Universal (UVV) 8-K Universal Corporation Expects Improved Results for Fiscal Year 2003

[Universal Corporation Logo]

P.O. Box 25099 Richmond, VA 23260    ¨    phone: (804) 359-9311    ¨    fax (804) 254-3594

PRESS RELEASE

CONTACT	RELEASE
Karen M. L. Whelan Phone: (804) 359-9311 Fax:      (804) 254-3594 Email:   investor@universalleaf.com	Immediately

Universal Corporation Expects Improved Results for Fiscal Year 2003

Richmond, VA, May 6, 2003 / PRNEWSWIRE

Allen B. King, President and Chief Executive Officer of Universal Corporation (NYSE:UVV), announced today that the Company’s earnings for fiscal year 2003 are expected to be better than previously anticipated, despite a lower third quarter.

Net income for the third quarter of fiscal year 2003 was $23.8 million, or $.94 per diluted share, compared to $33.1 million, or $1.26 per diluted share, in the third quarter of fiscal year 2002. For the nine months, net earnings were $79.0 million, or $3.08 per diluted share, compared to $90.5 million, or $3.38 per diluted share a year ago. Results for the nine-month period include $14.8 million in restructuring charges before taxes, $9.5 million after taxes, related to the consolidation of U.S. operations.

Revenues were $594 million in the quarter and $2 billion for the first nine months of fiscal year 2003 compared to $547 million and $1.9 billion, respectively, in the comparable periods of fiscal year 2002.

Tobacco segment operating income of about $54 million was lower in the quarter reflecting a decline in shipments from a number of origins including the United States and Europe, and from our Oriental joint venture. Despite higher sales of South American tobacco during the quarter, margins were lower resulting in a decline in comparable period earnings from sales of that origin’s tobacco. Results for the nine months of $166.4 million lagged last year’s levels by $3.4 million, primarily as a result of the significant decline in African shipments and lower old crop Oriental leaf sales. South American volumes were up sharply for the nine months, with large volume increases recorded in both Brazil and Argentina. Strong demand for Brazilian leaf continues to be driven by efforts by manufacturers to replace volumes lost in Zimbabwe due to the continuing political turmoil in that country. Argentine leaf has become more attractive in world markets as a result of the devaluation of the peso. Dark tobacco leaf sales were lower both in the quarter and in the nine months reflecting lower volumes in both periods.

—MORE—

Universal Corporation

Page 2

Lumber and building products segment operating income was down by about $1.7 million in the quarter and $1.5 million for the nine months as construction activity continued to be negatively impacted by the sluggish Dutch economy. However, the benefit from the weaker dollar in both periods significantly helped to alleviate a decline in the earnings of these operations on translation to the U.S. dollar. Agri-products results were also lower by $400 thousand for the quarter and by $1.4 million for the year to date due to unfavorable market conditions for tea and canned meats. This was partially offset by a good performance in nuts and dried fruit. Confectionery sunflower seeds experienced higher sales volumes in the quarter, but continued to be down for the nine months.

“So far, the year has developed much as we had expected with the Company facing significant challenges in a number of areas,” Mr. King noted. “One of these has clearly been the streamlining and consolidation of U.S. operations where a $14.8 million before-tax charge has been incurred to right-size our U.S. operations to be able to compete effectively in the U.S. market. As we have said before, U.S. crops will continue to decline as customers continue to seek more competitively priced leaf supplies in other areas where we have operations. U.S. leaf can only become competitive in the world market if the archaic and ineffective U.S. tobacco program undergoes major surgery. While there are a number of legislative proposals now circulating that would modify the program, and in some cases, even eliminate it, no consensus has yet emerged, raising questions as to the likelihood of needed congressional action in the near future. Zimbabwe continues to be a challenge. We are in the process of restructuring our operations there in response to expectations of smaller crops in the future and will take a charge of about $12.5 million before tax, or $6.5 million after taxes and minority interests, in our fourth quarter.”

Mr. King stated further, “The Company expects to recognize a fourth quarter gain of about $17 million, or approximately $12 million after minority interests, on remeasurement of local currency debt in the African region, resulting from government adjustment of the export exchange rate. This gain will not be taxable in the country of origin. Consistent with Company policy, there will be no provision for U.S. income taxes on the gain. Consequently, the Company expects its overall effective tax rate to be unusually low in fiscal year 2003 at approximately 32%. We are unable to estimate at this time the Company’s overall effective tax rate in fiscal year 2004, except the rate should return to 36%, at a minimum. Difficult conditions continue for a number of our agri-product operations and for our lumber and building products distribution companies, which are affected by the soft economy in Europe, particularly in The Netherlands. However, we are pleased with the results of these operations this year given the very tough environment. We have experienced very strong sales of tobacco from Brazil and Argentina resulting in a very positive contribution to earnings. We remain confident that our strategy is working and that management is dealing effectively with the many challenges we face. We are looking forward to a good fourth quarter and expect net income for the full year to range between $110 million and $115 million, compared to $106.7 million last year.”

The Company cautions readers that any statements contained herein regarding earnings and expectations for its performance are forward-looking statements based upon management’s current knowledge and assumptions about future events, including anticipated levels of demand for and supply of the Company’s products and services; costs incurred in providing these products and services; timing of shipments to customers; changes in market structure;

—MORE—

Universal Corporation

Page 3

and general economic, political, market, and weather conditions. Lumber and building products earnings are also affected by changes in exchange rates between the U.S. dollar and the euro. Actual results, therefore, could vary from those expected. For more details on important factors that could cause actual results to differ from its expectations, see Item 1, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7, and Notes to the Consolidated Financial Statements in Item 8 of the Company’s Annual Report on Form 10-K for the year ended June 30, 2002, as filed with the Securities and Exchange Commission.

At 8:30 a.m. (Eastern Time) on May 7, 2003, the Company will host a conference call to discuss these results. Those wishing to listen to the call may do so by visiting www.universalcorp.com at that time. A replay of the call will also be available for seven days at this web site or by dialing 888-707-8786.

Universal Corporation (NYSE: UVV) is a diversified company with operations in tobacco, lumber, and agri-products. Its gross revenues for the fiscal year that ended on June 30, 2002, were approximately $2.5 billion. For more information, visit Universal’s web site at www.universalcorp.com.

—MORE—

Universal Corporation

Page 4

UNIVERSAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

Three and Nine Months Ended March 31, 2003 and 2002

(In thousands of dollars, except per share data)

	THREE MONTHS				NINE MONTHS
	2003		2002		2003			2002
Sales and other operating revenues	$	593,836	$	547,073	$	1,959,690		$	1,907,725
Costs and expenses
Cost of goods sold		475,090		419,407		1,577,305			1,528,570
Selling, general and administrative expenses		69,887		69,450		212,028			205,794
Restructuring costs		1,279		0		14,777			0
Operating Income		47,580		58,216		155,580			173,361
Equity in pretax earnings of unconsolidated affiliates		5,581		8,168		5,675			9,711
Interest expense		12,029		11,577		34,311			37,495
Income before income taxes and other items		41,132		54,807		126,944			145,577
Income taxes		14,602		19,182		45,065			50,952
Minority interests		2,745		2,511		2,874			4,091
Net Income	$	23,785	$	33,114	$	79,005		$	90,534
Earnings per common share	$	0.95	$	1.26	$	3.09		$	3.39
Diluted earnings per share	$	0.94	$	1.26	$	3.08		$	3.38
Retained earnings—beginning of period					$	569,059		$	540,546
Net income						79,005			90,534
Cash dividends declared ($1.06–2003, $1.00–2002)						(26,831	)		(26,501	)
Purchase of common stock, net of shares issued						(46,104	)		(38,242	)
Retained earnings—end of period					$	575,129		$	566,337

See accompanying notes.

—MORE—

Universal Corporation

Page 5

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	March 31, 2003		March 31, 2002		June 30, 2002
ASSETS
Current
Cash and cash equivalents	$	48,610	$	61,836	$	58,003
Accounts receivable		311,232		248,173		301,197
Advances to suppliers		139,993		92,788		53,684
Accounts receivable—unconsolidated affiliates		6,183		7,675		5,647
Inventories—at lower of cost or market:
Tobacco		530,876		507,136		453,417
Lumber and building products		137,480		76,690		80,848
Agri-products		73,184		79,558		83,634
Other		25,195		22,207		32,103
Prepaid income taxes		14,846		12,393		6,297
Deferred income taxes		11,552		8,030		5,945
Other current assets		23,311		18,252		24,262
Total current assets		1,322,462		1,134,738		1,105,037
Property, plant and equipment—at cost
Land		35,265		26,593		27,214
Buildings		281,955		247,281		252,831
Machinery and equipment		654,930		545,186		565,414
		972,150		819,060		845,459
Less accumulated depreciation		482,142		442,181		452,963
		490,008		376,879		392,496
Other assets
Goodwill		121,333		117,330		117,939
Other intangibles		5,725		10,035		7,330
Investments in unconsolidated affiliates		91,126		81,761		89,762
Deferred income taxes		36,482		38,795		45,346
Other noncurrent assets		88,495		89,838		86,505
		343,161		337,759		346,882
	$	2,155,631	$	1,849,376	$	1,844,415
See accompanying notes.

—MORE—

Universal Corporation

Page 6

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	March 31, 2003			March 31, 2002			June 30, 2002
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Notes payable and overdrafts	$	355,116		$	175,840		$	126,798
Accounts payable		296,407			249,239			288,741
Accounts payable—unconsolidated affiliates		5,573			2,720			10,153
Customer advances and deposits		103,726			92,218			83,528
Accrued compensation		20,383			18,463			24,444
Income taxes payable		32,597			37,522			15,353
Current portion of long-term obligations		83,385			120,335			124,414
Total current liabilities		897,187			696,337			673,431
Long-term obligations		498,680			434,270			435,592
Postretirement benefits other than pensions		39,857			39,213			38,666
Other long-term liabilities		63,955			75,017			63,791
Deferred income taxes		18,550			2,581			16,640
Minority interests		27,084			27,883			28,300
Shareholders’ equity
Preferred stock, no par value, authorized 5,000,000 shares, none issued or outstanding
Common stock, no par value, authorized 100,000,000 shares, 24,893,354 issued and outstanding shares (26,224,954 at June 30, 2002)		87,035			84,016			90,157
Retained earnings		575,129			566,337			569,059
Accumulated other comprehensive income		(51,846	)		(76,278	)		(71,221	)
Total shareholders’ equity		610,318			574,075			587,995
	$	2,155,631		$	1,849,376		$	1,844,415
See accompanying notes.

—MORE—

Universal Corporation

Page 7

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended March 31, 2003 and 2002

(In thousands of dollars)

	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	79,005		$	90,534
Depreciation		34,000			37,000
Amortization		4,000			4,000
Other adjustments to reconcile net income to net cash provided by operating activities		12,000			8,000
Changes in operating assets and liabilities		(156,398	)		(51,238	)
Net cash provided (used) by operating activities		(27,393	)		88,296
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(87,000	)		(79,000	)
Purchase of business, net of cash acquired		(69,000	)		(14,000	)
Net cash used in investing activities		(156,000	)		(93,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net		228,000			(15,000	)
Issuance of long-term debt		144,000			38,500
Repayment of long-term debt		(122,000	)		—
Purchases of common stock, net		(49,000	)		(40,000	)
Dividends paid		(27,000	)		(26,500	)
Net cash provided (used) in financing activities		174,000			(43,000	)
Net decrease in cash and cash equivalents		(9,393	)		(47,704	)
Cash and cash equivalents at beginning of year		58,003			109,540
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	48,610		$	61,836

See accompanying notes.

—MORE—

Universal Corporation

Page 8

NOTES

1). Universal Corporation, with its subsidiaries (the “Company” or “Universal”), has operations in tobacco, lumber and building products, and agri-products. Because of the seasonal nature of these businesses, the results of operations for the quarter and nine months ended March 31, 2003, are not necessarily indicative of results to be expected for the year ending June 30, 2003. All adjustments necessary to state fairly the results for such periods have been included and were of a normal recurring nature. Certain amounts in prior year statements have been reclassified to conform to the current year presentation. Such reclassifications are not material to the Company’s results.

2). Guarantees and other contingent liabilities: The Company has adopted Financial Accounting Standards Board Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The adoption of FAS Interpretation No. 45 did not have a material impact on the Company’s financial statements. Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are industry practice in Brazil and support the farmers’ production of tobacco there. At March 31, 2003, total exposure under subsidiaries’ guarantees issued for banking facilities of Brazilian farmers was approximately $75.8 million. About 60% of these guarantees expire within one year, and the remainder expire within 5 years. The Company withholds payments due to the farmer on delivery of tobacco and forwards those payments to the third-party bank. Failure of farmers to deliver sufficient quantities of tobacco to the Company to cover their obligations to third-party banks could result in a liability for the Company; however, in that case, the Company would have recourse against the farmers.

Other contingent liabilities total approximately $15.1 million and include value-added tax payments that would be required if subsidiaries fail to export tobacco. They also include bid and performance bonds.

The Company considers the possibility of a material loss on any of the guarantees and other contingencies to be remote, and the accrual recorded for exposure under them was not material at March 31, 2003.

If the political situation in Zimbabwe were to deteriorate significantly, the Company’s ability to recover its assets there could be impaired. The Company’s equity in its net assets of subsidiaries in Zimbabwe was $41 million at March 31, 2003.

3). On February 26, 2001, Universal Leaf Tobacco Company, Incorporated, J.P. Taylor Company, Incorporated, and Southwestern Tobacco Company, Incorporated, who were subsidiaries of Universal Corporation at that time (the “Company Subsidiaries”), were served with the Third Amended Complaint, naming them and other leaf tobacco merchants as defendants inDeLoach, et al. v. Philip Morris Inc., et al., a suit originally filed against U.S. cigarette manufacturers in the United States District Court for the District of Columbia and now pending in the United States District Court for the Middle District of North Carolina, Greensboro Division (Case No. 00-CV-1235) (the “DeLoach Suit”). The DeLoach Suit is a class action brought on behalf of U.S. tobacco growers

—MORE—

Universal Corporation

Page 9

and quota holders that alleges that the defendants violated antitrust laws by bid-rigging at tobacco auctions and by conspiring to undermine the tobacco quota and price support program administered by the federal government. Plaintiffs seek injunctive relief, trebled damages in an unspecified amount, pre- and post-judgment interest, attorneys’ fees, and costs of litigation. On April 3, 2002, the United States District Court for the Middle District of North Carolina issued an opinion and order certifying the class. The Company Subsidiaries petitioned the U.S. Court of Appeals for the Fourth Circuit for appeal of the class certification pursuant to Rule 23(f) of the Federal Rules of Civil Procedure, and the petition was denied. Trial is currently scheduled for April, 2004. The Company Subsidiaries intend to vigorously defend the DeLoach Suit. The suit is still in its initial stages, and at this time, no estimate can be made of the impact on the Company that could result from an unfavorable outcome at trial.

The Directorate General—Competition of the European Commission (“DG Comp”) is investigating the buying practices of Spanish tobacco processors with the stated aim of determining to what extent the tobacco processing companies have jointly agreed on raw tobacco qualities and prices offered to Spanish tobacco growers. After conducting an investigation, the Company believes that Spanish tobacco processors, including the Company’s Spanish subsidiary, Tabacos Espanoles, S.A. (“TAES”), have jointly agreed to the terms of sale of green tobacco and quantities to be purchased from associations of farmers and have jointly negotiated with those associations. TAES is cooperating fully with the DG Comp in its investigation and believes that there are unusual, mitigating circumstances peculiar to the highly structured market for green tobacco in Spain. At this time, no estimate can be made of the amount or timing of the fine, if any, that the DG Comp may assess on TAES.

4). During the quarter, the Company recorded a $1.3 million restructuring charge associated with continued consolidation of U.S. tobacco operations. The charge was to record the severance cost associated with approximately 940 seasonal production employees and two full time production employees. For the nine-month period, the Company recorded approximately $14.8 million in restructuring charges. During the three- and nine-month periods ended March 31, 2003, the Company paid approximately $600 thousand and $2.5 million, respectively, associated with the plan, to 32 employees.

Changes in severance liabilities are shown below:

Severance Liabilities (in millions of dollars)	2003			2002
Balance as of June 30	$	2.0		$	6.3
Restructuring charges		14.8			—
Payments		(2.5	)		(4.2	)
Balance as of March 31	$	14.3		$	2.1

5). During the current quarter, the Company adopted Statement of Financial Accounting Standard No. 148, “Accounting for Stock-based Compensation—Transition and Disclosure.” This statement amended Statement No. 123, “Accounting for Stock-Based Compensation.” As permitted under Statement No. 123, the Company continues to

—MORE—

Universal Corporation

Page 10

apply the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” As required under Statement No. 148, the following table presents pro forma net income and basic and diluted earnings per share as if the fair value-based method had been applied to all awards.

	THREE MONTHS				NINE MONTHS
Periods ended March 31,	2003		2002		2003		2002
Net income (in thousands of dollars)	$	23,785	$	33,114	$	79,005	$	90,534
Stock-based employee compensation cost, net of tax effect, under fair value accounting		1,646		1,360		1,646		1,360
Pro forma net income under fair value method	$	22,139	$	31,754	$	77,359	$	89,174
Earnings per share—basic	$	0.95	$	1.26	$	3.09	$	3.39
Per share stock-based employee compensation cost, net of tax effect, under fair value accounting		0.07		0.05		0.06		0.05
Pro forma earnings per share—basic	$	0.88	$	1.21	$	3.03	$	3.34
Earnings per share—diluted	$	0.94	$	1.26	$	3.08	$	3.38
Per share stock-based employee compensation cost, net of tax effect, under fair value accounting		0.07		0.05		0.06		0.05
Pro forma earnings per share—diluted	$	0.87	$	1.21	$	3.02	$	3.33

The Black-Scholes option valuation model was used to estimate the fair value of the options granted in the quarter and the nine months ending March 31, 2003, and 2002. The model includes subjective input assumptions that can materially affect the fair value estimates. The model was developed for use in estimating the fair value of traded options that have no vesting restrictions and that are fully transferable. For example, the expected volatility is estimated based on the most recent historical period of time equal to the weighted average life of the options granted. Options issued under the Company’s option plans have characteristics that differ from traded options. In management’s opinion, this valuation model does not necessarily provide a reliable single measure of the fair value of its employee stock options. Principal assumptions used in applying the Black-Scholes model along with the results from the model were as follows:

—MORE—

Universal Corporation

Page 11

Periods ended March 31,	2003			2002
Assumptions:
Risk-free interest rate		3.30	%		2.53	%
Expected life, in years		5.18			1.79
Expected volatility		0.307			0.310
Expected dividend yield		3.79	%		3.59	%
Results:
Fair value of options granted	$	7.12		$	5.13

6). The following table sets forth the computation of earnings per share and diluted earnings per share.

	THREE MONTHS				NINE MONTHS
Periods ended March 31,	2003		2002		2003		2002
Net income (in thousands of dollars)	$	23,785	$	33,114	$	79,005	$	90,534
Denominator for earnings per share:
Weighted average shares		25,113,927		26,303,870		25,601,522		26,683,863
Effect of dilutive securities:
Employee stock options		90,871		69,969		58,591		105,956
Denominator for diluted earnings per share		25,204,798		26,373,839		25,660,113		26,789,819
Earnings per share	$	0.95	$	1.26	$	3.09	$	3.39
Diluted earnings per share	$	0.94	$	1.26	$	3.08	$	3.38

7). Comprehensive Income:

	THREE MONTHS					NINE MONTHS
Periods ended March 31,	2003		2002			2003		2002
(in thousands of dollars)
Net income	$	23,785	$	33,114		$	79,005	$	90,534
Foreign currency translation adjustment		7,791		(4,464	)		19,375		(2,279	)
Comprehensive income	$	31,576	$	28,650		$	98,380	$	88,255

—MORE—

Universal Corporation

Page 12

8). Segments are based on product categories. The Company evaluates performance based on segment operating income and equity in pretax earnings of unconsolidated affiliates.

	THREE MONTHS				NINE MONTHS
Periods ended March 31,	2003		2002		2003		2002
(in thousands of dollars)
SALES AND OTHER OPERATING REVENUES
Tobacco	$	361,200	$	331,143	$	1,218,957	$	1,197,780
Lumber/building products		128,916		120,727		412,250		387,544
Agri-products		103,720		95,203		328,483		322,401
Consolidated total	$	593,836	$	547,073	$	1,959,690	$	1,907,725
OPERATING INCOME
Tobacco	$	53,928	$	63,792	$	166,398	$	169,797
Lumber/building products		3,032		4,714		16,889		18,407
Agri-products		2,580		2,985		8,936		10,313
Total segment operating income		59,540		71,491		192,223		198,517
Less:
Corporate expenses		5,100		5,107		16,191		15,445
Restructuring costs		1,279				14,777		—
Equity in pretax earnings of unconsolidated affiliates		5,581		8,168		5,675		9,711
Consolidated total	$	47,580	$	58,216	$	155,580	$	173,361

9). Subsequent event:

In its fourth quarter, the Company will take a charge of $12.5 million before taxes, or $6.5 million after taxes and minority interests, because it is in the process of restructuring its operations in Zimbabwe in response to expectations of smaller crops there in the future.

In addition, the Company expects to recognize a fourth quarter gain of about $17 million, or approximately $12 million after minority interests, on remeasurement of local currency debt in the African region, resulting from government adjustment of the export exchange rate. This gain will not be taxable in the country of origin. Consistent with Company policy, there will be no provision for U.S. income taxes on the gain. Consequently, the Company expects its overall effective tax rate to be unusually low in fiscal year 2003 at approximately 32%. We are unable to estimate at this time the Company’s overall effective tax rate in fiscal year 2004, except the rate should return to 36%, at a minimum.

###