current liabilities

LIABILITIES AND SHAREHOLDERS’ EQUITY

March 31,

2012

2011

Notes payable and overdrafts.............................................................................................................................................. $

128,016

Accounts payable and accrued expenses ............................................................................................................................

187,790

Accounts payable—unconsolidated affiliates.....................................................................................................................

Customer advances and deposits ........................................................................................................................................

Accrued compensation........................................................................................................................................................

Income taxes payable..........................................................................................................................................................

Current portion of long-term obligations............................................................................................................................

295

16,832

30,659

12,866

16,250

149,291

213,014

4,154

8,426

30,201

12,265

95,000

Total current liabilities...............................................................................................................................................

392,708

512,351

Long-term obligations............................................................................................................................................................

Pensions and other postretirement benefits............................................................................................................................

Other long-term liabilities......................................................................................................................................................

Deferred income taxes ...........................................................................................................................................................

392,500

140,529

90,609

44,583

320,193

102,858

50,213

42,847

Total liabilities ...........................................................................................................................................................

1,060,929

1,028,462

Shareholders’ equity

Universal Corporation:

Preferred stock:

Series A Junior Participating Preferred Stock, no par value, 500,000 shares authorized,

none issued or outstanding .........................................................................................................................................

—

Series B 6.75% Convertible Perpetual Preferred Stock, no par value, 220,000 shares authorized,

219,999 shares issued and outstanding (219,999 at March 31, 2011)........................................................................

213,023

Common stock, no par value, 100,000,000 shares authorized, 23,257,175 shares issued

and outstanding (23,240,503 at March 31, 2011)..........................................................................................................

196,135

Retained earnings................................................................................................................................................................

854,654

191,608

825,751

Accumulated other comprehensive loss..............................................................................................................................

(80,361)

(44,776)

Total Universal Corporation shareholders' equity......................................................................................................

1,183,451

1,185,606

Noncontrolling interests in subsidiaries.................................................................................................................................

22,539

13,799

Total shareholders' equity ..........................................................................................................................................

1,205,990

1,199,405

Total liabilities and shareholders' equity.................................................................................................................... $

2,266,919 $

2,227,867

See accompanying notes.

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

Cash Flows From Operating Activities:

Fiscal Year Ended March 31,

2012

2011

2010

Net income ............................................................................................................................................ $

100,819

164,550

170,345

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation.......................................................................................................................................

Amortization ......................................................................................................................................

Provision for losses on advances and guaranteed loans to suppliers .................................................

Inventory write-downs .......................................................................................................................

Stock-based compensation expense...................................................................................................

Foreign currency remeasurement loss (gain), net ..............................................................................

Deferred income taxes .......................................................................................................................

Equity in net income of unconsolidated affiliates, net of dividends..................................................

Gain on fire loss insurance settlement ...............................................................................................

Gain on sale of property in Brazil......................................................................................................

Gain on assignment of farmer contracts and sale of related assets....................................................

Restructuring and impairment costs...................................................................................................

Charge for (reversal of) European Commission fines in Italy and Spain ..........................................

Other, net............................................................................................................................................

Changes in operating assets and liabilities, net:

Accounts and notes receivable........................................................................................................

Inventories and other assets ............................................................................................................

Income taxes ...................................................................................................................................

Accounts payable and other accrued liabilities...............................................................................

Customer advances and deposits ....................................................................................................

Net cash provided by operating activities..........................................................................................

Cash Flows From Investing Activities:

Purchase of property, plant and equipment........................................................................................

Proceeds from assignment of farmer contracts and sale of related assets .........................................

Proceeds from sale of property, plant and equipment........................................................................

Proceeds from fire loss insurance settlement.....................................................................................

Other, net............................................................................................................................................

Net cash (used) provided by investing activities ............................................................................

Cash Flows From Financing Activities:

Repayment of short-term debt, net.....................................................................................................

Issuance of long-term obligations......................................................................................................

Repayment of long-term obligations .................................................................................................

Dividends paid to noncontrolling interests ........................................................................................

Issuance of common stock .................................................................................................................

Repurchase of common stock ............................................................................................................

Dividends paid on convertible perpetual preferred stock ..................................................................

Dividends paid on common stock......................................................................................................

Proceeds from termination of interest rate swap agreements ............................................................

Debt issuance costs and other ............................................................................................................

Net cash used by financing activities..............................................................................................

Effect of exchange rate changes on cash ..............................................................................................

Net increase (decrease) in cash and cash equivalents...........................................................................
Cash and cash equivalents at beginning of year ...................................................................................

42,158

1,708

11,930

8,324

5,987

2,253

6,770

14,658

(9,592)

(11,111)

—

11,661

49,091

1,719

(25,480)

31,907

(1,535)

(53,487)

12,006

199,786

(38,174)

—

18,366

9,933

—

(9,875)

(17,388)

100,000

(96,250)

(103)

134

(4,004)

(14,850)

(44,711)

13,388

(3,539)

(67,323)

(1,896)

120,692

141,007

43,654

1,618

18,666

8,539

5,893

(4,424)

(1,044)

(3,731)

—

(19,368)

21,504

(7,445)

2,381

(79,648)

75,146

(3,631)

(67,206)

(101,236)

54,218

(39,129)

34,946

5,575

—

260

1,652

(39,350)

—

(15,000)

(100)

—

(46,929)

(14,850)

(45,321)

—

(161,550)

734

(104,946)

245,953

Cash and Cash Equivalents at End of Year...................................................................................... $

261,699

141,007

41,288

2,208

18,514

1,266

6,133

9,309

13,755
(3,037)
—

—

—
(1,863)

11,096
(215,865)
2,142

14,679

92,264

162,234

(57,577)
—

5,019

—

536
(52,022)

(5,250)
99,208
(79,500)
(104)
729
(32,194)
(14,850)
(45,882)
—
(1,193)

(79,036)

2,151

33,327

212,626

245,953

Supplemental information—cash paid for:

Interest................................................................................................................................................ $

Income taxes, net of refunds .............................................................................................................. $

20,462

51,625

23,622

79,724

24,961

82,934

See accompanying notes.

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands of dollars)

Fiscal Year Ended March 31, 2012

Universal Corporation Shareholders

Series B
6.75%
Convertible
Perpetual
Preferred
Stock

Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Non-
controlling
Interests

Total
Shareholders'
Equity

Balance at beginning of year ..........................................................

213,023

$ 191,608

$ 825,751

(44,776) $

13,799

1,199,405

Changes in preferred and common stock

Issuance of common stock ....................................................

Repurchase of common stock................................................

Accrual of stock-based compensation ...................................

Withholding of shares from stock-based compensation for

grantee income taxes.........................................................

Dividend equivalents on RSUs..............................................

Changes in retained earnings

Net income ............................................................................

Cash dividends declared

Series B 6.75% convertible perpetual preferred stock

($67.50 per share) ..........................................................

Common stock ($1.94 per share) .....................................

Repurchase of common stock................................................

Dividend equivalents on RSUs..............................................

Other comprehensive income (loss)

Foreign currency translation adjustments, net of income

taxes ..................................................................................

Foreign currency hedge adjustment, net of income taxes .....

Interest rate hedge adjustment, net of income taxes..............

Pension and other postretirement benefit plan adjustments,
net of income taxes ...........................................................

Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders.....................

—

259

(661)

5,987

(1,584)

526

—

92,057

—

(14,850)

(44,951)

(2,827)

(526)

—

(8,239)

(3,424)

(727)

(23,195)

—

259

(661)

5,987

(1,584)

526

8,762

100,819

—

(14,850)

(44,951)

(2,827)

(526)

(8,158)

(3,424)

(727)

(23,195)

—

(103)

Balance at end of year ....................................................................

213,023

$ 196,135

$ 854,654

(80,361) $

22,539

1,205,990

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY—(Continued)

(in thousands of dollars)

Fiscal Year Ended March 31, 2011

Universal Corporation Shareholders

Series B
6.75%
Convertible
Perpetual
Preferred
Stock

Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Non-
controlling
Interests

Total
Shareholders'
Equity

Balance at beginning of year ..........................................................

213,023

$ 195,001

$ 767,213

(52,667) $

5,805

1,128,375

Changes in preferred and common stock

Repurchase of common stock................................................

Accrual of stock-based compensation ...................................

Withholding of shares from stock-based compensation for

grantee income taxes.........................................................

Dividend equivalents on RSUs..............................................

Changes in retained earnings

Net income ............................................................................

Cash dividends declared

Series B 6.75% convertible perpetual preferred stock

($67.50 per share) ..........................................................

Common stock ($1.90 per share) .....................................

Repurchase of common stock................................................

Dividend equivalents on RSUs..............................................

Other comprehensive income (loss)

Foreign currency translation adjustments, net of income

taxes ..................................................................................

Foreign currency hedge adjustment, net of income taxes .....

Pension and other postretirement benefit plan adjustments,
net of income taxes ...........................................................

Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders.....................

—

(8,995)

5,893

(724)

433

—

156,565

—

(14,850)

(45,043)

(37,701)

(433)

—

7,188

2,961

(2,258)

—

(8,995)

5,893

(724)

433

7,985

164,550

—

109

—

(14,850)

(45,043)

(37,701)

(433)

7,297

2,961

(2,258)

—

(100)

Balance at end of year ....................................................................

213,023

$ 191,608

$ 825,751

(44,776) $

13,799

1,199,405

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY—(Continued)

(in thousands of dollars)

Fiscal Year Ended March 31, 2010

Universal Corporation Shareholders

Series B
6.75%
Convertible
Perpetual
Preferred
Stock

Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss)

Non-
controlling
Interests

Total
Shareholders'
Equity

Balance at beginning of year ..........................................................

213,023

$ 194,037

$ 686,960

(64,547) $

3,771

1,033,244

Changes in preferred and common stock

Issuance of common stock ....................................................

Repurchase of common stock................................................

Accrual of stock-based compensation ...................................

Withholding of shares from stock-based compensation for

grantee income taxes.........................................................

Dividend equivalents on RSUs..............................................

Changes in retained earnings

Net income ............................................................................

Cash dividends declared

Series B 6.75% convertible perpetual preferred stock

($67.50 per share) ..........................................................

Common stock ($1.86 per share) .....................................

Repurchase of common stock................................................

Dividend equivalents on RSUs..............................................

Other comprehensive income (loss)

Foreign currency translation adjustments, net of income

taxes ..................................................................................

Foreign currency hedge adjustment, net of income taxes .....

Pension and other postretirement benefit plan adjustments,
net of income taxes ...........................................................

Other changes in noncontrolling interests

Dividends paid to noncontrolling shareholders.....................

—

1,183

(5,853)

6,133

(888)

389

—

168,397

—

(14,850)

(45,815)

(27,090)

(389)

—

4,511

13,386

(6,017)

—

1,183

(5,853)

6,133

(888)

389

1,948

170,345

—

190

—

(14,850)

(45,815)

(27,090)

(389)

4,701

13,386

(6,017)

—

(104)

Balance at end of year ....................................................................

213,023

$ 195,001

$ 767,213

(52,667) $

5,805

1,128,375

UNIVERSAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY—(Continued)

(in thousands)

Preferred Shares Outstanding:

Series B 6.75% Convertible Perpetual Preferred Stock:

Fiscal Year Ended March 31,

2012

2011

2010

Balance at beginning of year....................................................................................................................

Issuance of convertible perpetual preferred stock ...................................................................................

Repurchase of convertible perpetual preferred stock...............................................................................

Balance at end of year..............................................................................................................................

220

—

220

Common Shares Outstanding:

Balance at beginning of year....................................................................................................................

23,241

Issuance of common stock and exercise of stock options and SARs ......................................................

Repurchase of common stock ..................................................................................................................

(80)

Balance at end of year..............................................................................................................................

23,257

220

—

220

24,325

(1,113)

23,241

220

—

220

24,999

(744)

24,325

See accompanying notes.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are in thousands, except per share amounts or as otherwise noted.)

NOTE 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Universal Corporation, which together with its subsidiaries is referred to herein as “Universal” or the “Company,” is the
leading global leaf tobacco merchant and processor. The Company conducts business in more than 30 countries, primarily in
major tobacco-producing regions of the world.

Consolidation

The consolidated financial statements include the accounts of Universal Corporation and all domestic and foreign
subsidiaries in which the Company maintains a controlling financial interest. Control is generally determined based on 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.

The equity method of accounting is used for investments in companies where Universal Corporation has a voting interest
of 20% to 50%. These investments are accounted for under the equity method because Universal exercises significant influence
over those companies, but not control. The Company's 49% ownership interest in Socotab L.L.C., a leading processor and leaf
merchant of oriental tobaccos with operations located principally in Europe, is the primary investment accounted for under the
equity method. 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 to the extent they represent
a distribution of retained earnings. The Company received dividends totaling $16.7 million in fiscal year 2012 and $12.0 million
in fiscal year 2010 from companies accounted for under the equity method. No dividends were received from those companies
in fiscal year 2011.

In fiscal year 2006, the Company deconsolidated its operations in Zimbabwe under accounting requirements that apply
under certain conditions to foreign subsidiaries that are subject to foreign exchange controls and other government restrictions.
Since that time, the investment has been accounted for using the cost method, as required under the accounting guidance. The
investment in the Zimbabwe operations was zero at March 31, 2012 and 2011. The Company has a net foreign currency translation
loss associated with the Zimbabwe operations of approximately $7.2 million, which remains a component of accumulated other
comprehensive loss. As a regular part of its reporting, the Company reviews the conditions that resulted in the deconsolidation
of the Zimbabwe operations to confirm that such accounting treatment is still appropriate. Dividends from the Zimbabwe operations
are recorded in income in the period received.

The Company holds less than a 100% financial interest in certain consolidated subsidiaries. The net income and
shareholders’ equity attributable to the noncontrolling interests in these subsidiaries are reported on the face of the consolidated
financial statements. During fiscal years 2010, 2011, and 2012, there were no changes in the Company’s ownership percentage
in any of these subsidiaries.

Investments in Unconsolidated Affiliates

The Company’s equity method investments and its cost method investments, which include its Zimbabwe operations,
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 review such an
investment for impairment if the investee were to lose a significant customer, suffer a large reduction in sales margins, experience
a major change in its business environment, or undergo any other significant change in its normal business. In assessing the
recoverability of equity or cost method investments, the Company follows the applicable accounting guidance in determining the
fair value of the investments. In most cases, this involves the use of discounted cash flow models (Level 3 of the fair value
hierarchy under the accounting guidance). If the fair value of an equity or cost method investee is determined to be lower than
its carrying value, an impairment loss is recognized. The determination of fair value using discounted cash flow models is normally
not based on observable market data from independent sources and therefore requires significant management judgment with
respect to estimates of future operating earnings and the selection of an appropriate discount rate. The use of different assumptions
could increase or decrease estimated future operating cash flows, and the discounted value of those cash flows, and therefore could
increase or decrease any impairment charge related to these investments.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In its consolidated statements of income, the Company reports its proportionate share of earnings of unconsolidated
affiliates accounted for on the equity method based on the pretax earnings of those affiliates, as permitted under the applicable
accounting guidance. All applicable foreign and U.S. income taxes are provided on these earnings and reported as a component
of consolidated income tax expense. For unconsolidated affiliates located in foreign jurisdictions, repatriation of the Company’s
share of the earnings through dividends is assumed in determining income tax expense.

The following table provides a reconciliation of (1) equity in the pretax earnings of unconsolidated affiliates, as reported
in the consolidated statements of income to (2) equity in the net income of unconsolidated affiliates, net of dividends, as reported
in the consolidated statements of cash flows for the fiscal years ended March 31, 2012, 2011, and 2010:

Unconsolidated Affiliates

Fiscal Year Ended March 31,

2012

2011

2010

Equity in pretax earnings reported in the consolidated statements of income................................... $

3,195

8,634

Less: Equity in income taxes ............................................................................................................

Equity in net income ..........................................................................................................................

Less: Dividends received on investments (1) .....................................................................................

(1,130)

2,065

(16,723)

(3,651)

4,983

(1,252)

22,376

(7,356)

15,020

(11,983)

Equity in net income, net of dividends, reported in the consolidated statements of cash flows........ $

(14,658) $

3,731

3,037

(1) In accordance with the applicable accounting guidance, dividends received from unconsolidated affiliates accounted for on the equity method that represent
a return on capital (i.e., a return of earnings on a cumulative basis) are presented as operating cash flows in the consolidated statements of cash flows.

Earnings per Share

The Company calculates basic earnings per share based on earnings available to common shareholders after payment of
dividends on the Company’s Series B 6.75% Convertible Perpetual Preferred Stock. The calculation uses the weighted average
number of common shares outstanding during each period. Diluted earnings per share is computed in a similar manner using the
weighted average number of common shares and dilutive potential common shares outstanding. Dilutive potential common shares
are outstanding dilutive stock options and stock appreciation rights that are assumed to be exercised, unvested restricted stock
units and performance share awards that are assumed to be fully vested and paid out in shares of common stock, and shares of
convertible perpetual preferred stock that are assumed to be converted when the effect is dilutive. In periods when the effect of
the convertible perpetual preferred stock is dilutive and these shares are assumed to be converted into common stock, dividends
paid on the preferred stock are excluded from the calculation of diluted earnings per share.

Calculations of earnings per share for the fiscal years ended March 31, 2012, 2011, and 2010, are provided

in Note 4.

Cash and Cash Equivalents

All highly liquid investments with a maturity of three months or less at the time of purchase are classified as cash

equivalents.

Advances to Suppliers

In some regions where the Company operates, it provides agronomy services and seasonal advances of seed, fertilizer,
and other supplies to tobacco farmers for crop production, or makes seasonal cash advances to farmers for the procurement of
those inputs. These advances are short term, are repaid upon delivery of tobacco to the Company, and are reported in advances
to suppliers in the consolidated balance sheets. Primarily in Brazil, the Company has made long-term advances to tobacco farmers
to finance curing barns and other farm infrastructure. In addition, due to low crop yields and other factors, in some years individual
farmers may not deliver sufficient volumes of tobacco to fully repay their seasonal advances, and the Company may extend
repayment of those advances into the following crop year. The long-term portion of advances is included in other noncurrent
assets in the consolidated balance sheets. Both the current and the long-term portions of advances to suppliers are reported net
of allowances recorded when the Company determines that amounts outstanding are not likely to be collected. Short-term and
long-term advances to suppliers totaled $225.0 million at March 31, 2012 and $271.4 million at March 31, 2011. The related

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

valuation allowances totaled $74.4 million at March 31, 2012, and $74.9 million at March 31, 2011, and were estimated based on
the Company’s historical loss information and crop projections. The allowances were increased by provisions for estimated
uncollectible amounts of approximately $11.9 million in fiscal year 2012, $18.7 million in fiscal year 2011, and $18.5 million in
fiscal year 2010. These provisions are included in selling, general, and administrative expenses in the consolidated statements of
income. Interest on advances is recognized in earnings upon the farmers’ delivery of tobacco in payment of principal and interest.
Accrual of interest is discontinued when an advance is not expected to be fully collected. Advances on which interest accrual had
been discontinued totaled approximately $59.9 million at March 31, 2012, and $76.0 million at March 31, 2011.

Inventories

Tobacco inventories are valued at the lower of cost or market. Raw materials primarily consist of unprocessed leaf
tobacco, which is clearly identified by type and grade at the time of purchase. The Company tracks the costs associated with this
tobacco in the final product lots, and maintains this identification through the time of sale. This method of cost accounting is
referred to as the specific cost or specific identification method. The predominant cost component of the Company’s inventories
is the cost of the unprocessed tobacco. 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.
Freight costs are recorded in cost of goods sold. Other inventories consist primarily of seed, fertilizer, packing materials, and
other supplies, and are valued principally at the lower of average cost or market.

Recoverable Value-Added Tax Credits

In many foreign countries, the Company’s local operating subsidiaries pay significant amounts of value-added tax (“VAT”)
on purchases of unprocessed and processed tobacco, crop inputs, packing materials, and various other goods and services. In
some countries, VAT is a national tax, and in other countries it is assessed at the state level. Items subject to VAT vary from
jurisdiction to jurisdiction, as do the rates at which the tax is assessed. When tobacco is sold to customers in the country of origin,
the operating subsidiaries generally collect VAT on those sales. The subsidiaries are normally permitted to offset their VAT
payments against the collections and remit only the incremental VAT collections to the tax authorities. When tobacco is sold for
export, VAT is normally not assessed. In countries where tobacco sales are predominately for export markets, VAT collections
generated on downstream sales are often not sufficient to fully offset the subsidiaries’ VAT payments. In those situations, unused
VAT credits can accumulate. Some jurisdictions have procedures that allow companies to apply for refunds of unused VAT credits
from the tax authorities, but the refund process often takes an extended period of time and it is not uncommon for refund applications
to be challenged or rejected in part on technical grounds. Other jurisdictions may permit companies to sell or transfer unused VAT
credits to third parties in private transactions, although approval for such transactions must normally be obtained from the tax
authorities, limits on the amounts that can be transferred are usually imposed, and the proceeds realized may be heavily discounted
from the face value of the credits. Due to these factors, local operating subsidiaries in some countries can accumulate significant
balances of VAT credits over time. The Company reviews these balances on a regular basis and records valuation allowances on
the credits to reflect amounts that are not expected to be recovered, as well as discounts anticipated on credits that are expected
to be sold or transferred. At March 31, 2012 and 2011, the aggregate balance of recoverable tax credits held by the Company’s
subsidiaries totaled approximately $82 million and $75 million, respectively, and the related valuation allowances totaled
approximately $25 million and $22 million, respectively. The net balances are reported in other current assets and other noncurrent
assets in the consolidated balance sheets.

In June 2011, tax authorities in Brazil completed an audit of inter-state VAT filings by the Company’s operating subsidiary
there and issued assessments for tax, penalties, and interest for tax periods from 2006 through 2009 totaling approximately $26
million based on the exchange rate for the Brazilian currency at March 31, 2012. Management of the operating subsidiary and
outside counsel believe that errors were made by the tax authorities in determining portions of the assessment and that various
defenses support the subsidiary’s positions. Accordingly, the subsidiary took steps to contest the full amount of the assessment.
As of March 31, 2012, a portion of the subsidiary’s arguments had been accepted, and the outstanding assessments had been
reduced to approximately $20 million. The subsidiary is continuing to contest the full remaining amount of the assessment. No
liability has been recorded at March 31, 2012, as no loss is considered probable at this time.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 processing and blending facilities, offices, and warehouses.
Machinery and equipment consists of processing and packing machinery and transport, office, and computer equipment. Estimated
useful lives range as follows: buildings—15 to 40 years; processing and packing machinery—3 to 11 years; transport equipment
—3 to 10 years; and office and computer equipment—3 to 10 years. Where applicable, the Company capitalizes related interest
costs during periods that property, plant and equipment are being constructed or made ready for service. No interest was capitalized
in fiscal years 2012, 2011, or 2010.

Goodwill and Other Intangibles

Goodwill and other intangibles principally consist of the excess of the purchase price of acquired companies over the
fair value of the net assets. Goodwill is carried at the lower of cost or fair value. The Company follows the applicable fair value
accounting guidance in determining the fair value of goodwill. This primarily involves the use of discounted cash flow models
(Level 3 of the fair value hierarchy in the accounting guidance). The calculations in these models are normally not based on
observable market data from independent sources and therefore require significant management judgment with respect to estimates
of future operating earnings and the selection of an appropriate discount rate. The use of different assumptions could increase or
decrease estimated future operating cash flows, and the discounted value of those cash flows, which could increase or decrease
any impairment charge related to goodwill.

Reporting units are distinct operating subsidiaries or groups of subsidiaries that typically compose the Company’s business
in a specific country or location. Goodwill is allocated to reporting units based on the country or location to which a specific
acquisition relates, or by allocation based on expected future cash flows if the acquisition relates to more than one country or
location. The majority of the Company’s goodwill relates to its reporting unit in Brazil. No charges for goodwill impairment
were recorded in fiscal years 2012, 2011, or 2010. During the third quarter of fiscal year 2011, goodwill was reduced by
approximately $5.8 million to reflect amounts allocated to leaf procurement activities associated with farmer contracts and related
assets that were conveyed to an operating subsidiary of one of the Company’s major customers (see Note 14).

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events, changes in business conditions, or other
circumstances provide an indication that such assets may be impaired. Potential impairment is initially assessed by comparing
management’s undiscounted estimates of future cash flows from the use or disposition of the assets to their carrying value. If the
carrying value exceeds the undiscounted cash flows, an impairment charge is recorded to reduce the carrying value of the asset
to its fair value determined in accordance with the accounting guidance. In many cases, this involves the use of discounted cash
flow models that are not based on observable market data from independent sources (Level 3 of the fair value hierarchy under the
accounting guidance). As discussed in Note 2, the Company recorded an impairment charge of $5.6 million in the third quarter
of fiscal year 2011 in connection with its decision to close its leaf tobacco processing facility in Simcoe, Ontario, Canada and sell
the related assets. No significant charges for the impairment of long-lived assets were recorded during fiscal years 2012 or 2010.

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, undistributed earnings of foreign subsidiaries, goodwill, and valuation allowances on farmer
advances and value-added tax credits. As discussed in Note 5, during fiscal year 2010, the Company changed the classification
of undistributed earnings of certain foreign subsidiaries that had previously been designated as permanently reinvested.
Approximately $3.5 million in deferred U.S. income taxes were recorded on those earnings effective with this change. At March 31,
2012 and 2011, the Company had no undistributed earnings of consolidated foreign subsidiaries classified as permanently
reinvested.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) is reported in the consolidated balance sheets and the consolidated

statements of changes in shareholders’ equity and consists of:

March 31,

2012

2011

2010

Foreign currency translation adjustments

Before income taxes........................................................................................................................ $

(12,331) $

(819) $

(10,854)

Allocated income taxes ...................................................................................................................

481

(2,792)

Foreign currency hedge adjustment

Before income taxes........................................................................................................................

Allocated income taxes ...................................................................................................................

Interest rate hedge adjustment

Before income taxes........................................................................................................................

Allocated income taxes ...................................................................................................................

(1,449)

507

(1,119)

392

3,819

(1,337)

—

(736)

258

—

Pension and other postretirement benefit plan adjustments

Before income taxes........................................................................................................................

(102,833)

Allocated income taxes ...................................................................................................................

35,991

(66,851)

23,204

(63,362)

21,973

Total accumulated other comprehensive loss, net of income taxes ................................................... $

(80,361) $

(44,776) $

(52,667)

Fair Values of Financial Instruments

The fair values of the Company’s long-term obligations, disclosed in Note 7, have been estimated using market prices
where they are available and discounted cash flow models based on current incremental borrowing rates for similar classes of
borrowers and borrowing arrangements. The carrying amount of all other assets and liabilities that qualify as financial instruments
approximates fair value.

Derivative Financial Instruments

The Company recognizes all derivatives on the balance sheet at fair value. Interest rate swaps and forward foreign
currency exchange contracts are used from time to time to reduce interest rate and foreign currency risk. The Company enters
into such contracts only with counterparties of good standing. The credit exposure related to non-performance by the counterparties
and the Company is considered in determining the fair values of the derivatives, and the effect is not material to the financial
statements or operations of the Company. Additional disclosures related to the Company’s derivatives and hedging activities are
provided in Note 9.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Translation and Remeasurement of Foreign Currencies

The financial statements of foreign subsidiaries having the local currency as 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 applicable to each
reporting period for results of operations. Adjustments resulting from translation of financial statements are reflected as a separate
component of comprehensive income or loss.

The financial statements of foreign subsidiaries having the U.S. dollar as the functional currency, with certain transactions
denominated in a local currency, are remeasured into U.S. dollars. The remeasurement of local currency amounts into U.S. dollars
creates remeasurement gains and losses that are included in earnings as a component of selling, general, and administrative expense.
The Company recognized net remeasurement losses of $2.3 million in fiscal year 2012, net remeasurement gains of $4.4 million
in fiscal year 2011, and net remeasurement losses of $9.3 million in fiscal year 2010.

Foreign currency transactions and forward foreign currency exchange contracts that are not designated as hedges generate
gains and losses when they are settled or when they are marked to market under the prescribed accounting guidance. These
transaction gains and losses are also included in earnings as a component of selling, general, and administrative expenses. The
Company recognized net foreign currency transaction gains of $4.2 million in fiscal year 2012, net transaction gains of $1.7 million
in fiscal year 2011, and net transaction gains of $4.0 million in fiscal year 2010.

Revenue Recognition

Revenue from the sale of tobacco is recognized when title and risk of loss is transferred to the customer and the earnings
process is complete. Substantially all sales revenue is recorded based on the physical transfer of products to customers. A large
percentage of the Company’s sales are to major multinational manufacturers of consumer tobacco products. The Company works
closely with those customers to understand and plan for their requirements for volumes, styles, and grades of leaf tobacco from
its various growing regions, and extensive coordination is maintained on an ongoing basis to determine and satisfy their requirements
for physical shipment of processed tobacco. In most cases, customers request shipment within a relatively short period of time
after the tobacco is processed and packed. The customers also specify, in sales contracts and in shipping documents, the precise
terms for transfer of title and risk of loss for the tobacco. Customer returns and rejections are not significant, and the Company’s
sales history indicates that customer-specific acceptance provisions are consistently met upon transfer of title and risk of loss.

While most of the Company’s revenue consists of tobacco that is purchased from farmers, processed and packed in its
factories, and then sold to customers, some revenue is earned from processing tobacco owned by customers. These arrangements
usually exist in specific markets where the customers contract directly with farmers for leaf production, and they have accounted
for less than 5% of total revenue on an annual basis through the fiscal year ended March 31, 2012. Processing and packing of
leaf tobacco is a short-duration process. Under normal operating conditions, raw tobacco that is placed into the production line
exits as processed and packed tobacco within one hour, and is then transported to customer-designated storage facilities. The
revenue for these services is recognized when processing is completed, and the Company’s operating history indicates that customer
requirements for processed tobacco are consistently met upon completion of processing.

Stock-Based Compensation

Share-based payments, such as grants of stock options, stock appreciation rights, restricted stock, restricted stock units,
and performance share awards, are measured at fair value and reported as expense in the financial statements over the requisite
service period. Additional disclosures related to stock-based compensation are included in Note 13.

Estimates and Assumptions

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.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounting Pronouncements

Pronouncements Recently Adopted

During the fiscal year ended March 31, 2012, Universal adopted the following key accounting pronouncements:

•

Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2011-05, “Presentation of
Comprehensive Income” (“ASU 2011-05”), which was issued in June 2011. This guidance requires companies to
present the components of other comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In December 2011, the FASB issued ASU 2011-12, “Deferral
of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in ASU 2011-05,” to defer the effective date of the specific requirement to present items
that are reclassified out of accumulated other comprehensive income or loss to net income alongside their respective
components of net income and other comprehensive income. All other provisions of ASU 2011-05, which are to be
applied retrospectively, are effective for interim and annual periods beginning after December 15, 2011, with early
adoption permitted. Universal adopted ASU 2011-05 during the fourth quarter of fiscal year 2012. The Company
elected to present two separate but consecutive statements.

FASB Accounting Standards Update 2011-04, “Fair Value Measurement” (“ASU 2011-04”), which was issued in
May 2011. The primary focus of ASU 2011-04 is the convergence of accounting requirements for fair value
measurements and related financial statement disclosures under U.S. GAAP and International Financial Reporting
Standards (“IFRS”). While ASU 2011-04 does not significantly change existing guidance for measuring fair value,
it does require additional disclosures about fair value measurements and changes the wording of certain requirements
in the guidance to achieve consistency with IFRS. ASU 2011-04 is effective for interim and annual periods beginning
after December 15, 2011, and is required to be applied prospectively. Universal adopted ASU 2011-04 during the
fourth quarter of fiscal year 2012. The adoption of ASU 2011-04 did not have a material effect on the Company’s
financial statements.

FASB Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”),
adopted effective April 1, 2011. ASU 2009-13 establishes a selling price hierarchy for determining the selling price
of a deliverable in a multiple-deliverable arrangement. It also requires additional disclosures about methods and
assumptions used to evaluate multiple-deliverable arrangements and to identify the significant deliverables within
those arrangements. The adoption of ASU 2009-13 did not have a material effect on the Company’s financial
statements.

Pronouncements to be Adopted in Future Periods

In September 2011, the FASB issued Accounting Standards Update 2011-08, “Testing for Goodwill Impairment” (“ASU
2011-08”). The objective of ASU 2011-08 is to simplify the process of testing for goodwill impairment by permitting companies
to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. Companies will only be required to calculate the fair value of a reporting unit if the qualitative evaluation
indicates that it is more likely than not that the fair value is less than the carrying amount. ASU 2011-08 is effective for annual
and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with earlier adoption
permitted. The Company is currently evaluating the new guidance but does not expect it to have a significant effect on its financial
statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 2. RESTRUCTURING AND IMPAIRMENT COSTS

During fiscal years 2011 and 2012, Universal recorded restructuring and impairment costs related to initiatives to adjust
various operations and reduce costs. A significant portion of the restructuring and impairment charges related to the Company’s
November 2010 decision to close its leaf tobacco processing facility in Simcoe, Ontario, Canada. The Company is continuing to
buy tobacco grown in Canada, but now processes that leaf at its U.S. factory in North Carolina. The Simcoe processing facility
and a separate storage complex were classified as “held for sale” at the date the decision was made to close the operations, and
an impairment charge of approximately $5.6 million was recorded in the third quarter of fiscal year 2011 to write those assets
down to their fair values, net of selling costs. The sales of both properties were completed during the first quarter of fiscal year
2012 at prices approximating their adjusted book values. All full-time salaried employees at the Simcoe location were terminated
by June 30, 2011. During fiscal year 2011, the Company recorded approximately $2.4 million in costs for termination benefits
payable to those employees under Canadian law and $4.1 million in pension curtailment and settlement costs related to the
termination of the Canadian employees’ defined benefit pension plan. The Canadian operations were included in the North America
segment, and revenues and earnings for those operations were not material to that segment in recent years.

In addition to the restructuring and impairment costs related to the decision to close the facility in Canada, the Company
has recorded restructuring costs associated with various other cost reduction initiatives during fiscal years 2011 and 2012. A
significant portion of those costs represent employee termination benefits associated with voluntary early retirement offers and
involuntary separations at the Company’s headquarters and operating locations in the United States, South America, Africa, Europe,
and Asia that are part of the North America and Other Regions reportable segments. In addition, during the quarter ended June
30, 2011, the Company recorded approximately $3.1 million in costs related to the termination of its business arrangements with
a supplier and processor of tobacco in Europe in response to market changes. That cost relates to an operating subsidiary that is
part of the Other Regions reportable segment.

A summary of the restructuring and impairment costs recorded during fiscal years 2011 and 2012 is as follows:

(in thousands of dollars)

Fiscal Year 2011 Costs:

Employee
Termination
Benefits

Pension
Curtailment
and Settlement
Costs

Other
Restructuring
Costs

Impairment of
Property, Plant
and Equipment

Total

Closure of processing facility in Canada ......................

2,412

4,081

— $

5,632

Other restructuring and cost reduction initiatives.........

Total ..............................................................................

Fiscal Year 2012 Costs:

Other restructuring and cost reduction initiatives.........

Total ..............................................................................

8,743

11,155

8,564

—

4,081

—

636

3,097

—

5,632

—

12,125

9,379

21,504

11,661

Total costs - fiscal years 2011 and 2012.......................

19,719

4,081

3,733

5,632

33,165

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the Company’s liability for the employee termination benefits and other restructuring costs outlined

above through March 31, 2012, is as follows:

(in thousands of dollars)

Fiscal Year 2011 Activity:

Employee
Termination
Benefits

Other Costs

Total

Costs charged to expense................................................................................................................

11,155

636

11,791

Payments ........................................................................................................................................

Balance at March 31, 2011.............................................................................................................

Fiscal Year 2012 Activity:

Costs charged to expense................................................................................................................

Payments ........................................................................................................................................

(4,769)

6,386

8,564

(13,679)

(411)

225

3,097

(3,031)

(5,180)

6,611

11,661

(16,710)

Balance at March 31, 2012.............................................................................................................

1,271

291

1,562

The employee termination benefits outlined in the tables above relate to approximately 350 total employees, including
those affected by the facility closure in Canada. The majority of the restructuring liability at March 31, 2012 will be paid in the
early part of fiscal year 2013. Universal continually reviews its business for opportunities to realize efficiencies, reduce costs,
and realign its operations in response to business changes. The Company may incur additional restructuring costs and asset
impairment charges in future periods as business changes occur and additional cost savings initiatives are implemented.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 3. EUROPEAN COMMISSION FINES AND OTHER LEGAL AND TAX MATTERS

European Commission Fines in Spain

In October 2004, the European Commission (the “Commission”) imposed fines on “five companies active in the raw
Spanish tobacco processing market” totaling €20 million for “colluding on the prices paid to, and the quantities bought from, the
tobacco growers in Spain.” Two of the Company’s subsidiaries, Tabacos Espanoles S.A. (“TAES”), a purchaser and processor of
raw tobacco in Spain, and Deltafina, S.p.A. (“Deltafina”), an Italian subsidiary, were among the five companies assessed fines.
In its decision, the Commission imposed a fine of €108,000 on TAES, and a fine of €11.88 million on Deltafina. Deltafina did
not and does not purchase or process raw tobacco in the Spanish market, but was and is a significant buyer of tobacco from some
of the Spanish processors. The Company recorded a charge of about €12 million (approximately $14.9 million at the September
2004 exchange rate) in the second quarter of fiscal year 2005 to accrue the full amount of the fines assessed against the Company’s
subsidiaries.

In January 2005, Deltafina filed an appeal in the General Court of the European Union (“General Court”). A hearing
was held in June 2009, and on September 8, 2010, the General Court issued its decision, in which it reduced the amount of the
Deltafina fine to €6.12 million. The General Court held in part that the Commission erred in finding Deltafina acted as the leader
of the Spanish cartel, and that the Commission’s corresponding increase of the underlying fine by 50% was not justified. As a
result of the General Court’s decision in September 2010, during the second quarter of fiscal year 2011, the Company reversed
€5.76 million (approximately $7.4 million) of the charge previously recorded to accrue the fine and recognized approximately
$1.2 million of interest income returned on funds deposited in escrow to secure the fine. Deltafina filed an appeal to the General
Court decision with the European Court of Justice on November 18, 2010. Although Deltafina believed the General Court erred
in not reducing the remaining fine further based on numerous grounds, due to strategic reasons Deltafina withdrew its appeal in
June 2011. The result was to end the matter in the judicial system, and to confirm the fine reduction granted in the General Court.

European Commission Fines in Italy

In 2002, the Company reported that it was aware that the Commission was investigating certain aspects of the leaf
tobacco markets in Italy. Deltafina buys and processes tobacco in Italy. The Company reported that it did not believe that the
Commission investigation in Italy would result in penalties being assessed against it or its subsidiaries that would be material to
the Company’s earnings. The reason the Company held this belief was that it had received conditional immunity from the
Commission because Deltafina had voluntarily informed the Commission of the activities that were the basis of the investigation.

On December 28, 2004, the Company received a preliminary indication that the Commission intended to revoke
Deltafina’s immunity for disclosing in April 2002 that it had applied for immunity. Neither the Commission’s Leniency Notice
of February 19, 2002, nor Deltafina’s letter of provisional immunity, contains a specific requirement of confidentiality. The
potential for such disclosure was discussed with the Commission in March 2002, and the Commission never told Deltafina that
disclosure would affect Deltafina’s immunity. On November 15, 2005, the Company received notification from the Commission
that the Commission had imposed fines totaling €30 million on Deltafina and the Company jointly for infringing European Union
antitrust law in connection with the purchase and processing of tobacco in the Italian raw tobacco market. In January 2006, the
Company and Deltafina each filed appeals in the General Court. Deltafina’s appeal was held on September 28, 2010. For strategic
reasons related to the defense of the Deltafina appeal, Universal withdrew its appeal. On September 9, 2011, the General Court
issued its decision, in which it rejected Deltafina’s application to reinstate immunity. Deltafina has appealed the decision of the
General Court to the European Court of Justice. Effective with the September 9, 2011 General Court decision, the Company
recorded a charge for the full amount of the fine (€30 million) plus accumulated interest (€5.9 million). The charge totaled $49.1
million at the exchange rate in effect on the date of the General Court decision. The accrued liability is reported in other long-
term liabilities. Deltafina maintains a bank guarantee in favor of the Commission in the amount of the fine plus accumulated
interest in order to stay execution during the appeals process. The Company expects the appeal to take up to two years, and any
fine and interest Deltafina may ultimately be required to pay would not be due until the European Court of Justice issues its
decision.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Legal and Tax Matters

The Company has been named along with multiple other defendants in Hupan, et al. v. Alliance One International, Inc.,
et al., and Chalanuk, et al. v. Alliance One International, Inc., et al., which are separate but related lawsuits filed in New Castle
County, Delaware state court on February 14, 2012, and April 5, 2012, respectively. The lawsuits were brought by eight Argentine
minor children born between 1996 and 2008 and their parents in Hupan, and forty-one minor Argentine children born between
1986 and 2009 and their parents in Chalanuk. The parent-plaintiffs allege that they grew tobacco in Argentina under contract with
Tabacos Norte S.A., beginning in the 1980's and that they and their infant children were exposed directly and in utero to herbicides
and pesticides used in the production and cultivation of tobacco that caused various alleged birth defects. The Company has been
sued based upon its alleged business dealings with co-defendants in the production of tobacco by Tabacos Norte, S.A. The plaintiffs
seek compensatory and punitive damages against all defendants under U.S. and Argentine law. The Company intends to vigorously
defend the lawsuits. Because the Company has only recently been named in the lawsuits, it is not possible to predict the ultimate
outcome of this matter or what liability, if any, the Company may incur.

In addition to the above-mentioned matters, various subsidiaries of the Company are involved in other litigation and
tax examinations incidental to their business activities, including the assessments disclosed in Note 1 related to inter-state value
added taxes in Brazil. While the outcome of these matters cannot be predicted with certainty, management is vigorously defending
the matters and does not currently expect that any of them will have a material adverse effect on the Company’s business or
financial position. However, should one or more of these matters be resolved in a manner adverse to management’s current
expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 4. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

Fiscal Year Ended March 31,

2012

2011

2010

Basic Earnings Per Share

Numerator for basic earnings per share

Net income attributable to Universal Corporation ........................................................................... $

92,057

156,565

168,397

Less: Dividends on convertible perpetual preferred stock ..............................................................

(14,850)

Earnings available to Universal Corporation common shareholders for

calculation of basic earnings per share...........................................................................................

77,207

141,715

153,547

Denominator for basic earnings per share

Weighted average shares outstanding...............................................................................................

23,228

23,859

24,732

Basic earnings per share .................................................................................................................. $

3.32

5.94

6.21

Diluted Earnings Per Share

Numerator for diluted earnings per share

Earnings available to Universal Corporation common shareholders ............................................... $

77,207

141,715

153,547

Add: Dividends on convertible perpetual preferred stock (if conversion assumed) .......................

14,850

Earnings available to Universal Corporation common shareholders for

calculation of diluted earnings per share........................................................................................

92,057

156,565

168,397

Denominator for diluted earnings per share

Weighted average shares outstanding...............................................................................................

23,228

23,859

24,732

Effect of dilutive securities (if conversion or exercise assumed).....................................................

Convertible perpetual preferred stock ...........................................................................................

Employee share-based awards.......................................................................................................

Denominator for diluted earnings per share .....................................................................................

4,772

339

28,339

4,750

279

28,888

4,733

197

29,662

Diluted earnings per share................................................................................................................ $

3.25

5.42

5.68

For the fiscal years ended March 31, 2012, 2011, and 2010, certain stock appreciation rights and certain stock options
outstanding were not included in the computation of diluted earnings per share because their effect would have been antidilutive.
These shares totaled 348,451 at a weighted-average exercise price of $56.75 for the fiscal year ended March 31, 2012, 622,801
at a weighted-average exercise price of $53.44 for the fiscal year ended March 31, 2011, and 404,800 at a weighted-average
exercise price of $58.96 for the fiscal year ended March 31, 2010.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 5. INCOME TAXES

Income Tax Expense

Income taxes consisted of the following:

Fiscal Year Ended March 31,

2012

2011

2010

Current

United States ................................................................................................................................... $

2,871

18,052

State and local .................................................................................................................................

Foreign ............................................................................................................................................

Deferred

United States ...................................................................................................................................

State and local .................................................................................................................................

Foreign ............................................................................................................................................

(2,064)

53,582

54,389

4,796

444

1,530

6,770

2,290

59,051

79,393

(43)

(226)

(775)

(1,044)

Total ............................................................................................................................................. $

61,159

78,349

12,246

3,357

56,925

72,528

4,134

247

9,374

13,755

86,283

Foreign taxes include U.S. tax expense on earnings of foreign subsidiaries.

Consolidated Effective Income Tax Rate

A reconciliation of the statutory U.S. federal rate to the Company’s effective income tax rate is as follows:

Fiscal Year Ended March 31,

2012

2011

2010

Statutory tax rate ................................................................................................................................

State income taxes, net of federal benefit ..........................................................................................

Change in classification of permanently reinvested earnings............................................................

Change in valuation allowance on deferred tax assets.......................................................................

Nondeductible European Commission fine .......................................................................................

Dividends received from deconsolidated operations .........................................................................

Other, including changes in liabilities recorded for uncertain tax positions......................................

Effective income tax rate ...................................................................................................................

35.0%

(0.7)

—

0.7

8.6

(1.8)

(4.0)

37.8%

35.0%

0.6

—

(0.2)

—

(3.2)

32.2%

0.9

1.4

—

(3.7)

33.6%

The Company amended certain prior year state income tax returns during fiscal year 2012. The related income tax refunds
reduced income tax expense and the consolidated effective tax rate for the year. At the beginning of fiscal year 2010, the Company
had approximately $52 million of undistributed earnings of foreign subsidiaries on which no provision for U.S. income taxes had
been recorded because those earnings were designated as permanently reinvested. Effective March 31, 2010, the classification
of those earnings was changed to reflect a change in management’s intent to repatriate the earnings consistent with appropriate
tax planning and good business practice in the respective foreign countries. As a result of this change, approximately $3.5 million
of additional income tax expense was recognized in fiscal year 2010 to record the applicable U.S. income tax liability. The
Company no longer has any undistributed earnings of consolidated foreign subsidiaries that are classified as permanently reinvested.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Components of Income Before Income Taxes and Other Items

The U.S. and foreign components of income before income taxes and other items were as follows:

Fiscal Year Ended March 31,

2012

2011

2010

United States ...................................................................................................................................... $

21,773 $

32,826 $

Foreign ...............................................................................................................................................

140,205

210,073

Total ................................................................................................................................................ $

161,978 $

242,899 $

48,675

207,953

256,628

Deferred Income Tax Liabilities and Assets

Significant components of deferred tax liabilities and assets were as follows:

March 31,

2012

2011

Liabilities

Foreign withholding taxes .................................................................................................................................................. $

14,192 $

Undistributed earnings .......................................................................................................................................................

Goodwill.............................................................................................................................................................................

All other..............................................................................................................................................................................

46,010

30,851

20,998

16,692

34,015

31,515

22,386

Total deferred tax liabilities.......................................................................................................................................... $

112,051

104,608

Assets

Employee benefit plans ...................................................................................................................................................... $

69,373 $

Reserves and accruals.........................................................................................................................................................

Deferred income .................................................................................................................................................................

Deferred compensation.......................................................................................................................................................

All other..............................................................................................................................................................................

Total deferred tax assets ...............................................................................................................................................

Valuation allowance ...........................................................................................................................................................

45,793

8,098

3,035

17,144

143,443

(4,620)

50,761

51,841

9,035

5,055

9,927

126,619

(3,427)

Net deferred tax assets.................................................................................................................................................. $

138,823 $

123,192

At March 31, 2012, the Company had no material net operating loss carryforwards in either its domestic or foreign

operations.

Combined Income Tax Expense (Benefit)

The combined income tax expense (benefit) allocable to continuing operations, other comprehensive income, and direct

adjustments to shareholders' equity was as follows:

Fiscal Year Ended March 31,

2012

2011

2010

Continuing operations ........................................................................................................................ $

61,159

78,349

Other comprehensive income.............................................................................................................

(18,296)

Direct adjustments to shareholders' equity.........................................................................................

(285)

3,210

159

86,283

6,520

(454)

Total............................................................................................................................................. $

42,578 $

81,718 $

92,349

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Uncertain Tax Positions

A reconciliation of the beginning and ending balance of the gross liability for uncertain tax positions for the fiscal years

ended March 31, 2012, 2011 and 2010, is as follows:

Fiscal Year Ended March 31,

2012

2011

2010

Liability for uncertain tax positions, beginning of year..................................................................... $

9,223

22,184

22,740

Additions:

Related to tax positions for the current year ...................................................................................

Related to tax positions for prior years ...........................................................................................

Reductions:

Related to tax positions for prior years ...........................................................................................

Due to settlements with tax jurisdictions ........................................................................................

Due to lapses of statutes of limitations ...........................................................................................

Other reductions..............................................................................................................................

Effect of currency rate movement...................................................................................................

262

1,072

—

(698)

(1,213)

—

(733)

1,184

(205)

(12,765)

(1,571)

—

319

Liability for uncertain tax positions, end of year............................................................................... $

7,913

9,223

9,609

574

(1,674)

(1,552)

(4,802)

(4,041)

1,330

22,184

Of the total liability for uncertain tax positions at March 31, 2012, approximately $1.9 million could have an effect on
the consolidated effective tax rate if the tax benefits are recognized. The liability for uncertain tax positions includes $2.3 million
related to tax positions for which it is reasonably possible that the amounts could change significantly before March 31, 2013.
This amount reflects a possible decrease in the liability for uncertain tax positions that could result from the completion and
resolution of tax audits and the expiration of open tax years in various tax jurisdictions.

In fiscal year 2011, of the reduction in the liability for uncertain tax positions of $12.8 million due to settlements with
tax jurisdictions, approximately $5.7 million represented tax paid and $7.1 million represented amounts reversed through income
tax expense.

The Company recognizes accrued interest related to uncertain tax positions as interest expense, and it recognizes penalties
as a component of income tax expense. The consolidated statements of income include net expense for interest and penalties of
$0.4 million in fiscal year 2012, net expense for interest and penalties of $0.2 million in fiscal year 2011, and a net reversal of
interest and penalties of $2.6 million in fiscal year 2010. At March 31, 2012 and 2011, $4.5 million and $5.8 million, respectively,
were accrued for interest and penalties.

Universal and its subsidiaries file a U.S. federal consolidated income tax return, as well as returns in several U.S. states
and a number of foreign jurisdictions. As of March 31, 2012, the Company's earliest open tax year for U.S. federal income tax
purposes was its fiscal year ended March 31, 2009. Open tax years in state and foreign jurisdictions generally range from three
to six years.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 6. CREDIT FACILITIES

Bank Credit Agreement

In November 2011, the Company entered a new five-year bank credit agreement that provides for a $450 million committed
revolving credit facility, as well as a fully funded $100 million amortizing term loan. The new revolving credit facility replaced
a previous $400 million facility that would have expired in August 2012. Borrowings under the revolving credit facility and the
term loan bear interest at variable rates, based on either 1) LIBOR plus a margin that is based on certain credit measures or 2) the
higher of the federal funds rate plus 0.5%, prime rate, or one-month LIBOR plus 1.0%, each plus a margin. The Company also
pays a facility fee on the revolving credit facility. Both the revolving credit facility and the term loan mature in November 2016.
Certain covenants in the new bank credit agreement require the Company to maintain a minimum level of tangible net worth and
observe limits on debt levels. The Company was in compliance with those covenants at March 31, 2012. There were no amounts
outstanding under the revolving credit facility at March 31, 2012.

Short-Term Credit Facilities

The Company maintains short-term uncommitted 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. As of March 31,
2012 and 2011, approximately $128 million and $149 million, respectively, were outstanding under these uncommitted lines of
credit. The weighted-average interest rates on short-term borrowings outstanding as of March 31, 2012 and 2011, were
approximately 7.1% and 4.2%, respectively. The higher weighted-average interest rate at March 31, 2012 reflected higher local
borrowings in countries where market interest rates are higher. At March 31, 2012, the Company and its consolidated affiliates
had unused uncommitted lines of credit totaling approximately $385 million.

NOTE 7. LONG-TERM OBLIGATIONS

Long-term obligations consisted of the following:

March 31,

2012

2011

Medium-term notes ............................................................................................................................................................. $

310,000 $

415,193

Amortizing bank term loan..................................................................................................................................................

Total outstanding.............................................................................................................................................................

98,750

408,750

—

415,193

Less current portion.............................................................................................................................................................

(16,250)

(95,000)

Long-term obligations..................................................................................................................................................... $

392,500 $

320,193

The Company's medium-term notes mature at various dates from September 2012 to December 2014 and were all issued
with fixed interest rates. Interest rates on the notes range from 5.20% to 6.25%. As discussed in Note 6, the Company borrowed
$100 million in November 2011 under an amortizing term loan under its bank credit agreement. The term loan will be repaid in
19 consecutive quarterly installments which began on March 31, 2012, together with a final payment due on November 3, 2016,
and may be prepaid at any time without penalty or premium at the option of the Company. As discussed below, the Company has
interest rate swaps on the term loan which convert the floating base rate to a fixed base rate. Including the effect of the swaps and
the facility margin, the interest rate on the term loan was 3.16% at March 31, 2012.

The fair value of the Company’s long-term obligations, including the current portion, was approximately $428 million
at March 31, 2012, and $416 million at March 31, 2011. The Company estimates the fair value of its long-term obligations using
Level 2 inputs which are based upon quoted market prices for the same or similar issues or on the current interest rates available
to the Company for debt of similar terms and maturities.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

From time to time, the Company uses interest rate swap agreements to manage its exposure to changes in interest rates.

At March 31, 2011, the Company had receive-fixed/pay-floating interest rate swap agreements in place on $245 million of long-
term debt. The fair value of those swap agreements was an asset of $10.2 million at March 31, 2011. During fiscal year 2012,
those swaps were settled prior to or concurrent with the maturity of the underlying debt. No fixed-to-floating interest rate swap
agreements were outstanding at March 31, 2012. In November 2011, the Company entered into receive-floating/pay-fixed interest
rate swap agreements on $99 million notional amount of its outstanding amortizing bank term loan. The aggregate notional amount
of those swaps will be reduced over a five-year period as payments are made on the term loan. The fair value of the floating-to-
fixed interest rate swap agreements was a liability of $1.1 million at March 31, 2012. Additional disclosures related to the
Company’s interest rate swap agreements are provided in Note 9.

Maturities of long-term debt outstanding at March 31, 2012, by fiscal year, were as follows: 2013 - $16 million; 2014 -
$211 million; 2015 - $116 million; 2016 - $28 million; and 2017 - $38 million. All long-term debt outstanding at March 31, 2012,
is scheduled to be repaid by the end of fiscal year 2017.

In November 2011, the Company filed an undenominated universal shelf registration statement with the U.S. Securities
Exchange Commission to provide for the future issuance of an undefined amount of additional debt or equity securities as determined
by the Company and offered in one or more prospectus supplements prior to issuance.

NOTE 8. LEASES

The Company’s subsidiaries lease various production, storage, distribution, and other facilities, as well as vehicles and
equipment used in their operations. Some of the leases have options to extend the lease term at market rates. These arrangements
are classified as operating leases for accounting purposes. Rent expense on operating leases totaled $20.6 million in fiscal year
2012, $21.8 million in fiscal year 2011, and $20.8 million in fiscal year 2010. Future minimum payments under non-cancelable
operating leases total $ 15.9 million in 2013, $7.5 million in 2014, $5.9 million in 2015, $4.8 million in 2016, $3.4 million in
2017, and $6.1 million after 2017.

NOTE 9. DERIVATIVES AND HEDGING ACTIVITIES

Universal is exposed to various risks in its worldwide operations and uses derivative financial instruments to manage
two specific types of risks – interest rate risk and foreign currency exchange rate risk. Interest rate risk has been managed by
entering into interest rate swap agreements, and foreign currency exchange rate risk has been managed by entering into forward
foreign currency exchange contracts primarily in the Brazilian real, the euro, the Polish zloty, and the Hungarian forint. The
Company’s policy also permits other types of derivative instruments. In addition, foreign currency exchange rate risk is also
managed through strategies that do not involve derivative instruments, such as using local borrowings and other approaches to
minimize net monetary positions in non-functional currencies. The disclosures below provide additional information about the
Company’s hedging strategies, the derivative instruments used, and the effects of these activities on the consolidated statements
of income and the consolidated balance sheets. In the consolidated statements of cash flows, the cash flows associated with all
of these activities are reported in net cash provided by operating activities except for the proceeds received on the early termination
of interest rate swap agreements, which are reported in cash flows from financing activities. The Company has not hedged any
net investment in the equity of subsidiaries denominated in currencies other than the U.S. dollar.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Hedging Strategy for Interest Rate Risk

The Company previously entered into receive-fixed/pay-floating interest rate swap agreements that were designated and
qualified as hedges of the exposure to changes in the fair value of the underlying debt instruments created by fluctuations in
prevailing market interest rates. At March 31, 2011, the Company had receive-fixed/pay-floating interest rate swaps outstanding
in the total notional amount of $245 million. During fiscal year 2012, several of those swap contracts in the notional amount of
$50 million were settled on maturity of the underlying debt, and the remaining contracts in the total notional amount of $195
million were settled prior to maturity at an aggregate gain of approximately $13 million. That gain is being amortized over the
remaining terms of the underlying debt instruments as a reduction in interest expense. No fixed-to-floating interest rate swap
agreements were outstanding at March 31, 2012.

In November 2011, the Company entered into receive-floating/pay-fixed interest rate swap agreements that were
designated and qualify as hedges of the exposure to changes in interest payment cash flows created by fluctuations in variable
interest rates on outstanding debt. Although no significant ineffectiveness is expected with this hedging strategy, the effectiveness
of the interest rate swaps is evaluated on a quarterly basis. The receive-floating/pay-fixed interest rate swap agreements were
effective March 31, 2012, and relate to approximately $99 million notional amount of the Company’s outstanding amortizing bank
term loan. The aggregate notional amount of the interest rate swaps will be reduced over a five-year period as payments are made
on the loan.

Cash Flow Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Forecast Purchases of Tobacco and Related
Processing Costs

The majority of the tobacco production in most countries outside the United States where Universal operates is sold in
export markets at prices denominated in U.S. dollars. However, purchases of tobacco from farmers and most processing costs
(such as labor and energy) in those countries are usually denominated in the local currency. Changes in exchange rates between
the U.S. dollar and the local currencies where tobacco is grown and processed affect the ultimate U.S. dollar cost of the processed
tobacco. From time to time, the Company has entered into forward contracts to sell U.S. dollars and buy the local currency at
future dates that coincide with the expected timing of a portion of the tobacco purchases and processing costs. This strategy offsets
the variability of future U.S. dollar cash flows for tobacco purchases and costs for the foreign currency notional amount hedged.
To date, this hedging strategy has been used mainly for tobacco purchases and processing costs in Brazil. The aggregate U.S.
dollar notional amount of forward contracts entered for these purposes during fiscal years 2012, 2011, and 2010 was as follows:

(in millions)

Fiscal Year Ended March 31,

2012

2011

2010

Tobacco purchases.............................................................................................................

182.5

235.2

Processing costs.................................................................................................................

48.3

48.5

Total...............................................................................................................................

230.8

283.7

238.6

41.4

280.0

All contracts related to tobacco purchases were designated and qualify as hedges of the future cash flows associated with
the forecast purchases of tobacco. As a result, except for insignificant amounts related to any ineffective portion of the hedging
strategy, changes in fair values of the forward contracts have been recognized in comprehensive income as they occurred, but only
recognized in earnings upon sale of the related tobacco to third-party customers. Forward contracts related to processing costs
have not been designated as hedges, and gains and losses on those contracts have been recognized in earnings on a mark-to-market
basis.

For substantially all hedge gains and losses recorded in accumulated other comprehensive loss at March 31, 2012, the
Company expects to complete the sale of the tobacco and recognize the amounts in earnings during fiscal year 2013. At March 31,
2012, all hedged forecast purchases of tobacco not yet completed remained probable of occurring within the originally designated
time period and, as a result, no hedges had been discontinued. Purchases of the 2011-2012 crop are expected to be completed by
August 2012, and all forward contracts to hedge those purchases will mature and be settled by that time.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Hedging Strategy for Foreign Currency Exchange Rate Risk Related to Net Local Currency Monetary Assets and Liabilities of
Foreign Subsidiaries

Most of the Company’s foreign subsidiaries transact the majority of their sales in U.S. dollars and finance the majority
of their operating requirements with U.S. dollar borrowings, and therefore use the U.S. dollar as their functional currency. These
subsidiaries normally have certain monetary assets and liabilities on their balance sheets that are denominated in the local currency.
Those assets and liabilities can include cash and cash equivalents, accounts receivable and accounts payable, advances to farmers
and suppliers, deferred income tax assets and liabilities, recoverable value-added taxes, and other items. Net monetary assets and
liabilities denominated in the local currency are remeasured into U.S. dollars each reporting period, generating gains and losses
that the Company records in earnings as a component of selling, general, and administrative expenses. The level of net monetary
assets or liabilities denominated in the local currency normally fluctuates throughout the year based on the operating cycle, but it
is most common for monetary assets to exceed monetary liabilities, sometimes by a significant amount. When this situation exists
and the local currency weakens against the U.S. dollar, remeasurement losses are generated. Conversely, remeasurement gains
are generated on a net monetary asset position when the local currency strengthens against the U.S. dollar. To manage a portion
of its exposure to currency remeasurement gains and losses in Brazil during fiscal year 2011, the Company entered into forward
contracts to buy or sell the local currency at future dates coinciding with expected changes in the overall net local currency monetary
asset position of the subsidiary. Gains and losses on the forward contracts were recorded in earnings as a component of selling,
general, and administrative expenses for each reporting period as they occurred, and thus directly offset the related remeasurement
losses or gains in the consolidated statements of income for the notional amount hedged. The Company does not designate these
contracts as hedges for accounting purposes. The notional amount of these contracts totaled approximately $60 million in fiscal
year 2011, and the contracts were settled before the end of the fiscal year. No forward contracts were entered for this purpose in
fiscal years 2012 or 2010. To further mitigate currency remeasurement exposure, the Company’s foreign subsidiaries have obtained
short-term local currency financing during certain periods. This strategy, while not involving the use of derivative instruments,
is intended to minimize the subsidiary’s net monetary position by financing a portion of the local currency monetary assets with
local currency monetary liabilities and thus hedging a portion of the overall position.

Several of the Company’s foreign subsidiaries transact the majority of their sales and finance the majority of their operating
requirements in their local currency, and therefore use their respective local currencies as the functional currency for reporting
purposes. From time to time, these subsidiaries sell tobacco to customers in transactions that are not denominated in the functional
currency. In those situations, the subsidiaries routinely enter into forward exchange contracts to offset currency risk for the period
of time that a fixed-price order and the related trade account receivable are outstanding with the customer. The contracts are not
designated as hedges for accounting purposes.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Effect of Derivative Financial Instruments on the Consolidated Statements of Income

The table below outlines the effects of the Company’s use of derivative financial instruments on the consolidated statements

of income for the fiscal years ended March 31, 2012, 2011, and 2010.

(in thousands of dollars)

Fair Value Hedges - Interest Rate Swap Agreements

Derivative

Fiscal Year Ended March 31,

2012

2011

2010

Gain (loss) recognized in earnings ............................................................................

3,195

428

(2,043)

Location of gain (loss) recognized in earnings..........................................................

Interest expense

Hedged Item

Description of hedged item .......................................................................................

Fixed rate long-term debt

Gain (loss) recognized in earnings ............................................................................

(3,195) $

(428) $

2,043

Location of gain (loss) recognized in earnings..........................................................

Interest expense

Cash Flow Hedges - Interest Rate Swap Agreements

Derivative

Effective Portion of Hedge

Gain (loss) recorded in accumulated other comprehensive loss.............................
Gain (loss) reclassified from accumulated other comprehensive loss into
earnings.................................................................................................................
Location of gain (loss) reclassified from accumulated other comprehensive loss
into earnings..........................................................................................................

(1,119) $

— $

—

Interest expense

Ineffective Portion of Hedge

Gain (loss) recognized in earnings..........................................................................

— $

—

Location of gain (loss) recognized in earnings.......................................................

Selling, general and administrative expenses

Hedged Item

Description of hedged item .......................................................................................

Floating rate interest payments on term loan

Cash Flow Hedges - Forward Foreign Currency Exchange Contracts

Derivative

Effective Portion of Hedge

Gain (loss) recorded in accumulated other comprehensive loss.............................
Gain (loss) reclassified from accumulated other comprehensive
loss into earnings ..................................................................................................
Location of gain (loss) reclassified from accumulated other
comprehensive loss into earnings .........................................................................

2,652

5,882

2,476

100

7,174

(14,844)

Cost of goods sold

Ineffective Portion and Early De-designation of Hedges

Gain (loss) recognized in earnings..........................................................................

857

113

1,442

Location of gain (loss) recognized in earnings.......................................................

Selling, general and administrative expenses

Hedged Item

Description of hedged item.......................................................................................

Forecast purchases of tobacco in Brazil

Derivatives Not Designated as Hedges -
Forward Foreign Currency Exchange Contracts

Gain (loss) recognized in earnings..........................................................................

1,829

2,594

1,275

Location of gain (loss) recognized in earnings.......................................................

Selling, general and administrative expenses

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the interest rate swap agreements designated as fair value hedges, since the hedges had no ineffectiveness, the gain
or loss recognized in earnings on the derivative was offset by a corresponding loss or gain on the underlying hedged debt. For
the interest rate swap agreements designated as cash flow hedges, the effective portion of the gain or loss on the derivative is
recorded in accumulated other comprehensive loss and any ineffective portion is recorded in selling, general and administrative
expenses.

For the forward foreign currency exchange contracts designated as cash flow hedges of tobacco purchases in Brazil, a
net hedge gain of approximately $0.8 million remained in accumulated other comprehensive loss at March 31, 2012. That balance
reflects net gains on open and settled contracts primarily related to the 2011-2012 crop, less the amount reclassified to earnings
related to tobacco sold through March 31, 2012. The majority of the balance in the accumulated other comprehensive loss will
be recognized in earnings as a component of cost of goods sold in fiscal year 2013 as the remaining 2011-2012 Brazilian crop
tobacco is sold to customers. Based on the hedging strategy, as the gain or loss is recognized in earnings, it is expected to be offset
by a change in the direct cost for the tobacco or by a change in sales prices if the strategy has been mandated by the customer.
Generally, margins on the sale of the tobacco will not be significantly affected.

Effect of Derivative Financial Instruments on the Consolidated Balance Sheets

The table below outlines the effects of the Company’s derivative financial instruments on the consolidated balance sheets

at March 31, 2012 and 2011:

(in thousands of dollars)

Derivatives Designated as Hedging Instruments

Interest rate swap agreements
designated as fair value hedges

Interest rate swap agreements
designated as cash flow hedges

Forward foreign currency
exchange contracts

Total

Derivatives Not Designated as Hedging Instruments

Forward foreign currency
exchange contracts

Total

Derivatives in a Fair Value Asset Position

Derivatives in a Fair Value Liability Position

Balance
Sheet
Location

Fair Value as of March 31,

2012

2011

Balance
Sheet
Location

Fair Value as of March 31,

2012

2011

Other
non-current
assets

Other
current
assets

— $

10,193

Long-term
obligations

— $

—

Other
long-term
liabilities

—

Accounts
payable and
accrued
expenses

2,400

1,119

925

12,593

2,044

—

Accounts
payable and
accrued
expenses

273

1,222

427

243

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 10. FAIR VALUE MEASUREMENTS

Universal measures certain financial and nonfinancial assets and liabilities at fair value based on applicable accounting
guidance. The financial assets and liabilities measured at fair value include money market funds, trading securities associated
with deferred compensation plans, interest rate swap agreements, forward foreign currency exchange contracts, and guarantees
of bank loans to tobacco growers. The application of the fair value guidance to nonfinancial assets and liabilities primarily includes
assessments of goodwill and long-lived assets for potential impairment.

Under the accounting guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The framework for measuring fair value
under the guidance is based on a fair value hierarchy that distinguishes between observable inputs (i.e., inputs that are based on
market data obtained from independent sources) and unobservable inputs (i.e., inputs that require the Company to make its own
assumptions about market participant assumptions because little or no market data exists). There are three levels within the fair
value hierarchy:

Level

Description

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

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

unobservable inputs for the asset or liability.

In measuring the fair value of liabilities, the Company considers the risk of non-performance in determining fair value.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2012 and 2011, the Company had certain financial assets and financial liabilities that were required to be
measured and reported at fair value on a recurring basis. These assets and liabilities are listed in the tables below and are classified
based on how their values were determined under the fair value hierarchy:

March 31, 2012

Level 1

Level 2

Level 3

Total

Assets

Money market funds ...................................................................................... $

48,546

— $

Trading securities associated with deferred compensation plans ..................

Forward foreign currency exchange contracts...............................................

19,803

—

356

—

48,546

19,803

356

Total assets.................................................................................................. $

68,349

356

— $

68,705

Liabilities

Guarantees of bank loans to tobacco growers................................................ $

— $

5,932

Interest rate swap agreements ........................................................................

Forward foreign currency exchange contracts...............................................

—

1,119

1,352

—

Total liabilities ............................................................................................ $

— $

2,471

5,932

1,119

1,352

8,403

March 31, 2011

Level 1

Level 2

Level 3

Total

Assets

Money market funds........................................................................................ $

108,832

— $

108,832

Trading securities associated with deferred compensation plans....................

20,899

Interest rate swap agreements..........................................................................

Forward foreign currency exchange contracts ................................................

—

10,193

3,622

—

20,899

10,193

3,622

Total assets................................................................................................. $

129,731

13,815

— $

143,546

Liabilities

Guarantees of bank loans to tobacco growers ................................................. $

Forward foreign currency exchange contracts ................................................

Total liabilities............................................................................................ $

— $

—

— $

20,699

243

—

243

20,699

20,942

Money market funds

The fair value of money market funds, which are reported in cash and cash equivalents in the consolidated balance sheets,
is based on quoted market prices (Level 1). The fair values of these investments approximate cost due to the short-term maturities
and the high credit quality of the issuers of the underlying securities.

Trading securities associated with deferred compensation plans

Trading securities represent mutual fund investments that are matched to employee deferred compensation obligations.
These investments are bought and sold as employees defer compensation, receive distributions, or make changes in the funds
underlying their accounts. Quoted market prices (Level 1) are used to determine the fair values of the mutual funds.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Interest rate swap agreements

The fair values of interest rate swap agreements are determined based on dealer quotes using a discounted cash flow
model matched to the contractual terms of each instrument. Since inputs to the model are observable and significant judgment is
not required in determining the fair values, interest rate swaps are classified within Level 2 of the fair value hierarchy.

Forward foreign currency exchange contracts

The fair values of forward foreign currency exchange contracts are also determined based on dealer quotes using a
discounted cash flow model matched to the contractual terms of each instrument. Since inputs to the model are observable and
significant judgment is not required in determining the fair values, forward foreign currency exchange contracts are classified
within Level 2 of the fair value hierarchy.

Guarantees of bank loans to tobacco growers

The Company guarantees bank loans to tobacco growers in Brazil for crop financing and construction of curing barns or
other tobacco producing assets. In the event that the farmers default on their payments to the banks, the Company would be
required to perform under the guarantees. The Company regularly evaluates the likelihood of farmer defaults based on an expected
loss analysis and records the fair value of its guarantees as an obligation in its consolidated financial statements. The fair value
of the guarantees is determined using the expected loss data for all loans outstanding at each measurement date. The present value
of the cash flows associated with the estimated losses is then calculated at a risk-adjusted interest rate (6.6% as of March 31, 2012
and 9.5% as of March 31, 2011) that is aligned with the expected duration of the liability and includes an adjustment for
nonperformance risk. This approach is sometimes referred to as the “contingent claims valuation method.” Although historical
loss data is an observable input, significant judgment is required in applying this information to the portfolio of guaranteed loans
outstanding at each measurement date and in selecting a risk-adjusted interest rate. Significant increases or decreases in the risk-
adjusted interest rate may result in a significantly higher or lower fair value measurement. The guarantees of bank loans to tobacco
growers are therefore classified within Level 3 of the fair value hierarchy.

A reconciliation of the change in the balance of the financial liability for guarantees of bank loans to tobacco growers
(Level 3) for the fiscal years ended March 31, 2012 and 2011 is provided below. A significant number of the loans in the portfolio
reached their maturity dates during fiscal year 2012. The Company satisfied its obligations under the related guarantees by remitting
payment to the banks and taking title to the loans, thereby reducing the guarantee liability.

Fiscal Year Ended March 31,

2012

2011

Balance at beginning of year............................................................................................................................................... $

20,699

25,997

Transfer to allowance for loss on direct loans to farmers (removal of prior crop year and other loans from portfolio)....

(18,305)

(14,724)

Transfer from allowance for loss on direct loans to farmers (addition of current crop year loans) ...................................

Transfer of guarantees to assignee of farmer contracts (see Note 14)................................................................................

Change in discount rate and estimated collection period....................................................................................................

4,279

—

780

Currency remeasurement ....................................................................................................................................................

(1,521)

7,559

(1,110)

1,389

1,588

Balance at end of year......................................................................................................................................................... $

5,932

20,699

Universal has not elected to report at fair value any financial instruments or any other assets or liabilities that are not

required to be reported at fair value under current accounting guidance.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Defined Benefit Plans

Description of Plans

The Company sponsors several defined benefit pension plans covering U.S. salaried employees and certain foreign and
other employee groups. These plans provide retirement benefits based primarily on employee compensation and years of service.
Plan assets consist primarily of equity investments and fixed income securities. The Company also sponsors defined benefit plans
that provide postretirement health and life insurance benefits for eligible U.S. employees who have attained specific age and
service levels. The health benefits are funded by the Company as the costs of those benefits are incurred. The plan design includes
cost-sharing features such as deductibles and coinsurance. The life insurance benefits are funded with deposits to a reserve account
held by an insurance company. The Company has the right to amend or discontinue its pension and other postretirement benefit
plans at any time.

In the following disclosures, the term "accumulated benefit obligation" ("ABO") represents the actuarial present value
of estimated future benefit payments earned by participants in the Company's defined benefit pension plans as of the balance sheet
date without regard to the estimated effect of future compensation increases on those benefits. The term does not apply to other
postretirement benefits. "Projected benefit obligation" refers to the projected benefit obligation ("PBO") for pension benefits and
the accumulated postretirement benefit obligation ("APBO") for other postretirement benefits. These amounts represent the
actuarial present value of estimated future benefit payments earned by participants in the benefit plans as of the balance sheet date.
For pension benefits, the projected benefit obligation includes the estimated effect of future compensation increases on those
benefits.

Actuarial Assumptions

Assumptions used for financial reporting purposes to compute net periodic benefit cost and benefit obligations were as

follows:

Discount rates:

Pension Benefits

Other Postretirement Benefits

2012

2011

2010

2012

2011

2010

Benefit cost for plan year ...............................

Benefit obligation at end of plan year ............

5.50 %

4.60 %

6.00%

5.50%

Expected long-term return on plan assets:

Benefit cost for plan year ...............................

8.00 %

8.00%

Benefit obligation at end of plan year ............

Salary scale........................................................

Healthcare cost trend rate ..................................

8.00 %

5.00 %

N/A

8.00%

5.00%

N/A

7.75%

6.00%

7.75%

8.00%

5.00%

N/A

5.50 %

4.40 %

6.00%

5.50%

4.30 %

4.30%

4.30 %

5.00 %

7.80 %

4.30%

5.00%

8.00%

7.75%

6.00%

4.30%

5.00%

8.30%

The increase in the expected long-term return on plan assets at March 31, 2010 reflected changes made to the Company’s
investment allocation during fiscal year 2010. The healthcare cost trend rate used by the Company is based on a recent study of
medical cost inflation rates. The revised trend assumption of 7.80% in 2012 declines gradually to 4.50% in 2028.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Benefit Obligations, Plan Assets, and Funded Status

The following table reflects the changes in benefit obligations and plan assets in 2012 and 2011, and the funded status

of the plans at March 31, 2012 and 2011:

Pension Benefits

Other Postretirement Benefits

March 31,

2012

2011

2012

2011

Actuarial present value of benefit obligation:

Accumulated benefit obligation................................................................................. $

278,128 $

236,701

— $

Projected benefit obligation .......................................................................................

302,632

262,085

48,784

—

43,888

Change in projected benefit obligation:

Projected benefit obligation, beginning of year......................................................... $

262,085

243,760

43,888

43,429

Service cost ................................................................................................................

Interest cost ................................................................................................................

Effect of discount rate change....................................................................................

4,614

13,959

34,292

Foreign currency exchange rate changes ...................................................................

(1,733)

Curtailment ................................................................................................................

Settlements.................................................................................................................

—

Other ..........................................................................................................................

5,975

4,835

14,168

15,174

1,626

966

(8,483)

5,411

591

2,636

5,205

—

529

Benefit payments .......................................................................................................

(16,560)

(15,372)

(4,065)

787

2,534

2,245

—

(1,222)

(3,885)

Projected benefit obligation, end of year ................................................................... $

302,632

262,085

48,784

43,888

3,499

238

3,432

—

Change in plan assets:

Plan assets at fair value, beginning of year................................................................ $

195,715

182,792

3,284

Actual return on plan assets .......................................................................................

Employer contributions..............................................................................................

Settlements.................................................................................................................

Foreign currency exchange rate changes ...................................................................

Benefit payments .......................................................................................................

15,451

6,259

—

(1,340)

(16,560)

26,077

9,211

(8,483)

1,490

146

3,697

—

(15,372)

(4,065)

(3,885)

Plan assets at fair value, end of year .......................................................................... $

199,525

195,715

3,062

3,284

Funded status:

Funded status of the plans, end of year...................................................................... $

(103,107) $

(66,370) $

(45,722) $

(40,604)

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The funded status of the Company’s plans at the end of fiscal years 2012 and 2011 was reported in the consolidated

balance sheets as follows:

Pension Benefits

Other Postretirement Benefits

March 31,

2012

2011

2012

2011

Non-current asset (reported in other noncurrent assets) ............................................... $

1,424

1,493

— $

—

Current liability (included in accounts payable and accrued expenses) .......................

Non-current liability (reported as pensions and other postretirement benefits) ...........

(6,511)

(98,020)

(2,098)

(65,765)

(3,213)

(42,509)

(3,511)

(37,093)

Amounts recognized in the consolidated balance sheets .............................................. $

(103,107) $

(66,370) $

(45,722) $

(40,604)

Additional information on the funded status of the Company’s plans as of the respective measurement dates for the fiscal

years ended March 31, 2012 and 2011, is as follows:

Pension Benefits

Other Postretirement Benefits

March 31,

2012

2011

2012

2011

For plans with a projected benefit obligation in excess of plan assets:

Aggregate projected benefit obligation...................................................................... $

294,325

257,240

48,784

43,888

Aggregate fair value of plan assets ............................................................................

189,795

189,378

3,062

3,284

For plans with an accumulated benefit obligation in excess of plan assets:

Aggregate accumulated benefit obligation ................................................................

Aggregate fair value of plan assets ............................................................................

270,569

189,795

232,342

189,378

N/A

Net Periodic Benefit Cost

The components of the Company’s net periodic benefit cost were as follows:

Pension Benefits

Other Postretirement Benefits

Fiscal Year Ended March 31,

2012

2011

2010

2012

2011

2010

Components of net periodic benefit cost:

Service cost .................................................... $

4,614

4,835

3,815

591

787

Interest cost ....................................................

13,959

14,168

14,899

Expected return on plan assets.......................

(14,958)

(14,938)

(13,687)

Curtailment loss .............................................

Settlement cost ...............................................

—

Net amortization and deferral ........................

6,309

966

3,119

3,937

—

4,640

1,387

2,636

(134)

—

2,534

(144)

—

581

2,789

(152)

—

(335)

(253)

(1,083)

Net periodic benefit cost ................................ $

9,924

12,087

11,054

2,758

2,924

2,135

A one-percentage-point increase in the assumed healthcare cost trend rate would increase the March 31, 2012, accumulated
postretirement benefit obligation by approximately $1.8 million, while a one-percentage-point decrease would reduce the benefit
obligation by approximately $1.6 million. The aggregate service and interest cost components of the net periodic postretirement
benefit expense for fiscal year 2013 would not change by a significant amount as a result of a one-percentage-point increase or
decrease in the assumed healthcare cost trend rate.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Amounts Included in Accumulated Other Comprehensive Loss

The amounts recognized in other comprehensive income or loss for fiscal years 2012 and 2011 and the amounts included
in accumulated other comprehensive loss at the end of those fiscal years are shown below. Reclassification adjustments represent
amounts included in accumulated other comprehensive loss at the beginning of the year that were recognized in net periodic benefit
cost during the year. All amounts shown are before allocated income taxes.

Pension Benefits

Other Postretirement Benefits

March 31,

2012

2011

2012

2011

Change in net actuarial loss (gain):

Net actuarial loss (gain), beginning of year ............................................................... $

75,138

73,301

(6,722) $

(7,452)

Losses (gains) arising during the year .......................................................................

Reclassification adjustments during the year.............................................................

39,461

(6,428)

Net actuarial loss (gain), end of year .........................................................................

108,171

5,996

(4,159)

75,138

1,475

603

478

252

(4,644)

(6,722)

Change in prior service cost (benefit):

Prior service cost (benefit), beginning of year...........................................................

(3,393)

(3,145)

Prior service cost arising during the year...................................................................

Reclassification adjustments during the year.............................................................

—

313

—

(248)

Prior service cost (benefit), end of year .....................................................................

(3,080)

(3,393)

—

750

(250)

500

—

Total amounts in accumulated other comprehensive loss

at end of year, before income taxes ......................................................................... $

105,091

71,745

(4,144) $

(6,722)

Amounts in the above table reflect the Company and its consolidated subsidiaries. The accumulated other comprehensive
loss reported in the consolidated balance sheets also includes pension and other postretirement benefit adjustments related to
ownership interests in unconsolidated affiliates. The Company expects to recognize approximately $10.6 million of the March 31,
2012 net actuarial loss and $0.7 million of the March 31, 2012 prior service benefit in net periodic benefit cost during fiscal year
2013.

Allocation of Pension Plan Assets

The Pension Investment Committee of the Board of Directors (the “Committee”) oversees the investment of funds for
the Company’s U.S. ERISA-regulated defined benefit pension plans, which represents 89% of total plan assets and 79% of total
PBO. The Committee has established, and periodically adjusts, target asset allocations for those investments to reflect a balance
of the needs for liquidity, total return, and risk control. The assets are required to be diversified across asset classes and investment
styles to achieve that balance. During the year, the asset allocation is reviewed for adherence to the target policy and rebalanced
to the targeted weights.

The Committee, with the help of a consultant, reviews the expected long-term returns of the asset allocation each year
to help determine whether changes are needed. The return is evaluated on a weighted average basis in relation to inflation. The
assumed long-term rate of return used to calculate annual benefit expense is based on the asset allocation and expected market
returns for those asset classes.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The weighted–average target pension asset allocation and target ranges at the March 31, 2012 measurement date and the

actual asset allocations at the March 31, 2012 and 2011 measurement dates by major asset category were as follows:

Major Asset Category

Target
Allocation

Range

2012

2011

Actual Allocation

March 31,

Domestic equity securities.......................................................................................

44.0 % 37 % — 51%

International equity securities .................................................................................

13.0 % 10 % — 16%

Fixed income securities (1) .......................................................................................

33.0 % 26 % — 40%

Alternative investments:

Real estate funds...................................................................................................

5.0 %

3 % — 7%

Hedge funds..........................................................................................................

5.0 %

3 % — 7%

45.5%

12.1%

32.3%

5.4%

4.7%

45.6 %

13.6 %

31.2 %

4.7 %

4.9 %

Total...................................................................................................................

100.0 %

100.0%

100.0 %

(1) Actual amounts include high yield securities and cash balances held for the payment of benefits.

With the assistance of a consultant, the Committee selects investment managers to invest the funds within its guidelines.
To provide for diversification, equity fund managers are limited in the level of investment in any single security, and limits are
placed on the minimum size of the issuer of the security. There is no allocation to Universal Corporation equity. One fixed income
manager must invest in U.S. dollar-denominated bonds, excluding U.S. Treasury bonds, with limitations on the amounts that may
be invested in any single issuer. The minimum credit rating of issuers is BBB, and limits are placed on the amount that can be
invested in issuers rated at that level. The other fixed income manager invests in high yield bonds for which credit ratings are
lower. In addition, certain speculative transactions are prohibited in either equity or fixed income management, as appropriate.
These prohibitions include margin buying, short selling, and transactions in lettered or restricted stock, puts, and straddles. Managers
are evaluated based on their adherence to the policies and their ability to exceed certain standards for returns while limiting the
amount of risk over three to five year periods. For commingled funds, the Committee reviews the fund manager’s policies to
ensure that they are consistent with fund guidelines or otherwise appropriate for the asset class.

Universal makes regular contributions to its pension and other postretirement benefit plans. As previously noted, for
postretirement health benefits, contributions reflect funding of those benefits as they are incurred. With the regular and additional
contributions and an increase in plan asset values during fiscal years 2011 and 2012, the Company believes that it is in full
compliance with all funding requirements of the Pension Protection Act of 2006. The Company expects to make contributions of
approximately $16.9 million to its defined benefit pension plans in fiscal year 2013, including $6.5 million to its ERISA-regulated
U.S. plan and $10.4 million to its non-ERISA regulated and other plans.

Estimated future benefit payments to be made from the Company’s plans are as follows:

Fiscal Year:

Pension
Benefits

Other
Postretirement
Benefits

2013..................................................................................................................................................................................... $

26,356

2014.....................................................................................................................................................................................

2015.....................................................................................................................................................................................

2016.....................................................................................................................................................................................

2017.....................................................................................................................................................................................

16,750

14,878

18,203

19,183

3,213

3,274

3,329

3,353

3,404

2018 - 2022 .........................................................................................................................................................................

100,682

16,424

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair Values of Pension Plan Assets

Assets held by the Company’s defined benefit pension plans primarily consist of domestic and international equity
securities, fixed income securities, and alternative investments. Domestic and international equities include common stock, as
well as commingled funds and common collective trusts. The methodologies for determining the fair values of the plan assets are
outlined below. Where the values are based on quoted prices for the securities in an active market, they are classified as Level 1
of the fair value hierarchy. Where secondary pricing sources are used, they are classified as Level 2 of the hierarchy. Pricing
models that use significant unobservable inputs are classified as Level 3.

• Domestic and international equity securities:

Common stock: Shares of common stock are valued at the unadjusted official closing price as defined by
the most active market, or at the most recent trade price of the security at the close of the active market.
Secondary pricing sources are used when one of these primary sources is not available. Instances requiring
secondary pricing sources are reviewed for evidence of inactive, delisted, bankrupt, or suspended equities.

Commingled funds and common collective trusts: These assets are valued at the net asset value of shares
held at the valuation date, based on the quoted market prices of the underlying assets of the funds or trusts.
The investments are valued using the Net Asset Value of the fund or trust as a practical expedient for fair
market value. These investment vehicles hold equity securities and cash.

•

Fixed income securities: Some fixed income investments are held through mutual funds for which an active market
is available (Level 1). Other fixed income investments are valued at an estimated price that a dealer would pay for
a similar security on the valuation date using observable market inputs (Level 2). These measures may include yield
curves for similarly rated securities. Small amounts of cash are held in common collective trusts. Fixed income
securities include insurance assets, which are valued based on an actuarial calculation (Level 3).

• Alternative investments: Real estate assets are valued using valuation models that incorporate income and market
approaches, including external appraisals, to derive fair values. The hedge fund allocation is a fund of hedge funds
and is valued by the manager based on the net asset value of each fund. These models use significant unobservable
inputs and are classified as Level 3 within the fair value hierarchy.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Fair values of the assets of the Company’s pension plans as of March 31, 2012 and 2011, classified based on how their

values were determined under the fair value hierarchy are as follows:

March 31, 2012

Level 1

Level 2

Level 3

Total

Domestic equity securities .................................................................................... $

26,025

55,420

— $

International equity securities ...............................................................................

Fixed income securities (1).....................................................................................

Alternative investments:

Real estate fund..................................................................................................

Hedge fund.........................................................................................................

20,935

21,470

—

51,708

—

6,083

8,358

9,526

81,445

20,935

79,261

8,358

9,526

Total investments ............................................................................................ $

68,430

107,128

23,967

199,525

March 31, 2011

Level 1

Level 2

Level 3

Total

Domestic equity securities .................................................................................... $

27,300

52,768

— $

International equity securities ...............................................................................

Fixed income securities (1).....................................................................................

Alternative investments:

Real estate fund..................................................................................................

Hedge fund.........................................................................................................

23,925

16,974

—

52,425

—

5,362

8,338

8,623

80,068

23,925

74,761

8,338

8,623

Total investments ............................................................................................ $

68,199

105,193

22,323

195,715

(1)

Includes high yield securities and cash and cash equivalent balances.

Other Benefit Plans

Universal and several U.S. subsidiaries offer an employer-matched defined contribution savings plan. Amounts charged
to expense for this plan were approximately $1.1 million for fiscal year 2012, $1.3 million for fiscal year 2011, and $1.4 million
for fiscal year 2010.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 12. COMMON AND PREFERRED STOCK

Common Stock

At March 31, 2012, the Company’s shareholders had authorized 100,000,000 shares of its common stock, and 23,257,175
shares were issued and outstanding. Holders of the common stock are entitled to one vote for each share held on all matters
requiring a vote. Holders of the common stock are also entitled to receive dividends when, as, and if declared by the Company’s
Board of Directors. The Board of Directors customarily declares and pays regular quarterly dividends on the outstanding common
shares; however, such dividends are at the Board’s full discretion, and there is no obligation to continue them. If dividends on the
Company’s Series B 6.75% Convertible Perpetual Preferred Stock (the “Preferred Stock” or “Preferred Shares”) are not declared
and paid for any dividend period, then the Company may not pay dividends on the common stock or repurchase common shares
until the dividends on the Preferred Stock have been paid for a period of four consecutive quarters.

Universal’s Board of Directors has authorized programs to repurchase outstanding shares of the Company’s common
stock. Under these programs, the Company has made and may continue to make share repurchases from time to time in the open
market or in privately negotiated transactions at prices not exceeding prevailing market rates. In November 2009, Universal’s
Board of Directors authorized a program (the “2009 program”) to repurchase up to $150 million of the Company’s outstanding
common shares. The Company completed purchases of shares under this program, and it was terminated in November 2011. A
total of 1,589,701 shares of common stock were repurchased under the 2009 program at a total cost of approximately $70 million
(weighted-average cost of $44.02 per share). In November 2011, the Board of Directors authorized a program to repurchase up
to $100 million of the Company’s outstanding common shares (the “2011 program”). It expires on November 15, 2013. Through
March 31, 2012, no shares have been repurchased under the 2011 program, and the full $100 million of authorization remains
available for future share repurchase.

Total share repurchases for the fiscal years ended March 31, 2012, 2011, and 2010 were as follows:

Fiscal Year Ended March 31,

2012

2011

2010

Number of shares repurchased..............................................................................................................

80,191

1,113,125

Cost of shares repurchased (in thousands of dollars)............................................................................ $

Weighted-average cost per share........................................................................................................... $

3,488

43.49

46,696

41.95

743,876

32,942

44.28

Preferred Stock

The Company is also authorized to issue up to 5,000,000 shares of preferred stock, 500,000 shares of which have been
reserved for Series A Junior Participating Preferred Stock and 220,000 shares of which have been reserved for Series B 6.75%
Convertible Perpetual Preferred Stock. No Series A Junior Participating Preferred Stock has been issued. In 2006, 220,000 shares
of Series B 6.75% Convertible Perpetual Preferred Stock (the “Preferred Stock” or “Preferred Shares”) were issued under this
authorization. At March 31, 2012, 219,999 shares were issued and outstanding. The Preferred Stock has a liquidation preference
of $1,000 per share. Holders of the Preferred Shares are entitled to receive quarterly dividends at the rate of 6.75% per annum on
the liquidation preference when, as, and if declared by the Company’s Board of Directors. Dividends are not cumulative in the
event the Board of Directors does not declare a dividend for one or more quarterly periods. Under the terms of the Preferred
Stock, the Board of Directors is prohibited from declaring regular dividends on the Preferred Shares in any period in which the
Company fails to meet specified levels of shareholders’ equity and net income; however, in that situation, the Board of Directors
may instead declare such dividends payable in shares of the Company’s common stock or from net proceeds of common stock
issued during the ninety-day period prior to the dividend declaration. The Preferred Shares have no voting rights, except in the
event the Company fails to pay dividends for four consecutive or non-consecutive quarterly dividend periods or fails to pay the
redemption price on any date that the Preferred Shares are called for redemption, in which case the holders of Preferred Shares
will be entitled to elect two additional directors to the Company’s Board to serve until dividends on the Preferred Stock have been
fully paid for four consecutive quarters.

The Preferred Shares are convertible, at any time at the option of the holder, into shares of the Company’s common stock
at a conversion rate that is adjusted each time the Company pays a dividend on its common stock that exceeds $0.43 per share.
The conversion rate at March 31, 2012, was 21.7365 shares of common stock per preferred share, which represents a conversion
price of approximately $46.01 per common share. Upon conversion, the Company may, at its option, satisfy all or part of the
conversion value in cash.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the period from March 15, 2013 to March 15, 2018, the Company may, at its option, cause the Preferred Shares
to be automatically converted into shares of common stock that are issuable at the prevailing conversion rate, only if the closing
price of the common stock during a specified period exceeds 135.00% of the then prevailing conversion price. With this conversion,
the Company may, at its option, in lieu of delivering shares satisfy all or part of the conversion value in cash. On or after March
15, 2018, the Company may, at its option, redeem all or part of the outstanding Preferred Shares for cash at the $1,000 per share
liquidation preference.

NOTE 13. EXECUTIVE STOCK PLANS AND STOCK-BASED COMPENSATION

Executive Stock Plans

The Company’s shareholders have approved executive stock plans under which officers, directors, and employees of the
Company and its subsidiaries may receive grants and awards of common stock, restricted stock, restricted stock units (“RSUs”),
performance share awards (“PSAs”), stock appreciation rights (“SARs”), incentive stock options, and non-qualified stock options.
Currently, grants are outstanding under the 1997 Executive Stock Plan, the 2002 Executive Stock Plan, and the 2007 Stock Incentive
Plan. Together, these plans are referred to in this disclosure as the “Plans.” Up to 2 million shares of the Company’s common
stock may be issued under each of the Plans; however, direct awards of common stock, restricted stock, or RSUs are limited to
500,000 shares under the 2002 Executive Stock Plan and 750,000 shares under the 2007 Stock Incentive Plan.

The Company’s practice is to award grants of stock-based compensation to officers at the first regularly-scheduled meeting
of the Executive Compensation, Nominating, and Corporate Governance Committee of the Board of Directors (the “Compensation
Committee”) in the fiscal year following the public release of the Company’s financial results for the prior year. Since fiscal year
2006, grants have included restricted stock, RSUs, PSAs, and stock-settled SARs. Prior to 2006, non-qualified stock options were
the primary form of stock-based compensation awarded, and some of those options remained outstanding at March 31, 2012.
Outside directors automatically receive restricted stock units or shares of restricted stock following each annual meeting of
shareholders.

Non-qualified stock options and SARs granted under the Plans have an exercise price equal to the market price of a share
of common stock on the date of grant. All stock options currently outstanding under the Plans are fully vested and exercisable,
and they expire ten years after the grant date. SARs granted under the Plans vest in equal one-third tranches one, two, and three
years after the grant date and expire ten years after the grant date, except that SARs granted after fiscal year 2007 expire on the
earlier of three years after the grantee’s retirement date or ten years after the grant date. RSUs awarded under the Plans vest five
years from the grant date and are then paid out in shares of common stock. Under the terms of the RSU awards, grantees receive
dividend equivalents in the form of additional RSUs that vest and are paid out on the same date as the original RSU grant. The
PSAs vest three years from the grant date, are paid out in shares of common stock at the vesting date, and do not carry rights to
dividends or dividend equivalents prior to vesting. Shares ultimately paid out under PSA grants are dependent on the achievement
of predetermined performance measures established by the Compensation Committee and can range from zero to 150% of the
stated award. RSUs awarded to outside directors vest three years after the grant date, and restricted stock vests upon the individual’s
retirement from service as a director.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock Options and SARs

The following tables summarize the Company’s stock option and SAR activity and related information for fiscal years

2010 through 2012:

Weighted-
Average
Exercise
Price

Weighted-
Average
Contractual
Term
(in years)

Aggregate
Intrinsic
Value

Fiscal Year Ended March 31, 2010:

Outstanding at beginning of year..........................................................................

719,557

Granted..................................................................................................................

253,800

Exercised...............................................................................................................

(132,892)

Cancelled/expired .................................................................................................

(8,667)

Outstanding at end of year ....................................................................................

831,798

Fiscal Year Ended March 31, 2011:

Granted..................................................................................................................

Cancelled/expired .................................................................................................

Outstanding at end of year ....................................................................................

153,600

(62,800)

922,598

Fiscal Year Ended March 31, 2012:

Granted..................................................................................................................

170,400

Exercised...............................................................................................................

(195,948)

Cancelled/expired .................................................................................................

(41,200)

Outstanding at end of year ....................................................................................

855,850

Exercisable at end of year .....................................................................................

Expected to vest in future periods.........................................................................

521,444

334,406

50.41

35.30

36.09

24.69

48.36

39.71

62.66

45.94

37.86

35.82

59.25

46.01

51.28

37.79

6.08

4,023

4.54

8.49

1,078

2,944

Fiscal Year Ended March 31,

2012

2011

2010

Total intrinsic value of stock options and SARs exercised................................................................... $

Total fair value of SARs vested ............................................................................................................ $

1,745

1,713

— $

1,849

2,238

1,611

Intrinsic value and aggregate intrinsic value in the tables above are based on the difference between the market price of
the underlying shares at the exercise date or balance sheet date, as applicable, and the exercise prices of the stock options and
SARs. The closing market prices used to determine the aggregate intrinsic value at the end of each fiscal year were as follows:
$46.60 at March 31, 2012, $43.54 at March 31, 2011, and $52.69 at March 31, 2010.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSUs, Restricted Stock, and PSAs

The following table summarizes the Company’s RSU, restricted stock, and PSA activity for fiscal years 2010 through

2012:

RSUs

Restricted Stock

PSAs

Weighted-
Average
Grant Date
Fair Value

Fiscal Year Ended March 31, 2010:

Unvested at beginning of year ..............

149,130

Granted..................................................

Vested....................................................

Forfeited................................................

73,589

(14,955)

—

Unvested at end of year.........................

207,764

Fiscal Year Ended March 31, 2011:

Granted..................................................

Vested....................................................

Unvested at end of year.........................

Fiscal Year Ended March 31, 2012:

Granted..................................................

Vested....................................................

Forfeited................................................

63,992

(24,940)

246,816

84,290

(39,827)

—

Unvested at end of year.........................

291,279

49.84

35.93

47.21

—

32.50

41.40

46.35

44.07

38.28

35.94

—

43.72

74,900

17,550

(7,700)

—

84,750

—

(7,000)

77,750

—

(10,350)

—

67,400

41.08

39.76

40.41

—

40.87

—

41.96

40.77

—

37.52

—

41.91

30,466

63,450

—

(897)

93,019

38,400

—

131,419

57,383

(44,352)

(1,984)

142,466

45.96

29.67

—

45.96

34.85

33.95

—

34.59

35.56

45.96

33.30

31.45

Shares granted and vested in the above table include dividend equivalents on RSUs and any shares awarded above the
base grant under the performance provisions of PSAs. Shares forfeited or canceled include any reductions from the base PSA
grant under those same performance provisions.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-Based Compensation Expense

Determination of the Grant Date Fair Value of Stock-Based Compensation

As noted above, the Company granted SARs, RSUs, restricted stock, and PSAs during fiscal years 2010 through 2012.
The fair values of the RSUs, restricted stock, and PSAs were based on the market price of the common stock on the grant date.
The fair values of the SARs were estimated using the Black-Scholes pricing model and the following assumptions:

Assumptions:

Expected term...................................................................................................................................

5 years

Expected volatility............................................................................................................................

35.80%

Expected dividend yield ...................................................................................................................

Risk-free interest rate .......................................................................................................................

5.07%

1.66%

35.30%

4.73%

2.36%

5 years

39.00%

5.21%

2.51%

Fiscal Year Ended March 31,

2012

2011

2010

Resulting fair value of SARs granted ...................................................................................................

$7.46

$8.35

$7.85

The expected term was based on the Company’s historical stock option and SAR exercise data for instruments with
comparable features and economic characteristics. The expected volatility was estimated based on historical volatility of the
Company’s common stock using weekly closing prices. The expected dividend yield was based on the annualized quarterly
dividend rate and the market price of the common stock at grant date. The risk-free interest rate was based on the U.S. Treasury
yield curve in effect at the grant date for securities with a remaining term equal to the expected term of the SARs. Since all SAR
grants were awarded on the same date in each of the three fiscal years 2010 through 2012, the fair values shown in the above table
represent the weighted-average grant date fair values for those years.

Recognition of Compensation Expense

Fair value expense for stock-based compensation is recognized ratably over the period from grant date to the earlier of
(1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For employees who
are already eligible to retire at the date an award is granted, the total fair value of the award is recognized as expense at the date
of grant. For the fiscal years ended March 31, 2012, 2011, and 2010, total stock-based compensation expense and the related
income tax benefit recognized were as follows:

Fiscal Year Ended March 31,

2012

2011

2010

Total stock-based compensation expense ............................................................................................. $

Income tax benefit recorded on stock-based compensation expense.................................................... $

5,987

2,095

5,893

2,063

6,133

2,147

At March 31, 2012, the Company had $3.7 million of unrecognized compensation expense related to stock-based awards,
which will be recognized over a weighted-average period of approximately 1.1 years. Cash proceeds from the exercise of stock
options were not material for the fiscal years ended March 31, 2012, 2011, or 2010.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 14. COMMITMENTS AND OTHER MATTERS

Commitments

The Company enters into contracts to purchase tobacco from farmers in a number of the countries in which it operates.
The majority of these contracts are with farmers in Brazil and several African countries. Most contracts cover one annual growing
season. Primarily with the farmer contracts in Brazil, the Company provides seasonal financing to support the farmers’ production
of their crops or guarantees their financing from third-party banks. At March 31, 2012, the Company had contracts to purchase
approximately $614 million of tobacco, $600 million of which represented volumes to be delivered during the coming fiscal year.
These amounts are estimates since actual quantities purchased will depend on crop yields, and prices will depend on the quality
of the tobacco delivered and other market factors. Tobacco purchase obligations have been partially funded by advances to farmers
and other suppliers, which totaled approximately $135 million at March 31, 2012. The Company withholds payments due to
farmers on delivery of the tobacco to satisfy repayment of the seasonal or long-term financing it provided to the farmers. As noted
above and discussed in more detail below, the Company also has arrangements to guarantee bank loans to farmers, primarily in
Brazil, and payments are also withheld on delivery of tobacco to satisfy repayment of those loans. In addition to its contractual
obligations to purchase tobacco, the Company had commitments related to agricultural materials, approved capital expenditures,
and various other requirements that approximated $58 million at March 31, 2012.

Guarantees and Other Contingent Liabilities

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 March 31, 2012, the Company’s
total exposure under guarantees issued by its operating subsidiary in Brazil for banking facilities of farmers in that country was
approximately $20 million ($26 million face amount including unpaid accrued interest, less $6 million recorded for the fair value
of the guarantees). About 90% of these guarantees expire within one year, and all of the remainder expire within two years. As
noted above, the subsidiary withholds payments due to the farmers on delivery of tobacco and forwards those payments to the
third-party banks. Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover their obligations to the
third-party banks could result in a liability for the subsidiary under the related guarantees; however, in that case, the subsidiary
would have recourse against the farmers. The maximum potential amount of future payments that the Company’s subsidiary could
be required to make at March 31, 2012, was the face amount, $26 million including unpaid accrued interest ($73 million as of
March 31, 2011). The fair value of the guarantees was a liability of approximately $6 million at March 31, 2012, and $21 million
at March 31, 2011. In addition to these guarantees, the Company has other contingent liabilities totaling approximately $4 million.

Major Customers

A material part of the Company’s business is dependent upon a few customers. For the fiscal years ended March 31,
2012, 2011 and 2010, revenue from Philip Morris International, Inc. was approximately $610 million, $750 million, and $700
million, respectively. For the same periods, Imperial Tobacco Group, PLC accounted for revenue of approximately $360 million,
$320 million, and $250 million, respectively, and Japan Tobacco, Inc. accounted for revenue of approximately $213 million, $340
million, and $575 million, respectively. These customers primarily do business with various affiliates in the Company’s flue-
cured and burley leaf tobacco operations. The loss of, or substantial reduction in business from, either customer would have a
material adverse effect on the Company.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accounts Receivable

The Company’s operating subsidiaries perform credit evaluations of customers’ financial condition prior to the extension
of credit. Generally, accounts 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 historically
such amounts have not been material. The allowance for doubtful accounts was approximately $8.3 million and $5.6 million at
March 31, 2012 and 2011, respectively. At March 31, 2012 and 2011, net accounts receivable by reportable operating segment
were as follows:

March 31,

2012

2011

Flue-cured and burley leaf tobacco operations:

North America.................................................................................................................................................................. $

44,802 $

32,640

Other regions ....................................................................................................................................................................

Subtotal ........................................................................................................................................................................

Other tobacco operations ......................................................................................................................................................

310,489

355,291

35,499

269,613

302,253

33,322

Consolidated accounts receivable, net .................................................................................................................................. $

390,790 $

335,575

Sale of Property in Brazil

In November 2011, the Company sold land and buildings in Brazil that were formerly used for processing, storage, and
office activities in exchange for $9.4 million in cash and two warehouses having an aggregate fair value of approximately $11.2
million. The transaction resulted in a gain of $11.1 million, which is reported in other income in the consolidated statement of
income. In the consolidated statement of cash flows, the cash proceeds received in the transaction are included in proceeds from
the sale of property, plant, and equipment in cash flows from investing activities. The fair value of the warehouses received was
excluded from the statement of cash flows since it was non-cash consideration.

Fire Loss Insurance Settlement

In June 2011, an operating subsidiary of the Company in Europe completed settlement of an insurance claim related to
a fire in 2010 that destroyed a portion of its facility and temporarily suspended factory operations. The Company and its subsidiary
maintained general liability, business interruption, and replacement cost property insurance coverage on the facility. As part of
the final settlement, the subsidiary received approximately $9.9 million of insurance proceeds to cover the cost of reconstructing
the damaged portion of the facility and replacing equipment that was destroyed in the fire. A gain of approximately $9.6 million
was recorded on the involuntary conversion of those assets in the quarter ended June 30, 2011, and is reported in other income in
the consolidated statement of income. In addition, the subsidiary received insurance proceeds totaling approximately $6.9 million
for business interruption related to the fire. Approximately $4.8 million of the business interruption recovery was recognized in
earnings in fiscal year 2011, and the remaining $2.1 million was recognized in the quarter ended June 30, 2011. In the consolidated
statement of cash flows, the insurance proceeds attributable to the property and equipment destroyed in the fire are reported in
cash flows from investing activities. All other insurance proceeds received during fiscal year 2011 or with the final claim settlement
in fiscal year 2012 have been reported in cash flows from operating activities. Reconstruction of the facility was completed by
the first quarter of fiscal year 2012, and the factory is fully operational.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assignment of Farmer Contracts and Sale of Related Assets in Brazil

In October 2010, Universal’s operating subsidiary in Brazil completed the assignment of tobacco production contracts
with approximately 8,100 farmers to Philip Morris Brasil Industria e Comercio (“PMB”), a subsidiary of Philip Morris International
(“PMI”). As part of the transaction, PMB acquired various related assets, including seasonal crop advances outstanding from the
farmers. PMB also assumed the Company’s obligations under guarantees of bank loans to the farmers for crop financing.
Subsequently, the Company also entered into an agreement to process tobaccos bought directly by PMB from farmers beginning
with the 2011 crop year. In addition, the Company continues to sell processed leaf from Brazil to PMI and its subsidiaries. The
Company received total cash proceeds of approximately $34.9 million from the assignment of farmer contracts and sale of related
assets in fiscal year 2011 and recorded a gain of approximately $19.4 million, which was reported in other income in the consolidated
statement of income. The determination of the gain included approximately $5.8 million of goodwill associated with the activities
conveyed.

Statutory Severance and Pension Obligations in Malawi

In fiscal year 2008, the Company’s operating subsidiary in Malawi recorded a charge to accrue statutory severance
obligations based on court rulings that found the severance benefits payable to employees upon retirement, death, involuntary
termination, or termination by mutual agreement under the Malawi Employment Act of 2000, even in cases where employees are
covered by a company-sponsored pension benefit. Because the effect of the court rulings was to entitle some employees to both
private pension benefits and statutory severance benefits in cases of normal retirement, some of the rulings were appealed to higher
courts. Effective June 1, 2011, new Employment and Pension legislation was enacted into law in Malawi. The new legislation
changed prior law related to statutory severance benefits by eliminating the requirement to pay those benefits to employees in
cases of normal retirement. At the same time, the legislation created a new requirement to provide pension benefits to employees
who meet specified service criteria. The pension benefit to which employees are entitled under the new law enacted June 1, 2011
is generally equivalent to the accumulated statutory severance benefit under the old law, but it considers any pension or gratuity
benefits previously or currently provided to employees under a company’s private pension programs. The Company’s operating
subsidiary in Malawi has historically provided pension and gratuity payments to specified employee groups that reduce or offset
the pension obligations provided under the new law. The Malawi subsidiary accounted for the enactment of the new legislation
in its financial statements during the quarter ended June 30, 2011 by reversing approximately $4 million of the statutory severance
liability no longer required under the new law.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 15. OPERATING SEGMENTS

Universal’s operations involve selecting, procuring, processing, packing, storing, shipping, and financing leaf tobacco
for sale to, or for the account of, manufacturers of consumer tobacco products throughout the world. Through various operating
subsidiaries located in tobacco-growing countries around the world and significant ownership interests in unconsolidated affiliates,
the Company processes and/or sells flue-cured and burley tobaccos, dark air-cured tobaccos, and oriental tobaccos. Flue-cured,
burley, and oriental tobaccos are used principally in the manufacture of cigarettes, and dark air-cured tobaccos are used mainly in
the manufacture of cigars, pipe tobacco, and smokeless tobacco products. A substantial portion of the Company’s revenues are
derived from sales to a limited number of large, multinational cigarette manufacturers.

The principal approach used by management to evaluate the Company’s performance is by geographic region, although
the dark air-cured and oriental tobacco businesses are each evaluated on the basis of their worldwide operations. Oriental tobacco
operations consist principally of a 49% interest in an affiliate, and the performance of those operations is evaluated based on the
Company’s equity in the pretax earnings of that affiliate. Under this structure, the Company has the following primary operating
segments: North America, South America, Africa, Europe, Asia, Dark Air-Cured, Special Services, and Oriental. North America,
South America, Africa, Europe, and Asia are primarily involved in flue-cured and/or burley leaf tobacco operations for supply to
cigarette manufacturers. From time to time, the segments may trade in tobaccos that differ from their main varieties, but those
activities are not significant to their overall results.

The five regional operating segments serving the Company’s cigarette manufacturer customer base share similar
characteristics in the nature of their products and services, production processes, class of customer, product distribution methods,
and regulatory environment. Based on the applicable accounting guidance, four of the regions – South America, Africa, Europe,
and Asia – are aggregated into a single reporting segment because they also have similar economic characteristics. North America
is reported as an individual operating segment because its economic characteristics are dissimilar to the other regions, as its
operations do not require significant working capital investments for crop financing and inventory, and toll processing is an
important source of its operating income. The Dark Air-Cured, Special Services and Oriental segments, which have dissimilar
characteristics in some of the categories mentioned above, are reported as “other tobacco operations” because each is below the
measurement threshold for separate reporting.

Universal incurs overhead expenses related to senior management, finance, legal, and other functions that are centralized
at its corporate headquarters, as well as functions performed at several sales and administrative offices around the world. These
overhead expenses are allocated to the various operating segments, generally on the basis of tobacco volumes planned to be
purchased and/or processed. Management believes this method of allocation is representative of the value of the related services
provided to the operating segments. The Company evaluates the performance of its segments based on operating income after
allocated overhead expenses (excluding significant non-recurring charges or credits), plus equity in the pretax earnings of
unconsolidated affiliates.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Reportable segment data as of or for the fiscal years ended March 31, 2012, 2011, and 2010, is as follows:

Sales and Other Operating Revenues

Operating Income

Fiscal Year Ended March 31,

2012

2011

2010

2012

2011

2010

Flue-cured and burley leaf tobacco

operations:

North America..................................... $

314,248

340,366

357,195

30,037

59,278

57,006

Other regions (1) ...................................

1,893,388

1,944,410

1,895,829

Subtotal ...........................................

2,207,636

2,284,776

2,253,024

Other tobacco operations (2)......................

239,241

286,751

238,714

Segment total ...........................................

2,446,877

2,571,527

2,491,738

180,670

210,707

12,841

223,548

169,989

229,267

28,658

257,925

Deduct:

Equity in pretax earnings of

unconsolidated affiliates (3) .............

Restructuring and impairment costs (4)

Charge for (reversal of) European

Commission fines (4)........................

Add:

Other income (4) ...................................

(3,195)

(11,661)

(8,634)

(21,504)

(49,091)

7,445

20,703

19,368

182,513

239,519

40,066

279,585

(22,376)

—

Consolidated total .................................... $

2,446,877

2,571,527

2,491,738

180,304

254,600

257,209

Segment Assets

March 31,

Goodwill

March 31,

2012

2011

2010

2012

2011

2010

Flue-cured and burley leaf tobacco

operations:

North America..................................... $

256,546

289,950

362,008

— $

—

Other regions (1) ...................................

1,712,970

1,612,558

1,649,349

Subtotal ...........................................

1,969,516

1,902,508

2,011,357

Other tobacco operations (2)......................

297,403

325,359

359,683

96,564

1,713

96,543

1,713

102,224

1,713

Segment and consolidated totals.............. $

2,266,919

2,227,867

2,371,040

98,277

98,256

103,937

Depreciation and Amortization

Capital Expenditures

Fiscal Year Ended March 31,

2012

2011

2010

2012

2011

2010

Flue-cured and burley leaf tobacco

operations:

North America..................................... $

10,201

11,866

11,953

438

3,080

Other regions (1) ...................................

Subtotal ...........................................

Other tobacco operations (2)......................

29,475

39,676

4,190

28,541

40,407

4,865

26,710

38,663

4,833

32,059

32,497

5,677

34,324

37,404

1,725

Segment and consolidated totals.............. $

43,866

45,272

43,496

38,174

39,129

12,105

31,283

43,388

14,189

57,577

(1)
(2)

(3)
(4)

Includes South America, Africa, Europe, and Asia regions, as well as inter-region eliminations.
Includes Dark Air-Cured, Oriental and Special Services, as well as inter-company eliminations. Oriental does not contribute significantly to the reported
amounts for sales and other operating revenues, goodwill, depreciation and amortization, or capital expenditures because its financial results consist principally
of equity in the pretax earnings of an unconsolidated affiliate. The investment in the unconsolidated affiliate is included in segment assets and was
approximately $89.7 million, $110.8 million, and $101.4 million, at March 31, 2012, 2011, and 2010, respectively.
Item is included in segment operating income, but is not included in consolidated operating income.
Item is not included in segment operating income, but is included in consolidated operating income.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Geographic data as of, or for, the fiscal years ended March 31, 2012, 2011, and 2010, is presented below. Sales and other
operating revenues are attributed to individual countries based on the final destination of the shipment. Long-lived assets consist
of net property, plant, and equipment, goodwill, other intangibles, and certain other non-current assets.

Geographic Data

Sales and Other Operating Revenues

Fiscal Year Ended March 31,

2012

2011

2010

United States ......................................................................................................................................... $

315,610

340,313

305,390

Belgium.................................................................................................................................................

Germany................................................................................................................................................

210,425

210,791

345,774

267,087

469,067

199,768

All other countries.................................................................................................................................

1,710,051

1,618,353

1,517,513

Consolidated total ................................................................................................................................. $

2,446,877

2,571,527

2,491,738

Long-Lived Assets

Fiscal Year Ended March 31,

2012

2011

2010

United States ......................................................................................................................................... $

75,330

88,910

100,698

Brazil.....................................................................................................................................................

Mozambique .........................................................................................................................................

All other countries.................................................................................................................................

139,484

50,475

137,169

141,535

53,854

131,950

156,961

50,045

128,921

Consolidated total ................................................................................................................................. $

402,458

416,249

436,625

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 16. UNAUDITED QUARTERLY FINANCIAL DATA

Unaudited quarterly financial data for the fiscal years ended March 31, 2012 and 2011, is provided in the table below.
Due to the seasonal nature of the Company's business, management believes it is generally more meaningful to focus on cumulative
rather than quarterly results.

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Fiscal Year Ended March 31, 2012

Sales and other operating revenues ....................................................................... $

479,465

641,026

672,420

653,966

Gross profit............................................................................................................

Net income (loss)...................................................................................................

Net income (loss) attributable to Universal Corporation ......................................

Earnings (loss) available to Universal Corporation common shareholders after

94,358

17,322

15,888

119,426

147,105

111,103

(7,997)

(8,039)

61,602

58,453

29,892

25,755

dividends on convertible perpetual preferred stock ..........................................

12,176

(11,752)

54,741

22,042

Earnings (loss) per share attributable to Universal Corporation common

shareholders:

Basic..................................................................................................................

Diluted...............................................................................................................

Cash dividends declared per share of convertible perpetual preferred stock ........

Cash dividends declared per share of common stock............................................

Market price range of common stock:

High...................................................................................................................

Low ...................................................................................................................

Fiscal Year Ended March 31, 2011

0.52

16.88

0.48

45.72

36.94

(0.51)

16.87

0.48

41.48

35.11

2.36

2.06

16.88

0.49

47.38

35.78

0.95

0.91

16.87

0.49

48.60

44.88

Sales and other operating revenues ....................................................................... $

538,916

664,188

688,208

680,215

Gross profit............................................................................................................

102,237

133,274

154,044

118,778

Net income ............................................................................................................

Net income attributable to Universal Corporation ................................................

Earnings available to Universal Corporation common shareholders after

24,418

25,320

53,783

51,831

57,585

52,298

28,764

27,116

dividends on convertible perpetual preferred stock ..........................................

21,608

48,118

48,586

23,403

Earnings per share attributable to Universal Corporation common shareholders:

Basic..................................................................................................................

Diluted...............................................................................................................

Cash dividends declared per share of convertible perpetual preferred stock ........

Cash dividends declared per share of common stock............................................

Market price range of common stock:

High...................................................................................................................

Low ...................................................................................................................

0.89

0.87

16.88

0.47

55.92

38.38

2.00

1.78

16.87

0.47

44.82

35.44

2.05

1.82

16.88

0.48

43.34

37.05

1.00

0.95

16.87

0.48

43.72

37.74

Note: Earnings per share amounts for each fiscal year may not equal the total of the four quarterly amounts due to differences
in weighted-average outstanding shares for the respective periods and to the fact that the Company’s convertible perpetual
preferred stock may be antidilutive for some periods.

UNIVERSAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant items included in the quarterly results were as follows:

•

First Quarter 2012 – restructuring costs of $6.9 million that included approximately $3.8 million for employee
termination benefits, primarily related to the Company’s U.S. operations, and $3.1 million of costs incurred to exit
a supplier arrangement in Europe in response to market changes. The restructuring costs reduced net income
attributable to Universal Corporation by $4.4 million and diluted earnings per share by $0.19. The Company also
recorded a $9.6 million gain on insurance settlement proceeds to replace factory and equipment lost in a fire at a
plant in Europe. The gain on insurance settlement proceeds increased net income attributable to Universal Corporation
by $6.2 million and diluted earnings per share by $0.27.

Second Quarter 2012 – restructuring costs of $3.0 million primarily related to voluntary and involuntary terminations
in the Company’s operations in the U.S. and South America that reduced net income attributable to Universal
Corporation by $1.9 million and diluted earnings per share by $0.08. In addition, the Company recorded a charge
of $49.1 million to accrue a fine and accumulated interest imposed jointly on the Company and Deltafina, S.p.A.
(“Deltafina”), its Italian subsidiary, by the European Commission related to tobacco buying practices in Italy. The
charge reflected a September 2011 appeals court decision rejecting Deltafina’s application to reinstate its immunity
in the case. The charge reduced net income attributable to Universal Corporation by $46.2 million and diluted
earnings per share by $1.85. Deltafina has appealed the September 2011 appeals court decision to the next court
level.

• Third Quarter 2012 – a gain of $11.1 million on the sale of land and buildings in Brazil that were most recently used
for storage activities. The gain increased net income attributable to Universal Corporation by $7.2 million and diluted
earnings per share by $0.25.

•

Fourth Quarter 2012 – restructuring costs of approximately $1.4 million primarily related to voluntary and involuntary
separations in various locations. The restructuring costs reduced net income attributable to Universal Corporation
by $0.9 million and diluted earnings per share by $0.03.

First Quarter 2011 – restructuring costs of $0.9 million associated with voluntary early retirement offers aimed at
reducing costs in the Company’s U.S. operations. The restructuring costs reduced net income attributable to Universal
Corporation by approximately $0.6 million and diluted earnings per share by $0.02.

Second Quarter 2011 – a $7.4 million reversal of a portion of a charge recorded in fiscal year 2005 to accrue a fine
imposed by the European Commission on Deltafina related to tobacco buying practices in Spain. The reversal
reflected a favorable court decision in Deltafina’s appeal of the fine and increased net income attributable to Universal
Corporation by $4.8 million and diluted earnings per share by $0.17. The Company also recorded restructuring
costs of approximately $2.0 million primarily related to voluntary early retirement offers in the Company’s U.S.
operations and voluntary and involuntary separations in various other locations. The restructuring costs reduced net
income attributable to Universal Corporation by $1.3 million and diluted earnings per share by $0.05.

• Third Quarter 2011 – a $19.4 million gain on the assignment of farmer contracts and sale of related assets in Brazil
to an operating subsidiary of one of the Company’s major customers. The gain increased net income attributable to
Universal Corporation by $12.6 million and diluted earnings per share by $0.44. The Company also recorded
restructuring and impairment costs totaling $11.0 million during the quarter. Those costs primarily related to a
decision to close the Company’s leaf tobacco processing operations in Canada and sell the assets of the operations,
but they also included costs associated with initiatives to restructure and downsize activities at various other locations.
The restructuring and impairment costs reduced net income attributable to Universal Corporation by $7.5 million
and diluted earnings per share by $0.26.

•

Fourth Quarter 2011 – restructuring and impairment costs totaling $7.5 million. The restructuring costs included
pension curtailment and settlement charges related to the termination of a defined benefit pension plan with the
closing of the operations in Canada, as well as costs associated with voluntary early retirement offers in the Company’s
U.S. operations and voluntary and involuntary separations in various other locations. The restructuring and
impairment costs reduced net income attributable to Universal Corporation by $4.8 million and diluted earnings per
share by $0.17.

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Universal Corporation

We have audited the accompanying consolidated balance sheets of Universal Corporation (the “Company”) as of March 31, 2012
and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash
flows for each of the three years in the period ended March 31, 2012. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Universal Corporation at March 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended March 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Universal Corporation’s internal control over financial reporting as of March 31, 2012, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated May 25, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Richmond, Virginia
May 25, 2012

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Internal Control
Over Financial Reporting

The Board of Directors and Shareholders of
Universal Corporation

We have audited Universal Corporation’s internal control over financial reporting as of March 31, 2012, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Universal Corporation’s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Universal Corporation maintained, in all material respects, effective internal control over financial reporting as of
March 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Universal Corporation as of March 31, 2012 and 2011, and the related consolidated statements of
income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended
March 31, 2012 and our report dated May 25, 2012 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Richmond, Virginia
May 25, 2012

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

For the three years ended March 31, 2012, there were no changes in independent auditors, nor were there any disagreements

between the Company and its independent auditors on any matter of accounting principles, practices, or financial disclosures.

Item 9A. Controls and Procedures

Disclosure 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 Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC 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 the
Company’s management, the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)), as of the end of the period covered by this Annual Report. Based on this evaluation, the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures
were effective.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining effective internal control over financial
reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed
to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of the
consolidated financial statements. Due to inherent limitations, internal control over financial reporting may not prevent or detect
all errors or misstatements in the financial statements, and even control procedures that are determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions.

As required by Exchange Act Rule 13a-15(c), the Company’s Chief Executive Officer and Chief Financial Officer, with
the participation of other members of management, assessed the effectiveness of the Company’s internal control over financial
reporting as of March 31, 2012. The evaluation was based on the criteria set forth in “Internal Control – Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO criteria”). Based on this assessment,
the Company’s management concluded that the Company’s internal control over financial reporting was effective as of March 31,
2012.

The Company’s independent registered public accounting firm, Ernst & Young LLP, has audited the Company’s internal

control over financial reporting as of March 31, 2012. Their report on this audit appears on page 90 of this Annual Report.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last
fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.

Item 9B. Other Information

None.

Item 10. Directors, Executive Officers, and Corporate Governance

PART III

Except as to the matters set forth below, information required by this Item is incorporated herein by reference to the Company’s

2012 Proxy Statement.

The following are executive officers of the Company as of May 25, 2012.

Name and Age
G. C. Freeman, III (49) Chairman, President and
Chief Executive Officer

Position

W. K. Brewer (53)

Executive Vice President and
Chief Operating Officer

D. C. Moore (56)

Senior Vice President and
Chief Financial Officer

R. M. Paul (54)

T. G. Broome (58)

Executive Vice President,
Universal Leaf Tobacco
Company, Inc.

P. D. Wigner (43)

Vice President, General
Counsel, Secretary & Chief
Compliance Officer

J. A. Huffman (50)

Senior Vice President,
Information and Planning,
Universal Leaf Tobacco
Company, Inc.

Business Experience During Past Five Years
Mr. Freeman was elected Chairman of the Board in August 2008, Chief
Executive Officer effective April 2008, President in December 2006,
and Vice President in November 2005. Mr. Freeman served as General
Counsel and Secretary from February 2001 until November 2005 and
has been employed with the Company since 1997.

Mr. Brewer was elected Executive Vice President and Chief Operating
Officer in August 2008, Vice President of Universal Corporation in
August 2007, and Executive Vice President of Universal Leaf Tobacco
Company, Incorporated (“Universal Leaf”) in March 2006. Mr. Brewer
served as President of Universal Leaf North America U.S., Inc. from
January 2002 until March 2006. He has been employed with the
Company since 1977.

Mr. Moore was elected Senior Vice President and Chief Financial
Officer effective September 2008. Mr. Moore served as Vice President
and Chief Administrative Officer from April 2006 until September
2008, as Senior Vice President of Universal Leaf from September 2005
until April 2006, and as Managing Director of Universal Leaf
International SA from April 2002 until September 2005. He has been
employed with the Company since 1978.

Mr. Paul has served as Executive Vice President, Universal Leaf, with
responsibility for sales activities, since March 2006. He has been
employed with the Company since 1979.
Mr. Broome was elected Executive Vice President, Universal Leaf, with
responsibility for sales activities, in April 2011. From September 1998
through March 2011, Mr. Broome served as Senior Vice President-Sales.
He has been employed with the Company since 1994.

Mr. Wigner was elected Chief Compliance Officer in November 2007,
Vice President in August 2007, and General Counsel and Secretary in
November 2005. Mr. Wigner served as Senior Counsel of Universal
Leaf from November 2004 until November 2005. He has been
employed with the Company since 2003.

Mr. Huffman was elected Senior Vice President, Information and
Planning, Universal Leaf, in August 2007. From September 2003 to
August 2007, Mr. Huffman served as Senior Vice President. From
September 2002 to September 2003, Mr. Huffman served as Vice
President and Controller. He has been employed with the Company
since 1996.

C. C. Formacek (52)

R. M. Peebles (54)

Vice President and Treasurer Ms. Formacek was elected Vice President and Treasurer effective April
2012. Ms. Formacek served as Treasurer of Universal Leaf from April
2011 through March 2012. She joined the Company in September 2009
and served as Assistant Treasurer of Universal Leaf from that time
through March 2011. Ms. Formacek formerly served as Treasurer of
Chesapeake Corporation from January 2005 through July 2009.

Vice President and Controller Mr. Peebles was elected Vice President and Controller in April 2011.
Mr. Peebles joined the Company in September 2003 and served as
Controller from that time through March 2011.

There are no family relationships between any of the above officers.

The Company has a Code of Conduct that includes the NYSE requirements for a “Code of Business Conduct and Ethics”
and the SEC requirements for a “Code of Ethics for Senior Financial Officers.” The Code of Conduct is applicable to all officers,
employees, and outside directors of the Company, including the principal executive officer, principal financial officer, and principal
accounting officer. A copy of the Code of Conduct is available through the “Corporate Governance-Overview” section of the
Company’s website at www.universalcorp.com. If the Company amends a provision of the Code of Conduct, or grants a waiver
from any such provision to a director or executive officer, the Company will disclose such amendments and the details of such
waivers on the Company’s website www.universalcorp.com to the extent required by the SEC or the NYSE.

The information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is contained under the captions “Corporate
Governance and Committees—Committees of the Board—Compensation Committee,” “Corporate Governance and Committees—
Committees of the Board—Audit Committee” of the Company’s 2012 Proxy Statement and such information is incorporated by
reference herein.

Item 11. Executive Compensation

Refer to the captions “Executive Compensation” and “Directors’ Compensation” in the Company’s 2012 Proxy Statement,

which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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 March 31, 2012, with respect to compensation plans under which shares of the
Company’s common stock are authorized for issuance.

Plan Category

Equity compensation plans approved by shareholders:

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)

1994 Amended and Restated Stock Option Plan for Non-Employee Directors .........................

5,000

1997 Executive Stock Plan .........................................................................................................

2002 Executive Stock Plan .........................................................................................................

2007 Stock Incentive Plan ..........................................................................................................

Equity compensation plans not approved by shareholders (4) .....................................................

1,000

364,984

918,611

—

Total ............................................................................................................................................

1,289,595

41.66

35.81

56.15

39.04

—

43.89

—

124,240 (2)

1,012,803 (3)

—

1,137,043

(1) Amounts exclude any securities to be issued upon exercise of outstanding options, warrants, and rights.
(2) The 2002 Executive Stock Plan permits grants of stock options and stock appreciation rights, and awards of common stock, restricted stock, and phantom
stock/restricted stock units. Of the 124,240 shares of common stock remaining available for future issuance under that plan, none are available for awards of
common stock or restricted stock.

(3) The 2007 Stock Incentive Plan permits grants of stock options and stock appreciation rights, and awards of common stock, restricted stock, and phantom stock/
restricted stock units. Of the 1,012,803 shares of common stock remaining available for future issuance under that plan, 283,895 shares are available for
awards of common stock, restricted stock units, or restricted stock.

(4) All of the Company’s equity compensation plans have been approved by shareholders.

Refer also to the caption “Stock Ownership” in the Company’s 2012 Proxy Statement, which information is incorporated

herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Refer to the caption “Certain Transactions” in the Company’s 2012 Proxy Statement, which information is incorporated
herein by reference. The information required by Item 407(a) of Regulation S-K is contained under the caption “Corporate
Governance and Committees—Director Independence” of the Company’s 2012 Proxy Statement and such information is
incorporated by reference herein.

Item 14. Principal Accounting Fees and Services

Refer to the caption “Audit Information – Fees of Independent Auditors” and “Audit Information – Pre-Approval Policies

and Procedures” in the Company’s 2012 Proxy Statement, which information is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)

The following are filed as part of this Annual Report:

1. Financial Statements.

Consolidated Statements of Income for the Fiscal Years Ended March 31, 2012, 2011, and 2010
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2012, 2011,

and 2010

Consolidated Balance Sheets at March 31, 2012 and 2011
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2012, 2011, and 2010
Consolidated Statements of Changes in Shareholders’ Equity for the Fiscal Years Ended March 31, 2012, 2011,

and 2010

Notes to Consolidated Financial Statements for the Fiscal Years Ended March 31, 2012, 2011, and 2010
Report of Ernst & Young LLP, Independent Registered Accounting Firm
Report of Ernst & Young LLP, Independent Registered Accounting Firm, on Internal Control Over Financial

Reporting

2. Financial Statement Schedules.

Schedule II – Valuation and Qualifying Accounts

3. Exhibits. The exhibits are listed in the Exhibit Index immediately following the signature pages to this Annual Report.

(b)

Exhibits

The response to this portion of Item 15 is submitted as a separate section to this Annual Report.

(c)

Financial Statement Schedules

Schedule II – Valuation and Qualifying Accounts appears on the following page of this Annual Report. All other
schedules are not required under the related instructions or are not applicable and therefore have been omitted.

Schedule II - Valuation and Qualifying Accounts
Universal Corporation
Fiscal Years Ended March 31, 2012, 2011, and 2010

Balance at
Beginning
of Period

Net
Additions
(Reversals)
Charged
to Expense

Additions
Charged
to Other
Accounts

Deductions (a)

Balance
at End
of Period

Description

(in thousands of dollars)

Fiscal Year Ended March 31, 2010:

Allowance for doubtful accounts (deducted from

accounts receivable and other noncurrent assets).............

6,037

697

— $

123

6,857

Allowance for supplier accounts (deducted from

advances to suppliers and other noncurrent assets) ..........

28,164

18,514

Allowance for recoverable taxes (deducted from other

current assets and other noncurrent assets).......................

12,257

3,174

—

9,565

56,243

2,162

17,593

Fiscal Year Ended March 31, 2011:

Allowance for doubtful accounts (deducted from

accounts receivable and other noncurrent assets).............

6,857

(681) $

— $

(573) $

5,603

Allowance for supplier accounts (deducted from

advances to suppliers and other noncurrent assets) ..........

56,243

18,666

Allowance for recoverable taxes (deducted from other

current assets and other noncurrent assets).......................

17,593

3,785

—

74,938

748

22,126

Fiscal Year Ended March 31, 2012:

Allowance for doubtful accounts (deducted from

accounts receivable and other noncurrent assets).............

5,603

4,244

— $

(1,540) $

8,307

Allowance for supplier accounts (deducted from

advances to suppliers and other noncurrent assets) ..........

74,938

11,929

Allowance for recoverable taxes (deducted from other

current assets and other noncurrent assets).......................

22,126

2,564

—

(12,485)

74,382

24,719

(a)

Includes direct write-offs of assets and currency remeasurement.

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

May 25, 2012

UNIVERSAL CORPORATION

By:

/s/ GEORGE C. FREEMAN, III
George C. Freeman, III
Chairman, 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
/s/ GEORGE C. FREEMAN, III
George C. Freeman, III

Title

Chairman, President, Chief Executive Officer, and Director
(Principal Executive Officer)

/s/ DAVID C. MOORE
David C. Moore

Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

/s/ ROBERT M. PEEBLES
Robert M. Peebles

Vice President and Controller
(Principal Accounting Officer)

/s/ JOHN B. ADAMS, JR.
John B. Adams, Jr.

/s/ CHESTER A. CROCKER
Chester A. Crocker

/s/ CHARLES H. FOSTER, JR.
Charles H. Foster, Jr.

/s/ THOMAS H. JOHNSON
Thomas H. Johnson

/s/ EDDIE N. MOORE, JR.
Eddie N. Moore, Jr.

/s/ JEREMIAH J. SHEEHAN
Jeremiah J. Sheehan

/s/ ROBERT C. SLEDD
Robert C. Sledd

Director

/s/ DR. EUGENE P. TRANI
Dr. Eugene P. Trani

Director

Date
May 25, 2012

May 25, 2012

EXHIBIT INDEX

3.1 Amended and Restated Articles of Incorporation, effective August 9, 2011 (incorporated herein by reference to the

Registrant’s Current Report on Form 8-K Registration Statement filed August 9, 2011, File No. 001-00652).

3.2 Amended and Restated Bylaws (as of August 3, 2010) (incorporated herein by reference to the Registrant’s Current

Report on Form 8-K dated August 3, 2010, File No. 001-00652).

4.1

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. 001-00652).

4.2 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. 001-00652).

4.3 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. 001-00652).

4.4 Form of Fixed Rate Note due December 1, 2014 (incorporated herein by reference to the Registrant’s Current Report

on Form 8-K dated November 20, 2009, File No. 001-00652).

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.

10.1 Universal Corporation Restricted Stock Plan for Non-Employee Directors (incorporated herein by reference to the

Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 001-00652).

10.2 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. 001-00652).

10.3 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. 001-00652).

10.4 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. 001-00652).

10.5 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. 001-00652).

10.6 Universal Leaf Tobacco Company, Incorporated 1996 Benefit Restoration Plan (incorporated herein by reference to

the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1998, File No. 001-00652).

10.7 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.
001-00652).

10.8 Universal Corporation 1994 Amended and Restated Stock Option Plan for Non-Employee Directors dated October 27,
2003 (incorporated herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003, File No. 001-00652).

10.9 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. 001-00652).

10.10 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. 001-00652).

10.11 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. 001-00652).

10.12 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. 001-00652).

10.13 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. 001-00652).

10.14 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. 001-00652).

10.15 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. 001-00652).

10.16 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. 001-00652).

10.17 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. 001-00652).

10.18 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. 001-00652).

10.19 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.
001-00652).

10.20 Form of 2002 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,
2003, File No. 001-00652).

10.21 Form of 2002 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, 2003, File No.
001-00652).

10.22 Form of 2005 Non-Qualified Stock Option Agreement (incorporated herein by reference to the Registrant’s Current

Report on Form 8-K filed June 9, 2005, File No. 001-00652).

10.23 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. 001-00652).

10.24 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.
001-00652).

10.25 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. 001-00652).

10.26 Revised Form of Universal Corporation Non-Employee Director Restricted Stock Agreement (incorporated herein by

reference to the Registrant’s Current Report on Form 8-K dated June 9, 2010, File No. 001-00652).

10.27 Form Change of Control Agreement (incorporated herein by reference to the Registrant’s Current Report on Form 8-

K filed November 10, 2008, File No. 001-00652).

10.28 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. 001-00652).

10.29 Universal Corporation 1997 Executive Stock Plan, as amended on August 7, 2003 (incorporated herein by reference

to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003, File No. 001-00652).

10.30 Universal Corporation 2002 Executive Stock Plan, as amended on August 7, 2003 (incorporated herein by reference
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003, file no. 001-00652).

10.31 Form of Restricted Stock Units Award Agreement (incorporated herein by reference to the Registrant’s Current Report

on Form 8-K filed June 1, 2006, File No. 001-00652).

10.32 Form of Restricted Stock Units Award Agreement (incorporated herein by reference to the Registrant’s Current Report

on Form 8-K filed November 10, 2008, File No. 001-00652).

10.33 Form of Stock Appreciation Rights Agreement (incorporated herein by reference to the Registrant’s Current Report on

Form 8-K filed June 1, 2006, File No. 001-00652).

10.34 Form Stock Appreciation Rights Agreement (incorporated herein by reference to the Registrant’s Current Report on

Form 8-K filed May 28, 2008, File No. 001-00652).

10.35 Form Performance Share Award Agreement (incorporated herein by reference to the Registrant’s Current Report on

Form 8-K filed June 3, 2008, File No. 001-00652).

10.36 Form Restricted Stock Unit Award Agreement (incorporated herein by reference to the Registrant’s Current Report on

Form 8-K filed June 3, 2008, File No. 001-00652).

10.37 Form Stock Appreciation Rights Agreement (incorporated herein by reference to the Registrant’s Current Report on

Form 8-K filed June 3, 2008, File No. 001-00652).

10.38 Form Performance Share Award Agreement (incorporated herein by reference to the Registrant’s Current Report on

Form 8-K filed March 23, 2009, File No. 001-00652).

10.39 Purchase and Sale Agreement, dated July 6, 2006, by and between the Registrant, Deli Universal, Inc., NVDU
Acquisition B.V., and N.V. Deli Universal (incorporated herein by reference to the Registrant’s Current Report on Form
8-K filed July 11, 2006, File No. 001-00652).

10.4 Form of Amended Employee Grantor Trust Enrollment Agreement dated December 29, 2006, between Universal Leaf
Tobacco Company, Incorporated and named executive officers (Allen B. King, George C. Freeman, III, and Hartwell
H. Roper) (incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed January 5, 2007, File
No. 001-00652).

10.41 Universal Corporation 2007 Amended and Restated Stock Incentive Plan effective August 4, 2011 (incorporated herein

by reference to Exhibit A to the Registrant’s definitive proxy statement filed June 30, 2011, File No. 001-00652).

10.42 Universal Corporation Executive Officer Annual Incentive Plan, as amended (incorporated herein by reference to the

Registrant's definitive proxy statement filed June 25, 2009, File No. 001-00652).

10.43 Form of Universal Corporation 2010 Restricted Stock Agreement with Schedule of Awards to named executive officers
(incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended March 31, 2010,
File No. 001-00652).

10.44 Form of Universal Corporation Stock Appreciation Rights Agreement for executive officers (incorporated herein by

reference to the Registrant's Annual Report on Form 10-K for the year ended March 31, 2010, File No. 001-00652).

10.45 Form of Universal Corporation Performance Share Award Agreement (incorporated herein by reference to the

Registrant's Annual Report on Form 10-K for the year ended March 31, 2010, File No. 001-00652).

10.46 Universal Leaf Tobacco Company, Incorporated Deferred Income Plan III, amended and restated as of December 31,
2008 (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended March 31,
2010, File No. 001-00652).

10.47 Universal Corporation Outside Directors' Deferred Income Plan III, amended and restated as of December 31, 2008,
and amended as of February 1, 2010 (incorporated herein by reference to the Registrant's Annual Report on Form 10-
K for the year ended March 31, 2010, File No. 001-00652).

10.48 Form of Universal Corporation 2011 Restricted Stock Units Agreement (incorporated herein by reference to the

Registrant's Annual Report on Form 10-K for the year ended March 31, 2011, File No. 001-00652).

10.49 Form of Universal Corporation Stock Appreciation Rights Agreement for executive officers (incorporated herein by

reference to the Registrant's Annual Report on Form 10-K for the year ended March 31, 2011, File No. 001-00652).

10.50 Form of Universal Corporation Performance Share Award Agreement (incorporated herein by reference to the

Registrant's Annual Report on Form 10-K for the year ended March 31, 2011, File No. 001-00652).

10.51 Plea Agreement between Universal Leaf Tobacos Ltda., Universal Corporation and the United States Department of
Justice (incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed August 6, 2010, File
No. 001-00652).

10.52 Non-Prosecution Agreement between Universal Corporation and the United States Department of Justice (incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed August 6, 2010, File No. 001-00652).

10.53 Consent of Defendant Universal Corporation and Final Judgment as to Defendant Universal Corporation (incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed August 6, 2010, File No. 001-00652).

10.54 Credit Agreement dated November 3, 2011, among the Registrant, as Borrower; the Lenders from time to time party
thereto; and JPMorgan Chase Bank, N.A., as Administrative Agent, SunTrust Bank, as Syndication Agent and AgFirst
Farm Credit Bank and The Royal Bank of Scotland plc as Co-Documentation Agents (incorporated herein by reference
to the Registrant's Current Report on Form 8-K filed November 8, 2011).

12 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preference Dividends.*

21 Subsidiaries of the Registrant.*

23 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.*

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

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

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

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

101

Interactive Data File (Annual Report on Form 10-K, for the fiscal year ended March 31, 2012, furnished in XBRL
(eXtensible Business Reporting Language)).

Attached as Exhibit 101 to this report are the following documents formatted in XBRL: (i) the Consolidated Statements
of Income for each of the three years ended March 31, 2012, 2011 and 2010, (ii) the Consolidated Statements of
Comprehensive Income for each of the three years ended March 31, 2012, 2011 and 2010, (iii) the Consolidated Balance
Sheets at March 31, 2012 and 2011, (iv) the Consolidated Statement of Cash Flows for each of the three years ended
March 31, 2012, 2011 and 2010, (v) the Consolidated Statement of Shareholders’ Equity for each of the three years
ended March 31, 2012, 2011 and 2010, (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text
and (vii) Schedule II - Valuation and Qualifying Accounts, tagged as blocks of text. Users of this data are advised
pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration
statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes
of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

_________

* Filed herewith.

100

S H A R E H O L D E R I N F O R M A T I O N

A N N U A L M E E T I N G

The Annual Meeting of Shareholders will be held
at the ofﬁ ces of the Company, 9201 Forest Hill
Avenue, Richmond, Virginia, on Tuesday, August
7, 2012. A proxy statement and request for proxies
are included in this mailing to shareholders.

S T O C K L I S T E D

New York Stock Exchange

S T O C K S Y M B O L

UVV

D I V I D E N D R E I N V E S T M E N T P L A N

The Company offers to its common shareholders
an automatic dividend reinvestment and cash
payment plan to purchase additional shares. The
Company bears all brokerage and service fees.
Booklets describing the plan in detail are available
upon request.

T R A N S F E R A G E N T A N D
R E G I S T R A R A N D D I V I D E N D

R E I N V E S T M E N T P L A N A G E N T

Wells Fargo Bank, N.A.
Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
(800) 468-9716
or
Universal Corporation
Shareholder Services
(804) 359-9311

I N D E P E N D E N T A U D I T O R S

Ernst & Young LLP
The Edgeworth Building
Suite 201, 2100 East Cary Street
Richmond, Virginia 23223

I N V E S T O R R E L A T I O N S

Contact:
Candace C. Formacek
Vice President and Treasurer

Jennifer S. Rowe
Assistant Vice President, Capital Markets
(804) 359-9311
Information Requests:
(804) 254-1813 or investor@universalleaf.com

D I V I D E N D P A Y M E N T S

Dividend declarations are subject to approval by
the Company’s Board of Directors. Dividends on
the Company’s common stock have traditionally
been paid quarterly in February, May, August,
and November to shareholders of record on the
second Monday of the previous month.

S E C F O R M 1 0 - K

Shareholders may obtain additional copies of the
Company’s annual report to the Securities and
Exchange Commission on its website or by writing
to the Treasurer of the Company.

P.O. Box 25099
Richmond, VA. 23260