EXHIBIT 99.1

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

P R E S S R E L E A S E

CONTACT:	Karen M. L. Whelan		RELEASE:	4:00 p.m. EST
	Phone:	(804) 359-9311
	Fax:	(804) 254-3594
	Email:	investor@universalleaf.com

Universal Corporation Announces Third Quarter Earnings

Richmond, VA, February 7, 2005 / PRNEWSWIRE

Allen B. King, Chairman, President, and Chief Executive Office of Universal Corporation (NYSE:UVV), announced today that net income for the quarter that ended on December 31, 2004, was $27.9 million, or $1.08 per diluted share, compared to $27.8 million, or $1.09 per diluted share, for the three months ended March 31, 2004, which is the most comparable quarter for fiscal year 2004 because of last year’s change in the fiscal year. Net income for the nine months ended December 31, 2004, was $62.2 million, or $2.42 per diluted share, versus $99.6 million, or $3.94 per diluted share in the nine months ended March 31, 2004. The results for the nine months this year reflect a charge of $14.9 million for last quarter’s announced EU fines on the Company’s subsidiaries due to their tobacco buying practices in Spain. As the fines are not tax deductible, the charge reduced the nine-month earnings by $0.58 per diluted share. Revenues were $852 million in the quarter and $2.4 billion for the first nine months compared to $684 million and $2.3 billion, respectively, the prior year.

Tobacco revenues were flat for the nine months, but up by about $110 million for the quarter ended December 31, 2004, as shipment timing differences continued to reverse. However, tobacco results were only slightly higher in the quarter as the positive comparisons caused by last year’s $7.6 million charge associated with customer-rejected tobacco, coupled with this year’s higher tobacco shipments from Africa and Brazil and earlier shipments of current crop oriental tobaccos, were offset by the effects of the changing monetary system in Zimbabwe and the change in fiscal year end. In addition, the Company recognized a $6.4 million provision for the estimated loss on realization of certain value-added tax credits in Brazil. That expense was partially offset by net currency remeasurement gains of $3.6 million.

The nine-month tobacco results continued to be significantly below the prior year’s nine-month results due to the effect of changes in the monetary system in Zimbabwe, the impact of the change in the Company’s fiscal year end last year, the value-added tax provision in Brazil, and pricing pressures caused by larger crops and competitive pricing, particularly in South America and Africa. Changes in the monetary system in Zimbabwe in January 2004 have created volatility in the translation of the Company’s earnings in that country into U.S. dollars. As a result, since that time, the Company

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has not been able to offset inflationary cost increases with interest on local deposits or gains on conversion of U.S. dollars into local currency, and this has negatively impacted current year comparisons.

Because of the elimination of the reporting lag as part of the fiscal year change in 2004, management believes that the quarter that ended on March 31, 2004, is the quarter most comparable to that ended December 31, 2004. These periods are comparable because results from the sale of foreign tobacco, which represent the majority of the Company’s business, are compared to the same operating months in the fiscal year. However, results for operations selling North American tobacco for these periods are not comparable. The vast majority of the operating results for subsidiaries selling North American tobacco for the 2003 crop processing season were recorded during the nine months ended March 31, 2004. However, management estimates that about half of the operating results for the 2004 crop processing season were recorded in the nine-month period ended December 31, 2004. In addition, the prior year’s third quarter reflected a $3 million benefit from the one-time shift in the allocation of fixed factory overhead in the United States associated with the change in the Company’s fiscal year. The benefit was $11 million for the nine months.

The agri-products business did well despite continued disappointing results in nuts and dried fruits. About 40% of the increased revenue in the segment for the quarter and the nine months arose from the acquisition of a controlling interest in a small company that trades nuts and dried fruits. Including this business, nuts and dried fruits represented about $45 million and $90 million of growth in revenue in the quarter and the nine months, respectively, but difficult market conditions limited earnings in this group. Significantly higher volumes in rubber and canned meats drove most of the remaining increase in revenue and were the main source of the earnings improvement for both periods. For the nine months, tea also had more volume and better results, and while seed results improved, they were limited by a poor U.S. crop.

Although appreciation of the euro, which was about 6% during each period, increased U.S. dollar-translated income for the lumber and building products segment, results in both periods increased primarily because management controlled costs and maintained margins in an extremely competitive market with more high-margin products in the mix of sales.

Selling, general and administrative expenses were up in the quarter and in the nine months, reflecting the weakness of the U.S. dollar and additional costs of complying with the internal control requirements of Section 404 of the Sarbanes-Oxley Act (“Section 404”). The Company has incurred approximately $2.7 million through the nine months for outside implementation assistance and audit fees to comply with Section 404. In addition, nine-month costs were higher due to higher legal fees associated with the European Union’s actions with respect to European buying practices. The effect of the weaker dollar on translation of foreign currency denominated costs increased selling, general and administrative expenses by about $2 million in the quarter and $5.5 million in the nine months. In addition, net remeasurement gains, which reduced expenses, totaled $3.6 million for the quarter, bringing total net remeasurement gains for the nine months to $1.5 million. Sales commissions increased by about $4 million in

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the nine months due to increased sales made on this basis. The $6.4 million provision for value-added tax credits in Brazil was included in this account in the third quarter. Interest expense increased compared to last year due to higher debt balances and increasing interest rates.

The Company’s annual effective tax rate is expected to be approximately 43% because of the non-deductible EU fines, excess foreign taxes recorded in countries where the tax rate exceeds the U.S. rate, and local tax expense recorded by a foreign subsidiary with a U.S. dollar loss projected for fiscal year 2005.

Mr. King said, “Putting aside the impact of the EU fines, we continue to expect to have a good year despite the lower results reported for the first nine months. We believe that the majority of the shipment timing delays remaining at the end of the nine months will be resolved by the end of the fiscal year. However, significant volumes remain to be shipped, especially from Africa, and some of that volume could shift into fiscal year 2006. Lumber and building product operations continue to perform well and are expected to earn more than last year, and operating results from the agri-products segment have been improving this year. However, as we have pointed out, the effective income tax rate will be higher for the year, as will our costs associated with the EU fines and the implementation of the Section 404 requirements. Looking ahead, we expect larger crops to be marketed in South America and Africa, which could lead to a market imbalance in certain grades of tobacco during our fiscal year 2006. We have positioned our operations to adjust to this situation.”

The Company does not provide guidance on earnings. The Company cautions readers that any statements contained herein regarding earnings and expectations for our 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 our 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. For more details on important factors that could cause actual results to differ from our expectations, see the section “Factors That May Affect Future Results” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7, and Notes to the Consolidated Financial Statements in Item 8, of the Company’s Transition Report on Form 10-K for the nine months ended March 31, 2004, as filed with the Securities and Exchange Commission.

At 5:00 p.m. (Eastern Time), the Company will host a conference call to discuss these results. Those wishing to listen to the call may do so by visiting www.universalcorp.com at that time. A replay of the call will also be available for seven days at this web site or by dialing 888-707-8786.

Universal Corporation (NYSE:UVV) is a diversified company with operations in tobacco, lumber, and agri-products. Its gross revenues for the nine-month transition year that ended March 31, 2004, were approximately $2.3 billion.

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UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

Three and Nine Months Ended December 31, 2004, and March 31, 2004

(In thousands of dollars, except share and per share data)

	THREE MONTHS					NINE MONTHS
	December 31, 2004			March 31, 2004		December 31, 2004			March 31, 2004
	(Unaudited)					(Unaudited)
Sales and other operating revenues	$	852,346		$	683,540	$	2,449,658		$	2,271,152
Costs and expenses
Cost of goods sold		705,758			541,318		2,016,485			1,829,219
Selling, general and administrative expenses		94,602			86,747		275,271			250,307
European Commission fines		—			—		14,908			—
Operating income		51,986			55,475		142,994			191,626
Equity in pretax earnings of unconsolidated affiliates		8,917			4,148		9,838			6,044
Interest expense		15,721			11,758		42,484			35,032
Income before income taxes and other items		45,182			47,865		110,348			162,638
Income taxes		17,956			18,011		49,259			59,329
Minority interests		(681	)		2,013		(1,158	)		3,673
Net income	$	27,907		$	27,841	$	62,247		$	99,636
Earnings per common share - basic	$	1.09		$	1.10	$	2.44		$	3.97
Earnings per common share - diluted	$	1.08		$	1.09	$	2.42		$	3.94
Retained earnings - beginning of period						$	679,202		$	592,673
Net income							62,247			99,636
Net income of foreign subsidiaries for the three months ended March 31, 2004 (see Note 2)							—			18,854
Cash dividends declared ($1.20 for the nine months ended December 31, 2004, $1.14 for the nine months ended March 31, 2004)							(30,671	)		(28,693	)
Purchase of common stock							—			(3,268	)
Retained earnings - end of period						$	710,778		$	679,202

See accompanying notes.

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UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	December 31, 2004			March 31, 2004
	(Unaudited)
ASSETS
Current
Cash and cash equivalents	$	70,523		$	39,310
Accounts receivable, net		418,377			432,546
Advances to suppliers, net		147,506			140,758
Accounts receivable - unconsolidated affiliates		6,182			6,156
Inventories - at lower of cost or market:
Tobacco		637,889			562,927
Lumber and building products		175,045			138,423
Agri-products		172,365			106,214
Other		48,623			35,071
Prepaid income taxes		19,650			9,635
Deferred income taxes		16,719			16,908
Other current assets		46,554			38,721
Total current assets		1,759,433			1,526,669
Property, plant and equipment - at cost
Land		75,246			60,823
Buildings		403,596			364,948
Machinery and equipment		729,876			694,314
		1,208,718			1,120,085
Accumulated depreciation		(602,078	)		(559,217	)
		606,640			560,868
Other assets
Goodwill and other intangibles		138,362			134,664
Investments in unconsolidated affiliates		94,000			94,460
Deferred income taxes		61,341			62,489
Other noncurrent assets		129,897			103,623
		423,600			395,236
Total assets	$	2,789,673		$	2,482,773

See accompanying notes.

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UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	December 31, 2004			March 31, 2004
	(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Notes payable and overdrafts	$	353,141		$	244,031
Accounts payable		313,839			331,963
Accounts payable - unconsolidated affiliates		185			2,571
Customer advances and deposits		125,107			59,894
Accrued compensation		27,866			32,703
Income taxes payable		32,440			22,007
Current portion of long-term obligations		130,035			45,941
Total current liabilities		982,613			739,110
Long-term obligations		741,519			770,296
Postretirement benefits other than pensions		42,643			41,721
Other long-term liabilities		139,276			93,739
Deferred income taxes		50,982			43,691
Total liabilities		1,957,033			1,688,557
Minority interests		32,029			34,383
Shareholders’ equity
Preferred stock, no par value, authorized 5,000,000 shares, none issued or outstanding
Common stock, no par value, authorized 100,000,000 shares, 25,621,539 issued and outstanding shares (25,446,975 at March 31, 2004)		112,914			112,505
Retained earnings		710,778			679,202
Accumulated other comprehensive income (loss)		(23,081	)		(31,874	)
Total shareholders’ equity		800,611			759,833
Total liabilities and shareholders’ equity	$	2,789,673		$	2,482,773

See accompanying notes.

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UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended December 31, 2004, and March 31, 2004

(In thousands of dollars)

	NINE MONTHS
	December 31, 2004			March 31, 2004
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	62,247		$	99,636
Depreciation		51,913			45,519
Amortization		2,641			3,348
Other adjustments to reconcile net income to net cash provided by operating activities		(9,711	)		(10,756	)
Changes in operating assets and liabilities		(106,509	)		(163,913	)
Accrued liability for European Commission fines		14,908			—
Net cash provided (used) by operating activities		15,489			(26,166	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(67,108	)		(63,243	)
Purchase of businesses, net of cash acquired		(15,934	)		—
Sales of property, plant and equipment, and other		3,711			2,837
Net cash used in investing activities		(79,331	)		(60,406	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net		79,421			(607	)
Issuance of long-term debt		95,000			202,967
Repayment of long-term debt		(52,269	)		(96,008	)
Issuance of common stock		2,930			22,028
Purchases of common stock		—			(3,456	)
Dividends paid		(30,671	)		(28,693	)
Other		—			(162	)
Net cash provided by financing activities		94,411			96,069
Effect of exchange rate changes on cash		644			732
Net increase in cash and cash equivalents		31,213			10,229
Net decrease in cash and cash equivalents of foreign subsidiaries for the three months ended March 31, 2004 (see Note 2)		—			(15,578	)
Cash and cash equivalents at beginning of year		39,310			44,659
Cash and cash equivalents at end of period	$	70,523		$	39,310

See accompanying notes.

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UNIVERSAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1. BASIS OF PRESENTATION

Universal Corporation, with its subsidiaries (the “Company” or “Universal”), has operations in tobacco, lumber and building products, and agri-products. Because of the seasonal nature of these businesses, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year. All adjustments necessary to state fairly the results for the period have been included and were of a normal recurring nature. Certain amounts in prior year statements have been reclassified to conform to the current year presentation.

NOTE 2. CHANGE IN FISCAL YEAR END AND ELIMINATION OF REPORTING LAG FOR FOREIGN SUBSIDIARIES

The Company changed its fiscal year end from June 30 to March 31, effective March 31, 2004. In addition to better matching the fiscal reporting period with the crop and operating cycles of the Company’s largest operations, the change allowed the Company to eliminate the three-month reporting lag previously used by most of its foreign subsidiaries. The Company and all of the Company’s consolidated subsidiaries now have the same fiscal reporting period.

Throughout the fiscal year that will end on March 31, 2005, quarterly financial statements will include comparative information for the same sequential quarter of the prior year. Due to the year-end change, interim quarters in fiscal year 2005 will end three months earlier than the corresponding quarters in fiscal year 2004. Management believes this presentation provides the most appropriate comparison since foreign results, which represent the majority of the Company’s business, are generally compared for the same operating months in each year, due to the reporting lag in 2004. Due to the year-end change, the Company’s financial position at December 31, 2004, and its results of operations for the nine-month interim period that ended on that date are presented with comparative financial information for the nine-month transition year ended March 31, 2004, which was audited. The consolidated balance sheet and all information presented for balance sheet accounts at March 31, 2004, include the operations of foreign subsidiaries for the three months ended March 31, 2004, which were not reflected in the operating results for the nine-month transition year due to the prior reporting lag.

Due to the year-end change, the results for the comparative three and nine-month periods ended March 31, 2004, exclude approximately $3 million and $11 million, respectively, of fixed factory overhead expense related to the Company’s U.S. tobacco operations. Comparisons of summarized historical financial information are provided in Note 13 that present data for the quarter and nine months ended March 31, 2004, recast for the effect of eliminating the reporting lag (including an adjustment for the U.S. factory overhead); however, it is not practical to provide recast data for all information reported in the financial statements.

NOTE 3. ACCOUNTING PRONOUNCEMENTS

In May 2004, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. 106-2 (“FSP No. 106-2”), “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003” (“the Act”). FSP No. 106-2 provides guidance on accounting for the effects of a subsidy available under the Act to companies that sponsor retiree medical programs with drug benefits that are actuarially equivalent to those available under Medicare. In addition to the direct benefit to a company from qualifying for and receiving the subsidy, the effects would include expected changes in retiree participation rates and changes in estimated health care costs that result from

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the Act. FSP No. 106-2 was effective for Universal for the interim period ending September 30, 2004, the second quarter of fiscal year 2005. The Company believes that its postretirement benefit plan currently provides prescription drug coverage that is at least actuarially equivalent to the new benefit available under Medicare, and it will therefore qualify for the subsidy for an initial period of time after the Act is implemented until actuarial equivalency changes due to existing limits on the Company’s cost of providing the benefit. The Company has concluded that the effects of the Medicare subsidy will not constitute a “significant event” as defined in FASB Statement No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” As a result, the effects of the Act will be incorporated in the next regular measurement of plan obligations, which will be reflected in the Company’s financial statements in the fourth quarter of fiscal year 2005. The adoption of FSP No. 106-2 is not expected to have a material effect on the Company’s consolidated financial statements.

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (“Statement No. 151”). Statement No. 151 amends Accounting Research Bulletin No. 43 (“ARB No. 43”) to clarify that abnormal amounts of production-related costs, such as idle facility expense, freight, handling costs, and wasted materials, should be recognized as current-period charges rather than being recorded as inventory cost. Statement No. 151 also requires that allocation of fixed production overhead to inventory cost be based on the normal capacity of a company’s production facilities. Universal is in the process of evaluating the effects of Statement No. 151 on its accounting for production operations, but does not currently expect the impact to be material to its financial statements. Statement No. 151 is not effective for Universal until fiscal year 2007; however, earlier application is permitted.

In December 2004, the FASB issued a revision of Statement of Financial Accounting Standards No. 123, titled “Share-Based Payment” (“Statement No. 123R”). Statement No. 123R requires that share-based payments, such as grants of stock options, restricted shares, and stock appreciation rights, be measured at fair value and reported as expense in a company’s financial statements over the requisite service period. The earlier guidance that Statement No. 123R replaced allowed companies the alternative of recognizing expense for share-based payments in their financial statements or disclosing the pro forma effect of those payments in the notes to the financial statements. Universal periodically issues share-based payments to employees under its compensation programs and has elected to make pro forma disclosures under the current accounting guidance. The Company is required to adopt Statement No. 123R for the quarter ending September 30, 2005, which is the second quarter of fiscal year 2006. Beginning in that quarter, the Company will recognize expense over the service period for the fair value of all grants issued after June 30, 2005, as well as expense attributable to the remaining service period for all prior grants that have not fully vested by that date. The Company is considering certain changes for future share-based grants and is evaluating the alternative valuation models that may be used for share-based payments issued after the adoption of Statement No. 123R. At this time, the Company does not expect the effect of adopting Statement No. 123R to be significantly different from the impact on net earnings reported in prior periods under the disclosure provisions of the existing Statement No. 123.

In December 2004, the FASB issued two Staff Positions (“FSPs”) addressing accounting and disclosure issues related to certain provisions of the American Jobs Creation Act of 2004, which was signed into law in October 2004. FSP No. 109-1 addresses the application of FASB Statement No. 109 to the new tax deduction for qualified domestic production activities provided by this legislation. FSP No. 109-2 addresses accounting and disclosure considerations related to the one-time dividends received deduction the legislation provides to encourage U.S. companies to repatriate earnings from foreign subsidiaries. The Company’s current U.S. tax position significantly limits the potential benefit of both of these provisions of the American Jobs Creation Act. As a result, neither FSP is expected to have a material effect on the consolidated financial statements.

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NOTE 4. EUROPEAN COMMISSION FINES

In October of 2004, the European Commission (the “Commission”) imposed fines on “five companies active in the raw Spanish tobacco processing market” totaling €20 million (approximately $25 million) for “colluding on the prices paid to, and the quantities bought from, the tobacco growers in Spain.” Prior to the announcement of the fines, Universal disclosed the Commission’s investigation of this matter and that its Spanish subsidiary, Tabacos Espanoles S.A. (“TAES”), a purchaser and processor of raw tobacco in Spain, was believed to have jointly agreed to the terms of sale of green tobacco and qualities to be purchased from associations of farmers. Because of those past practices, the earlier disclosures indicated that the Company expected TAES would be assessed a fine, but a liability had not been recorded since no amount could be estimated. In its decision, the Commission imposed a fine of €108,000 (approximately $135,000) on TAES, and a fine of €11.88 million (approximately $14.8 million) on Deltafina S.p.A. (“Deltafina”), an Italian subsidiary of the Company. Deltafina did not and does not purchase or process raw tobacco in the Spanish market, but was and is a significant buyer of tobacco from some of the Spanish processors.

In January of 2005, Deltafina filed an appeal in the Court of First Instance of the European Communities. The main grounds of appeal are that the Commission erred in imposing liability on Deltafina as a cartel participant, particularly as the cartel leader, when Deltafina was not an actual party to the agreement and was incapable of acting in the relevant market. In addition, Deltafina argues that (i) the Commission failed to allege that Deltafina was a member of the cartel and cartel leader prior to issuing its decision, thereby impairing Deltafina’s right to defend itself, and (ii) that the Commission failed to try to prove that the practices affected trade between Member States of the European Community. The appeal also argues that the Commission incorrectly calculated the amount of the Deltafina fine. The appeal process is likely to take several years to complete, and the ultimate outcome is uncertain. Deltafina will be required to provide a bond or pay the fine into an interest-bearing escrow account in order to stay execution during the appeal process.

The Company recorded a charge of approximately $14.9 million in the quarter ending September 30, 2004, to accrue the full amount of the fines assessed Deltafina and TAES (the “EU fines”). Since the obligation may be secured by a bond during the appeal process, and the appeal is likely to take several years to complete, the accrued liability is reported in other long-term liabilities in the consolidated balance sheet. Because the Company expects that any fine ultimately paid by Deltafina will not be deductible under Italian income tax law, the Company has not recorded an income tax benefit on the charge. As a result, both pretax and net earnings for the nine months ended December 31, 2004, were reduced by approximately $14.9 million, or $0.58 per share, due to the fines. The impact of the charge on the Company’s consolidated effective income tax rate is discussed in Note 8.

In 2002, the Company reported that it was aware that the Commission was investigating certain aspects of the tobacco leaf markets in Italy. Deltafina buys and processes tobacco in Italy. The Company reported that it did not believe that the Commission investigation in Italy would result in penalties being assessed against it or its subsidiaries that would be material to the Company’s earnings. The reason the Company held this belief was that it had received conditional immunity from the Commission because Deltafina had voluntarily informed the Commission of the activities that were the basis of the investigation. On December 28, 2004, the Company received a preliminary indication that the Commission intended to revoke Deltafina’s immunity for disclosing in April 2002 that it had applied for immunity. The Company believes that the Commission does not know all of the facts concerning that disclosure, and Deltafina intends to inform the Commission of those facts in a hearing. In addition, neither the Commission’s Leniency Notice of February 19, 2002, nor Deltafina’s letter of provisional immunity contain a specific requirement of confidentiality. The potential for such disclosure was discussed with the Commission in March of 2002, and the Commission never told Deltafina that the disclosure would be a problem. In the

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event that the Commission does not reinstate Deltafina’s immunity, it is likely that the Commission will impose a fine on Deltafina. Current guidelines allow the Commission to assess fines in this case in amounts that would be material to the Company’s earnings. However, management is unable to estimate an amount at this time, and no liability has been recorded in the financial statements.

NOTE 5. GUARANTEES, OTHER CONTINGENT LIABILITIES, AND OTHER MATTERS

Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are industry practice in Brazil and support the farmers’ production of tobacco there. At December 31, 2004, total exposure under subsidiaries’ guarantees issued for banking facilities of Brazilian farmers was approximately $223 million. About 67% of these guarantees expire within one year, and nearly all of the remainder expire within five years. The Company withholds payments due to the farmers upon delivery of tobacco and forwards those payments to the third-party bank. Failure of farmers to deliver sufficient quantities of tobacco to the Company to cover their obligations to third-party banks could result in a liability for the Company; however, in that case, the Company would have recourse against the farmers. The fair value of guarantees was not material to the Company’s financial position. The maximum potential amount of future payments that the Company’s subsidiary could be required to make is the face amount, approximately $223 million, and any unpaid accrued interest. In addition, the Company has contingent liabilities of approximately $11.2 million that consist primarily of bid and performance bonds. The Company considers the possibility of a material loss on any of the guarantees and other contingencies to be remote. The accrual recorded for the value of the guarantees was not material to the Company’s financial position at December 31, 2004.

In recent years, economic and political changes in Zimbabwe have led to a significant decline in tobacco production in that country. Universal has been able to offset the effect of this decline on its business with increased production in other countries. If the political situation in Zimbabwe were to further deteriorate significantly, the Company’s ability to recover its assets there could be impaired. The Company’s equity in its net assets of subsidiaries in Zimbabwe was approximately $53 million at December 31, 2004.

NOTE 6. RESTRUCTURING

During fiscal year 2003, the Company recorded about $33 million in restructuring charges associated with rationalization of U.S. and African tobacco operations. Approximately $28 million of the charges were to record the severance cost associated with approximately 941 hourly employees and 366 salaried employees. During the nine months ended December 31, 2004, the Company paid approximately $4.3 million in direct severance payments under the plan to 58 employees.

Changes in severance liabilities are shown below:

	Nine months ended December 31, 2004			Nine-month transition year ended March 31, 2004
(in thousands of dollars)
Beginning balance	$	9,019		$	13,399
Payments		(5,017	)		(4,380	)
Ending balance	$	4,002		$	9,019

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Approximately $2.8 million of the severance liabilities represent postretirement benefits the affected employees will receive prior to normal retirement age and are expected to be paid out over the next four years. The remaining balance represents severance payments that are expected to be paid out over the next three months.

NOTE 7. STOCK-BASED COMPENSATION

As permitted under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” the Company applies the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” to stock options granted to employees. Under Statement No. 123, as amended by Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” the Company discloses pro forma net income and basic and diluted earnings per share as if the fair value-based method had been applied to all awards.

	THREE MONTHS						NINE MONTHS
	December 31, 2004			March 31, 2004			December 31, 2004			March 31, 2004
(in thousands of dollars, except per share data)
Net income	$	27,907		$	27,841		$	62,247		$	99,636
Stock-based employee compensation cost, net of tax effect, under fair value accounting		(1,494	)		(1,057	)		(3,952	)		(3,198	)
Pro forma net income under fair value method	$	26,413		$	26,784		$	58,295		$	96,438
Earnings per share - basic	$	1.09		$	1.10		$	2.44		$	3.97
Per share stock-based employee compensation cost, net of tax effect, under fair value accounting		(0.06	)		(0.04	)		(0.16	)		(0.12	)
Pro forma earnings per share - basic	$	1.03		$	1.06		$	2.28		$	3.85
Earnings per share - diluted	$	1.08		$	1.09		$	2.42		$	3.94
Per share stock-based employee compensation cost, net of tax effect, under fair value accounting		(0.05	)		(0.04	)		(0.15	)		(0.12	)
Pro forma earnings per share - diluted	$	1.03		$	1.05		$	2.27		$	3.82

As discussed in Note 3, the FASB has recently issued Statement No. 123R, “Share-Based Payment,” which will require companies to report the fair value of stock option grants and other share-based payments as expense over the requisite service period. Universal will be required to adopt Statement No. 123R for the quarter ending September 30, 2005, which is the second quarter of fiscal year 2006.

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NOTE 8. INCOME TAXES

The Company’s consolidated effective income tax rates for the quarter and nine months ended December 31, 2004, are 40% and 45%, respectively. The effective tax rate for the quarter is higher than the 35% U.S. marginal corporate tax rate primarily due to excess foreign taxes recorded in countries where the tax rate exceeds the U.S. rate and to local tax expense recorded by a foreign subsidiary with a U.S. dollar loss projected for fiscal year 2005. For the nine months, the effective tax rate is also higher by approximately 5% due to the fact that no income tax benefit was recognized on the $14.9 million charge recorded for the EU fines discussed in Note 4. The Company’s consolidated effective tax rate is expected to be approximately 43% for the fiscal year.

NOTE 9. EARNINGS PER SHARE

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

	THREE MONTHS				NINE MONTHS
	December 31, 2004		March 31, 2004		December 31, 2004		March 31, 2004
(in thousands of dollars, except share and per share data)
Net income	$	27,907	$	27,841	$	62,247	$	99,636
Denominator for basic earnings per share:
Weighted average shares		25,564,158		25,275,756		25,523,062		25,071,515
Effect of dilutive securities:
Employee stock options		159,267		255,795		173,631		205,417
Denominator for diluted earnings per share		25,723,425		25,531,551		25,696,693		25,276,932
Earnings per share – basic	$	1.09	$	1.10	$	2.44	$	3.97
Earnings per share – diluted	$	1.08	$	1.09	$	2.42	$	3.94

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NOTE 10. COMPREHENSIVE INCOME

Comprehensive income for each period presented in the consolidated statements of income and retained earnings is as follows:

	THREE MONTHS					NINE MONTHS
	December 31, 2004			March 31, 2004		December 31, 2004			March 31, 2004
(in thousands of dollars)
Net income	$	27,907		$	27,841	$	62,247		$	99,636
Foreign currency translation adjustment		10,455			15,055		12,747			24,427
Minimum pension liability		—			12,025		—			12,025
Foreign currency hedge adjustment		(2,372	)		—		(3,954	)		—
Comprehensive income	$	35,990		$	54,921	$	71,040		$	136,088

The adjustment to the minimum pension liability is recorded annually in the final quarter of the fiscal year based on actuarial calculations. In the prior year, it was recorded in the quarter and nine months ended March 31, 2004, since that was the final quarter of the Company’s shortened transition year. The currency hedge adjustment relates to a foreign currency hedge entered into at the end of the prior fiscal year.

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NOTE 11. SEGMENT INFORMATION

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

	THREE MONTHS						NINE MONTHS
	December 31, 2004			March 31, 2004			December 31, 2004			March 31, 2004
(in thousands of dollars)
SALES AND OTHER OPERATING REVENUES
Tobacco	$	456,717		$	346,260		$	1,276,980		$	1,275,975
Lumber and building products distribution		200,348			200,635			617,026			590,903
Agri-products		195,281			136,645			555,652			404,274
Consolidated total	$	852,346		$	683,540		$	2,449,658		$	2,271,152
OPERATING INCOME
Tobacco	$	54,101		$	52,354		$	129,438		$	181,046
Lumber and building products distribution		10,236			8,905			34,323			24,692
Agri-products		3,344			2,642			10,586			8,160
Total segment operating income		67,681			63,901			174,347			213,898
Corporate expenses		(6,778	)		(4,278	)		(21,515	)		(16,228	)
Equity in pretax earnings of unconsolidated affiliates		(8,917	)		(4,148	)		(9,838	)		(6,044	)
Consolidated total	$	51,986		$	55,475		$	142,994		$	191,626

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NOTE 12. PENSION PLANS AND POSTRETIREMENT BENEFITS

The Company has several defined benefit pension plans covering U.S. and foreign salaried employees and certain other employee groups. These plans provide retirement benefits based primarily on employee compensation and years of service. The Company also provides postretirement health and life insurance benefits for eligible U.S. employees attaining specific age and service levels.

The components of the Company’s net periodic benefit cost are as follows:

	Foreign Pension Benefits						Domestic Pension Benefits						Other Postretirement Benefits
	THREE MONTHS						THREE MONTHS						THREE MONTHS
(in thousands of dollars)	December 31, 2004			March 31, 2004			December 31, 2004			March 31, 2004			December 31, 2004			March 31, 2004
Service cost	$	773		$	714		$	1,303		$	1,247		$	213		$	279
Interest cost		1,849			1,695			2,740			2,767			611			916
Expected return on plan assets		(1,616	)		(1,463	)		(2,578	)		(2,601	)		(46	)		(46	)
Settlement cost		—			—			—			242			—			—
Net amortization and deferral		1			(46	)		598			639			55			130
Net periodic benefit cost	$	1,007		$	900		$	2,063		$	2,294		$	833		$	1,279
	Foreign Pension Benefits						Domestic Pension Benefits						Other Postretirement Benefits
	NINE MONTHS						NINE MONTHS						NINE MONTHS
(in thousands of dollars)	December 31, 2004			March 31, 2004			December 31, 2004			March 31, 2004			December 31, 2004			March 31, 2004
Service cost	$	2,228		$	2,143		$	3,911		$	3,740		$	638		$	835
Interest cost		5,319			5,086			8,220			8,302			2,278			2,749
Expected return on plan assets		(4,648	)		(4,389	)		(7,734	)		(7,803	)		(137	)		(137	)
Settlement cost		—			—			1,536			1,671			—			—
Net amortization and deferral		5			(140	)		1,794			1,916			165			390
Net periodic benefit cost	$	2,904		$	2,700		$	7,727		$	7,826		$	2,944		$	3,837

In the nine months ended December 31, 2004, the Company has made contributions of $3.8 million to foreign plans and $7.9 million to domestic plans and expects to make additional contributions of $1.7 million to foreign plans and $2.3 million to domestic plans in the remaining three months of fiscal year 2005.

NOTE 13. COMPARISON TO SUMMARIZED HISTORICAL INFORMATION RECAST FOR THE EFFECT OF ELIMINATING THE REPORTING LAG FOR FOREIGN SUBSIDIARIES

As discussed in Note 2, in connection with its change in fiscal year end, the Company eliminated the three-month reporting lag previously used for most of its foreign subsidiaries. Beginning with the first quarter of fiscal year 2005, all of the Company’s consolidated subsidiaries follow the same fiscal reporting period. To facilitate comparisons, unaudited summarized financial information for the four quarters in the twelve-month period ended March 31, 2004, recast for the effect of eliminating the reporting lag, has been prepared. Comparisons to the recast information for the three and nine months ended December 31, 2003, are as follows:

	THREE MONTHS				NINE MONTHS
	December 31, 2004		December 31, 2003 (Recast)		December 31, 2004		December 31, 2003 (Recast)
(in thousands of dollars, except per share data)
Sales and other operating revenues	$	852,346	$	773,865	$	2,449,658	$	2,314,071
Operating income		51,986		49,837		142,994		156,557
Income before income taxes and other items		45,182		41,124		110,348		127,802
Net income		27,907		23,778		62,247		76,478
Net income:
Per common share	$	1.09	$	0.95	$	2.44	$	3.06
Per diluted common share	$	1.08	$	0.94	$	2.42	$	3.04

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The results for the nine-month period ended December 31, 2004, include a $14.9 million charge for the EU fines (see Note 4). Since no income tax benefit was recognized on this charge, it reduced net income by $14.9 million, or $0.58 per share.

The recast results for the quarter and nine months ended December 31, 2003, include a charge of $7.6 million, which is $4.9 million after taxes or $0.20 per share, related to costs associated with a customer’s rejection of certain shipments of tobacco in that period by a foreign subsidiary. The recast results for the nine months ended December 31, 2003 also include restructuring charges of $5.7 million, which is $3.7 million after taxes or $0.15 per share, and a charge of $12 million, which is $7.7 million after taxes or $0.31 per share, related to the settlement of a lawsuit.

In addition, the recast results include adjustments before taxes of $3 million for the three months and $11 million for the nine months to reflect the allocation of U.S. fixed factory overhead to those periods. Reported results for those periods excluded this expense due to the year-end change.

NOTE 14. SUBSEQUENT EVENT

On January 7, 2005, the Company entered into a five-year revolving bank credit agreement. This agreement provides for a credit facility of $500 million, which matures on January 7, 2010. Borrowings under the credit facility will bear interest at variable rates, based on either 1) LIBOR plus a negotiated spread (initially 0.75%) or 2) the higher of the federal funds rate plus 0.5% or Prime rate, each plus a negotiated spread (initially 0.0%). The interest rate on the inital borrowings of 3.15% was calculated based on a 30-day LIBOR rate of 2.40%. The Company pays a facility fee on the credit facility. Loans made under the credit facility may be used for commercial paper backup, to refinance certain existing indebtedness, to provide general working capital, or for general corporate purposes. Under the terms of the credit agreement, the Company must maintain a minimum level of tangible net worth and observe a restriction on debt levels.

As a condition of closing the credit facility, the Company terminated an existing, undrawn $250 million revolving credit facility and repaid $103 million outstanding under a term loan, each of which would have matured on April 7, 2006. A combination of existing cash balances and proceeds from borrowings under the new credit facility were used to repay the term loan. The principal balance of the term loan is included in the current portion of long-term obligations at December 31, 2004.

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