10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended December 31, 2005

or

¨ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the Transition Period From              to             

Commission File Number: 1-652

UNIVERSAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia	54-0414210
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
1501 North Hamilton Street, Richmond, Virginia	23230
(Address of principal executive offices)	(Zip Code)

804-359-9311

(Registrant’s telephone number)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

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

As of February 1, 2006, the total number of shares of common stock outstanding was 25,723,315.

UNIVERSAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Item No.		Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements	3
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
3.	Quantitative and Qualitative Disclosures About Market Risk	23
4.	Controls and Procedures	25
	PART II - OTHER INFORMATION
1.	Legal Proceedings	26
6.	Exhibits	28
	Signatures	29

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

(In thousands of dollars, except per share data)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2005			2004			2005			2004
	(Unaudited)						(Unaudited)
Sales and other operating revenues	$	878,779		$	852,346		$	2,658,227		$	2,449,658
Costs and expenses
Cost of goods sold		742,497			705,758			2,217,906			2,016,485
Selling, general and administrative expenses		100,794			94,602			301,293			275,271
Restructuring and impairment costs		23,861			—			23,861			—
European Commission fines		—			—			—			14,908
Operating income		11,627			51,986			115,167			142,994
Equity in pretax earnings of unconsolidated affiliates		6,492			8,917			4,731			9,838
Interest expense		21,745			15,721			60,165			42,484
Income (loss) before income taxes and other items		(3,626	)		45,182			59,733			110,348
Income taxes		781			17,956			26,758			49,259
Minority interests		1,262			(681	)		311			(1,158	)
Net income (loss)	$	(5,669	)	$	27,907		$	32,664		$	62,247
Earnings (loss) per common share - basic	$	(0.22	)	$	1.09		$	1.27		$	2.44
Earnings (loss) per common share - diluted	$	(0.22	)	$	1.08		$	1.27		$	2.42
Retained earnings - beginning of period							$	733,763		$	679,202
Net income								32,664			62,247
Cash dividends declared ($1.27 in 2005, $1.20 in 2004)								(32,644	)		(30,671	)
Retained earnings - end of period							$	733,783		$	710,778

See accompanying notes.

3

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	December 31, 2005			December 31, 2004			March 31, 2005
	(Unaudited)			(Unaudited)
ASSETS
Current
Cash and cash equivalents	$	30,619		$	70,523		$	58,625
Accounts receivable, net		489,424			418,377			494,963
Advances to suppliers, net		132,811			153,077			171,906
Accounts receivable - unconsolidated affiliates		2,769			6,182			4,759
Inventories - at lower of cost or market:
Tobacco		712,396			637,889			609,114
Lumber and building products		160,478			175,045			167,333
Agri-products		203,089			172,365			172,448
Other		50,573			48,623			42,473
Prepaid income taxes		5,808			19,650			5,504
Deferred income taxes		12,826			16,719			6,875
Other current assets		48,703			46,554			54,808
Total current assets		1,849,496			1,765,004			1,788,808
Property, plant and equipment - at cost
Land		71,991			75,246			78,127
Buildings		404,436			403,596			395,077
Machinery and equipment		735,902			729,876			746,198
		1,212,329			1,208,718			1,219,402
Less accumulated depreciation		(608,864	)		(602,078	)		(595,732	)
		603,465			606,640			623,670
Other assets
Goodwill and other intangibles		134,817			138,362			138,053
Investments in unconsolidated affiliates		90,047			94,000			98,789
Deferred income taxes		96,414			61,341			85,014
Other noncurrent assets		185,141			129,897			150,990
		506,419			423,600			472,846
Total assets	$	2,959,380		$	2,795,244		$	2,885,324

See accompanying notes.

4

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

	December 31, 2005			December 31, 2004			March 31, 2005
	(Unaudited)			(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current
Notes payable and overdrafts	$	454,842		$	353,141		$	429,470
Accounts payable		343,770			317,579			299,452
Accounts payable - unconsolidated affiliates		245			185			279
Customer advances and deposits		139,331			125,107			48,634
Accrued compensation		24,852			27,866			35,621
Income taxes payable		17,024			32,440			32,866
Current portion of long-term obligations		169,438			130,035			123,439
Total current liabilities		1,149,502			986,353			969,761
Long-term obligations		771,750			741,519			838,687
Postretirement benefits other than pensions		44,785			42,643			43,459
Other long-term liabilities		117,905			141,107			131,885
Deferred income taxes		34,771			50,982			43,899
Total liabilities		2,118,713			1,962,604			2,027,691
Minority interests		32,460			32,029			35,245
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, 25,715,109 issued and outstanding shares (25,621,539 at December 31, 2004, and 25,668,590 at March 31, 2005)		118,933			112,914			117,520
Retained earnings		733,783			710,778			733,763
Accumulated other comprehensive loss		(44,509	)		(23,081	)		(28,895	)
Total shareholders’ equity		808,207			800,611			822,388
Total liabilities and shareholders’ equity	$	2,959,380		$	2,795,244		$	2,885,324

See accompanying notes.

5

UNIVERSAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of dollars)

	Nine Months Ended December 31,
	2005			2004
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	32,664		$	62,247
Depreciation		48,760			51,913
Amortization		2,430			2,641
Other adjustments to reconcile net income to net cash provided by operating activities		(6,051	)		(7,255	)
Changes in operating assets and liabilities		(46,762	)		(106,509	)
Restructuring and impairment costs		23,861			—
Accrued liability for European Commission fines		—			14,908
Net cash provided by operating activities		54,902			17,945
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(60,933	)		(67,108	)
Purchase of business, net of cash acquired		(14,339	)		(15,934	)
Sales of property, plant, and equipment and other		5,753			3,711
Net cash used in investing activities		(69,519	)		(79,331	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of short-term debt, net		43,103			79,421
Issuance of long-term debt		—			95,000
Repayment of long-term debt		(20,662	)		(52,269	)
Issuance of common stock		1,413			2,930
Dividends paid		(32,644	)		(30,671	)
Other		(4,069	)		(2,456	)
Net cash provided (used) by financing activities		(12,859	)		91,955
Effect of exchange rate changes on cash		(530	)		644
Net increase (decrease) in cash and cash equivalents		(28,006	)		31,213
Cash and cash equivalents at beginning of year		58,625			39,310
Cash and cash equivalents at end of period	$	30,619		$	70,523

See accompanying notes.

6

UNIVERSAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Universal Corporation, with its subsidiaries (the “Company” or “Universal”), has operations in tobacco, lumber and building products distribution, 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. This Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005.

NOTE 2. ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“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. Statement No. 151 is not effective for Universal until fiscal year 2007; however, earlier adoption is permitted. The Company does not currently expect the impact of Statement No. 151 to be material to its financial statements.

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 replaces allows 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 as of April 1, 2006, which is the beginning of fiscal year 2007, and will recognize expense over the service period for the fair value of all grants issued after March 31, 2006, as well as expense attributable to the remaining service period for all prior grants that have not fully vested by that date. The Company has made certain changes in its stock compensation program for fiscal year 2006 and for future share-based grants. Since vesting of share-based payments is normally accelerated at the date a grantee retires, the requisite service period under Statement No. 123R does not extend beyond the earliest date the grantee is eligible to retire. As a result, after the Statement is

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adopted, the fair value of the grants will be recognized as expense over the shorter of the stated vesting period or the period to the date of retirement eligibility. This will result in immediate recognition of the fair value of grants to any employees who are already eligible for retirement and create less uniformity in expense from period to period. The Company currently attributes service for expense recognition over the shorter of the required service period or the period to the employee’s mandatory retirement date, with recognition being accelerated if an employee elects to retire early.

NOTE 3. RESTRUCTURING AND IMPAIRMENT COSTS

During the quarter ended December 31, 2005, the Company recorded restructuring and impairment costs related to its tobacco operations totaling approximately $23.9 million before tax, $15.5 million after tax, or $0.60 per share. The components of the total pretax charge are as follows:

	Closure of Danville Processing Facility		Other Cost Reduction Initiatives		Total
Restructuring costs:
One-time termination benefits	$	1,746	$	390	$	2,136
Other costs		—		485		485
		1,746		875		2,621
Impairment costs:
Land, building and equipment		21,240		—		21,240
Total restructuring and impairment costs	$	22,986	$	875	$	23,861

As indicated above, the majority of the restructuring costs and all of the impairment costs were associated with the Company’s decision to close its leaf tobacco processing facility in Danville, Virginia, and consolidate all of its tobacco processing in the United States into its Nash County, North Carolina factory. The closure of the Danville facility, which was effective in December 2005, was the result of the significant decline in U.S. tobacco production since 2000. The remaining restructuring costs were associated with other cost reduction initiatives, including the closure of two administrative offices outside the United States.

The one-time termination benefits will be paid to 32 full-time employees and 313 hourly employees whose positions were eliminated upon closure of the Danville facility. The other restructuring costs represent lease costs on vacated office space, termination benefits, and employee relocation costs associated with the closing and consolidation of administrative offices.

The impairment costs represent adjustments to write down the carrying value of the land, building, and equipment at the Danville facility to fair value. The Company plans to sell the land and building and has adjusted their carrying value to estimated fair value, based on information

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provided by outside brokers and on the Company’s recent experience selling other leaf tobacco facilities in the United States. Certain equipment at the Danville facility is expected to be redeployed to other locations. Based on the Company’s impairment review, the carrying value of that equipment is supported by the estimated future cash flows associated with the use of the equipment at the new locations. The remaining equipment is expected to be sold for replacement parts, alternative use, or scrap, and has been written down to the related values estimated by two outside sources. Due to market conditions, the Company does not currently expect that any of the land, building, or equipment can be disposed of within the next twelve months and, as a result, the assets continue to be classified as “held and used” for accounting purposes. Should the Company decide not to redeploy any portion of the designated equipment from the Danville facility to other locations, that equipment would likely be sold for replacement parts, alternative use, or scrap, and additional impairment costs would be incurred.

The following is a reconciliation of the Company’s liability for restructuring costs through December 31, 2005:

	Nine Months Ended December 31, 2005
	One-Time Termination Benefits		Other Costs			Total
Balance at beginning of period	$	—	$	—		$	—
Costs charged to expense		2,136		485			2,621
Payments		—		(141	)		(141	)
Balance at end of period	$	2,136	$	344		$	2,480

During the quarter ending March 31, 2006, the Company expects to incur additional restructuring costs of approximately $3 million to $5 million related to the Danville closing and other cost reduction initiatives.

NOTE 4. GUARANTEES, OTHER CONTINGENT LIABILITIES, AND OTHER MATTERS

Guarantees and Other Contingent Liabilities

Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets are industry practice in Brazil and support the farmers’ production of tobacco there. At December 31, 2005, total exposure under subsidiaries’ guarantees issued for banking facilities of Brazilian farmers was approximately $237 million. About 75% 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 on delivery of tobacco and forwards those payments to the third-party bank. Failure of farmers to deliver sufficient quantities of tobacco to the Company to cover their obligations to third-party banks could result in a liability for the Company; however, in that case, the Company would have recourse against the farmers. The maximum potential amount of future payments that the Company’s subsidiary could be required to make is the face amount, $237 million, and any unpaid accrued interest. The

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accrual recorded for the value of the guarantees was approximately $6 million and $5.5 million at December 31, 2005 and 2004, respectively, and approximately $4 million at March 31, 2005. In addition, the Company has contingent liabilities of approximately $9 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.

Zimbabwe

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 this volume decline with increased production in other countries.

During the nine months ended December 31, 2005, the Zimbabwe dollar devalued from an exchange rate of approximately 6,000 to 1 U.S. dollar to approximately 85,000 to 1. In addition, the government reduced the number of days that U.S. dollars can be held in a U.S. dollar bank account from 60 days to 30 days. After 30 days, the U.S. dollars must be converted into Zimbabwe dollars and are thus exposed to devaluation. In this environment, the Company experienced remeasurement losses of $7.4 million in the nine months ended December 31, 2005. Last year, the Company recorded remeasurement losses of about $1.8 million in the nine-month period. In Zimbabwe, the devaluation creates taxable local currency gains from tobacco sales in U.S. dollars. Those gains generated tax expense of $2.7 million in the nine months ended December 31, 2005.

As inventory is sold in U.S. dollars and the resulting accounts receivable are collected, it is increasingly difficult under the Zimbabwe government’s strict exchange controls to protect the value of the U.S. dollars by using them within 30 days. Only local U.S. dollar bank borrowings or U.S. dollar advances from offshore finance facilities may be used to purchase green tobacco in Zimbabwe, so funds generated from sales cannot be used for these purchases. Absent major improvement in conditions in Zimbabwe, the Company remains exposed to further losses with continued devaluation of the Zimbabwe dollar.

The Company’s ability to recover the value of its long-lived assets in Zimbabwe could also become impaired. As of December 31, 2005, the Company’s equity in its net assets of subsidiaries in Zimbabwe was approximately $42 million, of which about $19 million was represented by long-lived assets.

European Commission Fines and Other Legal Matters

European Commission Fines in Spain

In October 2004, the European Commission (the “Commission”) imposed fines on “five companies active in the raw Spanish tobacco processing market” totaling €20 million (approximately $25 million) for “colluding on the prices paid to, and the quantities bought from, the tobacco growers in Spain.” Two of the Company’s subsidiaries, including Deltafina, S.p.A. (“Deltafina”), an Italian subsidiary, were among the five companies assessed fines. In its decision, the Commission imposed a fine of €11.88 million (approximately $14.9 million) on

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Deltafina. Deltafina did not and does not purchase or process raw tobacco in the Spanish market, but was and is a significant buyer of tobacco from some of the Spanish processors. The Company recorded a charge of approximately $14.9 million in the second quarter of fiscal year 2005 to accrue the full amount of the fines assessed the Company’s subsidiaries.

In January 2005, Deltafina filed an appeal in the Court of First Instance of the European Communities. The appeal process is likely to take several years to complete, and the ultimate outcome is uncertain.

European Commission Fines in Italy

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

On December 28, 2004, the Company received a preliminary indication that the Commission intended to revoke Deltafina’s immunity for disclosing in April 2002 that it had applied for immunity. Neither the Commission’s Leniency Notice of February 19, 2002, nor Deltafina’s letter of provisional immunity, contains a specific requirement of confidentiality. The potential for such disclosure was discussed with the Commission in March of 2002, and the Commission never told Deltafina that disclosure would affect Deltafina’s immunity. On October 20, 2005, the Company received notification from the Commission that the Commission had imposed fines totaling €30 million (about $36 million) on Deltafina and the Company jointly for infringing European Union antitrust law in connection with the purchase and processing of tobacco in the Italian raw tobacco market.

The Company does not believe that the decision can be reconciled with the Commission’s Statement of Objections and facts. The Company and Deltafina each have appealed the decision to the Court of First Instance of the European Communities. Based on consultation with outside counsel, the Company believes it is probable that it will prevail in the appeals process and has not accrued a charge for the fine. At this time, Deltafina intends to provide a bank guarantee to the Commission in the amount of the fine in order to stay execution during the appeal process.

Other Legal Matters

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

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Tax Audits

Subsidiaries of the Company are subject to tax audits from time to time by the various tax authorities of the countries and jurisdictions in which they operate. These audits can result in potential or actual assessments for taxes, interest, and penalties in amounts that could have a material effect on results of operations for a particular fiscal reporting period.

Losses on Agri-Products Inventory and Purchase Commitments

Certain subsidiaries in the Company’s agri-products segment buy, process, package, and sell sunflower seeds and almonds. The markets for both of these commodities are in an oversupply position, primarily due to unexpectedly high production from the 2005 crops. These conditions caused prices for finished product and prices indicated for raw product to decline significantly during the quarter ended December 31, 2005. As a result of the declines, the Company recorded losses totaling approximately $12 million before tax ($7 million after tax) on uncommitted inventory, as well as firm commitments to purchase undelivered raw product, during the quarter. Some of the Company’s inventory and purchase commitment positions remain exposed to further price declines, and additional losses may be reported in subsequent periods on any additional price declines. Market prices for almonds have declined further since December 31, 2005, and based on prices at January 31, 2006, estimated additional losses of approximately $5 million would be incurred.

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NOTE 5. STOCK-BASED COMPENSATION

As permitted under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“Statement No. 123”), 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 Ended December 31,						Nine Months Ended December 31,
(In thousands of dollars, except per share data)	2005			2004			2005			2004
Net income (loss)	$	(5,669	)	$	27,907		$	32,664		$	62,247
Stock-based employee compensation cost, net of tax effect, under fair value accounting		(1,028	)		(1,494	)		(3,655	)		(3,952	)
Pro forma net income (loss) under fair value method	$	(6,697	)	$	26,413		$	29,009		$	58,295
Earnings (loss) per share - basic	$	(0.22	)	$	1.09		$	1.27		$	2.44
Per share stock-based employee compensation cost, net of tax effect, under fair value accounting		(0.04	)		(0.06	)		(0.14	)		(0.16	)
Pro forma earnings (loss) per share - basic	$	(0.26	)	$	1.03		$	1.13		$	2.28
Earnings (loss) per share - diluted	$	(0.22	)	$	1.08		$	1.27		$	2.42
Per share stock-based employee compensation cost, net of tax effect, under fair value accounting		(0.04	)		(0.05	)		(0.14	)		(0.15	)
Pro forma earnings (loss) per share - diluted	$	(0.26	)	$	1.03		$	1.13		$	2.27

As discussed in Note 2, Universal is required to adopt FASB Statement No. 123R, which requires that share-based payments be reported as expense, effective April 1, 2006, which is the beginning of fiscal year 2007.

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NOTE 6. EARNINGS PER SHARE

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

	Three Months Ended December 31,					Nine Months Ended December 31,
(In thousands of dollars, except per share data)	2005			2004		2005		2004
Net income (loss)	$	(5,669	)	$	27,907	$	32,664	$	62,247
Denominator for basic earnings (loss) per share:
Weighted average shares		25,715,109			25,564,158		25,698,447		25,523,062
Effect of dilutive securities:
Employee stock options and restricted share units		—			159,267		121,066		173,631
Denominator for diluted earnings (loss) per share		25,715,109			25,723,425		25,819,513		25,696,693
Earnings (loss) per share – basic	$	(0.22	)	$	1.09	$	1.27	$	2.44
Earnings (loss) per share – diluted	$	(0.22	)	$	1.08	$	1.27	$	2.42

For the three months ended December 31, 2005, employee stock options and restricted shares are excluded from the diluted earnings per share calculation since their effect would be antidilutive.

NOTE 7. COMPREHENSIVE INCOME

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

	Three Months Ended December 31,						Nine Months Ended December 31,
(in thousands of dollars)	2005			2004			2005			2004
Net income (loss)	$	(5,669	)	$	27,907		$	32,664		$	62,247
Foreign currency translation adjustment, net of taxes		(1,024	)		10,455			(9,431	)		12,747
Minimum pension liability, net of taxes		(5,002	)		—			(5,002	)		—
Foreign currency hedge adjustment, net of taxes		198			(2,372	)		222			(3,954	)
Unrealized loss on available-for-sale securities, net of taxes		(1,403	)		—			(1,403	)		—
Comprehensive income (loss)	$	(12,900	)	$	35,990		$	17,050		$	71,040

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The minimum pension liability for certain foreign plans was adjusted at December 31, 2005, based on mid-year actuarial valuations prepared for those plans. The unrealized loss on available-for-sale securities relates to investments made by the Company’s subsidiary in Zimbabwe in various equity securities to reduce its exposure to devaluation of the Zimbabwe dollar.

NOTE 8. 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 Ended December 31,					Nine Months Ended December 31,
(in thousands of dollars)	2005			2004		2005		2004
SALES AND OTHER OPERATING REVENUES
Tobacco	$	475,175		$	456,717	$	1,375,294	$	1,276,980
Lumber and building products distribution		200,144			200,348		641,530		617,026
Agri-products		203,460			195,281		641,403		555,652
Consolidated total	$	878,779		$	852,346	$	2,658,227	$	2,449,658
OPERATING INCOME (LOSS)
Tobacco	$	46,491		$	54,101	$	124,098	$	129,438
Lumber and building products distribution		7,107			10,236		27,335		34,323
Agri-products		(6,468	)		3,344		7,514		10,586
Total segment operating income		47,130			67,681		158,947		174,347
Less:
Corporate expenses		5,150			6,778		15,188		21,515
Equity in pretax earnings of unconsolidated affiliates		6,492			8,917		4,731		9,838
Restructuring and impairment costs		23,861			—		23,861		—
Consolidated total	$	11,627		$	51,986	$	115,167	$	142,994

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NOTE 9. 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 Ended December 31,						Three Months Ended December 31,						Three Months Ended December 31,
(in thousands of dollars)	2005			2004			2005			2004			2005			2004
Service cost	$	631		$	773		$	1,621		$	1,303		$	224		$	213
Interest cost		1,649			1,849			2,278			2,740			1,154			611
Expected return on plan assets		(1,431	)		(1,616	)		(2,544	)		(2,578	)		(44	)		(46	)
Settlement cost		—			—			1,188			—			—			—
Net amortization and deferral		(33	)		1			(124	)		598			(13	)		55
Net periodic benefit cost	$	816		$	1,007		$	2,419		$	2,063		$	1,321		$	833
	Foreign Pension Benefits						Domestic Pension Benefits						Other Postretirement Benefits
	Nine Months Ended December 31,						Nine Months Ended December 31,						Nine Months Ended December 31,
(in thousands of dollars)	2005			2004			2005			2004			2005			2004
Service cost	$	1,924		$	2,228		$	4,046		$	3,911		$	827		$	638
Interest cost		5,059			5,319			7,737			8,220			2,609			2,278
Expected return on plan assets		(4,395	)		(4,648	)		(7,613	)		(7,734	)		(133	)		(137	)
Settlement cost		—			—			1,188			1,536			—			—
Net amortization and deferral		(99	)		5			1,162			1,794			(37	)		165
Net periodic benefit cost	$	2,489		$	2,904		$	6,520		$	7,727		$	3,266		$	2,944

During the nine months ended December 31, 2005, the Company made contributions of $2.5 million to foreign plans and $8 million to domestic plans, and expects to make additional contributions of $2.3 million to foreign plans and $4.3 million to domestic plans in the remaining three months of the fiscal year.

NOTE 10. INCOME TAXES

The Company’s consolidated effective income tax rate was approximately 45% for each of the nine-month periods ended December 31, 2005 and 2004. The effective tax rate is normally 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. The currency devaluation in Zimbabwe, which generates U.S. dollar losses but local tax expense, also caused an increase in the effective income tax rate in both years. In addition, for the nine months ended December 31, 2005,

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the Company’s $23.9 million charge for restructuring and impairment costs generated a tax benefit at a lower rate than the effective tax rate applied to all other earnings, which increased the consolidated effective tax rate by approximately 3%. For the nine months ended December 31, 2004, no income tax benefit was recognized on the $14.9 million charge recorded for a European Commission fine, which increased the effective tax rate by approximately 5%.

NOTE 11. SUBSEQUENT EVENT

In February 2006, the Company determined that the restructuring and impairment charges for the closure of the Danville, Virginia facility, combined with lower than expected operating results for the quarter ended December 31, 2005, and a decrease in committed tobacco inventories caused by shipments during the quarter, caused a covenant breach under its revolving credit agreement and a secured term loan. Waivers of the covenant violation have been received from a sufficient number of the banks participating in the revolving credit facility, and no event of default has occurred under the agreement. The Company decided to repay the secured term loan on February 7, 2006, using borrowings under the revolving credit facility, to avoid additional costs to amend the term loan and to release the liens from the Danville, Virginia, facility, which had been pledged as security on the loan. The entire outstanding principal balance of that loan, approximately $69 million, has been classified in the current portion of long-term obligations in the consolidated balance sheet at December 31, 2005. No covenants have been breached in any of the Company’s other debt obligations. The Company is currently working with its bank group and expects to amend its revolving credit agreement to allow greater room under the waived covenant into the next fiscal year. The Company also expects to complete negotiations for a bank term loan of up to $250 million during the quarter ending March 31, 2006. Proceeds from that loan will be used to reduce borrowings under the revolving credit facility.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q and the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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. A further list and description of these risks, uncertainties and other factors can be found in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005, and in other documents we file with the Securities and Exchange Commission. This Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended March 31, 2005.

Liquidity and Capital Resources

Overview

Our liquidity and capital resource requirements are predominantly short term in nature and primarily relate to working capital required for tobacco crop purchases. Working capital needs are seasonal within each geographic region. The geographic dispersion and the timing of working capital needs permit us to predict our general level of cash requirements. The marketing of the crop in each geographic area is heavily influenced by weather conditions and 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. Despite a predominance of short-term needs, the Company maintains a relatively large portion of its total debt as long-term to reduce liquidity risk.

Working Capital

Working capital at December 31, 2005, was $700 million, down $119 million from the level at March 31, 2005. The decline was caused in part by the classification of the long-term portion of a secured term loan as current to reflect the Company’s decision to prepay it after quarter-end. Excluding that item, working capital declined $56 million for the nine-month period. We expect seasonal changes in working capital items as tobacco inventories increase during the first half of the fiscal year when tobacco is received and processed in Africa and Brazil and is awaiting shipment to customers. During the second half of the year, the balances usually begin to decline as inventories are shipped and receivables collected. During the nine months ended December 31, 2005, both Africa and the United States experienced seasonal increases in inventory, but the U.S. increase also reflects a change in the delivery pattern of certain tobaccos related to the Company’s oriental tobacco joint venture, which also increased customer advances.

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South American inventories declined in a normal seasonal decrease. Tobacco inventories at December 31, 2005, were $712 million, up $103 million from the level at March 31, 2005 and down $85 million from the level at September 30, 2005. Other inventories, which include fertilizer, seed, and packing materials for the tobacco segment, have increased by $8 million during the nine months as African regions prepared for the new season. The increases in tobacco and other inventory in the nine months were primarily financed using customer advances and deposits, which increased by about $91 million, including the portion related to the change in delivery procedures for oriental tobaccos. Because we advance funds to suppliers, some of the inventory increase had been funded earlier in the season, and the $39 million reduction in advances to suppliers more than offset the remainder of the inventory increase. Agri-products inventories were up $31 million from the March 31, 2005, level. This is primarily a result of larger inventories of almonds and sunflower seeds, and the related increase in accounts payable mitigated the effect on working capital. Inventories for the lumber and building products segment included seasonal declines from March 31, 2005, balances. Many of the same factors can be cited for changes since December 31, 2004. The effects of the oriental tobacco deliveries and the higher inventories of sunflower seeds and almonds were the largest factors in this comparison. In addition, accounts receivable and inventory were also affected by shipment timing as some shipments were made later in the quarter or deferred to subsequent quarters.

Inventory is usually financed with a mix of cash, notes payable, and customer deposits, depending on our borrowing capabilities, interest rates, and exchange rates, as well as those of our customers. We generally do not purchase material quantities of tobacco on a speculative basis. Thus, about 80% of the nine-month period’s $103 million increase in tobacco inventory to $712 million represents tobacco that has been committed to customers. The level of uncommitted inventories at December 31, 2005, was $105 million. Although customer advances provided nearly 90% of the funding for inventory increases, the level of customer advances can vary from year to year as customers review their circumstances. Accordingly, we treat such advances as borrowings when we review our balance sheet structure.

Investing Activities

During the nine-month period ended December 31, 2005, we invested about $61 million in our fixed assets. The largest portion of that was spent in Africa where we completed the construction of a processing facility in Mozambique. The new facility began processing tobacco in August 2005. We have decided to curtail capital spending as part of our initiative to reduce debt, and for the quarter, our capital spending was below depreciation expense.

During the quarter, we reflected the completion of a small acquisition in Holland as a use of funds. We set aside funds for the acquisition in the fourth quarter of fiscal year 2005, but did not take control of the company until the third quarter of fiscal year 2006. The funds used were from an escrow deposit account and did not require the use of new borrowings.

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Financing Activities

Debt increased slightly during the nine months as we funded our seasonal working capital needs. Total debt increased by $4 million. In May 2005, we entered into a private placement transaction, borrowing $200 million under a three-year floating rate note. The note bears interest at LIBOR plus 1.25% and is callable after one year. The proceeds were used to retire short-term notes, commercial paper, and borrowings under our revolving credit facility. On our March 31, 2005, balance sheet, we classified $200 million of borrowings supported by our revolving credit facility as long-term debt because of the issuance, subsequent to fiscal year end, of the $200 million three-year note to refinance those borrowings.

In order to appeal the fine of €30 million (approximately $36 million) assessed against us and Deltafina in October 2005 by the EU Commission in the Italian case, we will be required to either escrow or bond the amount of the fine. We intend to provide a bank guarantee to the EU Commission in the amount of the fine in order to stay execution during the appeal process.

The restructuring charge for the closure of the Danville, Virginia, facility, combined with lower than expected operating results for the quarter and a decrease in the amount of committed tobacco inventories due to shipments during the quarter, caused a covenant breach under our revolving credit facility and under a secured term loan as of December 31, 2005. We received a waiver of the covenant from the required lenders for the quarter ended December 31, 2005, and thus, no event of default occurred. We are currently working with our bank group and expect to amend our revolving credit agreement to allow greater room under our covenants into the next fiscal year. We also elected to repay nearly $70 million outstanding under a secured loan facility to avoid additional costs related to amending the agreement and releasing liens from the Danville facility, which was pledged as security under the loan. The loan was repaid on February 7, 2006, using borrowings under our revolving credit agreement.

We had $410 million available under a five-year committed revolving credit facility and $31 million in cash at December 31, 2005. In addition, we had over $675 million in unused, uncommitted bank lines, and in December 2005, we filed a new, undenominated shelf registration with the Securities and Exchange Commission. Our short-term debt and current maturities of long-term debt totaled $624 million. Thus, we believe that our liquidity and capital resources at December 31, 2005, remained adequate to support our foreseeable operating needs.

We expect to complete negotiations for a bank term loan of up to $250 million during the quarter ending March 31, 2006. Proceeds from this loan will be used to reduce borrowings under the revolving credit facility.

Results of Operations

After a $23.9 million pretax restructuring charge associated with the closure of the Company’s tobacco processing plant in Danville, Virginia, the Company reported a net loss of $5.7 million, or $.22 per diluted share, compared to net earnings of $27.9 million, or $1.08 per diluted share, in the third quarter of fiscal year 2005. For the first nine months of fiscal year

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2006, net earnings were $32.7 million, or $1.27 per diluted share, compared to $62.2 million, or $2.42 per diluted share last year. Restructuring charges reduced the current quarter and nine-month results by $15.5 million after tax, or $.60 per diluted share. Prior year results for the nine months reflected a charge of $14.9 million for EU fines on subsidiaries of the Company related to tobacco buying practices in Spain, which reduced results for that period by $.58 per diluted share. Revenues were $879 million in the quarter and $2.7 billion for the first nine months compared to $852 million and $2.4 billion, respectively, in the prior year.

Tobacco segment operating income for the quarter and nine months was lower compared to last year due to continued weakness in South American results from lower operating margins on the poor quality, more expensive Brazilian crop, as well as a significant decline in demand for our blended strip products. In addition, results in Africa were impacted by $4 million in expenses associated with start-up of our Mozambique factory, as well as the effect of lower yields of some African crops due to poor weather conditions this year and the effect of the overhang of last year’s large Malawi burley crop. The positive impact of increased shipments from Malawi and Tanzania offset some of the unfavorable items in Africa. Both periods benefited from improved operating efficiencies in the United States along with higher sales volume. For the nine months, tobacco operating results were also reduced by currency remeasurement losses, net of export incentives, in Zimbabwe. In addition, as mentioned above, last year’s nine-month tobacco results included a pre-tax charge of $14.9 million for the EU fines.

Earnings from the lumber and building products distribution segment were lower for the quarter and nine months due to ongoing price pressure from Do-It-Yourself (“DIY”) retailers, which negatively affected margins in the retail supply division. This decline was partly offset by improved results in the construction supply market, which benefited from increased sales volume.

The agri-products segment reported a loss in the quarter due to approximately $12 million in inventory write-downs and losses on firm purchase commitments for almonds and sunflower seeds. These write-downs were required due to the recent rapid drop of market prices in those markets. Agri-products’ results from the sale of rubber and tea in the nine-month period were higher than last year due to improved market conditions. Agri-products’ revenues increased for the nine-month period primarily because of volume increases in synthetic rubber and nuts.

During the quarter, the Company announced the closure of its leaf tobacco processing plant in Danville, Virginia, and recorded a $23.9 million pretax restructuring charge, primarily associated with the closure, of which $2.6 million will be cash charges. The Company will consolidate all of its United States flue-cured and burley leaf processing into its Nash County, North Carolina, facility.

Corporate expenses were lower in the quarter and the nine months due to lower incentive compensation accruals and lower costs associated with Sarbanes-Oxley compliance work. In addition, for the nine-month period, the Company benefited from a currency gain on a foreign withholding tax refund. Selling, general and administrative expenses increased for the nine months in large measure because of a $6.6 million increase in the provision for bad debts for

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Brazilian farmers and increased currency remeasurement losses in Africa, primarily Zimbabwe, of $7.6 million. Interest expense was substantially higher for the quarter and nine months due to higher short-term interest rates and increased borrowing levels. In addition, the Company’s consolidated effective income tax rate was approximately 45% for each of the nine-month periods ended December 31, 2005 and 2004. The effective tax rate is normally 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. The currency devaluation in Zimbabwe, which generates U.S. dollar losses but local tax expense, also caused an increase in the effective income tax rate in both years. In addition, for the nine months ended December 31, 2005, the Company’s $23.9 million charge for restructuring and impairment costs generated a tax benefit at a lower rate than the effective tax rate applied to all other earnings, which increased the consolidated effective tax rate by approximately 3%. For the nine months ended December 31, 2004, no income tax benefit was recognized on the $14.9 million charge recorded for a European Commission fine, which increased the effective tax rate by approximately 5%.

The Company did not record a charge for the European Commission fine of €30 million (about $36 million) related to green tobacco buying practices in Italy, which was announced in October 2005. The fine was assessed on the Company after the European Commission revoked Deltafina’s conditional immunity, which had been granted in 2002. Based on consultation with outside counsel, management believes that the terms of the immunity agreement were not breached and that immunity will be restored through the appeal of the decision in the courts. The Company and Deltafina each have appealed the decision to the Court of First Instance of the European Communities.

Fiscal year 2006 has been a difficult year due to the confluence of a number of events. In addition to the impact on sales and margins of a poor quality Brazilian crop and the strength of the Brazilian currency, results for the first nine months of the fiscal year have been depressed by reduced yields on certain African crops from drought conditions, continued sharp declines in demand for our blended strip products, and market pricing issues in almonds and sunflower seeds. In addition, during the third quarter we made the difficult decision to close our tobacco processing operations in Danville, Virginia, in response to the continued decline in tobacco production in the United States. Looking ahead, we expect the remainder of the fiscal year to continue to be challenging. As we have noted, the Company remains exposed to further negative market developments in almond and sunflower seed markets, and the retail sales segment of the lumber business continues to be under pressure from reduced consumer demand and price competition in the DIY sector. We expect some margin pressures to continue in tobacco, and we expect more normal leaf shipments from Africa in the coming quarter. Last year’s fourth quarter benefited from much heavier-than-normal shipments due to delays earlier in the year.

Fiscal year 2007 looks more promising. At this time, we do not foresee any significant restructuring or impairment costs, factory startup costs, or large inventory adjustments, which collectively reduced fiscal year 2006 pretax earnings by nearly $40 million. We expect to see the benefit of savings from the rationalization of our U.S. tobacco operations and our program to reduce overhead costs. The quality of the new Brazilian crop appears to be much better than that of last year. However, the Brazilian currency remains very strong, which will again increase costs, and some shipments of low margin fiscal year 2006 Brazilian tobacco will carry over into fiscal year 2007. African crops for the new season thus far have had no significant weather issues, except for some drought conditions in Tanzania, and are developing well. Although we have experienced a number of market issues this year, we do not see a fundamental weakening in our business, our business environment, or our longer term prospects.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

Interest rate risk is limited in the tobacco business because customers usually pre-finance purchases or pay market rates of interest for inventory purchased for their accounts. Our tobacco customers pay interest on tobacco purchased for their order. That interest is paid at rates based on current markets for variable-rate debt. If we fund our committed tobacco inventory with fixed-rate debt, we may not be able to recover interest at that fixed rate if current market interest rates were to fall. As of December 31, 2005, tobacco inventory of $712 million included about $607 million in inventory that was committed for sale to customers and about $105 million that was not committed. Committed inventory, after deducting $139 million in customer deposits, represents our net exposure of $468 million. We maintain a substantial portion of our debt at variable interest rates either directly or through interest rate exchange agreements in order to mitigate substantially interest rate risk related to carrying fixed-rate debt. Debt carried at variable interest rates was about $774 million at December 31, 2005. Although a hypothetical 1% change in short-term interest rates would result in a change in annual interest expense of approximately $7.4 million, about 60% of that amount should be offset with changes in customer charges.

Currency

The international tobacco trade generally is conducted in U.S. dollars, thereby limiting foreign exchange risk to that which is related to production costs, overhead, and income taxes in the source country. Most of the operations are accounted for using the U.S. dollar as the functional currency. Because there are no forward foreign exchange markets in many of our major countries of tobacco origin, we manage our foreign exchange risk by matching funding for inventory purchases with the currency of sale, which is usually the U.S. dollar, and by minimizing our net investment in individual countries. In these countries, we are vulnerable to currency gains and losses to the extent that any local currency balances do not offset each other.

Our lumber and building products operations, which are based in The Netherlands, use the euro as their functional currency. In certain tobacco markets that are primarily domestic, we use the local currency as the functional currency. Examples of these domestic markets are Canada, Hungary, and Poland. In each case, reported earnings are affected by the translation of the local currency into the U.S. dollar.

Commodity

We use commodity futures in our rubber business to reduce the risk of price fluctuations. We do not enter into rubber contracts for trading purposes. All forward commodity contracts are adjusted to fair market value during the year, and gains and losses are recorded in income at that time. The amounts recorded during the quarters ended December 31, 2005 and 2004, were not material.

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Derivatives Policies

Hedging interest rate exposure using swaps and hedging foreign exchange exposure using forward contracts are specifically contemplated to manage risk in keeping with management’s policies. We may use derivative instruments, such as swaps, forwards, or futures, which are based directly or indirectly upon interest rates, currencies, and commodities, to manage and reduce the risks inherent in interest rate, currency, and price fluctuations.

We do not utilize derivatives for speculative purposes, and we do not enter into market risk-sensitive instruments for trading purposes. Derivatives are transaction specific so that a specific debt instrument, contract, or invoice determines the amount, maturity, and other specifics of the hedge. Counterparty risk is limited to institutions with long-term debt ratings of A or better.

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ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated, with the participation of other members of management, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, management concluded that our disclosure controls and procedures were effective. There were no changes in our internal control over financial reporting identified in connection with this evaluation that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

European Commission Fines in Spain

In October 2004, the European Commission (the “Commission”) imposed fines on “five companies active in the raw Spanish tobacco processing market” totaling €20 million (approximately $25 million) for “colluding on the prices paid to, and the quantities bought from, the tobacco growers in Spain.” Two of the Company’s subsidiaries, Tabacos Espanoles S.A. (“TAES”), a purchaser and processor of raw tobacco in Spain, and Deltafina, S.p.A. (“Deltafina”), an Italian subsidiary, were among the five companies assessed fines. In its decision, the Commission imposed a fine of €108,000 (approximately $135,000) on TAES, and a fine of €11.88 million (approximately $14.9 million) on Deltafina. Deltafina did not and does not purchase or process raw tobacco in the Spanish market, but was and is a significant buyer of tobacco from some of the Spanish processors. Universal recorded a charge of approximately $14.9 million in the quarter ending September 30, 2004, to accrue the full amount of the fines assessed the Company’s subsidiaries.

In January 2005, Deltafina filed an appeal in the Court of First Instance of the European Communities. The main ground of appeal is 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.

European Commission Fines in Italy

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

On December 28, 2004, the Company received a preliminary indication that the Commission intended to revoke Deltafina’s immunity for disclosing in April 2002 that it had applied for immunity. Neither the Commission’s Leniency Notice of February 19, 2002, nor Deltafina’s letter of provisional immunity contains a specific requirement of confidentiality. The potential for such disclosure was discussed with the Commission in March of 2002, and the Commission never told Deltafina that disclosure would affect Deltafina’s immunity. On October 20, 2005,

26

the Company received notification from the Commission that the Commission had imposed fines totaling €30 million (about $36 million) on Deltafina and the Company jointly for infringing European Union antitrust law in connection with the purchase and processing of tobacco in the Italian raw tobacco market.

The Company does not believe that the decision can be reconciled with the Commission’s Statement of Objectives and the facts. The Company and Deltafina each have appealed the decision to the Court of First Instance of the European Communities. Based on consultation with outside counsel, the Company believes it is probable that it will prevail in the appeals process and has not accrued a charge for the fine. At this time, Deltafina intends to provide a bank guarantee to the Commission in the amount of the fine in order to stay execution during the appeal process.

Other Legal Matters

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

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ITEM 6. EXHIBITS

12	Ratio of Earnings to Fixed Charges.*
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.*
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*

* Filed herewith

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SIGNATURES

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

Date: February 9, 2006	UNIVERSAL CORPORATION
	(Registrant)
	/s/ Hartwell H. Roper
	Hartwell H. Roper, Vice President and Chief Financial Officer
	/s/ Robert M. Peebles
	Robert M. Peebles, Controller (Principal Accounting Officer)

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EX-12

Exhibit 12

UNIVERSAL CORPORATION AND SUBSIDIARIES

RATIO OF EARNINGS TO FIXED CHARGES

	Three Months Ended December 31,					Nine Months Ended December 31,
	2005			2004		2005		2004
				(in thousands, except for ratios)
Pretax income from continuing operations	$	(10,118	)	$	36,265	$	55,002	$	100,510
Distribution of earnings from unconsolidated affliates		—			—		8,829		1,800
Fixed charges		22,166			16,202		61,620		43,870
Earnings	$	12,048		$	52,467	$	125,451	$	146,180
Interest	$	21,745		$	15,721	$	60,165	$	42,484
Interest capitalized		—			—		799		—
Amortization of premiums and other		421			481		1,455		1,386
Fixed Charges	$	22,166		$	16,202	$	62,419	$	43,870
Ratio of Earnings to Fixed Charges		0.54	(A)		3.24		2.01		3.33

(A) The ratio of earnings to fixed charges for the three months ended December 31, 2005, was less than 1.00 due to a nonrecurring charge of $23,861 for restructuring and impairment costs. Had earnings been $10,118 higher, the ratio of earnings to fixed charges would have been 1.00.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Allen B. King, Chairman, President, and Chief Executive Officer of Universal Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Universal Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

Exhibit 31.1

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2006

/s/ Allen B. King

Allen B. King

Chairman, President, and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Hartwell H. Roper, Vice President and Chief Financial Officer of Universal Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Universal Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

Exhibit 31.2

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 9, 2006

/s/ Hartwell H. Roper

Hartwell H. Roper

Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Universal Corporation (the “Company”) on Form 10-Q for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Allen B. King, Chairman, President, and Chief Executive Officer of the Company, certify, to the best of my knowledge and belief, that

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2006	/s/ Allen B. King
	Allen B. King
	Chairman, President, and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Universal Corporation (the “Company”) on Form 10-Q for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) and pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Hartwell H. Roper, Vice President and Chief Financial Officer of the Company, certify, to the best of my knowledge and belief, that

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 9, 2006	/s/ Hartwell H. Roper
	Hartwell H. Roper
	Vice President and Chief Financial Officer