ITEM 1. BUSINESS
A. The Company
Universal Corporation (which together with its subsidiaries is referred to herein as "Universal" or the "Company") is the world's largest independent leaf tobacco merchant and has additional operations in agri-products and lumber and building products. Universal's tobacco operations have been the principal focus of the Company since its founding in 1918, and for the fiscal year ended June 30, 1995, such operations accounted for 70% of revenues and 75% of operating profits. Its agri-products and lumber and building products operations accounted for 14% and 16% of revenues and 9% and 16% of operating profits, respectively, during the same period. See Note 4 to Consolidated Financial Statements for additional business segment and geographical information.
B. Description of Tobacco Business
General
Universal's tobacco business involves selecting, buying, shipping, processing,
packing, storing and financing leaf tobacco in the United States and other tobacco growing countries for the account of, or for resale to, manufacturers of tobacco products throughout the world. Universal does not manufacture cigarettes or other consumer tobacco products. Most of its tobacco revenues are derived from sales of processed tobacco and from fees and commissions for specific services for its customers.
Timely and efficient processing of leaf tobacco is a service of continuing importance to the Company's customers, the tobacco product manufacturers, as the quality of the Company's finished product substantially affects the cost and quality of the manufacturer's production. The Company's processing includes grading in the factories, blending, separation of leaf lamina from the stems and packing to precise moisture targets for proper aging. To accomplish these tasks according to exacting customer specifications requires considerable skill and significant investment in plants and machinery.
The Company's sales are predominantly flue-cured and burley tobaccos. Universal estimates that in fiscal 1995 it purchased or processed approximately 38% of the flue-cured and burley tobacco produced in the aggregate in the United States, Brazil, Zimbabwe and Malawi. In addition, Universal maintains a presence, and in certain cases a leading presence, in virtually all other tobacco growing regions in the world. Management believes that its leading position in the leaf tobacco industry is based on its broad market presence, its development of processing equipment and technologies, its solid financial position and its ability to meet customer demand through internal growth and selected acquisitions. During the past fiscal year the Company installed a state-of-the-art blending facility in one of its Italian factories as part of an ongoing effort to offer additional services to cigarette manufacturers.
Universal has a leading position in worldwide dark tobacco markets. Its operations are located in the major producing countries (i.e., the United States, the Dominican Republic, Indonesia and northern Brazil) and other smaller markets. These types of tobacco are typically used for cigars and smokeless tobacco products. After decades of sales volume declines, the cigar industry has experienced recent growth particularly in the premium segment of the market.
Although consumption of tobacco products in the United States and certain industrialized countries has been declining, consumption in most developing countries has been rising. Moreover, as a result of the elimination of trade barriers in Far Eastern markets and the opening of markets in Eastern and Central Europe, a significant amount of the world's tobacco markets are open to free trade compared to ten years ago.
Reports and speculation with respect to the alleged harmful physical effects of cigarette smoking, restrictions on the use of tobacco products in public places and in advertising, and increases in sales and excise taxes have all had some adverse effect upon cigarette sales in the U.S. and in certain foreign countries. The U.S. Environmental Protection Agency has classified environmental tobacco smoke as a "Group A" ("known human") carcinogen, which action has been challenged in court by the Company and others. The U.S. Occupational Safety and Health Administration has proposed a standard on indoor air quality which if adopted would substantially limit smoking in the workplace. Federal legislation has been proposed to increase the excise tax on cigarettes, and the U.S. Food and Drug Administration (FDA) is proposing to regulate nicotine as a drug in an effort to deter smoking by minors. The FDA effort has been challenged in the courts. Numerous other legislative and regulatory anti-smoking measures have also been proposed at the federal, state and local levels. It is not possible to predict what, if any, governmental legislation or regulations will be adopted related to tobacco or smoking. However, if any or all of the foregoing were to be implemented, the Company's operating revenues and operating income could be adversely impacted in amounts which cannot be determined.
Litigation seeking damages for health problems and nicotine addiction alleged to have resulted from the use of tobacco is pending against the leading United States manufacturers of consumer tobacco products. It is not possible to predict the outcome of such litigation or what effect adverse determinations against the manufacturers might have on the business of the Company.
Domestic Tobacco Business
Universal is represented by its buyers on all significant tobacco markets in the United States, including flue-cured tobacco markets in Virginia, North Carolina, South Carolina, Georgia and Florida; Light air-cured (burley and Maryland) tobacco markets in Kentucky, Tennessee, Virginia, North Carolina and Maryland; air-cured tobacco markets in Kentucky and Virginia; dark fired and dark air-cured markets in Virginia, Tennessee and Kentucky; and cigar/chewing tobacco markets in Connecticut, Pennsylvania and Wisconsin.
In the United States, flue-cured and burley tobacco is generally sold at public auction to the highest bidder. In addition, the price of such tobacco is supported under an industry-funded federal program that also restricts tobacco production through a quota system. The price support system has caused U.S. grown tobacco to be more expensive than most non-U.S. tobacco, resulting in a declining trend in exports. Industry leaders continue to explore options including program changes to improve the competitive position of U.S. leaf. Other factors affecting the competitive position of U.S. tobacco include improved methods of production and quality in the U.S. and in foreign countries. In 1994 and 1995, imports of foreign leaf declined in response to legislation enacted in 1993 which required that cigarettes manufactured in the U.S. contain at least 75% U.S. grown tobacco. In September 1995 this legislation was replaced with a somewhat less restrictive tariff rate quota system. To prevent a significant reduction in domestic production quotas, in December 1994 the domestic cigarette manufacturers agreed to purchase 700 million pounds of surplus flue-cured and burley tobacco from the stabilization cooperatives. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations".
Foreign Tobacco Business
Universal's business of selecting, buying, shipping, processing, packing, storing, financing, and selling tobacco is, in addition to its domestic operations, conducted in varying degrees in Argentina, Belgium, Brazil, Canada, the Commonwealth of Independent States (the former Soviet Union), Colombia, the Dominican Republic, Ecuador, France, Germany, Greece, Guatemala, Hong Kong, Hungary, India, Indonesia, Italy, Malawi, Mexico, the Netherlands, Paraguay, the People's Republic of China, the Philippines, Spain, Switzerland, Tanzania, Thailand, Turkey, Uganda, the United Kingdom, Zambia and Zimbabwe.
In a number of countries, including Brazil, Hungary, Italy and Mexico, Universal contracts directly with tobacco farmers, in some cases before harvest, and thereby takes the risk that the delivered quality and quantity will meet market requirements. The price may be set by negotiation with farmers' groups or with agencies of the local government. In some countries Universal also provides agronomy services and advances for seed, fertilizer and other supplies. Tobacco in Zimbabwe, Malawi and Canada, and to a certain extent in India, is purchased under a public auction system.
The Company has made substantial capital investments in Brazil and Africa and the profitability of the operations there can materially affect the operating results of the Company. The Company owns three tobacco leaf processing facilities in Brazil and five in Africa. See "Properties."
Sales to foreign customers are made by Universal's sales force and through the use of commissioned agents. Most foreign customers are long-established firms or government monopolies.
Universal's foreign operations are subject to the usual international business risks, including unsettled political conditions, expropriation, import and export restrictions, exchange controls and currency fluctuations. During the tobacco season in many of the countries enumerated above, Universal has advanced substantial sums, has guaranteed local loans or has guaranteed lines of credit in substantial amounts for the purchase of tobacco. Most tobacco sales are denominated in U.S. dollars, thus limiting the Company's currency risk.
Recent Developments and Trends
For recent developments and trends in the Company's tobacco business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Seasonality
The purchasing and processing aspects of Universal's tobacco business are seasonal in nature. The United States flue-cured tobacco markets usually open the third week of July and last for approximately four months. The United States burley tobacco markets open in late November and last for approximately two and one-half months. Tobacco in Brazil is usually purchased from January through May. Other markets around the world last for similar periods, although at different times of the year, and this has resulted in less overall seasonality in the Company's business.
Universal normally operates its processing plants for approximately seven to nine months of the year. It purchases most of the tobacco which it redries and packs in the U.S. in the eight-month period, July through February. During this period, inventories of green tobacco, inventories of redried tobacco and trade accounts receivable normally reach peak levels in succession. Current liabilities, particularly short-term notes payable to banks, commercial paper and customer advances are a means of financing this expansion of current assets and normally reach their peaks in this period. At the end of the Company's fiscal year (June 30), these seasonal expansions in the United States are normally not reflected in the components of working capital. Seasonal expansions are reflected at that time, however, for Universal's operations in Brazil, Italy and Mexico.
Customers
A material part of the Company's tobacco business is dependent upon a few customers, the loss of any one of whom would have an adverse effect on the Company. The Company has long-term contracts (which under certain circumstances may be amended or terminated) with a few of these customers, and, while there are no formal continuing contracts with the others, the Company has done business with each of its major customers for over 35 years. For the year ended June 30, 1995, tobacco sales to Philip Morris Companies, Inc. accounted for greater than 10% of consolidated revenues. See Note 12 to Consolidated Financial Statements. Five other customers accounted for approximately 14%.
Universal had orders from customers in excess of $278 million for its tobacco inventories at June 30, 1995. Based upon historical experience, it is expected that at least 90% of such orders will be delivered during the fiscal year ending June 30, 1996. Typically, delays in the delivery of orders result from changing customer requirements. Orders from customers at June 30, 1994, were in excess of $231 million, of which over 90% was delivered in the following fiscal year. The level of purchase commitments for tobacco fluctuates from period to period and is significant only to the extent that it reflects short-term changes in demand for redried tobacco.
Competitors
Competition among leaf tobacco merchants is based on the price charged for products and services as well as the firm's ability to meet customer specifications in the buying, processing, and financing of tobacco. Universal has many processing plants equipped with the latest technology and a world-wide buying organization of tobacco specialists which, management believes, give it a competitive edge. See "Properties." Competition varies depending on the market or country involved. Normally, there are from five to seven buyers on each of the United States flue-cured and burley markets. The number of competitors in foreign markets varies from country to country, but there is competition in all areas to buy the available tobacco. The principal competitors in the industry that do not manufacture consumer tobacco products and that compete with the Company on the United States markets and on foreign markets are as follows: DiMon Incorporated, Export Leaf Tobacco Company, and Standard Commercial Corporation. Of the significant competitors in the United States that are not also manufacturers, Universal believes that it ranks first in total U.S. market share and also first in total worldwide market share.
C. Description of Agri-Products Business
The Company's agri-products business involves the selecting, buying, shipping, processing, storing, financing, distribution, importing and exporting of a number of products including tea, rubber, sunflower seeds, nuts, dried fruit, canned meats, spices and seasonings. During the past fiscal year, the Company acquired a leading spice distribution company in Belgium and a small seed cleaner/merchandiser in the Netherlands.
The emphasis of the Company's agri-products business is on value-adding activities and/or trading of physical products in markets where a real function can be performed in the supply system from the countries of origin to the consuming industries. In a number of countries, longstanding sourcing arrangements for certain products or value-adding activities through modern processing facilities (tea, spices and sunflower seeds) contribute to the stability and profitability of the business. Traders are subject to strict trading limits to minimize speculative risks and allow effective management control. Seasonal effects on trading are limited.
The Company provides various products to numerous large and small customers in the food and food packaging industry and in the rubber and tire manufacturing industry. Generally, there are no formal continuing contracts with these customers, although business relationships may be longstanding. No single customer accounts for 10% or more of the Company's consolidated agri-products revenues.
Competition among suppliers in the agricultural products in which Universal deals is based on price as well as the ability to meet customer requirements in product quality, buying, processing, financing and delivery. The number of competitors in each market varies from country to country but there is competition for all products and markets in which the Company operates. Some of the main competitors are: Agway, Akbar Brothers, Andrew Weir Commodities, Burns Philip, Ennar, Cargill, Dahlgren, Global, EP Lambert Co., Finlay, Fuchs, Metallgeschellschaft/SAFIC Alcan, Stassens, Symington, Universal Tea, UTT (Unilever) and Verstegen.
For recent developments and trends in the Company's agri-products business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
D. Description of Lumber and Building Products Business
The Company is engaged in the lumber and building products business in the Netherlands and Belgium. The majority of lumber products are sourced outside the Netherlands, principally in North America, Scandinavia, Eastern and Western Europe, and the Far East.
The lumber and building products business is seasonal to the extent that winter weather may temporarily interrupt the building industry which in turn affects this segment. The business is also subject to exchange risks and other normal market and operational risks associated with lumber operations centered in Europe including general economic conditions in the countries where the Company is located and related trends in the building and construction industries.
The Company's sales activities in this segment are conducted through three business units: regional sales, wholesale/do-it-yourself (DIY) sales and industrial sales. The regional sales unit distributes and sells lumber and related building products through a network of regional outlets, mainly to the building and construction market. The wholesale/DIY business unit supplies timber merchants and DIY chains with a wide range of panel products and doors. The industrial sales unit consists mainly of Heuvelman, a premier softwood distributor of value-added products to the construction industry. Both Heuvelman and a small timber processor in the south of Holland were acquired during the past fiscal year.
The Company carries inventories to meet customers' demands for rapid delivery. The level of inventories is based on a balance between providing service and continuity of supply to customers and achieving the highest possible turnover. The Company does not provide extended payment terms to its customers. No single customer accounts for 10% or more of the Company's consolidated lumber and building products revenues.
The Company's lumber and building products sales accounted for approximately 20% of the total market volume for the Netherlands, which is slightly above the market share of its largest competitor, Pont-Meyer N.V. Ten additional competitors account for approximately 20% to 30% of the market share and the balance is held by approximately 200 smaller competitors. The primary factors of competition are quality and price, product range and speed and reliability of logistic systems. The Company believes that its full geographical market coverage, its automated inventory control and billing system and its efficient logistics give it a competitive advantage in the Netherlands. The Company's share of the highly fragmented Belgium lumber and building products market is approximately 3%.
For recent developments and trends in the Company's lumber and building products business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
E. Employees
The Company employed approximately 30,000 employees throughout the world during the fiscal year ended June 30, 1995. This figure is estimated because many of the non-salaried personnel are seasonal employees.
Universal believes that in the United States approximately 1,300 of the non-salaried employees of its consolidated tobacco subsidiaries are represented by unions. Most of these are seasonal employees. The Company's labor relations have been good.
F. Research and Development
No material amounts were expended for research and development during the fiscal years ended June 30, 1995, 1994, and 1993.
G. Patents, etc.
The Company holds no material patents, licenses, franchises or concessions.
H. Environmental Matters
Compliance with Federal, state and local provisions regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not anticipated to have, any material effect upon the capital expenditures, earnings or competitive position of the Company.
ITEM 2.

ITEM 2. PROPERTIES
Universal owns the land and building located at Hamilton and Broad Streets in Richmond, Virginia, where it is headquartered. The building contains approximately 83,000 square feet of floor space. The Company also owns a smaller office building nearby which contains approximately 11,300 square feet of floor space.
In its domestic tobacco processing operations, Universal owns six large, modern, high volume plants which have the capacity to thresh, separate, quality grade and redry tobacco. Four of these plants are located in North Carolina (Wilson, Henderson, Rocky Mount and Smithfield), one plant is in Danville, Virginia, and one plant is in Lexington, Kentucky. The Henderson plant has a production capacity of over 140 million pounds of green tobacco and 500,000 square feet of floor space. The Wilson plant has approximately 500,000 square feet of floor space and a production capacity of over 130 million pounds of green tobacco. The remaining four plants each have a floor space of 300,000 to 400,000 square feet and an average annual production capacity of over 100 million pounds of green tobacco. Universal also owns a processing facility in Dinwiddie County, Virginia with 250,000 square feet of floor space.
The Company owns tobacco processing plants in the following foreign locations: a large processing plant in Canada; one large processing plant and one smaller plant in Malawi; three large processing plants in Italy; three plants in Zimbabwe; and plants in Hungary and Turkey. In Brazil, Universal owns three large plants one of which is for sale. Universal operates a plant in the Philippines. The Company's plant in Thailand has been closed and is for sale and a plant in Greece is for sale.
The facilities described above are engaged primarily in processing tobacco used by manufacturers in the production of cigarettes. In addition, Universal owns plants that process cigar/chewing tobaccos in Lancaster, Pennsylvania; Kenbridge, Virginia; the Dominican Republic; Colombia; Indonesia; and Brazil. It operates sheet manufacturing plants in the Netherlands and in Germany.
Universal owns or leases extruder plants (baling operations), packaging stations and warehouse space in the tobacco-growing states and abroad. Large extruder plants are owned in Lumberton and Rocky Mount, North Carolina; Danville, Virginia; Greeneville, Tennessee; and Lexington and Bowling Green, Kentucky.
The processing and extruder plants are operated seasonally. The large processing plants usually are in operation from seven to nine months out of the year. A portion of Universal's tobacco inventory is stored in public storages. The following storages are owned:
(a) Wilson, North Carolina - 12 storages covering 460,000 square feet;
(b) Smithfield, North Carolina - 7 storages covering 240,000 square feet;
(c) Henderson, North Carolina - 6 storages covering 178,500 square feet;
(d) Rocky Mount, North Carolina - 3 storages covering 133,000 square feet;
(e) Danville, Virginia - 4 storages covering 153,000 square feet;
(f) Lexington, Kentucky - 5 storages covering 127,000 square feet; and
(g) Kenbridge, Virginia - 7 storages covering 243,000 square feet.
Additional storage space is leased in Danville, Virginia; Lexington, Kentucky; and Smithfield, Henderson and Rocky Mount, North Carolina. Lancaster Leaf Tobacco Company of Pennsylvania, Inc. owns storage space with a capacity of 19,300 tons of tobacco and leases additional storage space. In other U.S. tobacco areas, Universal owns or leases storages on a smaller scale. In foreign areas storage space is owned or leased on a comparable scale.
The Company believes that the above-listed properties are maintained in good operating condition and are suitable and adequate for its purposes at current sales levels. Facilities owned are not subject to indebtedness except for those in Dinwiddie County and Kenbridge, Virginia, which are financed in part through governmental industrial development authorities.
The Company's agri-products subsidiaries own and operate a tea blending plant in the Netherlands, a tea warehouse and office in Sri Lanka, spice blending facilities in the Netherlands, a bean processing plant in Park Rapids, Minnesota, small grain processing facilities in Delaners, North Dakota and Zevenbergen, the Netherlands, and sunflower seed processing plants in Lubbock, Texas; Colby, Kansas; and Fargo, North Dakota. These latter two facilities are financed in part through governmental industrial development authorities. The Company has leased agri-products trading offices around the world, including locations in New York, London, Warsaw, Rotterdam, Belgium, Indonesia, Kenya and Malawi.
The lumber and building products division owns or leases 38 sales outlets in the Netherlands and six sales outlets in Belgium. It also has five storage and distribution warehouses, a softwood facility for large scale sawing, planing and fingerjointing, and a building components manufacturing facility, all in the Netherlands. Most of these locations are owned.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 1995, there were no matters submitted to a vote of security holders.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Dividend and market price information is as follows:
The Company expects the past trend of dividend payments to continue, subject, however, to its future earnings and financial condition. At June 30, 1995 there were 3,741 holders of record of the registrant's common stock which is traded on the New York Stock Exchange.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Five-Year Comparison of Selected Financial Data For Years Ended June 30
Fiscal year 1995 includes a $15.6 million ($10.7 million net of tax) restructuring charge.
Fiscal year 1994 reflects the cumulative effect of the change in accounting principle ($29.4 million) resulting from the adoption of SFAS 106 "Employer's Accounting for Postretirement Benefits Other Than Pensions" as well as a $17.5 million ($11.8 million net of tax) restructuring charge.
Fiscal 1994 and prior years have been restated to reflect the consolidation of certain foreign susidiaries that had been accounted for under the cost or equity method of accounting.
Amounts for 1991 have been reclassified to include the results of operations and financial position of Lawyers Title as discontinued operations as a result of a spinoff to shareholders.
Per common share information reflects December 1991 two-for-one stock split.
Fiscal year 1991 reflects an extraordinary loss ($3.8 million) resulting from a provision for the uncollectability of a receivable from the Iraqi State Tobacco Monopoly as a result of the Persion Gulf war.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity & Capital Resources
During a year that reflected the continued impact of adverse market conditions, the Company maintained its financial strength and improved its operating efficiency. The restructuring plan announced in fiscal year 1994 has been implemented and a second program was approved in June 1995. As part of those programs, a number of facilities have been closed and operations have been rationalized.
Working capital declined by approximately $54 million to $265 million. Although this decline related primarily to short-term financing of acquisitions that occurred during the year, the Company also reduced its tobacco inventories and receivables. The level of uncommitted inventories was significantly reduced from the 1994 level.
The Company's capital needs are predominantly short term in nature and relate to working capital required for financing crop purchases. The working capital needs of the Company are seasonal within each geographical region. Generally, the peak need of domestic tobacco operations occurs in the second quarter of the fiscal year. Foreign tobacco operations tend to have higher requirements in the remainder of the year. The geographical dispersion and the timing of working capital needs permit the Company to predict its general level of cash requirements during the year. Each geographic area follows the cycle of buying, processing, and shipping of the tobacco crop. The timing of individual customer shipping requirements may change the level or the duration of crop financing. The working capital needs of individual agri-products operations fluctuate during the year, depending on the product, the country of origin, and the Company's inventory position; however, the total working capital requirements of agri-products during the year remain relatively stable due to offsetting seasonal patterns. Working capital needs of lumber and building products in Europe follow a pattern similar to that of the construction industry in which the third quarter of the fiscal year is typically sluggish. The Company finances its working capital needs with short-term lines of credit, exchange contracts for export prefinance, customer advances, and trade payables.
International tobacco trade generally is conducted in U.S. dollars, thereby limiting foreign exchange risk to that which is related to product costs and overhead in the country in which tobacco is sourced. Because there are no forward foreign currency markets for the currencies of the major countries in which the Company purchases its tobacco, the Company manages its risk by matching the currency of funding for inventory purchases with the currency of the related sales and by minimizing the net investment in these countries. In addition, it is generally accepted practice in the tobacco processing industry that customers pay a market rate of interest for inventory purchased to their order; thus, changes in interest rates do not have a major impact on the Company's income and are not considered a source of significant risk.
The Company's agri-products and lumber operations, which are based in the United States and in the Netherlands, do business in a number of foreign countries. These operations enter into forward exchange contracts to hedge firm purchase and sales commitments in foreign currencies (principally Dutch guilders, U.S. dollars, pounds sterling, and Swedish kronas). The term of currency hedges is generally from one to six months.
Long-term investments are reflected in "Cash flows from investing activities." Over the last three years, total investment needs of $279 million were provided by cash flow from operating activities and the issuance of common stock in 1993 supplemented by long-term debt. Investments in fiscal year 1995 included the acquisition of the premier distributor of value-added softwood products in Holland as well as two smaller distributors in Belgium and Holland. In addition, the Company acquired a spice distribution company in Belgium and is negotiating a related joint venture that is expected to be the market leader in the Benelux area. These acquisitions required a net cash investment of $63 million in fiscal year 1995, which was funded primarily with previously existing credit lines.
The Company's capital expenditures are generally limited to those that add value to the customer, replace obsolete equipment, increase efficiency, or position the Company for future growth. During fiscal year 1995, Universal made substantial progress on the installation of a processing facility in China that is expected to be completed in late 1995. A state-of-the-art blending facility was installed in Italy and process improvements were completed in Hungary. In fiscal year 1994, a new processing line was added to the Company's facility in Malawi. Management believes that these operations represent significant opportunities for growth over the long term. At June 30, 1995, the Company had no material commitments for capital expenditures
The Company believes that its financial resources are adequate to support its capital needs. The Company and its subsidiaries currently have $1.5 billion in uncommitted lines of credit of which $900 million was available at June 30, 1995, to support future seasonal working capital needs in the United States and several foreign countries. In addition, the Company has $100 million in an unused committed facility under a revolving credit agreement. This facility is also available to support the future issuance of commercial paper. The Company's debt ratings are investment grade, and it has reduced the ratio of long-term debt to total capitalization to approximately 41%. Any excess cash flow from operations after dividends, capital expenditures, and long-term debt payments will be available to reduce short-term debt, or fund expansion.
Results of Operations
Fiscal Year 1995 Compared to 1994
In fiscal year 1995, the Company began reporting its African operations on a consolidated basis. Previously, these operations were reported either on the cost or equity method. The change in reporting did not materially effect the results of operations, and all prior years have been restated to reflect this change.
Consolidated revenues were up $232 million or 7.6% in fiscal year 1995 compared to 1994. Gross revenues in all three operating segments were up over the prior year, with lumber and building products accounting for over 60% of the consolidated increase. The improvement in lumber was due to a combination of increased sales, the inclusion of full year results of 1994 acquisitions and results of acquisitions in fiscal year 1995, and exchange rate differences. The total increase in revenues related to these acquisitions was almost $70 million. Domestic tobacco revenues were up $137 million because of an increase in sales and purchasing volume of about 16%. This improvement was due to the improved quality of the domestic crops as the Company purchased more tobacco for customers.
Tobacco operating profits were down 15.8% or $19 million compared to fiscal year 1994's results. Tobacco operating profits in fiscal year 1995 included $15.6 million of restructuring charges compared to $17.5 million in 1994. The lower results in fiscal year 1995 reflect the continued pressure on margins from the unbalanced supply and demand situation. At the end of fiscal year 1994, the worldwide leaf oversupply led to reduced prices and margins; shipments of discounted stocks from that oversupply continued well into fiscal year 1995. Although worldwide production declined in fiscal year 1995, the positive impact of an improved balance between supply and demand began to emerge later in the year and should benefit results in fiscal year 1996. In addition to the reduced margins on sales of foreign tobacco, the Company recorded a total of $10.7 million of tobacco inventory write-downs. Almost $7 million of the write-downs was related to Indonesian tobacco and the Company's decision to revise its operating approach to Eastern Europe in light of the economic instability of the area. Write-downs in 1994 were $27 million. Domestic tobacco's operating profits improved on increased volumes despite a significant drop in processing volume for the stabilization cooperatives. The volumes handled for the cooperatives in any one year are affected by domestic crop size, its price and quality, and market demand. Although tobacco results were disappointing in fiscal year 1995, the Company is confident that, with the implementation of its restructuring plans, it is well positioned for long-term growth.
Lumber and building products operating income for fiscal year 1995 was up 12.8% or $2.4 million largely due to the acquisition of Heuvelmann and a strong performance by the wholesale companies during the year. The acquisition, while not significant to consolidated operations, had a positive impact on this segment's results. Operating profits as a percentage of sales decreased from 5.1% in fiscal year 1994 to 4.1% in 1995 due to the adverse effects of a strike in the Dutch building industry, higher labor costs, and low prices for tropical plywood and hardwoods; however, improved volumes and acquired operations more than offset those factors. Agri-products operating income increased $2.7 to $11.9 million in fiscal year 1995. The majority of this increase was due to the discontinuation of coffee trading near the end of fiscal year 1994; that operation had recorded losses during the year. Trading activity in rubber showed improved results on the strength of higher prices. Tea results improved despite a flat market from continuing worldwide oversupply. In addition, improved earnings were reported in confectionery sunflower seeds.
Selling, general and administrative expenses increased $18 million or 5.9% compared to 1994. Of the increase, $10 million was due to the acquisition of the Heuvelmann lumber operation in fiscal year 1995, and approximately $5.5 million of the increase related to provisions for customer obligations in Eastern Europe and other areas. Interest expense in fiscal year 1995 dropped almost $6 million compared to last year due to a combination of less crop financing in local currencies and reduced levels of inventory financing during the year.
Fiscal year 1995's income tax rate increased to 44.6% due to a combinations of factors. Full statutory benefits were not recognized on the restructuring charge or on the inventory write-downs and provisions related to Eastern Europe. In addition, the Company provided for limitations on the realization of foreign tax credits. The Company's consolidated income tax rate is affected by a number of factors, including but not limited to: the mix of domestic and foreign earnings, subsidiary local tax rates, the Company's policy regarding repatriation of foreign earnings, and its ability to utilize foreign tax credits. Historically, the Company has been able to fully credit foreign taxes paid against U.S. taxes on foreign earnings. Due to shifts in the mix of earnings and increases in foreign effective tax rates, the utilization of foreign tax credits may be limited in the future. The limitation would have the effect of increasing the Company's consolidated tax rate. However, the Company, through the implementation of a number of tax planning strategies, is taking steps to minimize the potential increase in its tax rate above the statutory rate.
In fiscal year 1995, the Company continued its effort to streamline operations by approving the 1995 restructuring plan pursuant to which it recorded a charge of $15.6 million. The plan is in addition to the rationalization and consolidation of operations approved in fiscal year 1994. The charge includes $7.2 million for the expected severance payments related to approximately 200 employees throughout the Company. The remainder of the charge was for the write-down of fixed assets in newly consolidated operations ($3.7 million), payments to terminate occupancy of leased facilities ($3 million), and other nonoperating restructuring costs ($1.7 million). Cash payments of $5 million had been made as of June 30, 1995, approximately half of which was for the termination of leases; the balance represented severance costs of 35 employees. When fully implemented by the end of fiscal year 1996, the plan is expected to yield annual savings approximating half the amount of the charge.
Fiscal Year 1994 Compared to 1993
Consolidated revenues in fiscal year 1994 declined $29 million, less than 1% compared to 1993. The decline was mitigated by the inclusion of twelve months of Casalee's 1994 sales versus the six weeks included in fiscal year 1993. Tobacco revenues declined $66 million primarily due to the poor quality U.S. flue-cured crop and reduced worldwide demand for all growths. Lumber and building product revenues declined in fiscal year 1994 principally due to exchange rate differences. An increase of $53 million in agri-product revenues in fiscal year 1994 was attributable to increased nut and canned meat trading.
Tobacco operating profit of $121.8 million in fiscal year 1994 was net of a $17.5 million restructuring charge. Excluding the restructuring charge, tobacco operating profits were down $44 million or almost 25% compared to 1993. Included in fiscal year 1994 results were $27 million of inventory write-downs compared to approximately $14 million in fiscal year 1993. Tobacco operating results in fiscal year 1994 reflect a number of adverse factors in the United States, including a poor quality flue-cured crop and domestic content legislation, as well as market reactions to the expectation of an increased excise tax on cigarettes. In addition to these domestic issues, there was a worldwide glut of tobacco caused by reduced demand in the face of record crops. Total domestic tobacco purchases in fiscal year 1994 were down primarily due to lower purchases of the poor quality flue-cured crop. However, processing volumes were comparable to 1993 as reduced cigarette manufacturer orders were offset by significantly larger volumes of tobacco processed for the stabilization cooperatives. In addition to the adverse effects of the 1994 crop volumes, domestic tobacco results in fiscal year 1994 were down on a comparative basis to 1993 due to customer-mandated hold-over shipments recorded in the first quarter of fiscal year 1993. International tobacco profits for fiscal year 1994 were down principally due to the pressure on margins which reduced sales profits and resulted in significant inventory write-downs.
Lumber and building product operations reported higher operating results in fiscal year 1994 due to increased prices for hard and softwoods. Operating profits of the lumber and building products segment in fiscal year 1993 included a pre-tax gain of $3.8 million realized on the sale of the Company's flatboard finishing operation. Excluding the gain, lumber and building products operating profits increased almost 50% in 1994. Agri-product operating results were down approximately 15% in fiscal year 1994 compared to 1993. Improved results in nuts and sunflower seeds were more than offset by shortfalls in tea and coffee. Sunflower seed operations benefited from increased demand and a smaller crop, while tea operations were adversely affected by a weak market. Losses in coffee trading in fiscal year 1994 reflected the continuing volatility of those markets and led to the decision by the Company to terminate this business.
Selling, general and administrative expenses increased $40 million as a result of the inclusion of Casalee's operations for the full fiscal year in 1994. This increase was slightly offset by declines in selling and shipping expenses on reduced volumes in fiscal year 1994. Interest expense in fiscal year 1994 increased $10 million due to increased inventory levels, longer holding periods, and increased levels of higher rate long-term financing. The Company's effective tax rate for fiscal year 1994 was 30.3% compared to 37.7% in 1993. The decrease in 1994 was due to a higher proportion of foreign earnings which were deemed permanently reinvested compared to 1993.
In June 1994, the Company recorded a $17.5 million restructuring charge which included approximately $16 million of severance provisions for approximately 700 of the Company's employees. The plan was implemented in fiscal year 1995 and funded with cash from operations. Savings from the 1994 plan are expected to approximate $19 million annually and relate primarily to reduced compensation.
In the first quarter of fiscal year 1994, the Company adopted SFAS 106 and elected to record a one-time charge of $29.4 million; subsequently, in the third quarter the Company amended its post-employment benefit plans. The effect of the amendment is expected to substantially offset the effect on earnings from SFAS 106. See Note 9 for more information.
Other Information Regarding Trends and Management's Actions
Over the last two years, the worldwide surplus of tobacco has had a significant impact on the industry and on the Company's results. During fiscal year 1995, a more balanced supply and demand relationship began to emerge. Worldwide production of flue-cured and burley tobaccos was estimated to be at least 20% below the fiscal year 1994 level, and much of the uncommitted inventory held by merchants at the end of fiscal year 1994 was sold in 1995, albeit at discounted prices. In December 1994, U.S. cigarette manufacturers and the stabilization cooperatives negotiated a buy-out of unsold U.S. stocks. Import restrictions under the U.S. domestic content law are slated to be replaced by tariff rate quotas, which should permit U.S. tobacco imports to recover somewhat from the very low levels attained in the past year. In addition, the threatened U.S. excise tax increase, which had depressed U.S. market expectations, did not materialize. Reduced world leaf production and the reduction of uncommitted inventories in the last year has improved the outlook for the merchant industry.
Over the past few years, particularly in the United States, restrictions on cigarette smoking in public places and advertising have increase substantially, and the tobacco industry has been under unprecedented legislative and regulatory attack. Most recently the U.S. Food and Drug Administration (FDA) has proposed to regulate nicotine as a drug in an asserted effort to deter smoking by minors. The FDA effort has been challenged in the courts. Numerous other legislative and regulatory anti-smoking measures have also been proposed at the federal, state and local levels, and product liability litigation is pending against the leading U.S. manufacturers of tobacco products. It is not possible to predict what, if any, governmental legislation or regulations will be adopted related to tobacco or smoking, or the outcome of product liability litigation, and the effect thereof on consumption of tobacco products.
Cigarette consumption has been growing at a 1% annual rate worldwide, and a number of new or changing markets offer sourcing or sales opportunities for the Company, especially in Eastern Europe, China, the republics of the former Soviet Union, and developing countries in the Pacific Rim. China, where Universal is active, offers potential as the largest consumer of tobacco products in the world and as a source of low-priced filler style tobaccos for the export market. The republics of the former Soviet Union offer potentially large leaf markets as internal production has declined and demand has been artificially constrained by economic dislocation and lack of foreign exchange.
A key trend in the tobacco industry has been consolidation among manufacturers and among merchants. This concentration should increase the need for better quality tobacco and improved processing which provides a good opportunity for the Company. However, it may also make demand for particular growths of tobacco less predictable.
The Company has a very large presence in the U.S. market where leaf has not been price competitive with the world market. If not corrected through tobacco program reforms and reduced support prices, this could result in a decline in U.S. production and marketings in the future. Management does not believe that a significant decline in the United States is imminent. The Company's operations are well placed to supply leaf from many sources in world markets, and the business is not capital intensive.
In its lumber and building products area, the Company has been leading a trend toward consolidation of a fragmented industry in Holland and has proved itself an attractive business partner in that environment.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years Ended June 30, 1995, 1994 and 1993
See accompanying notes.
Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, 1995 and 1994
See accompanying notes.
Universal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, 1995 and 1994
Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended June 30, 1995, 1994 and 1993
See accompanying notes.
Universal Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years Ended June 30, 1995, 1994 and 1993
See accompanying notes.
Universal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are in thousands, except as otherwise noted)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of all controlled domestic and foreign subsidiaries. All material intercompany items and transactions have been eliminated. The fiscal years of foreign subsidiaries generally end March 31 or April 30 to facilitate timely reporting. The Company uses the equity method of accounting for its investments in affiliates which generally are owned less than 50%.
Effective fiscal year 1995, the Company consolidated the results of affiliates located in Malawi and Zimbabwe into its financial statements. After changes in local governmental policies, the Company can now exercise greater control over operations including the remittance of dividends. Prior to fiscal 1995, affiliates located in Malawi were accounted for under the equity method and affiliates in Zimbabwe under the cost method. Financial data for all prior periods presented has been restated to reflect the consolidation. Before the effects of consolidation, consolidated net income for the years ended June 30 was as follows:
1995 1994 1993
Net income $23,768 $9,158 $80,242 Earnings per share $ .68 $ .26 $ 2.39
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents.
Inventories
Inventories of tobacco and agri-products are valued at the lower of specific cost or market. In determining lower of cost or market for agri-products, an entire position, i.e., tea, including forward purchase and sales contracts, is considered. Net unrealized losses by position are charged to income. However, no recognition is given to net unrealized gains. All other inventories are valued principally at lower of average cost or market.
Real Estate, Plant and Equipment
Depreciation of plant and equipment is based upon historical cost and the estimated useful lives of the assets. Depreciation of property used in domestic tobacco operations is calculated using the declining balance method in the early years and the straight-line method thereafter. All other properties are generally depreciated using the straight-line method. Estimated useful lives of buildings range from fifteen to forty years and machinery and equipment range from three to ten years.
Goodwill and Other Intangibles
Goodwill and other intangibles include the excess of the purchase price of acquired companies over the net assets, covenants not to compete and pension intangibles. Goodwill and other intangibles are generally amortized using the straight-line method over periods not exceeding 40 years. Accumulated amortization at June 30, 1995, and 1994 was $19.6 and $11.3 million, respectively.
Income Taxes
The Company provides deferred income taxes on temporary differences arising from employee benefit accruals, depreciation, deferred compensation, and undistributed earnings of consolidated subsidiaries and unconsolidated affiliates not permanently reinvested. At June 30, 1995, the cumulative amount of undistributed earnings of consolidated subsidiaries on which no provision for U.S. income taxes had been made was $64.6 million.
Fair Values of Financial Instruments
The fair values of the Company's long-term obligations have been estimated using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amount of all other current assets and liabilities as reported in the balance sheet at June 30, 1995 and 1994, which qualify as financial instruments, approximates fair value.
Derivative Financial Instruments
Derivative financial instruments are used by the Company principally in the management of its foreign currency exposures. Realized and unrealized gains and losses on the Company's foreign currency contracts that are designated and effective as hedges are recognized in income in the same period as the foreign exchange gains and losses on the underlying transactions are recorded. The carrying amounts, including realized and unrealized gains and losses, of foreign currency derivatives are reflected under the same balance sheet captions as the hedged transactions. The Company does not enter into derivative financial instruments for trading purposes.
Postretirement Benefits Other Than Pensions
On July 1, 1993, the Company adopted SFAS 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions". The initial effect of adopting the statement was recorded in fiscal 1994 as a cumulative effect of a change in accounting principle. See Note 9.
Translation of Foreign Currencies
The financial statements of foreign subsidiaries where the local currency is the functional currency are translated into U.S. dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity.
The financial statements of foreign subsidiaries where the U.S dollar is the functional currency and which have certain transactions denominated in a local currency are remeasured as if the functional currency were the U.S. dollar. The remeasurement of local currencies into U.S. dollars creates translation adjustments which are included in net income. Exchange losses in 1995, 1994 and 1993 resulting from foreign currency transactions were $4.7, $3.7 and $1.0 million, respectively (including $2.6, $6.7 and $2.4 million resulting from foreign currency translation losses) and are included in the respective statements of income.
Reclassification
Amounts in prior years' statements have been reclassified to be reported on a consistent basis with the current year's presentation.
Note 2 - ACQUISITIONS
On February 12, 1993, the Company acquired substantially all of the tobacco operations of The Casalee Group SA (Casalee) through the purchase of all of Casalee's capital stock and certain of its subsidiaries at a cost of approximately $100 million. The acquisition has been accounted for by the purchase method of accounting. For financial reporting purposes, the accounts of Casalee are on a March 31 fiscal year basis, and are consolidated with the Company's June 30 fiscal year. Accordingly, the consolidated results of operations for the fiscal year ended June 30, 1993 include the results of Casalee from the acquisition date thru March 31, 1993. Unaudited pro forma consolidated results of operations for the year ended June 30, 1993 as though Casalee had been acquired at the beginning of the fiscal year, follow:
Gross revenues $3,290,355 Net income 53,333 Earnings per share* $ 1.50
* Weighted average shares outstanding includes 2.7 million shares assumed to have been issued at the beginning of 1993.
Note 3 - RESTRUCTURING
In the fourth quarter of fiscal years 1995 and 1994 , plans were developed to reduce the Company's worldwide cost structure including the consolidation of certain tobacco operations and a reduction in the number of employees. Fiscal 1995's consolidated statement of income includes an estimated $15.6 million pretax charge ($10.7 million net of tax benefits, or $.31 per share) related to the 1995 plan. This charge includes $7.2 million for the expected severance payments related to approximately 200 employees throughout the Company. The non-severance portion of the charge was for the write-down of fixed assets in operations consolidated ($3.7 million), payments to terminate occupancy of leased facilities ($3 million), and other nonoperating restructuring costs ($1.7 million). As of June 30, 1995, cash payments of $5 million had been made, approximately half of which was for the termination of leases and the balance to cover severance costs of 35 employees. In fiscal 1994 the Company had estimated and recorded a $17.5 million pre-tax restructuring charge. During fiscal 1995 the prior year's plan was implemented. Through June 30, 1995 the actual number of employees severed was almost equal to the 700 estimated. The total 1994 restructuring charge incurred was approximately $200 thousand less than the estimate last year and the difference is reported as a reduction of the restructuring amount in fiscal 1995.
Note 4 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates principally in three business segments:
Tobacco
Selecting, buying, shipping, processing, packing, storing and financing leaf tobacco in the United States and other tobacco growing countries for the account of, or for resale to, manufacturers of tobacco products throughout the world.
Lumber and Building Products
Distribution of lumber and building products to the building and construction market in Europe, primarily in Holland.
Agri-Products
Trading and processing tea and sunflower seeds and trading other products from the countries of origin to various customers in the consuming industries throughout the world.
Generally, sales between geographic areas are priced to generate a reasonable profit margin. Sales between business segments are insignificant.
Operating profit is total revenue less operating expenses. In computing operating profit, none of the following items have been added or deducted: general corporate expenses, interest expense, income taxes and equity in net income of unconsolidated affiliates.
Identifiable assets are those of the Company that are identified with the operations in each industry group. Corporate assets are principally the fixed assets of the Company's administrative offices.
U.S. Export Sales by Geographic Area
1995 1994 1993
Europe $266,682 $182,140 $302,733 Asia 179,737 203,197 168,075 Other Areas 51,962 27,321 33,895 $498,381 $412,658 $504,703
The fair value of the Company's long-term obligations was approximately $298 million at June 30, 1995 and $310 million at June 30, 1994. Certain notes are denominated in local currencies of foreign subsidiaries. Effective U.S. dollar interest rates vary based on exchange rate fluctuations.
In connection with the senior notes, the Company must meet certain financial covenants including maintainence of $300 million minimum shareholders' equity and restrictions on the issuance of long-term debt.
OTHER INFORMATION:
Maturities of long-term debt for the fiscal years succeeding June 30, 1995 are as follows: 1996-$31,476; 1997-$89,427; 1998-$23,413; 1999-$24,549; 2000-$20,988; 2001 and after-$126,571.
NOTE 8 - PENSION PLANS
The Company and its subsidiaries have several defined benefit pension plans covering United States and foreign salaried employees and certain other employee groups. These plans provide retirement benefits based primarily on employee compensation and years of service. The Company's funding policy for domestic plans is to make contributions currently to the extent deductible under existing tax laws and regulations, subject to the full-funding limits of the Employee Retirement Income Security Act of 1974. Foreign plans are funded in accordance with local practices. Domestic and foreign plan assets consist primarily of fixed income securities and equity investments. Unamortized gains and losses and prior service costs are amortized equally over the average remaining service period of employees. Information regarding net pension cost and the funded status of domestic and foreign plans was as follows:
SFAS 87 "Employers' Accounting for Pensions," required the Company to recognize an additional minimum liability of $1.8 and $2.4 million for the unfunded accumulated benefit obligation in 1995 and 1994, respectively. An equal amount was recognized as an intangible asset in those years. Assumptions used in the computations were:
	 1995 1994	1993 Discount rate: Domestic 8.00% 7.25%	7.75% Foreign 7.00% 6.00%	7.00%
Rate of increase in future compensation levels: Domestic 5.50% 5.50%	6.00% Foreign 5.50% 4.50%	5.00%
Expected long-term rate of return on plan assets: Domestic 8.75% 8.75%	8.50% Foreign	 7.00% 7.00%	7.00%
NOTE 9 - POSTRETIREMENT BENEFITS
The Company provides postretirement health and life insurance benefits for eligible U.S. employees attaining specific age and service requirements. The health plan is funded by the Company as the costs of the benefits are incurred and contains cost-sharing features such as deductibles and coinsurance. The Company funds the life insurance plan with deposits to a retired life reserve account held by an insurance company. The Company has made changes to the plans that have reduced benefits in the past and reserves the right to amend or discontinue the plans at any time.
Effective July 1, 1993, the Company adopted SFAS 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" which requires that the estimated costs of these benefits be expensed over the employees' active service period rather than as paid. In accordance with SFAS 106, the Company elected to recognize the obligation as a one-time charge of approximately $29 million (net of $18 million in taxes) or $.83 per share during the first quarter of fiscal year 1994.
Effective January 1, 1994, the Company amended the benefit plans for future retirees which reduced the Company's postretirement obligation by approximately $14 million (net of tax benefits). The amortization of this reduction is expected to substantially offset the net periodic postretirement benefit expense from SFAS 106 through fiscal year 2001.
Net periodic postretirement benefit expense was as follows:
		 1995	 1994 Service cost $ 857	 $1,288 Interest cost 2,517	 3,255 Return on plan assets (219)	 (141) Net amortization and deferral (2,925)	 (1,527) Net periodic postretirement benefit expense $ 230	 $2,855
Prior to fiscal year 1994, the Company recognized expense in the year the benefits were paid. In fiscal year 1993 approximately $1 million of expenses were recorded. The following table sets forth the components of the postretirement benefit obligation:
June 30 measurement date	 1995	 1994 Accumulated postretirement benefit obligation: Retirees $22,841	 $21,080 Fully eligible active plan participants 6,082	 7,812 Other active plan participants 5,466	 5,555 Accumulated postretirement benefit obligation 34,389	 34,447 Fair value of plan assets 3,811	 3,414 Accumulated postretirement benefit obligation in excess of plan assets 30,578	 31,033 Unrecognized gain on plan amendment 19,060	 22,119 Unrecognized net loss (1,631)	 (4,183) Accrued postretirement benefit cost $48,007	 $48,969
The accumulated postretirement benefit obligation was determined using an assumed annual health care cost trend rate of 13% for fiscal year 1995 and 12% for fiscal year 1996 and which is assumed to decrease gradually to 6.5% by fiscal year 2006. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated benefit obligation by approximately $3.4 million and the aggregate of the service and interest cost components of net periodic postretirement benefit expense for the fiscal year by approximately $400 thousand.
Assumptions used in the computations were:
1995 1994
Discount rate 8.00% 7.25% Rate of increase in future compensation levels 5.50% 5.50% Expected long-term rate of return on plan assets 4.30% 4.30%
NOTE 10 - SHARE PURCHASE RIGHTS PLAN
In 1989, the Company distributed as a dividend one preferred share purchase right for each outstanding share of common stock. As adjusted for the two-for-one split of the common stock effective December 16, 1991, each right entitles the shareholder to purchase one-half of one-hundredth of a share of Series A Junior Participating Preferred Stock ("Preferred Stock") at an exercise price of $110, subject to adjustment. The rights will become exercisable only if a person or group acquires or announces a tender offer for 20% or more of the Company's outstanding common stock. The Board of Directors may reduce this threshold percentage to 10%. If a person or group acquires the threshold percentage of common stock, each right will entitle the holder, other than the acquiring party, to buy shares of common stock or Preferred Stock having a market value of twice the exercise price. If the Company is acquired in a merger or other business combination, each right will entitle the holder, other than the acquiring person, to purchase securities of the surviving company having a market value equal to twice the exercise price of the rights. Following the acquisition by any person of more than the threshold percentage of the Company's outstanding common stock but less than 50% of such shares, the Company may exchange one share of common stock for each right (other than rights held by such person). Until the rights become exercisable, they may be redeemed by the Company at a price of one cent per right. The rights expire on February 13, 1999.
NOTE 11 - EXECUTIVE STOCK PLAN
Under the Company's Executive Stock Plan (the Plan), executives, key employees, and directors may receive grants and/or awards including common stock, restricted stock, options qualifying as incentive or non-qualified stock options and "reload options". Reload options allow a participant to exercise an option and receive new options by exchanging previously acquired common stock for the shares received from the exercise. One new option may be granted for each share exchanged with an exercise price equivalent to the market price at the date of exchange. Accordingly, the issuance of reload options does not result in a greater number of shares potentially outstanding than that reflected in the grant of the orginal option. Up to 2.0 million shares of the Company's common stock may be issued under the Plan. Pursuant to the Plan, non-qualified and reload options have been granted to executives and key employees at an option price equal to the fair market value of a share of common stock on the date of grant. In addition, restricted stock awards of 8,550 shares were issued in 1995.
Options granted under the Plan prior to December 5, 1991 became exercisable one year after date of grant except those granted on December 4, 1991 which became exercisable November 1, 1992. Options granted after December 4, 1991 are fully exercisable six months after the date of grant and qualify for reload options which are also fully exercisable six months after the date of the grant. All options expire ten years after date of grant.
Further information regarding options in the Plan for 1995, 1994 and 1993 is summarized as follows:
For the year ended:	 1995	 1994	 1993	 Price Range Outstanding beginning of year 656,064 644,064	 689,242 $11.06-28.00 Granted 717,999 12,000	 116,805 21.50-28.00 Exercised (78,678)		 (141,032) 11.06-27.38 Canceled 	 (20,951) 27.38-28.00 Outstanding end of year 1,295,385 656,064	 644,064 11.06-28.00 Exercisable 1,235,886 650,064	 588,231 11.06-28.00 Available for future grant 2,307,851 2,334,376	1,633,746
Of those available for future grant, 1,738,454, 1,097,929 and 385,299 for 1995, 1994 and 1993, respectively, are reload options.
NOTE 12 - COMMITMENTS AND OTHER MATTERS
A material part of the Company's tobacco business is dependent upon a few customers, the loss of any one of whom would have an adverse effect on the Company. For the years ended June 30, 1995, 1994 and 1993, one customer accounted for revenues of $1.1 billion, $900 million and $1.1 billion, respectively.
The Company provides guarantees for seasonal pre-export crop financing for some of its subsidiaries and unconsolidated affiliates. In addition, certain subsidiaries provide guarantees that ensure that Common Market subsidies and value-added taxes will be repaid if the crops are not exported or if the subsidies are not properly distributed to Common Market farmers. At June 30, 1995, total exposure under guarantees issued for banking facilities of unconsolidated affiliates was $27.8 million. Other commitments and contingent liabilities were approximately $59 million and relate principally to Common Market guarantees. The Company considers the possibility of loss on any of these guarantees to be remote.
As part of its financing of purchases of the Brazilian crop, the Company advances funds to its subsidiary under pre-export finance provisions of Brazilian law. When funds are held in Brazil before purchase of the crop, they are invested in U.S. dollar-indexed instruments issued by Brazilian banks. To reduce credit risk, investment limits are established with each bank according to the Company's evaluation of its credit standing. As of March 31, 1995, the date of consolidation of the Company's Brazilian subsidiaries, approximately $97 million was invested among eleven banks and is included in cash and cash equivalents in the Company's June 30, 1995 balance sheet. The carrying value of this investment approximates fair market value. As of June 30, 1995, all such funds had been fully recovered and utilized for crop purchases.
The Company's operating subsidiaries within each industry segment perform credit evaluations of customers' financial condition prior to the extension of credit. Generally, accounts and notes receivable are not secured with collateral and are due within 30 days. When collection terms are extended for longer periods, interest and carrying costs are usually recovered. Credit losses are provided for in the financial statements and such amounts have not been material except for the write-off of an account receivable from Iraq in fiscal year 1991. In the lumber and building product operations in Europe, it is traditional business practice to insure accounts and notes receivable against uncollectibility. At June 30, accounts and notes receivable by operating segment were as follows (in millions of dollars):
1995 1994
Tobacco $225 $248 Lumber and Building Products 109 71 Agri-products 59 52 $393 $371
NOTE 13 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company's dominant business, tobacco, is generally conducted in U.S. dollars. However, the Company conducts its agri-products and lumber and building products businesses in various foreign currencies. As a result, it is subject to the transaction exposures that arise from foreign exchange rate movements between the dates that the foreign currency transactions are initiated and the date they are settled. To mitigate this risk where such derivative markets exist, the Company enters into forward exchange contracts, primarily in Dutch guilders, U.S. dollars, Swedish kronas, and pounds sterling, to hedge certain foreign currency transactions involving the purchase or sale of inventory in currencies other than the functional currency of the subsidiary. The terms of the agreements are for periods that are consistent with the terms of the underlying transactions, which are rarely longer than six months.
As of June 30, 1995, the Company through its subsidiaries had entered into foreign exchange contracts with a total notional value of approximately $57 million to hedge known transactions. The unrealized gains and losses were not material to the Company at June 30, 1995. All such transactions were conducted with financial institutions of good standing; however, the total credit exposure related to non-performance by those institutions is not material to the operations of the Company. At June 30, 1995, the carrying value of these derivative financial instruments approximates the fair market value.
NOTE 14 - UNAUDITED QUARTERLY FINANCIAL DATA
Due to the seasonal nature of the tobacco, lumber and building products, and agri-products businesses, it is always more meaningful to focus on cumulative rather than quarterly results.
The Company recorded $5.6 and $16.1 million in pre-tax writedowns of tobacco inventory and purchase commitments in the fourth quarter of 1995 and 1994, respectively. The third quarter of 1995 includes a $6.5 million writedown relating to Eastern European tobacco operations. The fourth quarter of 1995 and 1994 also included a pre-tax restructuring charge of $15.6 million and $17.5 million, respectively.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders Universal Corporation
We have audited the accompanying consolidated balance sheets of Universal Corporation and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 accompanying principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Universal Corporation and subsidiaries at June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1, the Company's consolidated financial statements for 1994 and 1993 have been restated to adopt the consolidation method of accounting for its African operations. As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions in fiscal year 1994.
/s/ ERNST & YOUNG LLP Richmond, Virginia August 3, 1995
REPORT OF MANAGEMENT
To the Shareholders of Universal Corporation
The consolidated financial statements of Universal Corporation have been prepared under the direction of management, which is responsible for their integrity and objectivity. The statements have been prepared in accordance with generally accepted accounting principles and, where appropriate, include amounts based on judgements of management.
Management is also responsible for maintaining an effective system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorization and properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel, and an internal audit program to monitor its effectiveness.
Ernst & Young LLP, independent auditors, are retained to audit our financial statements. Their audit provides an objective assessment of how well management discharged its responsibility for fairness in financial reporting.
The Audit Committee of the Board of Directors is composed solely of outside directors. The committee meets periodically with management, the internal auditors and the independent auditors to assure that each is properly discharging its responsibilities. Ernst & Young LLP and the internal auditors have full and free access to meet privately with the Audit Committee to discuss accounting controls, audit findings and financial reporting matters.
/s/ HARTWELL H. ROPER
Hartwell H. Roper Vice President & Chief Financial Officer August 3, 1995
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
For the three years ended June 30, 1995, there were no changes in and disagreements between the Company and its independent auditors on any matter of accounting principles, practices or financial statement disclosures.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to the caption, "Election of Directors" in the September 22, 1995 Proxy Statement which information is incorporated herein by reference.
There are no family relationships between any of the above officers.
Term of Office: All officers are elected until the next annual shareholders meeting or until their successors are elected.
Footnotes:
(1) H. H. Harrell was elected chairman and chief executive officer of Universal Leaf Tobacco Company, Incorporated ("Universal Leaf"), a subsidiary of the Company, in 1991. Prior to that he was president and chief executive officer of the Company and Universal Leaf.
(2) A. B. King was elected president and chief operating officer of Universal Leaf in 1992. In 1991 he was president and prior to 1991 he was executive vice president of the Company and of Universal Leaf.
(3) H. H. Roper was elected vice president of the Company in 1990. He has been executive vice president and chief financial officer of Universal Leaf since 1995 and prior to that he was senior vice president and chief financial officer.
(4) W. L. Taylor was elected vice president of the Company in 1991. He joined Universal Leaf in 1990 as senior vice president and chief administrative officer and in 1995 was elected executive vice president and chief administrative officer.
(5) K. M. L. Whelan joined the Company in 1992. She served as treasurer of the Company until October 1993. She was elected vice president and treasurer of Universal Leaf in 1992. Prior to joining the Company she was elected vice president of financial reporting in 1989 of James River Corporation.
(6) J. H. Starkey, III was elected senior vice president of Universal Leaf in 1987.
(7) R. J. Zalzneck was elected senior vice president of Universal Leaf in 1990.
(8) J. M. White, III was elected vice president and general counsel of Universal Leaf in December 1987.
(9) W. J. Coronado was elected vice president and controller of Universal Leaf in 1993. Prior to that he was controller of Universal Leaf.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Refer to the caption, "Executive Compensation," in the September 22, 1995 Proxy Statement which information is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to the caption, "Stock Ownership," in the September 22, 1995 Proxy Statement which information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the caption, "Certain Relationships," in the September 22, 1995 Proxy Statement which information is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Universal Corporation and Subsidiaries are included in Item 8:
Consolidated Statements of Income for the years ended June 30, 1995, 1994 and 1993
Consolidated Balance Sheets at June 30, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1994 and 1993
Consolidated Statements of Changes in Shareholders' Equity for the years ended June 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements for the years ended June 30, 1995, 1994 and 1993
Report of Ernst & Young LLP, Independent Auditors
(2) Financial Statement Schedules: None
(3) List of Exhibits:
3.1 Restated Articles of Incorporation (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 1-652).
3.2 Bylaws (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 1-652).
4.1 Indenture between the Registrant and Chemical Bank, as trustee (incorporated herein by reference to Registrant's Current Report on Form 8-K, dated February 25, 1991, File No. 1-652).
4.2 Form of Fixed Rate Medium-Term Note, Series A (incorporated herein byreference to the Registrant's Current Report on Form 8-K, dated February 25,1991, File No. 1-652).
4.3 Form of 9 1/4% Note due February 15, 2001 (incorporated herein by reference to the Registrant's Current Report on Form 8-K, dated February 25, 1991, File No. 1-652).
4.4 Rights Agreement, dated February 2, 1989, between the Registrant and Sovran Bank, N.A., as Rights Agent (incorporated herein by reference to the Registrant's Form 8-A Registration Statement, dated February 9, 1989, File No. 1-652).
4.5 Amendment to Rights Agreement, dated May 2, 1991, between the Registrant and Sovran Bank, N.A., as Rights Agent (incorporated herein by reference to the Registrant's Form 8 Amendment No. 1, dated May 7, 1991, to Form 8-A Registration Statement, dated February 9, 1989, File No. 1-652).
4.6 Amendment to Rights Agreement, dated July 17, 1992, between the Registrant, NationsBank, N.A., as Rights Agent, and Wachovia Bank of North Carolina, N.A., as Successor Rights Agent (incorporated herein by reference to the Registrant's Form 8 Amendment No. 2, dated July 17, 1992, to Form 8-A Registration Statement, dated February 9, 1989, File No. 1-652).
The Registrant, by signing this Report on Form 10-K, agrees to furnish the Securities and Exchange Commission, upon its request, a copy of any instrument which defines the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries, and for any unconsolidated subsidiaries for which financial statements are required to be filed, which authorizes a total amount of securities not in excess of 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis.
10.1 Universal Corporation Restricted Stock Plan for Non-Employee Directors (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 1-652).
10.2 Universal Leaf Tobacco Company, Incorporated Supplemental Stock Purchase Plan, as amended June 24, 1991 (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991, File No. 1-652).
10.3 Universal Corporation Management Performance Plan (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 1-652).
10.4 Universal Leaf Tobacco Company, Incorporated Management Performance Plan (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990, File No. 1-652).
10.5 Universal Leaf Tobacco Company, Incorporated Executive Life Insurance Agreement (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 1-652).
10.6 Universal Leaf Tobacco Company, Incorporated Deferred Income Plan (incorporated herein by reference to the Registrant's Report on Form 8, dated February 8, 1991, File No. 1-652).
10.7 Universal Leaf Tobacco Company, Incorporated Benefit Replacement Plan (incorporated herein by reference to the Registrant's Report on Form 8, dated February 8, 1991, File No. 1-652).
10.8 Universal Leaf Tobacco Company, Incorporated Senior Executive Severance Plan (incorporated herein by reference to the Registrant's Report on Form 8, dated February 8, 1991, File No. 1-652).
10.9 Universal Leaf Tobacco Company, Incorporated Supplemental Pension Plan (incorporated herein by reference to the Registrant's Report on Form 8, dated February 8, 1991, File No. 1-652).
10.10 Universal Corporation 1989 Executive Stock Plan, as amended as of October 27, 1992 (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993, File No. 1-652).
10.11 Universal Corporation 1991 Stock Option and Equity Accumulation Agreement (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1991, File No. 1-652).
10.12 Amendment to Universal Corporation 1991 Stock Option and Equity Accumulation Agreement (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992, File No. 1-652).
10.13 Deli Universal, Inc. Management Performance Plan (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992, File No. 1-652).
10.14 Universal Leaf Tobacco Company, Incorporated 1994 Deferred Income Plan (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 1-652).
10.15 Universal Corporation Outside Directors' 1994 Deferred Income Plan (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 1-652).
10.16 Universal Leaf Tobacco Company, Incorporated 1994 Benefit Replacement Plan (incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, File No. 1-652).
10.17 Universal Corporation 1994 Stock Option and Accumulation Agreement (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994, File No. 1-652).
10.18 Universal Corporation 1994 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994, File No. 1-652).
10.19 Universal Corporation Non-Employee Director Non-Qualified Stock Option Agreement (incorporated herein by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994, File No. 1-652).
10.20 Amendment to the Universal Leaf Tobacco Company, Incorporated 1994 Deferred Income Plan effective June 1, 1995.*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.*
27 Financial Data Schedule.*
* Filed herewith.
(b) Reports on Form 8-K
Form 8-K filed on July 11, 1995. The form describes a press release announcing that earnings before a restructuring charge for the 1994/1995 fiscal year are expected to slightly exceed earlier expectations. The press release also announced a plan of further restructuring measures designed to continue the process of consolidation and rationalization of operations and services in Company facilities around the world.
(c) Exhibits
The exhibits listed in Item 14(a)(3) are filed as part of this annual report.
(d) Financial Statement Schedules
All schedules are omitted since the required information is not present in amounts sufficient to require submission or because the information required is included in the consolidated financial statements and notes therein.
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.
(REGISTRANT)
September 19, 1995 By /s/ Henry H. Harrell Henry H. Harrell
Chairman and Chief Executive Officer (Principal 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.
Chairman, Chief Executive /s/ Henry H. Harrell Officer and Director September 19, 1995 Henry H. Harrell (Principal Executive Officer)
/s/ Allen B. King President, Chief Operating September 22, 1995 Allen B. King Officer and Director
/s/ William W. Berry Director September 20, 1995 William W. Berry
/s/ Wallace L. Chandler Director September 22, 1995 Wallace L. Chandler
/s/ Richard G. Holder Director September 22, 1995 Richard G. Holder
/s/ Hubert R. Stallard Director September 21, 1995 Hubert R. Stallard
/s/ Thomas R. Towers Director September 22, 1995 Thomas R. Towers
/s/ Hartwell H. Roper Vice President and September 19, 1995 Hartwell H. Roper Chief Financial Officer
/s/ William J. Coronado Controller (Principal September 19, 1995 William J. Coronado Accounting Officer)