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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

For the Period Ended September 30, 2002

OR

For the Transition Period From                  to               

Commission file number 1-652

Registrant’s telephone number, including area code - (804) 359-9311

Yes x No o

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock as of the latest practicable date:

Common Stock, no par value – 25,736,471 shares outstanding as of November 6, 2002

Universal Corporation and Subsidiaries
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended September 30, 2002 and 2001
(In thousands of dollars, except per share data)

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Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)

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Universal Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)

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Universal Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended September 30, 2002 and 2001
(In thousands of dollars)

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Universal Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002

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Liquidity and Capital Resources

Working capital at September 30, 2002, was $534 million compared to $432 million at June 30, 2002. The increase in working capital was the result of an increase in current assets of $206 million, primarily from a seasonal increase in tobacco inventories, net of a $104 million increase in current liabilities. In the United States, tobacco working capital needs are normally at their lowest point at June 30. Tobacco inventories increased during the quarter in Italy, Malawi and the United States as tobacco was purchased from farmers and at auction. The purchased tobacco is financed with notes payable, customer deposits and long-term obligations. The mix of notes payable and customer advances is dependent on both the Company’s and its customers’ borrowing capabilities, interest rates, and exchange rates. The Company does not purchase material quantities of tobacco on a speculative basis; thus the increase in inventory represents primarily tobacco that has been committed to customers.

Total long-term obligations, including current maturities, increased by $72 million during the quarter to $632 million. During the quarter, the Company borrowed $13 million on its secured, multi-draw, $75 million term loan facility. In addition, $60 million in fixed-rate notes were issued during the quarter. The notes were issued with maturity dates ranging from five to ten years and with interest rates ranging from approximately 5.1% to 6.1%. The increase in long-term obligations was used to finance the Company’s investment in U.S. facilities and to address working capital needs.

Universal Corporation announced on October 16, 2002 that its Dutch subsidiary, N.V. Deli Universal (Deli), reached an agreement in principle to acquire Willemstein’s Industriele Ondernemingen BV (JéWé), a leading producer and distributor of lumber and building products to the do-it-yourself (DIY) market. The transaction is subject to completion of a definitive purchase agreement. When the transaction has been completed, the Company expects to have additional funds employed of approximately €80 million ($79 million), which includes the purchase price. The transaction is expected to close in January 2003 and will be funded from operating cash flow and borrowings.

Generally, the Company’s international tobacco operations conduct business in U.S. dollars, thereby limiting foreign exchange risk to local production and overhead costs. Agri-products and lumber operations enter into foreign exchange contracts to hedge firm purchase and sales commitments for terms of less than six months. Interest rate risk is limited because customers in the tobacco business usually pre-finance purchases or pay market rates of interest for inventory purchased for their accounts.

In May 1998, Universal’s Board of Directors approved a share purchase program that has since been expanded to permit the purchase of up to $450 million of the Common Stock of the Company. The purchases are carried out from time to time on the open market or in privately negotiated transactions at prices not exceeding prevailing market prices. The purchases have been, and are expected to be, funded primarily from operating cash flow of the Company. At September 30, 2002, Universal had approximately 25.9 million common shares outstanding and had purchased approximately 10.9 million shares of its Common Stock for about $310 million pursuant to the program.

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The liquidity and capital resources of the Company at September 30, 2002, remain adequate to support the Company’s foreseeable operating needs.

Results of Operations

‘Sales and Other Operating Revenues’ were $657 million in the first quarter of fiscal year 2003, 7% higher than in the prior year’s comparable quarter. Tobacco revenues increased by $26 million; lumber and building products revenues rose by $17 million; and agri-products revenues decreased by $2 million. Tobacco revenue increased due to a 64% increase in tobacco shipments from Brazil. Brazilian shipments rose over the comparable period last year, reflecting, in part, acceleration of shipments by customers and larger purchases as well as sales from the record flue-cured and burley crops in Brazil. Shipments from Africa in the quarter were down, reflecting lower sales of carryover tobacco. In last year’s first quarter, there were significant carryover sales from both Zimbabwe and Malawi that were not repeated during the first quarter of fiscal year 2003. Sales of the Company’s lumber and building operations increased by 13% in part aided by a 10.8% strengthening of the euro against the U.S. dollar during the quarter compared to last year. Lower sales through the regional outlets and to the wholesale and professional sectors were offset by improved sales to the do-it-yourself (“DIY”) outlets, primarily due to an acquisition made last year.

Fiscal year 2003 segment operating income in the first quarter increased by $10 million or 17% compared to the same period last year. Tobacco earnings for the quarter were $11 million higher than the prior year’s first quarter due to increased shipments to customers of tobaccos from Brazil.

The current quarter includes a $13.5 million before-tax restructuring charge related to the consolidation and streamlining of U.S. operations.

Non-tobacco earnings were below last year’s levels in the quarter. Operating earnings declined in the lumber and building products segment due to higher personnel costs caused by wage increases under industry-wide labor contracts. In addition, earnings were negatively affected by the continuing economic malaise in the Netherlands and Belgium and sharply lower construction activities in those countries. Agri-products results were lower as a result of reduced sales of confectionery sunflower seeds, resulting from short U.S. crops and high raw crop prices. Excellent results from record sales of nuts and dried fruits more than offset declines in rubber, tea, and canned meats.

Interest expense decreased for the quarter due to lower interest rates. The Company’s estimated effective tax rate in fiscal year 2003 increased slightly from the prior year’s annual rate to 35.5%.

For the year, the combined Brazilian flue-cured and burley crops are up 26% over the previous year. However, the Zimbabwe crops, which are normally shipped later in the fiscal year, are lower. Management expects the increase in the Brazilian crops to more than offset the decline in Zimbabwe for the fiscal year, and with increases in other African countries, should, over the next several years, cover significant Zimbabwe declines projected for the future. With the planned closure of the Wilson, North Carolina, factory later this fiscal year, and its replacement in the summer of 2003 by the new Nash County processing center, management believes that the Company’s U.S. operations will be more appropriately sized to reflect the reality of the U.S. market. Without major changes in the federal tobacco price support program, U.S. production

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is likely to continue its declining trend. The state-of-the art technology in the Company’s Nash County and Danville processing centers should provide the efficiencies necessary to operate profitably in this environment.

For the year, the Company expects to benefit from handling larger leaf volumes in a number of origins that are important to the Company. These include Brazil, Malawi and several other African countries. However, challenges remain in Zimbabwe where the situation is still chaotic and plantings of the new crop, which will be marketed in fiscal year 2004, are expected to be down significantly; and in Argentina, where the financial and economic crisis is ongoing, although currency devaluation in that country may create export opportunities. The improvement of the euro has benefited our Dutch lumber operations, but the continuing economic slowdown in the Netherlands, coupled with pressures from higher wages, indicate somewhat lower results for the full year, compared to last year. The outlook for a number of our agri-product companies also remains uncertain at this time. Despite this very challenging environment, the Company is confident that it will generate another year of very solid earnings in fiscal year 2003. The Company’s current projections for the full year are for earnings, before restructuring charges, to be at least comparable to last year’s levels.

On October 16, 2002, Universal announced that its Dutch subsidiary, N.V. Deli Universal (Deli), reached an agreement in principle to acquire JéWé, a leading producer and distributor of lumber and building products to the growing European DIY market. The transaction, which is scheduled to close in January 2003, is projected to meet the Company’s financial requirements and is expected to be accretive to earnings in the Company’s fourth fiscal quarter. JéWé’s product line is largely complementary to Deli’s existing DIY operations, and the Company anticipates sales of about €130 million ($128 million) in 2002.

Readers are cautioned that the statements contained herein regarding expected earnings and expectations for the Company’s 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, 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. Reference is made to Items 1 and 7 and the Notes to the Consolidated Financial Statements in Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002, regarding important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company, including forward-looking statements contained in Item 2 of this Form 10-Q.

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On February 26, 2001, Universal Leaf Tobacco Company, Incorporated, J.P. Taylor Company, Incorporated and Southwestern Tobacco Company, Incorporated, who are subsidiaries of Universal Corporation (the “Company Subsidiaries”), were served with the Third Amended Complaint, naming them and other leaf tobacco merchants as defendants in DeLoach, et al. v. Philip Morris Inc., et al., a suit originally filed against U.S. cigarette manufacturers in the United States District Court for the District of Columbia and now pending in the United States District Court for the Middle District of North Carolina, Greensboro Division (Case No. 00-CV-1235) (the “DeLoach Suit”). The DeLoach Suit is a class action brought on behalf of U.S. tobacco growers and quota holders that alleges that defendants violated antitrust laws by bid-rigging at tobacco auctions and by conspiring to undermine the tobacco quota and price support program administered by the federal government. 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 of the impact on the Company that could result from an unfavorable outcome at trial can be made.

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. Although the fine, if any, that the DG Comp may assess on TAES could be material to the Company’s earnings, the Company is not able to make an accurate assessment of the amount or timing of any such fine at this time.

The Company is also aware that the DG Comp is investigating certain practices of tobacco leaf dealers in Italy. The Company has a subsidiary, Deltafina S.p.A., that buys and processes tobacco in Italy. At this time, the Company does not believe that the DG Comp investigation in Italy will result in fines being assessed against it or its subsidiaries that would be material to the Company’s earnings.

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Within the 90-day period prior to the filing of this report, the Company carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined by Rule 13a-14(c) under the Securities Exchange Act of 1934) under the supervision and with the participation of the Company’s chief executive officer and chief financial officer. Based on and as of the date of such evaluation, the aforementioned officers have concluded that the Company’s disclosure controls and procedures were effective.

The Company also maintains a system of internal accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with management’s authorization and properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel and an internal audit program to monitor its effectiveness. During the first quarter of fiscal year 2003, there were no significant changes to this system of internal controls or in other factors that could significantly affect those controls.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REGARDING UNIVERSAL
CORPORATION’S QUARTERLY REPORT ON FORM 10-Q FOR
THE PERIOD ENDED SEPTEMBER 30, 2002

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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REGARDING UNIVERSAL
CORPORATION’S QUARTERLY REPORT ON FORM 10-Q FOR
THE PERIOD ENDED SEPTEMBER 30, 2002