SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 1-9875
[STANDARD COMMERCIAL LOGO]
STANDARD COMMERCIAL CORPORATION
Incorporated under the laws of I.R.S Employer
North Carolina Identification No. 13-1337610
2201 MILLER ROAD, WILSON, NORTH CAROLINA 27893
TELEPHONE NUMBER (919) 291-5507
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, $0.20 PAR VALUE NEW YORK STOCK EXCHANGE
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER 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 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 IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED TO THE BEST
OF REGISTRANT'S KNOWLEDGE IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT: $47,074,000.
AT MAY 31, 1996 THERE WERE 9,137,200 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
PORTIONS OF THE REGISTRANT'S (1) ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED MARCH 31, 1996 AND (2) PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON AUGUST 13, 1996 ARE INCORPORATED BY REFERENCE INTO
PARTS I, II, III AND IV.
<PAGE>
PART I
ITEM 1. BUSINESS.
The Registrant (referred to herein as "Standard" or the "Company") is
principally engaged in two international businesses - tobacco and wool.
From its beginning in 1910 as a small dealer in oriental tobacco, the
Company has expanded through internal growth and acquisitions and is the world's
third largest leaf tobacco dealer. The Company does not manufacture cigarettes
or other consumer tobacco products. For many years prior to 1978, the Company's
operations were conducted almost exclusively outside of the United States. In
fiscal 1996, tobacco operations accounted for 68% of total revenues, and
approximately 39% of tobacco revenues resulted from sales by U.S. subsidiaries.
The majority of tobacco sales consists of exports from the country of origin.
As a result of acquisitions commencing in 1985, the Company has also
created a major integrated group of wool companies which purchase, process and
sell wool to topmakers and spinners of yarn used in the manufacture of worsted
and woolen products. The Company is one of the world's largest handlers of wool.
The Company does not raise sheep or produce textile products. In fiscal 1996,
wool operations accounted for 31% of total revenues, and 2% of wool revenues
resulted from sales by its U.S. subsidiary.
An agreement to sell the wool business in fiscal 1995 lapsed due to
difficulty in obtaining certain regulatory approvals. Results of wool
operations were reinstated as continuing operations in the December 1995
quarter.
Other than the reinstatement of the wool business as continuing
operations there have been no significant changes in business segments since
April 1, 1995. Contributions to gross revenue from businesses other than tobacco
and wool for the past three years have not been material. See "Other Operations
and Investments."
The Company's operations are subject to the usual international
business risks, including changing political conditions and currency
fluctuations, and exchange controls and import/export restrictions in some
countries. The Company takes these factors into account in making its business
decisions.
TOBACCO OPERATIONS
TRENDS IN TOBACCO CONSUMPTION
In recent years, American-blend cigarettes have gained market share
in several major foreign markets, including Asia (particularly Japan and other
Pacific Rim countries), Europe and the Middle East. In Asia, local manufacturers
have imported increasing quantities of flue-cured and burley tobacco in order to
produce cigarettes to compete with the growing market for imported American- or
light-blend cigarettes. In addition, American- or light-blend cigarettes have
gained market share in Western Europe. In Eastern Europe, several cigarette
manufacturing facilities that were previously state-owned have been sold to
multinational cigarette manufacturers, thereby creating new opportunities for
leaf merchants.
Following a period in 1992 and 1993 of significantly increased
consumer demand for discount or value-priced cigarettes in the United States and
certain other major markets, the U.S. market has stabilized with premium brands
having regained market share. Price competition among cigarette manufacturers
has remained intense, forcing independent leaf tobacco dealers to expand their
ability to obtain less-expensive, foreign-grown tobacco of export quality.
Market expansion has caused international cigarette manufacturers to place
greater reliance on the services of internationally strong leaf tobacco dealers
that have the ability to purchase, process and sell tobacco on a global basis.
While worldwide production of American- or light-blend cigarettes is
increasing as described above, consumption of cigarettes has declined in certain
countries in recent years, especially in the United States and certain other
industrialized countries.
Worldwide cigarette production largely determines the level of demand
for leaf tobacco. In recent years, the consumption of cigarettes has stabilized
or declined in many industrialized nations but has continued to grow in most
developing countries. There has also been increased demand for higher quality
cigarettes in Eastern European countries, Turkey and Russia and the other states
of the former Soviet Union. Reports regarding the alleged harmful effects of
cigarette smoking have been publicized for many years and, together with
restrictions on cigarette advertising and smoking in public places, mandatory
warning statements and increased taxes on tobacco products, have had and
continue to have a negative impact on sales of tobacco products in certain
markets. However, the Company believes that its broad customer base and sources
of supply help to mitigate the effects of declines in consumption in particular
areas of the world, as it has a large amount of business in areas where
consumption is rising and with established customers who are catering to the
increasing demand for light-blend cigarettes by consumers in Asia, Europe and
the Middle East.
PURCHASING
The tobacco in which the Company deals is grown in approximately 30
countries. Management believes that its diversity in sources of supply, combined
with a relatively broad customer base, places it in a particularly strong
position worldwide within its industry. The Company relies primarily on
revolving lines of bank credit and internal resources to finance its purchases.
Quite often the tobacco serves as collateral for the credit. The period of
exposure, with some exceptions, generally is limited to a tobacco season lasting
only a few months.
Although most purchases of tobacco are made against specific customer
orders or indications of interest, the Company has from time to time purchased
tobacco for its own inventory when it believed there was a reasonable
opportunity to resell the tobacco at a profit, or when it anticipated its
customers' needs before receiving firm orders or indications of interest.
Purchases for inventory are generally made in foreign markets. The Company
rarely purchases tobacco in the United States without a firm order or indication
of interest. All tobacco purchases are being monitored closely with a goal of
reducing the Company's exposure to price fluctuations and to reducing its costs
of carrying inventory. For the most part, there are no formal contracts between
the Company and its various suppliers of tobacco.
The Company generally employs its own buyers to purchase tobacco on
auction markets, directly from growers and pursuant to marketing agreements with
government monopolies. Tobacco is generally sold in the United States to the
highest bidder at public auction. At present, the greatest amounts of tobacco
purchased by the Company outside the United States come from Argentina, Brazil,
China, Greece, Malawi, Thailand, Turkey and Zimbabwe.
Approximately 60-70% of the Company's tobacco purchases are made
against customer orders or indications of interest. This committed inventory
should normally total approximately $110-$150 million and the carrying costs are
normally reimbursed by the customer. The orders or indications of interest may
be written or oral. Historically, tobacco customers have been extremely reliable
in honoring these commitments, and the Company believes that its position in
respect of its committed tobacco inventories is adequately protected. By the end
of fiscal 1996 the Company's committed tobacco inventory was $120 million which
is consistent with somewhat lower carrying values and a conscious effort to
reduce inventories.
Argentina, Brazil, China, Greece, Turkey and Thailand are major
tobacco producers, but there are no tobacco auctions in these markets. In these
markets, with the exception of Brazil where the Company acts as export agent for
Souza Cruz, an affiliate of British-American Tobacco Company, the Company buys
tobacco directly from farmers or agricultural cooperatives in advance of firm
orders or indications of interest although such purchases are usually made with
some knowledge of its customers' requirements. The Company engages in this type
of uncommitted transaction because of the strategic importance of these markets
in the tobacco supply system. In order to serve its customers properly, the
Company must have a presence in these markets. During fiscal 1996 the Company
substantially reduced uncommitted tobacco inventories to $31 million at March
31, 1996 (excluding $10 million of unprocessed tobacco and packing material)
which is in line with the estimated range of $30-$60 million (depending on
prevailing market conditions) needed to conduct normal business operations.
PROCESSING
Tobacco purchased by the Company generally is perishable and must be
processed within a relatively short period of time to prevent deterioration in
quality. Consequently, processing facilities are usually located near the areas
where the tobacco is purchased. Prior to processing, steps are taken to ensure
consistent quality of the tobacco. These steps include regrading and removing
undesirable leaves, dirt and other foreign matter. Most of the tobacco is then
blended and threshed; however, some of it is processed in whole-leaf form.
Threshing involves mechanically separating the stem from the tissue portions of
the leaf, which are called strips, and sieving out small scrap. Considerable
expertise is required to produce strips of large particle size and to minimize
scrap.
Strips and stems are redried and packed separately. Redrying involves
further reducing the natural moisture left in the tobacco after it has been
cured by the growers. The objective is to pack tobacco at safe moisture levels
so that it can be held by the customer in storage for long periods of time.
Quality control checks are continually performed during processing to ensure
that the product meets customer specifications as to yield, particle size,
moisture content and chemistry. Customers are frequently in attendance at the
factory to monitor results while their tobacco is being processed.
Redried tobacco is packed in hogsheads, cartons, cases or bales for
storage and shipment. Packed tobacco generally is transported in the country of
origin by truck or rail, and exports are moved by ocean container vessels or
freighters.
As of the end of fiscal 1996, Standard processed its tobacco in three
wholly-owned plants in the United States and 16 other facilities around the
world owned or leased by subsidiaries and affiliates. In addition, Standard has
access to other processing plants in which it has no ownership interest. In all
cases, tobacco processing is under the direct supervision of Company personnel.
From time to time the Company purchases and sells tobacco processed by others.
Modern laboratory facilities are maintained by the Company to assist in
selecting tobacco for purchase and to test tobacco during and after processing.
In addition, Standard does laboratory testing for a number of its customers and
others.
The Company believes that its plants are highly efficient and are
adequate for its purposes. The Company also believes that tobacco throughput
could be increased without major capital expenditures.
SELLING
Standard's customers include most of the world's leading
manufacturers of cigarettes and other consumer tobacco products. These customers
are located in some 85 countries throughout the world. Standard employs its own
salesmen, who travel extensively to visit customers and to attend tobacco
markets worldwide with these customers, and it also uses agents for sales to
customers in certain countries. Sales are made on open account to customers who
qualify based on experience or are made against letters of credit opened by the
customer prior to shipment. Virtually all sales are made in United States
dollars. Payment for most tobacco sold by the Company is received after the
tobacco has been processed and shipped. However, some customers pay the Company
before the tobacco has been processed and shipped.
In fiscal 1996, the Company's five largest customers accounted for
approximately 39% of total sales (57% of tobacco sales). In 1996, one customer
accounted for 17% of total sales (1995 - 14%). In 1994, another customer
accounted for 10% of total sales.
Although there are no formal purchase contracts with any of these
customers, the Company has done business with most of them for many years. In
the unlikely event that the Company were to lose two or more of its larger
customers, it could have a material adverse effect on the Company's business.
At March 31, 1996 and 1995, the Company had outstanding orders of
approximately $120 million and $109 million, respectively, for tobacco in
inventory.
REGULATION
Reports with respect to the allegedly harmful physical effects of
cigarette smoking have been publicized for many years and, together with
restrictions on cigarette advertisements, requirements that warning statements
be placed on cigarette packaging and in advertising, increased taxes on tobacco
products and controls in certain countries on imports, production and prices,
have had and continue to have an adverse impact on sales of tobacco products in
many world markets. In addition, litigation is pending against some of the
leading United States manufacturers of consumer tobacco products seeking damages
for health problems alleged to have resulted from the use of tobacco in various
forms. It is not possible to predict the outcome of such litigation or what
effect adverse developments in pending or future litigation against
manufacturers might have on the business of the Company.
Although the consumption of cigarettes has decreased in the United
States and some other countries in recent years, cigarette consumption in many
countries to which the Company makes considerable sales has increased during the
same period. In addition, the consumption of American- or light-blend cigarettes
has increased in both Western and Eastern Europe, even though total cigarette
consumption has not. Exports of cigarettes from the United States have increased
significantly in recent years as well. The Company believes that any materially
adverse effect on its business from a significant decrease in consumption in any
area in which it does business will be reduced by its worldwide customer base
though it is impossible to predict the extent to which any such decrease will
affect the Company's business. In addition, governments in many countries
continue to raise the excise tax on cigarettes and other tobacco products.
During fiscal 1996 import quotas were introduced in the United States
to aid domestic producers of tobacco. This action coincided with the elimination
of the domestic content law enacted in the United States in July 1993 (effective
January 1, 1994) which was determined to be in violation of GATT. While in
effect, the domestic content law dramatically reduced the demand for tobaccos
grown outside of the United States and contributed to the decline in world
tobacco prices in 1993. Since foreign tobacco tends to be considerably cheaper
than tobacco grown in the United States, this law resulted in a significant cost
to domestic cigarette producers. It also disrupted the existing supply and
demand balance and resulted in an oversupply of foreign tobacco in the world. In
addition, there were several proposals before Congress to increase the federal
excise tax imposed on a pack of cigarettes as much as $2.00 per pack. The
likelihood of a tax increase of this magnitude in the near term now appears
remote.
COMPETITION
Competition among independent leaf tobacco dealers is based primarily
on the price charged for products and services, the ability to meet customer
demands and specifications in sourcing, purchasing, blending, processing and
financing tobacco and the ability to develop and maintain long-standing customer
relationships by demonstrating a knowledge of customer preferences and
requirements. Although most of the Company's principal customers also purchase
tobacco from the Company's major competitors, the Company's relationships with
its largest customers span many years and the Company believes that it has the
personnel, expertise, facilities and technology to remain successful in the
industry.
Competition for purchasing tobacco varies depending on the market
involved. Normally, there are from six to eight buyers at each of the United
States flue-cured and burley auctions, representing both leaf tobacco dealers
and buying staffs of certain cigarette manufacturers. The number of competitors
in foreign markets varies from country to country, but there is competition in
all areas to purchase the available tobacco. Among independent leaf tobacco
dealers, the principal competitors are Universal Corporation, DiMon Incorporated
(formed by the April 1, 1995 merger of Dibrell Brothers and Monk-Austin) and
Intabex Services Ltd. Of the independent leaf tobacco dealers, the Company
believes it ranks third in worldwide market share.
SEASONALITY
The Company's tobacco business is dependent on agricultural cycles
and is seasonal in nature. For example, the Company purchases flue-cured tobacco
grown in the United States during the five-month period beginning in July and
ending in November, while burley tobacco grown in the United States is purchased
from late November until January or February. Tobacco in Brazil is purchased
from January through May. Tobacco in Malawi and Zimbabwe is purchased from April
through October. Other markets around the world last for similar periods at
varying times of the year. Accordingly, while the leaf tobacco business is
seasonal in any given region and such seasonality may impact the Company's
quarterly results of operations, the global nature of the Company's business
enables it to be involved in purchasing, processing and selling tobacco
throughout the year and reduces the overall effect of seasonality on the
Company's business.
The processing cycle for leaf tobacco is relatively short. Processing
is conducted throughout the tobacco purchasing season and is usually complete
within two to three months following purchase of the tobacco. Consequently, the
components of the Company's working capital relating to purchasing, processing
and selling leaf tobacco (for example, tobacco inventory, advances to suppliers
and current liabilities such as seasonal lines of credit and accounts payable)
reach their peak in the second and third fiscal quarters and accounts
receivable, revenues and operating income peak in the third and fourth fiscal
quarters. The Company customarily invoices tobacco when it is delivered in
accordance with the terms of the contract. Therefore, tobacco inventory will
vary from quarter to quarter depending on fluctuations in shipping schedules and
the seasonality of the Company's business.
WOOL
GENERAL
Following a policy decision in January 1995 to divest its wool
operations as a part of the Company's strategy to deleverage its balance sheet,
the Company subsequently entered into an agreement to sell its wool business to
Chargeurs of Paris, France. Due to difficulty in obtaining certain regulatory
approvals the seller and purchaser jointly announced in December 1995 that they
had allowed the agreement to lapse.
The Company entered the wool business in 1985 through a series of
acquisitions to diversify into a line of business that would complement its
traditional operations. The Company does not raise sheep or produce textile
products. Like the tobacco business, the wool business involves the worldwide
purchase, value-added processing and sale of an agricultural commodity. Like the
tobacco business of 35 to 40 years ago, the wool industry is highly fragmented,
with a large number of small dealers handling wool, often from limited origins.
From the outset, Standard's strategy was to build a large international network,
primarily through the acquisition of well established dealers and processors.
The Company believes that as a result of its acquisitions and the consolidation
of the wool industry, which is continuing, it has become one of the largest
dealers and processors, handling wool from 10 major producing areas, of which
the most significant are Australia, New Zealand, South Africa, South America and
the United Kingdom. Standard owns and operates processing facilities in six
countries, including scouring mills in Australia, New Zealand, South Africa and
the United Kingdom and combing mills in Chile and France. The Company also uses
the services of commission processors in Argentina, Australia, Belgium, Germany
and Italy.
Following record high prices in 1988, the wool industry experienced a
severe downturn beginning in 1989 that was triggered by the withdrawal of China
from international wool markets, economic turmoil in Eastern Europe and the
states of the former Soviet Union and recessionary conditions in Western Europe.
These events led to a decrease in demand for wool on the world market. At the
same time a worldwide oversupply situation had developed, largely due to
artificially high prices caused by the Australian support program.
Prior to 1991, Australian wool growers operated under a government
price support program. Under this program, the Australian government accumulated
a stockpike of 848,000 metric tons (raw weight) of wool. In 1991 the Australian
government abandoned its price support program, effectively creating a free
market for wool. Under free market conditions, prices fell substantially and
immediately, creating difficult trading conditions for the wool industry, and
establishing the market conditions necessary for a correction in what had become
a major imbalance between supply and demand. At present, Wool International, an
organization created by the Australian government, is responsible for the
reduction of the stockpile, which on May 31, 1996 totaled 269,500 metric tons
(the equivalent of approximately 40 % of one year's Australian production). This
stockpile is scheduled to be reduced at a fixed rate to reach a level of 184,000
metric tons by June 1997, at which point the disposal rate will be adjusted as
appropriate.
Worldwide wool production in 1996 was below current demand for the
second consecutive year, and production by the five major wool exporting
countries has declined by 15% over the past five years. As a result, since 1992,
all surplus stocks around the world have been sold with the exception of the
stockpile in Australia.
PURCHASING
There are two broad categories of wool fibers: fine from merino sheep
and coarse from crossbred sheep. Standard trades in both types. Merino wool is
used to make products for the apparel trade such as fine sweaters and worsted
fabrics for high quality suits. Crossbred wool is used to make carpets, coarser
worsted fabrics such as upholstery and draperies, and woolens used in knitwear
and hand-knitting yarns. Most merino wool for export is produced in Australia
followed by South America and South Africa. The main sources of crossbred wool
for export are New Zealand, South America and the United Kingdom.
Standard deals in wool from 10 major producing areas, of which the
most significant are Australia, New Zealand, South Africa, South America and the
United Kingdom. The Company has buying offices in all of these areas. The
Company's employees buy wool at auctions and through negotiations with wool
growers. Although most wool is shorn before it is purchased, some wool is
purchased "on the back" before shearing. As in its tobacco business, most of the
Company's purchases are made against specific customer orders. Australia is by
far the largest producer of wool in the world and its wool prices generally
influence world prices. Standard typically pays for its wool purchases in the
currency of the country of origin, and usually hedges the currencies of its
purchase and sale commitments with forward transactions. The Company does not
engage in currency transactions for the purpose of speculation.
PROCESSING
Wool is purchased in its raw or naturally greasy state, and must be
scoured (washed) before it can be used to make finished products. The Company
sells some greasy wool to topmakers, but most of the wool is blended and scoured
and/or further processed into tops, to customer specifications. The scouring is
done at the Company's plants in Australia, New Zealand, South Africa and the
United Kingdom or by commission scourers in Argentina, Australia and Belgium.
Similarly, tops are produced in the Company's plants in Chile and France and by
commission combers in Argentina, Italy and Germany. The Company's French plant
also refines wool grease removed during the scouring process into a variety of
types of lanolin, a valuable byproduct.
A top is a continuous strand of the straightened, longer wool fibers
that have been separated from the short fibers. Topmaking involves seven
processes: blending, scouring, carding, gilling, combing, finishing and packing
to quality standards specified by the customer. Carding machines elongate and
align the fibers to produce a "gilled sliver" of parallel fibers. Gilled slivers
are combined to produce a stronger, more parallel sliver which is combed to make
a top suitable for spinning. Tops are wound into bobbins weighing approximately
22 pounds which are packed and shipped to customers in the apparel industry for
further manufacture. The Company maintains laboratory facilities for analyzing
and testing wool and lanolin.
SELLING
The Company currently derives approximately 62% of its wool revenues
from sales to customers in Europe, with sales to the Far East, North America and
other areas making up the balance. Processed wool (i.e., scoured and tops)
accounts for approximately 61% of the Company's wool revenues, followed by
greasy wool - 31%, specialty fibers - 7% and lanolin - 1%. Greasy wool is sold
primarily to customers in Western Europe, the Far East and the United States.
Scoured wool is shipped to carpet, woolen, felting, quilt and mattress
manufacturers located in Europe, the Far East and the United States. Tops are
sold primarily to West European yarn spinners for processing and sale to
manufacturers of worsted fabrics. Lanolin is sold primarily to manufacturers of
cosmetics and pharmaceutical products. The Company's largest wool customer
accounts for less than 1% of total consolidated sales and 3% of its total wool
sales for fiscal 1996. Sales are typically made in local currencies of the
customers.
The Company relies primarily on short-term bank credit and internal
resources to finance its wool purchases. The period of exposure generally is
limited to only a few months.
At March 31, 1996 and 1995, the Company had outstanding orders for
wool of approximately $140 million and $136 million, respectively.
COMPETITION
The wool trading and first stage processing industry is more
fragmented than the leaf tobacco business. Major competitors include Chargeurs,
a publicly traded French company, Bremer Woll-Kaemmerei, A.G., a German public
company, and a number of Japanese trading firms. Key factors for success in the
wool business are broad market coverage, a full range of wool types, technical
expertise in buying and processing and high quality customer service. The
Company believes that its processing and marketing capabilities and buying and
trading expertise enable it to compete effectively, and that its broad
geographical base enables it to react quickly to price changes and to supply
wool or similar types and blending quality from different countries or areas.
SEASONALITY
Wool is generally purchased over a greater portion of the year than
tobacco, and wool growing seasons occur at different times of the year in
different countries as well. Wool purchasing is generally lower during the first
and second quarters as the result of lower summer demand for wool products in
the northern hemisphere, when processors and users close down for holidays and
vacations in Europe. Generally, revenues and operating activities tend to peak
in the third fiscal quarter and remain at a relatively high level in the fourth
fiscal quarter. The Company sells on a forward basis overall, as well as for
prompt delivery, and thereby keeps its processing mills at full capacity
throughout the year and uses commission scourers and combers to handle any
overflow.
OTHER OPERATIONS AND INVESTMENTS
The Company is engaged in one other smaller activity: Carolina Home
Center, a wholesale/retail building materials and home supply center located in
Wilson, North Carolina. The Company has ceased operating Bela Duty Free
Import-Export (89% owned), and has sold its interest in approximately 50 duty
free shops (in which it had interests of from 25% to 50%) to the other joint
owners. Neither of these ventures are a part of the Company's long-term
strategy.
EMPLOYEES
At March 31, 1996, the Company had a total of approximately 2,285
full-time employees (including approximately 515 in the United States) and
approximately 2,300 employed by affiliated tobacco companies. Of the Company's
full-time employees, approximately 1,610 are in the tobacco business,
approximately 640 are in the wool business and approximately 35 have duties
relating to other operations. The tobacco business typically employs an
additional 6,700 to 6,800 part-time employees during peak production periods.
The Company's principal subsidiary in the United States has a
collective bargaining agreement with a union covering the majority of its hourly
employees, many of whom are seasonal. The agreement expires on May 31, 1999. The
Company believes its relations with employees covered by this agreement are
good. Employees at the French wool plant are also represented by a labor union
under an agreement subject to renewal every December 31. The Company believes
that its relations with its employees in France are good.
GENERAL
The Company does not own any material patents, trademarks, licenses,
franchises or concessions, nor does it engage in any significant research
activity.
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment have not had, and are
not anticipated to have, any material effect upon the competitive position of
the Company. The Company has initiated programs to comply with regulations not
being enforced in certain foreign countries concerning effluent control at its
wool mills.
The Company's consolidated operations are conducted mainly by
companies registered in the United States and Europe. Segment information is
shown in Note 18 of the Notes to the Consolidated Financial Statements and is
incorporated herein by reference.
<PAGE>
ITEM 2. PROPERTIES.
Standard's principal corporate offices and the headquarters for its
United States tobacco operations are located in Wilson, North Carolina. It also
has administrative offices in Godalming (south of London), England.
The Company conducts its tobacco processing operations in facilities
near the area of production in the case of tobacco and near its customers in the
case of wool. In certain places, long-standing arrangements exist with local
companies to process tobacco in their plants under the supervision of Company
personnel.
The Company believes the properties it uses are generally
well-maintained and in good operating condition and are suitable and adequate
for the normal growth of its business.
A current summary showing the principal operating properties owned or
leased (as indicated by *) by the Company or its affiliates is shown below:
<TABLE>
<CAPTION>
AREA
TOBACCO OPERATIONS LOCATION USE (SQUARE FEET)
<S> <C>
United States Wilson, NC Factory/storage 1,008,000
Oxford, NC Factory/storage 624,700
King, NC Factory 134,600
Springfield, KY Factory/storage 292,000
Thailand Chiengmai Factory/storage 872,000
Banphai Factory/storage 377,000
Turkey Izmir Factory/storage 431,300
Izmir Storage 204,500*
Greece Alexandria Factory/storage 402,000
Salonica Factory/storage 772,700
Salonica Factory/storage 236,300*
Zimbabwe Harare Factory/storage 565,800*
Harare Storage 233,500
Malawi Limbe Factory/storage 414,000
Lilongwe Factory/storage 776,000
Spain Benavente Factory/storage 206,000
Benavente Storage 132,400*
Coria Buying Center 18,300*
Talayuela Buying Center 21,500
Italy Caserta Factory/storage 800,000*
WOOL OPERATIONS
Australia Fremantle Factory/storage 240,500
Chile Punta Arenas Factory/storage 57,000
France Tourcoing Factory/storage 964,900
Netherlands Dongen Storage 23,700
New Zealand Christchurch Factory/storage 100,300
South Africa Port Elizabeth Factory/storage 70,000*
United Kingdom Bradford Factory/storage 165,000
OTHER OPERATIONS
United States Wilson, NC Bldg. supply dealer 125,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The joint Canadian-U.S. criminal investigation referenced in our
March 31, 1995, Annual Report on Form 10-K is continuing. All Canadian charges
referenced in that report have now been dismissed and no charges are pending
against the Company or any of its employees. The investigation by the office of
the United States Attorney for the Eastern District of North Carolina is
continuing. Although the extent of liability, if any, which the Company or any
of its subsidiaries might have as a result of that investigation cannot be
determined, management does not believe that it will have a material adverse
effect on the Company's financial position.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
quarter ended March 31, 1996.
EXECUTIVE OFFICERS OF THE COMPANY AT MARCH 31, 1996
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C>
Ery W. Kehaya 72 Chairman of the Board
J. Alec G. Murray 59 President and Chief Executive Officer
Marvin W. Coghill 62 Chairman - Tobacco Division
Henry R. Grunzke 64 Chairman - Wool Division
Thomas M. Evins, Jr. 56 Regional Manager - North & Central America
Tobacco Operations
Robert E. Harrison 42 Senior Vice President and
Chief Financial Officer
Guy M. Ross 63 Vice President and Secretary
Ery W. Kehaya II 43 Vice President, and Operations Director -
Tobacco Division
Mark W. Kehaya 28 Vice President - Planning
Krishnamurthy Rangarajan 53 Vice President and Assistant Secretary
Keith H. Merrick 42 Treasurer and Assistant Secretary
Hampton R. Poole, Jr. 44 Controller and Assistant Treasurer
</TABLE>
Information concerning executive officers who are also directors is
contained in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on August 13, 1996 which, except for the material under
the headings "Compensation Committee Report" and "Performance Graph" is
incorporated herein by reference and made a part hereof. Business experience
during the past five years of other executive officers is set forth below:
Mr. Ross became Treasurer in 1980 and Secretary in 1981 following
the Company's purchase of the American leaf business of Imperial Tobacco Ltd.
(UK). He was employed by Imperial for 14 years including 10 as Vice President of
Finance and Administration. He became a Vice President of the Company in 1992.
Ery W. Kehaya II was appointed Vice President in 1992. He became
Operations Director - Tobacco Division in 1996 after being named Sales Director
in 1993. He has been an officer of Standard Commercial Tobacco Co., Inc., a
subsidiary, for more than five years, serving as Executive Vice President since
1992 and as Senior Vice President-Sales before that. He is the son of Ery W.
Kehaya, Chairman of the Board.
Mark W. Kehaya was appointed Vice President in 1994. Prior to joining
the Company in 1993 he was employed at Bankers Trust Company and Fieldstone
Private Capital Group as an associate and attended Duke University Fuqua School
of Business. He is the son of Ery W. Kehaya, Chairman of the Board.
Mr. Rangarajan was employed by the Company in 1978 after
qualifying as a chartered accountant. He became Chief Accountant in 1981,
Assistant Vice President in 1986 and Vice President in 1988.
Mr. Merrick was employed by the Company in 1992 and became Treasurer
in 1993 after being named Assistant Treasurer and Assistant Secretary in 1992.
He was formerly a Vice President of First Union National Bank of North Carolina.
Mr. Poole Jr. was appointed Controller and Assistant Treasurer in
1993. He has been an officer of Standard Commercial Tobacco Co., Inc., a
subsidiary, for more than five years and is currently serving as
Secretary-Treasurer.
The above persons will remain in office until the directors' meeting
following the annual meeting of shareholders on August 13, 1996.
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information called for by Items 5, 6 and 7 is contained in the
Company's 1996 Annual Report to Shareholders as detailed below and incorporated
herein by reference and made a part hereof.
<TABLE>
<CAPTION>
Item Caption in Annual Report Page No.
<S> <C>
5 Quarterly Financial Data (Unaudited)` 23
6 Selected Financial Data 23
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
</TABLE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The data appearing on pages 11 through 21 of the Company's 1996
Annual Report to Shareholders, and the Independent Auditors' Report on page 22 ,
are incorporated herein by reference and made a part hereof.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 10, 11, 12 and 13 is included in
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on August 13, 1996 and is incorporated herein by reference, except
for the material under the heading "Compensation Committee Report" and
"Performance Graph." The information concerning executive officers of the
Company follows Item 4 of Part 1 of this Report.
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules: The financial
statement schedules called for under Regulation
S-X are either not applicable or the information
is included in the data mentioned in Item 8 and
incorporated herein by reference.
(b) Reports on Form 8-K: No report on Form 8-K was
filed during the quarter ended March 31, 1996.
(c) The following exhibits are filed as part of this Report:
3. (i) There is incorporated by reference
herein the Company's Restated Articles
of Incorporation and the amendment
thereof designating the rights,
preferences and limitations of the
Company's Series A Preferred Stock
filed as Exhibits 4(a) (i) and (ii) to
the Company's Registration on Form S-8
#33-59760.
(ii) There is incorporated by reference
herein the Company's amended Bylaws
filed as Exhibit 3(ii) to the
Company's report on Form 10-K for the
year ended March 31, 1994.
4. (i) There is incorporated by reference
herein the Company's Shareholder
Protection Rights Agreement filed as
Exhibit 4 to the Company's Report on
Form 8-K dated April 5, 1994.
(ii) There is incorporated herein by
reference the Master Facilities
Agreement dated May 5, 1995 between
the Company and certain subsidiaries
and Deutsche Bank A.G. and a number of
other banks filed as Exhibit 4(ii) to
the Company's Report on Form 10-K for
the year ended March 31, 1995.
(iii) There is incorporated herein by
reference the Loan and Security
Agreement dated as of May 2, 1995
between Standard Commercial Tobacco
Co., Inc., a subsidiary of the Company
and NationsBank of Georgia, N.A. filed
as Exhibit 4(iii) to the Company's
Report on Form 10-K for the year ended
March 31, 1995.
(iv) There is incorporated herein by
reference the Company Guaranty
Agreement dated as of May 2, 1995 with
respect to the Loan and Security
Agreement referred to in 4(iii) above
filed as Exhibit 4(iv) to the
Company's Report on Form 10-K for the
year ended March 31, 1995.
10. (i) There is incorporated herein by
reference the Company's Performance
Improvement Compensation Plan filed as
Exhibit 10 to the Company's Report on
Form 10-K for the year ended March 31,
1993.
(ii) There is incorporated herein by
reference Agreement dated as of May 2,
1995 between the Company and Ery W.
Kehaya filed as Exhibit 10 to the
Company's Report on Form 10-K for the
year ended March 31, 1995.
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for
the year ended March 31, 1996 which, except for
information expressly incorporated by reference
into Items 1, 5, 6, 7 and 8 is not deemed to be
"filed" as a part of this Report.
21. List of subsidiaries.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Standard has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
STANDARD COMMERCIAL CORPORATION
By: /s/ J Alec G Murray
June 28, 1996 J Alec G Murray, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on June 16, 1996 by the following persons on behalf of the
Registrant in the capacities indicated.
/s/ J Alec G Murray President and Director
- --------------------------------
J Alec G Murray (Chief Executive Officer)
/s/ Robert E Harrison Senior Vice President and Director
- --------------------------------
Robert E Harrison (Chief Financial Officer)
/s/ Guy M Ross Vice President
- --------------------------------
Guy M Ross (Principal Accounting Officer)
/s/ Ery W Kehaya
- --------------------------------
Ery W Kehaya Chairman of the Board of Directors
/s/ Marvin W Coghill
- --------------------------------
Marvin W Coghill Director
/s/ William A Ziegler
- --------------------------------
William A Ziegler Director
/s/ Henry R Grunzke
- --------------------------------
Henry R Grunzke Director
/s/ William S Barrack Jr
- --------------------------------
William S Barrack Jr Director
/s/ Thomas M Evins Jr
- --------------------------------
Thomas M Evins Jr Director
/s/ Charles H Mullen
- --------------------------------
Charles H Mullen Director
/s/ Daniel M Sullivan
- --------------------------------
Daniel M Sullivan Director
STANDARD COMMERCIAL CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Twelve months ended March 31
1996* 1995* 1994*
<S> <C>
PRIMARY EARNINGS PER COMMON SHARE
Income (loss) from continuing operations.............. $(9,442) $(20,494) $(36,498)
Less - ESOP preferred stock dividends net of tax...... 474 485 486
--------------------------------------------------------------
Income (loss) from continuing operations
applicable to common stock......................... (9,916) (20,979) (36,984)
Income (loss) from discontinued operations............ 10,050 (10,050) 689
Cumulative effect of accounting changes............... - - 23
--------------------------------------------------------------
Net earnings (loss) applicable to common stock........ $ 134 $(31,029) $(36,272)
===============================================================
Average number of common shares outstanding........... 8,934,381 8,618,505 8,535,858
Increase applicable to restricted stock awards........ - - 16,955
--------------------------------------------------------------
Primary average shares outstanding.................... 8,934,381 8,618,505 8,552,813
==============================================================
Earnings (loss) per common share
- from continuing operations...................... $(1.11) $(2.43) $(4.32)
- from discontinued operations.................... 1.12 (1.17) 0.08
- cumulative accounting changes................... - - -
--------------------------------------------------------------
- net............................................. $0.01 $(3.60) $(4.24)
===============================================================
FULLY DILUTED EARNINGS PER COMMON SHARE*
Income (loss) from continuing operations
applicable to common stock......................... $(9,916) $(20,979) $(36,984)
Add - after-tax interest expense on 7 1/4%
convertible subordinated debentures....... 3,300 3,300 3,300
- dividends payable to ESOP assuming
conversion to common stock................ - 26 117
--------------------------------------------------------------
Adjusted income (loss) from continuing operations..... (6,616) (17,653) (33,567)
Income (loss) from discontinued operations............ 10,050 (10,050) 689
Cumulative effect of accounting changes............... - - 23
--------------------------------------------------------------
Net earnings (loss) applicable to common stock........ $3,434 $(27,703) $(32,855)
===============================================================
Primary average shares outstanding.................... 8,934,381 8,618,505 8,552,813
Increase in shares outstanding assuming
- conversion of 7 1/4% convertible subordinated
debentures at November 13, 1991............... 2,190,689 2,126,348 2,126,348
- conversion of ESOP convertible
preferred stock at July 1, 1993............... 267,142 262,871 262,871
--------------------------------------------------------------
Fully diluted average shares outstanding.............. 11,392,212 11,007,724 10,942,032
==============================================================
Earnings (loss) per common share
- from continuing operations...................... $(0.58) $(1.61) $(3.07)
- from discontinued operations.................... 0.88 (0.91) 0.07
- cumulative accounting changes................... - - -
--------------------------------------------------------------
- net............................................. $0.30 $(2.52) $(3.00)
==============================================================
</TABLE>
*The calculations of fully diluted earnings per share for 1996, 1995 and 1994
include adjustments which are antidilutive and, therefore, are not shown on the
face of the income statements.
[LOGO]
Standard Commercial Corporation
1996 Annual Report
<PAGE>
BUSINESS DESCRIPTION, STRATEGY AND GOALS
The Company is principally engaged in two international, service-related
businesses: purchasing, value-added processing and selling leaf tobacco and
wool.
Standard Commercial was founded in 1910 by the father of our present
chairman. The Company is headquartered in Wilson, North Carolina.
The Company is focusing on the following strategic initiatives:
* risk management,
* increasing return on assets,
* increasing market share, and
* improving management information systems.
The Company's goal is to improve the financial performance of its
tobacco and wool businesses while minimizing risk and maximizing financial
flexibility.
The Company has successfully reduced uncommitted tobacco inventory and
has put controls in place to limit the build up of inventory. In addition, the
Company is focusing on increasing its market share in areas and with customers
of strategic importance.
Also, the Company is aggressively restructuring its wool operations and
management structure.
Overall the Company continues to examine all aspects of its business
with the objective of increasing the value of its shareholders' investment while
fulfilling its responsibility to its employees, customers and suppliers.
<PAGE>
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE INFORMATION
<TABLE>
<CAPTION>
For years ended March 31 1996 1995* 1994*
<S> <C> <C> <C>
Sales $1,359,450 $1,213,565 $1,042,014
Income (loss) from continuing operations (9,442) (20,494 ) (36,498 )
Income (loss) from discontinued operations 10,050 (10,050 ) 689
Net income (loss) 608 (30,544 ) (35,786 )
Earnings (loss) per share
Primary - from continuing operations $(1.11) $(2.43 ) $(4.32 )
- from discontinued operations 1.12 (1.17 ) 0.08
- net 0.01 (3.60 ) (4.24 )
Fully diluted ** ** **
Income (loss) as a percentage of sales
From continuing operations (0.69%) (1.69% ) (3.50% )
Net 0.04% (2.52% ) (3.43% )
</TABLE>
*Restated to include wool business as a continuing operation.
**Not applicable because fully diluted calculations include antidilutive
adjustments.
At year-end
Working capital $55,798 $53,187 $70,484
Working capital ratio 1.10:1.00 1.09:1.00 1.11:1.00
Book value per share $8.78 $9.69 $11.98
Market price per share 9 13 3/8 15 5/8
Shares outstanding 9,133,614 8,766,811 8,567,141
CONTENTS
Business Description, Strategy and Goals.............. IFC
Financial Highlights.................................. 1
Letter to Shareholders................................ 2
Tobacco Business...................................... 4
Wool Business......................................... 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition.................. 7
Consolidated Financial Statements..................... 11
Notes to Consolidated Financial Statements............ 14
Independent Auditors' Report.......................... 22
Company Report on Financial Statements................ 22
Selected Financial Data............................... 23
Quarterly Financial Data.............................. 23
Corporate Directors and Officers,
Division Management and
Principal Trading Companies......................... 24
Investor Information.................................. IBC
1
<PAGE>
LETTER TO SHAREHOLDERS
DEAR FELLOW INVESTOR
The improvement in world market conditions for leaf tobacco, already
evident in the latter part of fiscal 1995, continued throughout fiscal 1996. The
tobacco surpluses, which created such difficult conditions for the industry in
1993 and 1994, have all but disappeared and we now face a period of strong
demand with worldwide inventories substantially reduced. For our Company this
meant higher unit sales prices, a recovery in margins, and improved inventory
turnover. In fiscal 1996, all sectors of our Tobacco Division recorded improved
operating results with total tobacco sales at $925.5 million, up 22.4% on the
previous year, and income from operations (before interest) at $70.8 million, up
86.4%. Furthermore, uncommitted tobacco inventories were reduced from $60.8
million at March 31, 1995 to $31.5 million at March 31, 1996, a total which is
at the low end of our target range.
In marked contrast to tobacco, market conditions for the wool business
deteriorated sharply during fiscal 1996 before showing some signs of recovery.
Demand weakened and wool prices fell an average of 20% at the low point during
the year. Towards the end of fiscal 1996 demand picked up and, also as a result
of our restructuring initiatives, the Wool Division recorded an overall profit
in the final quarter. Total wool sales of $425.7 million were 3.3% lower than
the previous year, and operating profit (before interest and restructuring
charges) of $2.1 million was significantly less than the record $20.5 million
reported the previous year.
Last year we announced a decision to sell the wool business, but because of
difficulty in obtaining certain regulatory approvals, the sale did not take
place. We have responded by restructuring the Wool Division under a new
management team. The new management has undertaken a number of strategic
initiatives which are explained more fully in the Wool Business section of this
report. These initiatives are already taking effect, and although market
conditions remain extremely fragile, we expect a return to profitability of the
Wool Division for 1997. To allow for the effect of these changes, the Company
took a restructuring provision of $12.5 million ($11 million after tax) in
fiscal 1996.
Except for the building supply company in Wilson, North Carolina, the
Company has now closed down or disposed of all its "other businesses." The
Company's policy is to continue to concentrate its energies on its two main
businesses.
During the year we completed the move of key corporate functions from
Europe to the Company's headquarters in Wilson, where our new Chief Financial
Officer is based. The restructured Tobacco Division Management, also based in
Wilson, has continued the process of developing and improving techniques for
strategic planning, financial reporting, risk management and controls over the
procurement of tobacco.
The three-year financing facility for our United States tobacco business
entered into last year has served us well, and the facility for our
international tobacco operations has recently been renewed for a further two
years. These facilities, together with local bank lines around the world, are
expected to be sufficient for our short-term financing needs for both tobacco
and wool.
Following a year in which our U.S. tobacco subsidiary completed its best
year ever and processed a record high volume of tobacco, the prospects for the
tobacco business in fiscal 1997 are bright. The market in Brazil and the
recently opened markets in Zimbabwe and Malawi have all been buoyant with strong
demand for some grades of leaf tobacco and escalating prices. Worldwide
consumption continues to increase by between 1% and 2%, while demand for
American and Western
2
<PAGE>
style cigarettes continues to grow at a 4% to 5% rate, particularly in those
countries of the former Soviet Union and the markets of the Far East. It is in
these markets that the major manufacturers are continuing to expand and
experiencing good volume growth. We are strategically positioning ourselves to
be better able to meet these demands. Strategic alliances with major
international cigarette manufacturers are an important element to future growth,
and we continue to develop such alliances. Market conditions generally and the
changes that we have made internally, particularly the reductions in uncommitted
inventory, lead us to be optimistic for our tobacco business.
Near-term prospects for our wool business are more subdued. There is still
a large stockpile of wool in the hands of Wool International (the successor to
the Australian Wool Board). Wool International is required by law to dispose of
a fixed quantity of wool each month until June 1997. So long as these stocks
remain, wool prices will be relatively soft, despite the considerable reduction
in production achieved over the past few years. The drop in volumes has also
created a surplus of processing capacity, particularly for the production of
wool tops in Europe, and until production capacity is further reduced,
processing tariffs will remain under pressure. We are fortunate that our
requirements for processing exceed our factory capacity. While we expect the
Wool Division to return to profitability in 1997, until retail apparel demand in
Europe recovers, we do not anticipate a return to historic profit levels.
Robert E. Harrison, who joined the Company in July 1995 as Chief Financial
Officer, joined the Board of Directors in December 1995. Mr. Harrison has
already stamped his mark on the financial affairs of the Company and we welcome
him on the Board.
Our shareholders have had to exercise patience during the past three years.
We see brighter prospects ahead and although it is our policy to renew cash
dividends as soon as business conditions allow, we need to ensure that we have a
stable capital base, liquidity is preserved and debt reduced before dividends
are resumed.
Employees in our Tobacco Division have seen market conditions improve, and
at the same time have had to take on a considerable additional workload as we
develop and implement new operating and management information systems. Our
thanks are due to them all, for without their cooperation and participation the
progress made would not have been possible. Our wool employees have had their
loyalty tested to the limit. The decision to sell the Wool Division was a
disappointment to most and added an enormous burden of extra work connected with
the sales negotiations and due diligence review at a time when market conditions
were deteriorating. All are now dedicated to making the changes necessary to
re-establish profitability and our special thanks are due to them.
Sincerely,
/s/ J. ALEC G. MURRAY
J. Alec G. Murray
President and Chief Executive Officer
3
<PAGE>
TOBACCO BUSINESS
GENERAL
Fiscal 1996 was a turnaround year for the Company's tobacco business. This
became apparent as strong results were achieved in both the third and fourth
quarters. Standard is the world's third largest publicly traded leaf tobacco
dealer.
The Company's role as a leading tobacco dealer is strengthened by its
diverse customer base and broad, balanced sources of supply as shown in the
following charts.
Fiscal 1996 Sales and Purchases in Dollars
[2 GRAPHS]
Sales by Destination Purchases by Origin
Other 4% Other 1%
Africa 4% Far East 9%
Far East 17% Central & South
United States 24% America 17%
Europe 51% Africa 20%
Europe 24%
United States 29%
In fiscal 1996 the Company benefited from its broad customer base and a
continuing tightening of the worldwide supply situation which resulted in an
increase in tobacco prices. Through its strong multinational buying and sales
network, Standard was able to increase its market share and to achieve record
sales, up 22.4%, and volume, up 10.4%, over the prior year. Given the current
trends in the international leaf market, the Company expects these favorable
market conditions to continue in fiscal 1997.
During the year, the Company achieved several goals set in fiscal 1995. The
Company substantially reduced its uncommitted tobacco inventories to the low end
of its target range. As a result, total tobacco inventories declined even though
prices increased. As part of its inventory strategy, the Company is focusing its
uncommitted inventories on core origins in Africa and the Far East. Further, as
part of its strategy to increase return on assets, the Company has continued to
reduce nonessential assets and has identified further assets to be sold during
fiscal 1997.
Also, in fiscal 1996 the Company began installing its award-winning Tobacco
Leaf System in Malawi and Zimbabwe. In addition, substantial progress has been
made on completing the integration of its sales and sales-support and service
systems. The integration of these systems together with a new budgeting system
will allow the Company to further enhance and streamline its management
information systems and respond more quickly to emerging trends. In addition,
the new systems will provide for greater control, management accountability and
risk management. During fiscal 1997 the Company plans to complete the
installation of its Tobacco Leaf System in Africa and to begin deployment of the
system in its European operations.
REGIONAL PERFORMANCE
IN THE UNITED STATES, increases in domestic demand more than offset lower
processing for the stabilization pools so that a record volume was achieved.
Standard increased its market share to 11.4% of flue cured and 11.2% of burley
sales. The CRES facility will complete its second year of operations in July of
1996 with stable volumes. The Company is expecting fiscal 1997 to be another
strong year for its US operations.
4
<PAGE>
IN AFRICA, Malawi continued its strong performance and achieved continued
volume growth. New storages have been constructed to handle increased business
and the factory management has been strengthened. In Zimbabwe the Company also
achieved volume growth in 1995; however, margins for this area were depressed.
In fiscal 1997 the Company is focusing on improving its operating efficiencies
in order to improve the performance of the area. The Company is continuing to
expand in certain secondary markets in Africa such as Tanzania, Kenya and Zaire.
IN CENTRAL & SOUTH AMERICA, currency revaluation and continued strong
demand resulted in price increases for Brazilian tobacco for the third straight
year. The strength of the Brazilian currency and the fact that Brazilian tobacco
could lose its preferential duty status in Europe could combine with other
factors to favor Zimbabwe and perhaps even US growths, reversing a trend over
the last several years. The Company believes that it is well positioned if this
trend develops. In Argentina, the Company has just completed a new long-term
processing arrangement which should enhance its position over the longer term.
Demand for Honduran tobacco has strengthened.
IN EUROPE, the Company benefited from record processing volumes of oriental
leaf at its plant in Turkey. The high volumes resulted largely from a purchase
of old crop tobacco from the local monopoly. While this purchase is not expected
to be repeated, the Company is experiencing continued growth of current crop
tobacco in all regions. In Greece, the Company had a very strong year and was
able to substantially reduce uncommitted tobacco of this origin. Italy has been
a problem area for the Company over the last three years. As a result, the
Company conducted an intensive feasibility study of this area and over the last
year a new management team has been put in place. Significant improvements have
been made to position this area for profitable operation in the future. Spain,
which in the past has been a drain on the Company's resources, has turned around
and is expected to make a positive contribution in the current year.
IN THE FAR EAST, Standard continued to improve its operating results
despite a short crop in China which lowered the return from this area. The
Company has entered into two new arrangements in China to increase oriental
production, and expects strong results from this area in fiscal 1997. Thailand
is continuing to improve its performance. India had excellent results in fiscal
1996 and the Company is expecting strong performance for this area again this
year.
THE FUTURE
During fiscal 1996, the Tobacco Division developed a comprehensive,
three-year strategic plan to enable it to better meet its customers' needs and
grow its market share. The main objectives of this plan include:
. establishing a stable earnings base in key markets,
. optimizing asset utilization,
. improving gross margins,
. focusing growth and investment in low-production-cost countries,
. focusing on and developing strategic alliances with key customers and
. continuing a focused inventory strategy.
With many of our customers achieving double-digit volume growth, driven by
international expansion, the future for Standard's tobacco business is bright.
5
<PAGE>
WOOL BUSINESS
Following the lapse of an agreement to sell the Wool Division in December
1995, a new management team was installed to steer the wool business back onto a
profitable course. More stable markets and aggressive action by the new team
resulted in a small profit in the 1996 fourth quarter.
Also, the new team has undertaken an in-depth strategic analysis of ways
to deleverage the Wool Division and to identify methods offering the best
potential for future business and profit growth. Steps taken include:
. closing a loss-making scouring mill in Argentina,
. reorganizing the management for Eastern and Western Australia into a single
team,
. combining two European topmaking units under the same management team,
. installing new management in France, and
. restructuring the Wool Division under a single holding company.
[2 GRAPHS]
The Company's wool purchases are spread among the world's major exporting
areas and, although sales are concentrated in Europe, no single customer
accounted for more than 1% of total sales.
Fiscal 1996 Purchases and Sales in Dollars
Purchases by Origin Sales by Destination
Australia 59% Europe 62%
New Zealand 13% Far East 26%
Europe 9% United States 8%
South America 9% Africa & Others 4%
South Africa 7%
Far East & Others 3%
Better asset management is expected to enable the Wool Division to be more
self-sufficient in its financing, and implementation of restructuring plans will
enable it to achieve more cost-effective operations.
Following a steady climb in market conditions the previous year, various
factors contributed to depressed wool prices and reduced confidence in fiscal
1996. The lowering of stock levels in the supply chain, drop in European apparel
sales, dumping by some nontraditional supply countries and tighter controls on
imports by China were major causes of a one-third drop in the Australian wool
price indicator during fiscal 1996. Sales of merino wool for the apparel
industry were affected most drastically. Cross-bred sales for the woolen segment
of the business were also impacted, but carpet wool sales held up well
considering the overall market.
Notwithstanding these adverse conditions, and the distraction of
negotiations to sell the wool business throughout most of fiscal 1996, wool
management was able to maintain steady production levels in all its processing
units without an excessive build up of processed wool.
Standard Wool is one of the world's largest wool processing groups,
handling wool from the major producing areas of Australia, New Zealand, South
Africa, South America and Europe, with combing mills in Chile and France, and
scouring mills in Australia, New Zealand, South Africa and the United Kingdom.
The Company operates a small Netherlands-based company handling specialty
fibres.
The Company believes that wool prices will slowly rise over the next few
years. Estimated 1995/96 worldwide wool production is below current consumption
levels, but fixed-schedule sales from the Australian stockpile fill the gap to
balance supply and demand. The Australian stockpile has been reduced from 4.7
million bales in 1991 to 2.3 million bales currently.
Through staff commitment, effective communication, improved controls and
use of modern data processing and testing equipment, Standard Wool is committed
to building on its position as a competitive, reliable, preferred-quality
supplier to its customers. It is also committed to helping the Company produce a
better return on shareholders' investment.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the Selected
Financial Data, Consolidated Financial Statements and their related Notes.
GENERAL
Standard is principally engaged in purchasing, processing and selling leaf
tobacco to international cigarette manufacturers. Most of its tobacco purchasing
is done on the basis of firm orders or indications of interest. The ability to
obtain raw materials at favorable prices is an important element of
profitability; however, some customers pay Standard to purchase and process
tobacco on a cost-plus basis. Obtaining raw materials at favorable prices must
be coupled with a thorough knowledge of the types and grades of raw materials to
assure the profitability of processing and blending to a customer's
specifications. Processing is capital intensive and profit therefrom depends
upon the volume of material processed and the efficiency of the factory
operations.
The cost of Standard's raw material and processing typically exceeds 85% of
revenues. The cost of raw materials, interest expense and certain processing and
freight costs are variable and thus are related to the level of sales. Most
procurement costs (other than raw materials), certain processing costs, and most
selling, general and administrative expenses ("SG&A") are fixed. The major
elements of SG&A are employee costs, including salaries and marketing expenses.
Tobacco sales are generally denominated in United States dollars. The
Company regularly monitors its foreign exchange position and has not experienced
material gains or losses on foreign exchange fluctuations. The Company enters
into forward contracts solely for the purpose of limiting its exposure to
short-term changes in foreign exchange rates.
Assets and liabilities of foreign subsidiaries are translated at year-end
exchange rates. The effects of these translation adjustments are reported in a
separate component of shareholders' equity. Exchange gains and losses arising
from transactions denominated in a currency other than the functional currency
of the entity involved and translation adjustments in countries with highly
inflationary economies are included in net income.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Sales for 1996 of $1.36 billion were up 12.0% from $1.21 billion in fiscal
1995 which has been restated to include the wool business as a continuing
operation. Led by strong demand in the United States, Africa, Greece and Turkey,
tobacco sales of $925.5 million in 1996 were up 22.4% from $756.0. million in
1995 due to increased volume, up 5.8%, and higher prices and a change in the mix
of sales. Nontobacco sales were down 5.2% primarily as a result of lower wool
sales attributable to difficult trading conditions.
Tobacco sales in the United States achieved record volumes despite lower
processing for stabilization pools. Gains in Turkey resulted largely from sales
of old crop tobacco purchased from the local monopoly which are not expected to
be repeated; however, the Company is experiencing continued growth of current
crop tobacco sales in all regions. Increased demand in Greece combined with
timing of shipments led to a substantial increase in sales. Volume growth
continued in Malawi and Zimbabwe and the Company is continuing to expand in
certain secondary markets in Africa. In the wool business, various factors
contributed to depressed prices. The lowering of inventory levels in the supply
chain, a drop in European apparel sales, and tighter controls on imports in
China were major factors in the
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
33% year-to-year drop in the Australian market price indicator. Sales of merino
wool for the apparel industry were affected most drastically. The Company
believes that wool prices will slowly rise over the next few years as the
Australian stockpile is worked down and retail sales in Europe pick up.
Gross profit increased by $9.0 million due to the sales increases and
improvements in operating costs partially offset by higher interest costs. Other
income was lower versus 1995 as the prior year included gains on disposals of
assets in Korea. As discussed in the third quarter results, a pretax
restructuring charge of $12.5 million was provided for the nontobacco business.
This charge covered the write off of certain assets and reorganization of the
wool business which will result in greater efficiencies and position that
segment to move forward as wool trading conditions stabilize.
Income taxes in 1996 totaled $ 6.8 million compared to $16.4 million in
1995. Income taxes in 1995 included a provision of $1.8 million for an
assessment under appeal and a nonrecurring charge of $1.6 million on dividends
remitted by a foreign subsidiary that cannot be offset by foreign tax credits.
In both years, tax provisions were required for certain jurisdictions where
profits were earned despite overall pretax losses. Tax charges or credits vary
as a percentage of pretax income or loss due to differences in tax rates and
relief available in areas where profits are earned or losses are incurred.
The portion of income attributable to minority interests of $9.6 million in
1995 includes the gain on sale of property in Korea discussed above. The
Company's share of losses in affiliates decreased to $69,000 in 1996 from $4.5
million in 1995 largely because the prior year included losses by our Italian
affiliate which became a consolidated subsidiary in 1996.
Income from discontinued operations reflects the provision made last year
for a loss on the disposal of the wool business. As the sales agreement lapsed,
due to the difficulty in obtaining regulatory approvals, the provision has been
reversed this year and overall net income in 1996 was $608,000, or $ 0.01 per
share, compared to a net loss of $30.5 million, or $3.60 per share, in 1995.
The outlook for our tobacco business is continuing to improve and a more
stable wool market expected in fiscal 1997, together with restructuring
initiatives are expected to result in better overall performance for the
Company.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales for 1995 of $1.21 billion were up 16.5% from $1.04 billion in fiscal
1994. Tobacco sales of $756.0 million in 1995 were up 12.6% from $671.5 million
in 1994. Nontobacco sales in 1995 were up 23.4% to $457 million from $371
million.
Tobacco represented 62.3% of total sales in 1995 and 64.4% in 1994. The
increase in tobacco sales resulted from a 17.8% increase in volume, partly
offset by a 4.8% decrease in unit prices. Lower prices reflected the lagging
effect of the worldwide surplus that began in 1993 and only began to be
corrected in fiscal 1995. Sales volume increased throughout 1995 compared to
depressed levels in 1994.
Wool sales increased by 27.0% as the result of a 2.5% increase in volume,
higher prices and changes in the sales mix.
The tobacco business showed an operating profit of $2.7 million (after
interest expense of $35.2 million) in 1995, including provisions against
receivables from an Italian affiliate of $6.5 million, redundancy and debt
restructuring costs of $2.5 million, provision against receivables of $2.8
million and profit on sale of
8
<PAGE>
properties of $13.5 million, versus an operating loss of $26.7 million
(including interest expenses of $29.5 million) in 1994.
Nontobacco businesses operating profits increased from $7.1 million (after
interest expense of $7.1 million) in 1994 to $10.9 million (after interest
expense of $9.7 million) in 1995.
Selling, general and administrative expenses increased from $78.8 million
in 1994 to $80.5 million in 1995 an increase of just over 2%. Significant items
included in 1995 SG&A totaled $11.8 million, as described above, versus $6.8
million identified in 1994.
Other income increased to $9.0 million in 1995 versus $3.6 million in the
previous year. The 1995 income included $13.5 million pretax gain on sale of
properties which netted $1.6 million after income taxes ($4.9 million), and
minority interest ($7.0 million). A pretax gain of $3.2 million in 1994 on sale
of land and buildings netted $1.6 million after income taxes and minority
interests ($1.6 million).
After corporate expenses of $3.6 million in 1995 (1994 - $4.9 million) the
Company showed a pretax profit of $9.9 million against a loss of $24.4 million
in 1994.
Income taxes totaled $16.4 million in 1995 compared to $5.1 million in
1994. The 1995 income taxes included a provision of $1.8 million for an
assessment under appeal and $1.6 million on dividends remitted by a foreign
subsidiary that cannot be offset by foreign tax credits. In both years, income
tax has been provided in certain jurisdictions where profits were earned despite
overall pretax losses. Tax charges or credits vary as a percentage of pretax
income or loss due to differences in tax rates and relief available in areas
where profits are earned or losses are incurred.
The portion of income attributable to minority interests increased to $9.6
million in 1995 from $3.7 million in 1994 due primarily to the gain on sale of
property by a subsidiary where the Company has less than 100% interest. The
Company's share of losses in affiliates increased to $4.5 million in 1995 from
$3.2 million in 1994 because of further losses incurred by our Italian
affiliate.
Discontinued operations in 1995 represented the anticipated loss on
disposal of the wool business (which was reversed in 1996) versus a gain in 1994
on disposal of the nursery business.
For fiscal 1995 the Company recorded a loss of $30.5 million or $3.60 per
share compared to a net loss of $35.8 million or $4.24 per share in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Standard's purchasing and processing activities of its tobacco and wool
businesses and the receivables resulting from the marketing of these products
are seasonal. The tobacco and wool seasons vary from country to country. This
seasonality is mitigated by Standard's presence in virtually all tobacco and
wool exporting countries. In fiscal 1996, the Company's total borrowing
requirements ranged from a peak of $434 million to a low of $349 million. The
Company normally uses short-term bank facilities to provide working capital,
typically peaking in the third quarter.
Cash provided by operating activities totaled $49.8 million primarily
because the Company's successful efforts to substantially reduce tobacco
inventories more than offset the increases in receivables related to the higher
sales and a reduction in payables. Cash employed in investing activities of
$16.4 million relates primarily to capital expenditures of $12.2 million mostly
for tobacco activities ($10.3 million) including $5.8 million in Turkey, $1.1
million in the U.S. and $1.0 million in Greece; and $1.9 million for the
nontobacco segment. Additionally, $7.7 million related to the payment
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
to the minority shareholder on the liquidation of the Korean operation. For the
next fiscal year, the Company projects capital spending of $12.5 million.
The Company's restructured revolving credit facilities include a $100
million facility for US Tobacco operations expiring in June 1998 and a two-year
$200 million master credit facility for European tobacco operations in addition
to local lines of approximately $245 million. Separate facilities are in place
for the wool business totaling $145 million.
The US and European loan agreements contain certain financial and reporting
covenants with which the Company was in compliance at March 31, 1996. Under its
most restrictive covenant, the Company had approximately $269,000 of retained
earnings available for distribution as dividends at March 31, 1996. The loan
agreements also include restrictions on the amount of dividends, management fees
or other distributions of capital or income that can be upstreamed to the parent
Company by its subsidiaries. As the Company's subsidiaries are its principal
source of cash, depending on their operating results, these restrictions could
further limit the Company's ability to pay dividends to its shareholders.
Efforts to strengthen the Company's balance sheet are continuing. Based on
the improving outlook for its business and the restructuring of its wool
operations, management anticipates that it will be able to service the interest
and principal on its indebtedness, maintain adequate working capital and provide
for capital expenditures out of operating cash flow and available borrowings
under its credit facilities. The Company's future operating performance will be
subject to economic conditions and to financial, political and other factors,
many of which are beyond its control.
There were no significant changes in accounting policies during fiscal
1996.
10
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31
1996 1995
IN THOUSANDS
S> <C> <C>
ASSETS
Cash $ 78,688 $ 56,214
Receivables (Note 3) 252,117 210,863
Inventories (Notes 1 and 4) 259,781 345,410
Prepaid expenses 3,690 3,995
Marketable securities (Note 1) 5,325 471
Current Assets 599,601 616,953
Property, plant and equipment (Notes 1 and 5) 134,498 134,407
Investment in affiliates (Notes 1 and 6) 11,442 12,905
Other Assets (Notes 1, 7, 11 and 15) 37,283 49,224
Total Assets $782,824 $813,489
LIABILITIES
Short-term borrowings (Note 8) $373,625 $378,955
Current Portion of long-term debt (Note 10) 11,665 11,899
Accounts payable (Note 9) 133,737 145,083
Taxes accrued (Note 16) 24,776 27,829
Current liabilities 543,803 563,766
Long-term debt (Note 10) 31,818 32,403
Convertible subordinated debentures (Note 10) 69,000 69,000
Retirement and other benefits (Note 11) 18,498 17,791
Deferred taxes (Notes 1 and 16) 9,632 11,711
Commitments and contingencues (Note 12) - -
Total liabilities 672,751 694,671
MINORITY INTERESTS (NOTE 1) 27,473 31,336
ESOP redeemable preferred stock (Note 13) 8,748 9,132
Unearned ESOP compenstaion (Note 13) (6,320) (6,600)
SHAREHOLDERS' EQUITY
Preferred stock, $1.65 par value (Note 13) Authorized shares 1,000,000;
issued 87,477 to ESOP (1995 - 91,319)
Common stock, $0.20 par value (Note 13) Authorized shares 20,000,000 issued 11,624,275 shares
(1995 - 11,160,289) 2,325 2,232
Additional paid-in capital (Note 13) 43,660 38,288
Unearned restricted stock plan compensation (Note 13) (435) (548)
Treasury stock at cost, 2,490,661 shares (1995 - 2,398,478) (Note 13) (2,384) (1,233)
Retained earnings 46,450 50,530
Cumulative translation adjustments (Notes 1 and 14) (9,444) (4,319)
Total shareholders' equity 80,172 84,950
Total liabilities and equity $782,824 $813,489
</TABLE>
The accompanying notes are an integral part of these financial statements
11
<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1996 1995 1994
In thousands, except share information
<S> <C> <C> <C>
Sales $1,359,450 $1,213,565 $1,042,014
Cost of sales (Note 4) 1,268,937 1,132,100 991,332
Selling, general and administrative expenses 77,608 80,509 78,731
Other income - net (Note 15) 1,853 9,024 3,612
Restructuring charges (Note 2) 12,500 - -
Income (loss) before taxes 2,258 9,980 (24,437)
Income taxes (Notes 1 and 16) 6,836 16,370 5,070
Income (loss) after taxes (4,578) (6,390) (29,507)
Minority interests (Note 1) (4,795) (9,634) (3,765)
Equity in earnings (losses) of affiliates (Note 6) (69) (4,470) (3,226)
Income (loss) from continuing operations (9,442) (20,494) (36,498)
Income (loss) from discontinued operations (Note 2) 10,050 (10,050) 689
Cumulative effect of accounting changes (Note 11 and 16) - - 23
Net income (loss) 608 (30,544) (35,786)
ESOP preferred stock dividends net of tax (474) (485) (486)
Net income (loss) applicable to common stock 134 (31,029) (36,272)
Retained earnings at beginning of year 50,530 84,807 125,139
Common stock dividends (4,214) (3,248) (4,060)
Rrtained earnings at end of year $ 46,450 $ 50,530 $ 84,807
Earnings (loss) per common share
Primary - from continuing operations $(1.11) $(2.43) $(4.32)
- from discontinued operations $ 1.12 $(1.17) $ 0.08
- net $ 0.01 $(3.60) $(4.24)
- average shares outstanding 8,934,381 8,618,505 8,552,813
Fully dulited * * *
</TABLE>
* Not applicable because fully diluted calculations include adjustments which
are antidilutive.
The accompanying notes are an integral part of these financial statements
12
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1996 1995 1994
IN THOUSANDS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 608 $ (30,544) $(35,786)
Depreciation and amortization 24,393 16,413 16,260
Minority interests 4,795 9,634 3,765
Deferred income taxes (968) 793 (1,047)
Undistributed losses of affiliates net of dividends received 166 4,626 3,976
Gain on disposition of property, pland and equipment (1,093) (13,581) (4,729)
Loss (income) from discontinued operations (10,050) 10,050 -
Other (5,244) 3,404 (1,190)
12,607 795 (18,751)
Net changes in working capital other than cash
Receivables (24,752) 59,665 35,799
Inventories 85,901 38,342 5,691
Current payables (23,909) (3,382) 24,918
CASH PROVIDED BY OPERATING ACTIVITIES 49,847 95,420 47,657
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment - additions (12,211) (17,328) (27,257)
- dispositions 3,151 16,274 9,460
Minority interest (7,740) - -
Business (acquisitions) dispositions 440 (2,605) (2,427)
CASH USED FOR INVESTING ACTIVITIES (16,360) (3,659) (20,224)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 9,645 10,442 14,332
Repayment of long-term borrowings (14,968) (29,113) (23,309)
Net change in short-term borrowings (5,330) (86,406) 8,111
Dividends paid, net of tax (474) (485) (4,546)
Other 114 213 229
CASH USED FOR FINANCING ACTIVITIES (11,013) (105,349) (5,183)
Increase/(decrease) in cash for year 22,474 (13,588) 22,250
Cash at beginning of year 56,214 69,802 47,552
CASH AT END OF YEAR $ 78,688 $ 56,214 $ 69,802
Cash payments for - interest $ 44,426 $ 47,588 $ 34,610
- income taxes $ 6,433 $ 8,441 $ 5,708
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES -- During 1996 the Company assumed
100% ownership of Transcatab, SpA, a previously 50%-owned affiliate. The assets
and corresponding liabilities assumed totaled $32.4 million.
The accompanying notes are an integral part of these financial statements
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
a) CONSOLIDATION. The accounts of all subsidiary companies are included in
the consolidated financial statements and all intercompany transactions have
been eliminated. Investments in affiliated companies are accounted for by the
equity method of accounting.
b) FOREIGN CURRENCY. Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates. The effects of these translation
adjustments are reported in a separate component of shareholders' equity.
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved and translation
adjustments in countries with highly inflationary economies are included in net
income.
c) MARKETABLE SECURITIES. Marketable securities are classified as available
for sale and consist of liquid equity securities. The specific identification
method is used to determine gains and losses when securities are sold.
d) INTANGIBLE ASSETS. The Company's policy is to amortize goodwill on a
straight line basis over its estimated useful life not to exceed 40 years. The
Company assesses recoverability of goodwill based on management's projections of
future cash flows of acquired businesses.
e) PROPERTY, PLANT AND EQUIPMENT. The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations over
the estimated useful lives, primarily 3-30 years, of the assets on a
straight-line basis.
f) INVENTORIES. Inventories, which are primarily packed leaf tobacco and
wool, are stated at the lower of specific cost or estimated net realizable
value. Cost of tobacco includes a proportion of interest, buying commission
charges and factory overheads which can be related directly to specific items of
inventory. Cost of wool includes all direct costs except interest. Items are
removed from inventory on an actual cost basis.
g) REVENUE RECOGNITION. Sales and revenue are recognized on the passage of
title.
h) INCOME TAXES. Certain policies used for financial statement purpose
differ from those used for income tax purposes, thereby causing a deferral of
taxes on income.
i) MINORITY INTERESTS. Minority interests represent the interest of third
parties in the net assets of certain subsidiary companies.
j) COMPUTATION OF EARNINGS PER COMMON SHARE. Primary earnings per share are
computed by dividing earnings, less preferred stock dividends payable to ESOP,
net of tax, by the weighted average number of shares outstanding during each
year. Fully diluted earnings per share assumes the conversion into common stock
of all the 7 1/4% Convertible Subordinated Debentures and ESOP preferred stock
at the date of issue, thereby increasing the weighted average number of shares
deemed to be outstanding during each period, and adding back to primary earnings
the after-tax interest expense.
k) NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS. In May 1995, Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, was issued. This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed. The Company does not believe the adoption of SFAS
121 will have a material effect on its consolidated financial statements. The
Statement is required to be implemented by the Company in fiscal 1997.
In October 1995, SFAS 123, Accounting for Stock-Based Compensation,
effective for the Company beginning April 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock-based compensation awards to
employees and will disclose the required pro forma effect on net income and
earnings per share for the year ending March 31, 1997.
l) USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
m) RECLASSIFICATION. Certain amounts in prior year statements have been
reclassified for conformity with current statement presentation.
2. DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
a) DISCONTINUED OPERATIONS. In fiscal 1995, the Company entered into an
agreement to sell its wool operations. During the third quarter of fiscal 1996,
the proposed sale was terminated. Accordingly, the results of operations of the
wool business for the prior periods have been reclassified from discontinued
operations to continuing operations. The estimated loss on disposal of $10.1
million in 1995 was reversed in 1996. The estimated loss was determined by
deducting the $56 million estimated net asset value of discontinued wool
operations (i.e., sales price) from the $66.1 million value of net assets held
for sale.
Assets, liabilities, revenues and operating profits for fiscal years ending
1995 and 1994, the years the wool operations were reported as discontinued
operations, were as follows:
In thousands 1995 1994
Total assets $294,290 232,265
Total liabilities 216,326 166,123
Revenues 440,112 346,420
Pretax operating income 10,002 4,446
14
<PAGE>
In December 1993, the Company completed the sale of its Caro-Green Nursery
business to Zelenka Nursery Inc. The operating results and gain on disposal for
Caro-Green Nursery are reported as discontinued operations and, accordingly,
prior period results have been restated. Following is a summary of amounts
included in discontinued operations for fiscal year ending 1994:
In thousands 1994
Sales $4,993
Pretax operating income 89
Income tax benefit (30)
Gain on disposal, less income taxes of $325 630
Income from discontinued operations 689
At March 31, 1996, the consolidated balance sheet includes notes receivable
from the purchaser totaling approximately $3.2 million.
b) RESTRUCTURING CHARGES. As a result of the termination of the sale of the
wool operations, the Company implemented a reorganization plan for its
nontobacco businesses and determined that a pretax restructuring charge of $12.5
million ($11.0 million after-tax) was appropriate. The costs include $3.6
million for the impairment of goodwill (determined by third-party negotiations);
$2.8 million for export incentive allowances; $2.1 million for plant closure;
and $2.5 million for expenses related to the wool sale and other miscellaneous
restructuring costs. It is currently anticipated that substantially all incurred
but unpaid amounts ($3.5 million at March 31, 1996) will be expended during
fiscal 1997.
3. RECEIVABLES
In thousands 1996 1995
Trade accounts $173,413 $147,910
Advances to suppliers 36,701 20,539
Affiliated companies 17,357 17,190
Other 30,196 30,591
257,667 216,230
Allowances for doubtful accounts (5,550) (5,367)
$252,117 $210,863
4. INVENTORIES
In thousands 1996 1995
Tobacco $160,721 $194,344
Nontobacco 99,060 151,066
$259,781 $345,410
Tobacco inventories at March 31, 1996 and 1995 included capitalized
interest, totaling $4.2 million and $7.8 million, and valuation reserves for
tobacco and wool of $5.2 million and $14.2 million, respectively. Interest
included in cost of sales totaled approximately $41.4 million, $35.0 million and
$29.4 million in 1996, 1995 and 1994, respectively. Inventory valuation
provisions included in cost of sales totaled approximately $8.4 million, $5.3
million and $23.8 million in 1996, 1995 and 1994, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
In thousands 1996 1995
Land $ 15,318 $ 14,222
Buildings 76,464 76,281
Machinery and equipment 133,959 120,084
Furniture and fixtures 12,023 10,472
Construction in progress 1,210 1,161
238,974 222,220
Accumulated depreciation (104,476) (87,813)
$134,498 $134,407
Depreciation expense was $18.1 million, $14.7 million and $14.1 million in
1996, 1995 and 1994, respectively.
6. AFFILIATED COMPANIES
a) Net investment in affiliated companies are represented by the following:
In thousands 1996 1995
Net current assets (liabilities) $ 4,445 $(3,924)
Fixed assets 24,156 45,178
Long-term liabilities 1,977 (7,856)
Interests of other shareholders (19,018) (20,184)
Company's interest 11,560 13,214
Provision for withholding taxes (118) (309)
$11,442 $12,905
b) The results of operations of affiliated companies were:
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Sales $82,527 $99,236 $112,237
Income (loss) before taxes $ 2,493 (2,468) (4,236)
Income taxes 2,259 1,074 1,140
Net income (loss) $ 234 $(3,542) $ (5,376)
Company's share $ (260) $(4,567) $ (3,162)
Amortization of goodwill - (40)
Withholding taxes 191 97 (24)
Equity in losses $ (69) $(4,470) $ (3,226)
Dividends received $ 96 $ 154 $ 750
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER ASSETS
In thousands 1996 1995
Cash surrender value of life insurance
policies (face amount $42,765) $12,567 $12,313
Policy loans 6,780 6,550
5,787 5,763
Bank deposits 118 170
Receivables 17,851 11,355
Due from affiliates 823 15,478
Investments 3,294 3,573
Excess of purchase price of
subsidiaries over net assets
acquired - net of accumulated
amortization of $7,231
(1995 - $3,367) 4,347 8,211
Other 5,063 4,674
$37,283 $49,224
Due from affiliates in 1995 includes a total of $26.7 million less a $11.2
million reserve due from Transcatab SpA, a 50%-owned affiliate. In 1996, this
affiliate became a majority-owned, consolidated subsidiary.
8. SHORT-TERM BORROWINGS
In thousands 1996 1995 1994
Weighted average interest
on borrowings at end of
year 8.5% 9.8% 6.7%
Weighted average interest
rate on borrowings
during the year1 9.0% 9.2% 6.7%
Maximum amount
outstanding at any
month-end $433,646 $450,590 $487,046
Average month-end amount
outstanding $388,875 $401,923 $453,214
Amount outstanding at
year-end $373,625 $378,955 $465,361
1 Computed by dividing short-term interest expense and amortized financing costs
by average short-term debt outstanding.
At March 31, 1996, under agreements with various banks, total short-term
credit facilities for continuing operations of $694 million (1995 - $644
million) were available to the Company of which $53 million (1995 - $100
million) were being utilized for letters of credit and guarantees and $287
million (1995 - $167 million) were unused.
The Company's tobacco credit facilities include a $100 million facility
expiring in June 1998 for U.S. operations and a two-year $200 million master
credit facility for European operations in addition to local lines of
approximately $245 million. Also, separate facilities totaling $145 million are
in place for wool operations.
The US and European loan agreements contain certain financial and reporting
covenants with which the Company was in compliance at March 31, 1996. Under its
most restrictive covenant, the Company had approximately $269,000 of retained
earnings available for distribution as dividends at March 31, 1996.
9. ACCOUNTS PAYABLE
In thousands 1996 1995
Trade accounts $100,286 $105,948
Affiliated companies 18 1,098
Other accruals and payables 33,433 38,037
$133,737 $145,083
10. LONG-TERM DEBT
In thousands 1996 1995
Senior notes, at 1.75% above LIBOR
repayable quarterly through March
1999 $ 3,103 $ 3,835
Floating rate loan, at 1.75% above
three-month negotiable CD rate,
repayable quarterly through March
2002 6,533 6,600
Floating rate loan, at 1.75% above
LIBOR, repayable quarterly through
March 1999 1,535 4,927
Floating rate note, at 82% of prime,
repayable in 2001 2,940 2,940
6.48% fixed rate loans repayable
annually through 1998 6,472 10,308
Floating rate loan at 1.5% above LIBOR
repayable annually through 1998 1,175 1,762
9.25% fixed rate loan repayable
annually through 1997 820 1,640
9.82% fixed rate loan repayable
annually through 2005 3,566 3,823
10.4% loan repayable annually through
2000 6,000 -
9.25% note repayable through 2005 1,978 2,118
Italian prime + 1/8% payable through
2002 4,273 -
11.95% loan repayable through 2001 3,129 3,536
Other 1,959 2,813
43,483 44,302
Current portion (11,665) (11,899)
$31,818 $32,403
Long-term debt maturing after one year is as follows: 1998 - $9,148; 1999 -
$6,508; 2000 - $4,939; 2001 - $5,711; and thereafter - $5,512.
Convertible Subordinated Debentures
On November 13, 1991 the Company issued $69.0 million of 7 1/4% Convertible
Subordinated Debentures due March 31, 2007. The debentures are convertible into
shares of common stock of the Company at a conversion price of $30.57 as
adjusted for stock dividends. The debentures are subordinated in right of
payment to all senior indebtedness, as defined, of the Company, and as of March
31, 1995 became redeemable in whole or in part at the option of the Company.
Beginning March 31, 2005 the Company will make annual sinking fund payments
which will be sufficient to retire at least 5% of the principal amount of issued
Debentures reduced by earlier conversions, redemptions and repurchases.
At March 1996, substantially all of the Company's assets were pledged
against current and long-term borrowings.
16
<PAGE>
11. BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time salaried employees in the United States. Various
other pension plans are sponsored by foreign subsidiaries. Benefits under the
plans are based on employees' years of service and eligible compensation.
Foreign plans which are significant and considered to be defined benefit pension
plans have adopted Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions. The Company's policy is to contribute
amounts to the U.S. plan sufficient to meet or exceed funding requirements of
federal benefit and tax laws.
U.S. Plan
A summary of pension costs follows:
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Service cost - benefits earned
during the year $ 433 $ 421 $ 415
Interest cost on projected benefit
obligation 549 501 522
Recognized return on plan assets (670) (583) (764)
Net amortization (72) (37) (40)
Net pension cost $ 240 $ 302 $ 133
The funded status of the U.S. plan at March is shown below:
In thousands 1996 1995
Actuarial present value of benefit
obligations:
- vested $6,429 $5,884
- nonvested benefits 56 46
Accumulated benefit obligation 6,485 5,930
Benefits attributable to projected
salaries 1,989 1,835
Projected benefit obligation 8,474 7,765
Plan assets at fair value 10,391 8,372
Assets in excess of (less than) projected
obligation 1,917 607
Unamortized net transition gain (367) (428)
Unrecognized prior service cost (55) 9
Unrecognized experience gain (389) 782
Prepaid pension costs $1,106 $ 970
The projected benefit obligation at March 31, 1996, 1995 and 1994 was
determined using an assumed discount rate of 7.25%, and assumed future
compensation increases of 5.25%, 5.25% and 5.5%, respectively. The assumed
long-term rate of return on plan assets was 8.0%, 8.0% and 10.0% at March 31,
1996, 1995 and 1994, respectively. Assets consist of pooled equity and fixed
income funds managed by an independent trustee.
Non-U.S. Plans
A summary of pension costs follows:
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Service Cost - Benefits Earned
During the Year $ 1,507 $ 1,428 $ 1,353
Interest cost on projected
benefit obligation 2,646 2,414 2,262
Recognized return on plan
assets (2,004) (1,655) (1,364)
Net amortization 222 147 140
Net pension cost $ 2,371 $ 2,334 $ 2,391
The funded status of non-U.S. plans, which includes non-qualified defined
benefit plans, at March is shown below:
Assets ABO
exceed ABO exceeds Assets
In thousands 1996 1995 1996 1995
Actuarial present value of
benefit obligations:
- vested $11,575 $10,684 $12,945 $15,173
- nonvested benefits 454 397 48 45
Accumulated benefit
obligation (ABO) 12,029 11,081 12,993 15,218
Benefits attributable to
projected salaries 4,394 3,861 1,200 1,424
Projected benefit obligation 16,423 14,942 14,193 16,642
Plan assets at fair value 17,402 14,427 4,484 6,060
Assets in excess of (less
than) projected obligation 979 (515) (9,709) (10,582)
Unamortized net transition
loss (gain) 854 932 943 1,008
Unrecognized prior service
cost (113) (124) 913 1,003
Unrecognized experience loss
(gain) (1,193) 110 (817) 357
Additional minimum liability - - (914) (1,271)
Prepaid (accrued) pension
costs $ 527 $ 403 $(9,584) $(9,485)
The assumptions used in 1996, 1995 and 1994 were as follows:
1996 1995 1994
Discount rates 7.75% to 8.5% 7.5% to 8.5% 8.5%
Compensation increases 3.25% to 6.5% 5.5% to 7.0% 5.5% to 7.0%
Long-term rates of
return on plan
assets 10.0% 10.0% 8.5%
Plan assets consist primarily of common stocks, pooled equity and fixed
income funds. The pension costs and obligations for non-U.S. plans shown above
also include certain nonqualified plans.
The Company also sponsors a 401(k) savings incentive plan for most full-time
salaried employees in the United States. The expense for this plan was $144,000
in 1996, $127,000 in 1995 and $145,000 in 1994.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106 Employers' Accounting for Postretirement
Benefits other than Pensions, with respect to benefits provided under U.S.
plans. The Company provides certain health care and life insurance benefits for
substantially all of its retired salaried employees. SFAS 106 requires the
Company to accrue the estimated cost of retiree benefit payments during the
years the employee provides services.
The components of the net periodic cost of postretirement benefits for 1996,
1995 and 1994 were:
Year ended March 31
1996 1995 1994
Service cost $ 176,148 $168,613 $427,774
Interest cost on
accumulated benefit
obligation 522,164 405,299 550,651
Amortization of plan
amendments (136,649) (138,904) -
Net periodic cost $ 561,663 $435,008 $978,425
The components of the liability included in the consolidated balance sheet
at March 31, 1996 and 1995 of the actuarial present value of benefits for
services rendered to date were:
1996 1995
Current retirees $ 504,723 $ 286,798
Active employees eligible to
retire 2,423,723 2,182,208
Active employees not eligible to
retire 4,041,795 2,857,240
Total 6,970,241 5,326,246
Unrecognized net gain (loss) (672,154) 495,368
Unrecognized prior service cost 1,111,227 1,250,131
Accumulated postretirement
benefit obligation $7,409,314 $7,071,745
The accumulated postretirement benefit obligation (APBO) was determined
using an 8.0% weighted-average discount rate. The medical cost trend rate used
in determining the APBO was assumed to be 13.25% in 1996. This rate was assumed
to gradually decline to 6.5% in 2003, and remain at that level thereafter.
Assuming a one percent increase in the medical cost trend rates, the
aggregate of the service and interest cost components of the net periodic
pension cost for 1996 would increase by $121,000 and the APBO as of March 31,
1996 would increase by $917,000. In general, postretirement benefit costs are
insured or paid as claims are incurred.
The ongoing impact of SFAS 106 as it relates to employees of foreign
subsidiaries is immaterial. The Company expenses the cost of these benefits as
incurred.
12. COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows: 1997 - $3,530,476; 1998
- - $3,016,303; 1999 - $2,486,829; 2000 - $2,043,153; 2001 - $2,030,936 and
thereafter $2,383,122. Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 1996, 1995 and
1994 were $3,811,000, $963,000 and $788,000, respectively.
The Company operates a processing facility under a service agreement which
guarantees reimbursement of all of the facility's costs including operating
expenses and management fees. This lease is not considered a commitment of the
Company.
The Company has commitments for capital expenditures of approximately $12.5
million, all of which are expected to be incurred in fiscal 1997.
The previously reported joint Canadian-U.S. criminal investigation into
alleged violations of law relating to the importation, exportation and taxation
of tobacco is continuing. All Canadian charges have now been dismissed and no
charges are pending against the Company or any of its employees. The
investigation by the office of the United States Attorney for the Eastern
District of North Carolina is continuing. Although the extent of liability, if
any, which the Company or any of its subsidiaries might have as a result of that
investigation cannot be determined, management does not believe that it will
have a material adverse effect on the Company's financial position.
Third-party borrowings guaranteed by the Company at March 31, 1996 totaled
approximately $34 million.
On May 1, 1993 a foreign subsidiary of the Company received notices of
proposed tax adjustments of approximately $4 million to its returns for the
years 1985 through 1992. A special arbitrator ruled that the Company was liable
for taxes of $ 1.8 million for the years under review. The Company has found
fault with and appealed the ruling. The Company believes the assessments are
without merit and intends to vigorously contest the proposed deficiencies, and
that any adjustment which might result would not have a material effect on the
consolidated financial position of the Company.
Other contingencies, consisting of guarantees, pending litigation and other
claims, in the opinion of management, are not considered to be material in
relation to the Company's financial position.
Concentration of Credit and Off-Balance Sheet Risks
Financial instruments that potentially subject the Company to a
concentration of credit risks consist principally of cash and trade receivables
relating to customers in the tobacco and wool industries. Cash is deposited with
high-credit-quality financial institutions. Concentration of credit risks
related to receivables is limited because of the diversity of customers and
locations.
18
<PAGE>
13. COMMON STOCK
Common Additional
Number of Shares Stock Paid in
of Common Stock Capital
Issued Treasury Par Value In thousands
March 31, 1993 10,863,023 2,346,318 $ 2,172 $ 33,928
401(k)
contributions 8,591 2 143
Dividends
reinvested 5,565 1 89
RSP shares issued 36,280 8 715
March 31, 1994 10,913,459 2,346,318 2,183 $ 34,875
401(k)
contributions 8,585 2 125
Dividends
reinvested 19,391 4 302
RSP shares
forfeited (435) - -
Stock dividends 219,289 47,160 43 2,986
March 31, 1995 11,160,289 2,393,478 2,232 38,288
401(k)
contributions 12,283 3 141
Dividends
reinvested 729 - 8
RSP shares
forfeited (1,359) - (37)
Stock dividends 452,333 97,183 90 5,260
MARCH 31, 1996 11,624,275 2,490,661 $ 2,325 $ 43,660
The Company maintains a Performance Improvement Compensation Plan
administered by the Compensation Committee of the Board of Directors as an
incentive for designated employees. In June 1993, the Board adopted a Restricted
Stock Plan ("RSP") as a means of awarding those employees to the extent that
certain performance objectives were met, restricted shares of the Company's
common stock pursuant to the RSP, the Compensation Committee of the Board
awarded 36,454 shares of Restricted Stock in fiscal 1994, of which 36,280 were
issued as of March 31, 1994. The shares were issued subject to a seven-year
restriction period.
The Company has a 401(k) savings incentive plan in the United States to
which the employer contributes shares of common stock under a matching program,
and a dividend reinvestment plan.
Treasury stock represents shares in the Company acquired by a foreign
affiliate prior to its becoming a wholly-owned subsidiary.
An employee stock ownership plan (the "ESOP") established by W A Adams
Company ("Adams") prior to its acquisition, exchanged the Adams common stock
held by the ESOP for 92,005 shares of Series A Cumulative Preferred Stock (the
"ESOP Stock"), issued by the Company, of which 3,842 shares were redeemed in
1996 (686 in 1995). The ESOP stock has a stated value of $100 per share and a
par value of $1.65 per share. In return for the Adams stock, the Company
guaranteed a bank loan taken out by the ESOP to acquire the Adams stock. The
loan is included in long-term debt and a related reduction is offset by the ESOP
Stock as "unearned ESOP compensation". The outstanding ESOP Stock is convertible
into 257,892 shares of Standard Commercial Common Stock, subject to adjustment
under certain conditions, and bears cumulative dividends at a rate of 8% of
stated value per annum payable quarterly in arrears when, as and if declared.
The ESOP Stock is redeemable at the option of the Company, in whole or in part,
on or after August 1, 1996 at a price of $100 per share plus accrued and unpaid
dividends, and ESOP participants have a put option at the stated value on any
Preferred Stock received. Holders of the ESOP Stock have voting rights with
respect to certain matters that may be submitted to a vote of holders of the
Company's Common Stock.
The Company has filed a Determination Letter Request with the Internal
Revenue Service to terminate the ESOP; however, no distributions have been made
as a result of the request. The Company's Board of Directors has indicated that
it may adjust the conversion price to encourage conversion of the ESOP Stock in
lieu of redemption.
14. FOREIGN CURRENCY
Changes in the translation adjustment component of shareholders' equity are
shown below:
In thousands 1996 1995 1994
Beginning balance April 1 $(4,319) $(17,984) $ (9,546)
Net change in translation of
foreign financial
statements (5,125) 13,665 (8,438)
Ending Balance March 31 $(9,444) $ (4,319) $(17,984)
Net amounts included in the income statement relating to foreign currency
losses from continuing operations were $276, $756, and $26 in 1996, 1995 and
1994, respectively.
15. OTHER INCOME (EXPENSE)- NET
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Other income
Interest $ 4,430 $ 4,644 $ 5,884
Gain on asset sales and
dispositions 4,476 14,650 4,358
Rents received 441 233 659
Other 4,976 2,162 701
14,323 21,689 11,602
Other expense
Interest (9,559) (9,947) (7,173)
Amortization of goodwill (197) (582) (413)
Other (2,714) (2,136) (404)
(12,470) (12,665) (7,990)
$ 1,853 $ 9,024 $ 3,612
16. INCOME TAXES
Effective April 1, 1993 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting For Income Taxes, which required
a change in the method of accounting for income taxes from the deferred method
to the liability method. The cumulative effect of adopting SFAS 109 was to
increase income by $3.7 million. Deferred income taxes reflect the net tax
effect of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating-loss carryforwards.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
In thousands 1996 1995
Deferred tax liabilities:
Depreciation $11,377 $12,202
Capitalized interest 763 1,010
Income recognition in foreign
subsidiaries 16,673 10,943
Prepaid pension assets 898 1,178
All other, net - 3,344
Total deferred tax liabilities 29,711 28,677
Deferred tax assets:
NOL carried forward 8,766 4,996
Valuation allowance (7,021) (4,671)
Postretirement benefits other than
pensions 2,919 2,786
Uniform capitalization 186 292
All other, net 1,925 -
Total deferred tax assets 6,775 3,403
Net Deferred Tax Liabilities $22,936 $25,274
The net deferred tax liabilities include approximately $13,304 and $13,563
of current liabilities at March 31, 1996 and 1995, respectively.
b) Income tax provisions are detailed below:
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Current
Federal $ 130 $ 3,686 $ (356)
Foreign 7,455 11,470 5,839
State and local 219 421 634
7,804 15,577 6,117
Deferred
Federal (1,131) (1,154) 96
Foreign 160 1,938 (1,144)
State and local 3 9 1
(968) 793 (1,047)
Income tax provision $ 6,836 $16,370 $ 5,070
c) Components of deferred taxes follow:
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Tax on differences in timing
of income recognition in
foreign subsidiaries $(2,565) $ 2,055 $(1,370)
Utilization of NOL carried
forward 185 - 31
Capitalized interest (248) (29) 366
DISC income - (89) (89)
Other 1,660 (1,144) 15
$ (968) $ 793 $(1,047)
d) The provision for income taxes is determined on the basis of the
jurisdiction imposing the tax liability. As some of the income of foreign
companies may also be currently subject to U.S. tax, the U.S. and foreign income
taxes shown do not compare directly with the segregation of pretax income
between domestic and foreign companies that follows:
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Pretax income
Domestic $ 264 $ (89) $ 5
Foreign 1,994 10,069 (24,442)
$2,258 $ 9,980 $(24,437)
e) The following is a reconciliation of the income tax provision to the
expense calculated at the U.S. federal statutory rate.
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
Expense (benefit) at U.S.
federal statutory tax rate $ 768 $ 3,393 $(7,629)
Foreign tax losses for which
there is no relief
available 4,359 9,750 13,467
U.S. tax on foreign income 200 2,912 408
Different tax rates in
foreign subsidiaries (177) (1,073) (1,482)
Other - net 1,686 1,388 306
$6,836 $16,370 $ 5,070
17. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of March
31, 1996 is provided below in accordance with Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments.
Certain estimates and judgments were required to develop the fair value amounts,
which are not necessarily indicative of the amounts that would be realized upon
disposition, nor do they indicate the Company's intent or ability to dispose of
such instruments.
Cash and cash equivalents: The estimated fair value of cash and cash
equivalents approximates carrying value.
Other assets: Included in other assets are certain long-term investments,
amounting to $3.3 million, which are carried on a cost basis. The estimated fair
values of these investments is $4.2 million.
Short-term and long-term debt: The fair value of the Company's short-term
borrowings, which primarily consists of bank borrowings, approximates its
carrying value. The estimated fair value of long-term debt, including the
current portion, is approximately $89.2 million, compared with a carrying value
of $112.5 million, based on discounted cash flows for fixed rate borrowings,
with the fair value of floating rate borrowings considered to approximate
carrying value.
20
<PAGE>
18. SEGMENT INFORMATION
The Company is engaged primarily in purchasing, processing and selling leaf
tobacco and wool. Its activities other than these are minimal. Geographic
information is determined by the areas in which the companies conducting these
activities are registered. Generally, sales between segments are made at
prevailing market prices.
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
GEOGRAPHIC AREAS
Sales
United States $ 375,842 $ 288,143 $ 299,914
Europe 781,910 702,606 585,062
Other areas 319,428 355,529 267,899
Intersegment
eliminations (117,730) (132,713) (110,861 )
$1,359,450* $1,213,565* $1,042,014*
Operating income net of
interest
United States $ 3,576 $ 2,598 $ 3,648
Europe 10,616 (9,406) (24,645 )
Other areas (8,609) 20,425 1,423
Corporate expenses (3,325) (3,637) (4,863 )
Income (loss) before
taxes $ 2,258 $ 9,980 $ (24,437 )
Assets
United States $ 163,002 $ 142,793 $ 182,429
Europe 469,247 503,397 562,300
Other areas 133,075 148,359 123,483
Investment in
affiliates 11,442 12,905 14,601
Corporate assets 6,058 6,035 7,958
$ 782,824 $ 813,489 $ 890,771
U.S. Exports
Europe $ 103,526 $ 69,348 $ 79,105
Far East 46,726 80,474 92,641
Other areas 5,007 12,369 1,900
$ 155,259 $ 162,191 $ 173,646
YEAR ENDED MARCH 31
In thousands 1996 1995 1994
BUSINESS SEGMENTS
Sales
Tobacco $ 925,549 $ 755,971 $ 671,495
Nontobacco 433,901 457,594 370,519
$1,359,450* $1,213,565* $1,042,014*
Operating income net of
interest
Tobacco $ 28,373 $ 2,759 $ (26,699 )
Nontobacco (22,790) 10,858 7,125
Corporate expenses (3,325) (3,637) (4,863 )
Income before taxes $ 2,258 $ 9,880 $ (24,437 )
Interest expense
included above
Tobacco 39,381 35,207 29,487
Nontobacco 11,547 9,721 7,103
$ 50,928 $ 44,928 $ 36,590
Depreciation and
amortization expense
Tobacco $ 12,914 $ 11,004 $ 9,398
Nontobacco 9,778 5,135 4,704
$ 22,692 $ 16,139 $ 14,102
Equity in earnings of
affiliates
Tobacco $ (217) $ (4,489) $ (3,514 )
Nontobacco 148 19 288
$ (69) $ (4,470) $ (3,226 )
Assets
Tobacco $ 532,627 $ 499,587 $ 630,492
Nontobacco 244,139 307,867 252,321
Corporate assets 6,058 6,035 7,958
$ 782,824 $ 813,489 $ 890,771
Capital expenditures
Tobacco $ 10,398 $ 11,177 $ 21,954
Nontobacco 1,813 6,151 5,303
$ 12,211 $ 17,328 $ 27,257
* Includes sales to one customer of 17% in 1996, 14% in 1995 and 10% in 1994.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Shareholders of Standard Commercial
Corporation.
We have audited the accompanying consolidated balance sheets of Standard
Commercial Corporation as of March 31, 1996 and 1995 and the related
consolidated statements of income and retained earnings and of cash flows for
each of the three years in the period ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at March 31, 1996
and 1995 and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1996 in conformity with generally
accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 28, 1996
COMPANY REPORT ON FINANCIAL STATEMENTS
Standard Commercial is responsible for the preparation of the financial
statements, related financial data and other information in this annual report.
The financial statements are prepared in accordance with generally accepted
accounting principles and include amounts based on estimates and judgment where
appropriate.
In meeting its responsibility for both the integrity and fairness of
these statements and information, the Company depends on the accounting system
and related internal controls that are designed to provide reasonable assurance
that transactions are authorized and recorded in accordance with established
procedures, that assets are safeguarded and that proper and reliable records are
maintained.
The concept of reasonable assurance is based on the recognition that the
cost of an internal control system should not exceed the related benefits.
Because of inherent limitations in any system of controls, there can be no
absolute assurance that errors or irregularities will not occur. Nevertheless,
we believe that our internal controls provide reasonable assurance as to the
integrity and reliability of our financial records.
As an integral part of the internal control system, Standard maintains a
professional staff of internal auditors who monitor compliance with and assess
the effectiveness of the internal controls and recommend improvements thereto.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets quarterly with Standard's management and internal auditors, and
at least annually with its independent auditors, to review matters relating to
financial reporting, internal controls and the extent and results of the audit
effort. The internal auditors and independent auditors have direct access to the
Audit Committee with or without management present.
The financial statements have been examined by Deloitte & Touche LLP,
independent auditors, who render an independent professional report on the
Company's financial statements. Their appointment was recommended by the Audit
Committee, approved by the Board of Directors and ratified by the shareholders.
Their report on the financial statements is based on auditing procedures which
include reviewing internal control and performing selected tests of transactions
and records as they deem appropriate. These auditing procedures are designed to
provide reasonable assurance that the financial statements are fairly presented
in all material respects.
22
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended March 31
In thousands, except share data 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Sales $1,359,450 $1,213,565 $1,042,014 $1,236,084 $1,173,300 $1,027,540
Income taxes 6,836 16,370 5,070 12,546 11,048 8,099
Income (loss) from continuing operations (9,442) (20,494) (36,498) 22,250 23,843 12,680
Income (loss) from discontinued operations 10,050 (10,050) 689 (1,547) (2,216) (3,164)
Extraordinary items -- -- -- 503 624 (19,166)
Cumulative effect of accounting changes -- -- 23 -- -- --
Net income (loss) 608 (30,544) (35,786) 21,176 22,251 (9,650)
Current assets 599,601 616,953 710,464 759,802 590,832 469,077
Total assets 782,824 813,489 890,771 923,367 723,819 581,979
Current liabilities 543,803 563,766 639,980 592,507 445,183 394,723
Long-term debt 100,818 101,403 98,169 128,762 100,896 30,902
Average number of shares outstanding 8,934,381 8,618,505 8,552,813 8,447,564 8,245,501 8,233,048
Per share
Earnings (loss) from continuing operations $(1.11) $(2.43) $(4.32) $2.58 $2.89 $1.54
Income (loss) from discontinued operations 1.12 (1.17) 0.08 (0.18) (0.27) (0.38)
Extraordinary items -- -- -- 0.06 0.08 (2.33)
Net earnings (loss) 0.01 (3.60) (4.24) 2.46 2.70 (1.17)
Dividends paid -- -- 0.50 0.54 0.52 0.52
Book value at year end 8.78 9.69 11.98 17.74 16.12 14.20
Market price at year end 9 13 3/8 15 5/8 26 1/4 29 3/8 13 5/8
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly results, dividends and stock prices for the years ended March 31, 1996
and 1995 follow:
<TABLE>
<CAPTION>
In thousands, except share data June 30 Sept 30 Dec 31 March 31 Year
<S> <C> <C> <C> <C> <C> <C>
1996 Sales $296,965 $282,196 $377,555 $402,734 $1,359,450
Gross profit 14,473 14,762 26,311 34,967 90,513
Income (loss) from continuing operations (6,255) (3,175) (9,040) 9,028 (9,442)
Income (loss) from discontinued operations 4,500 (5,249) 10,799 -- 10,050
Net income (loss) (10,755) (8,424) 1,759 9,028 608
Earnings (loss) per share
Primary - from continuing operations (0.73) (0.37) (1.02) 0.98 (1.11)
- from discontinued operations (0.51) 0.42 1.20 -- 1.12
- net (1.24) 0.05 0.18 0.98 0.01
Fully diluted * * * 0.84 *
Dividends paid per share ** ** ** **
Market price - high 15 1/8 14 3/8 12 1/4 10 3/8 10 3/8
- low 13 1/4 10 1/2 9 1/4 7 1/2 7 1/2
1995 Sales $253,249 225,049 301,880 433,387 1,213,565
Gross profit 16,075 14,990 23,250 27,150 81,465
Income (loss) from continuing operations (1,171) (4,077) 296 (15,542) (20,494)
Income (loss) from discontinued operations (10,050) (10,050)
Net income (loss) (1,171) (4,077) 296 (25,592) (30,544)
Earnings (loss) per share
Primary - from continuing operations (0.15) (0.49) 0.02 (1.84) (2.43)
- from discontinued operations -- -- -- (1.15) (1.17)
- net (0.15) (0.49) 0.02 (2.99) (3.60)
Fully diluted * * * * *
Dividends paid per share 0.10 0.10 ** ** 0.20
Market price - high 18 7/8 16 1/8 15 7/8 15 1/8 18 1/8
- low 14 3/4 13 1/8 11 1/8 12 1/8 11 1/8
</TABLE>
* Not applicable because fully diluted calculations include adjustments which
are antidilutive.
** Distributed one percent stock dividend.
Standard's common stock is traded on the New York Stock Exchange under the
symbol STW. Market prices shown above are the high and low prices as reported by
the NYSE. At June 8, 1996 there were 606 shareholders of record.
It is the policy of the Company to pay quarterly cash dividends on its
common stock as business conditions permit. However, to conserve cash, one
percent stock dividends have been distributed in lieu of cash for the quarters
ended. At this time it is uncertain when cash dividends will be resumed.
Prior periods have been restated to conform with the current period
presentation of the wool operation.
23
<PAGE>
CORPORATE DIRECTORS AND OFFICERS, DIVISION MANAGEMENT AND
PRINCIPAL TRADING COMPANIES
CORPORATE DIRECTORS
Ery W. Kehaya, Chairman of the Board
Marvin W. Coghill, (1),(4) Chairman - Tobacco Division
J. Alec G. Murray, (1),(4) President & Chief Executive Officer
William A. Ziegler, (2),(3),(4) Retired partner, Sullivan &
Cromwell, attorneys
Henry R. Grunzke, Chairman - Wool Division
William S. Barrack, Jr., (2),(3) Retired Senior Vice President - Texaco Inc. &
Director Caltex Petroleum Corporation
Thomas M Evins, Jr. Regional Manager - North and
Central America Tobacco Operations
Charles H. Mullen, (2),(3) Retired Chairman and Chief
Executive Officer - The American Tobacco Company
Daniel M. Sullivan, (2),(3) Founder and retired former Chief Executive
Officer - Frost & Sullivan Inc.
Robert E. Harrison, (1) Senior Vice President and Chief Financial Officer
(1) Denotes member of Executive Committee
(2) Denotes member of Audit Committee
(3) Denotes member of Compensation Committee
(4) Denotes member of Nominating Committee
WOOL DIVISION MANAGEMENT
Henry R. Grunzke, Chairman
Paul H. Bicque, Managing Director
Timothy S. Price, Financial Director
Louis Booysen, Director - South Africa
Paul T. Hughes, Director - United Kingdom
Harald Menkens, Director - Germany
Jean-Marie Rabeisen, Director - France
Geoffrey M. Stooke, Director - Australia
WOOL COMPANIES
* Standard Wool Inc, Franklin, Massachusetts
* S H Allen & Sons (Pty) Ltd, Melbourne, Australia
* Standard Wool Argentina SA, Buenos Aires, Argentina
* Standard Wool Australia (Pty) Limited
Fremantle, Australia
* Standard Wool (Chile) SA, Punta Arenas, Chile
* Standard Wool Deutscheland GmbH
Bremen, Germany
* Standard Wool France SA, Tourcoing, France and
Biella, Italy
* Standard Wool South Africa (Pty) Ltd
Port Elizabeth, South Africa
* Standard Wool (UK) Limited, Bradford, England
* Tentler & Co BV, Dongen, Netherlands
* F Whitley (NZ) Ltd, Christchurch, New Zealand
OTHER
* Carolina Home Center Inc, Wilson, North Carolina
CORPORATE OFFICERS
J. Alec G. Murray, President and Chief Executive Officer
Robert E. Harrison, Senior Vice President and
Chief Financial Officer
Guy M. Ross, Vice President and Secretary
Ery W. Kehaya II, Vice President
Mark W. Kehaya, Vice President - Planning
Krishnamurthy Rangarajan, Vice President
and Assistant Secretary
Keith H. Merrick, Vice President and Treasurer
Hampton R. Poole, Jr., Vice President, Controller and Assistant Treasurer
TOBACCO DIVISION MANAGEMENT
Marvin W. Coghill, (1) Chairman & Chief Executive Officer
John H. Saunders, Senior Vice President, and
Regional Manager - Africa
Robert E. Harrison, (1) Vice President - Finance
Ery W. Kehaya II, (1) Vice President - Operations
Alfred F. Rehm, (1) Vice President - U.S. Sales
Simon J. P. Green, Assistant Vice President, and
Manager - European Sales
Thomas M. Evins, Jr., Vice President, and
Regional Manager - North & Central America
Edward A. Majeski, Vice President, and
Regional Manager - South America
Duncan B. Meech, Vice President, and
Regional Manager - Far East
Constantin J. W. von Esebeck, Vice President, and
Regional Manager - Europe
(1) Denotes member of Tobacco Executive Committee
TOBACCO COMPANIES
* Standard Commercial Tobacco Co Inc
Wilson, North Carolina
* W A Adams Company, Wilson, North Carolina
* CRES Tobacco Company Inc, King, North Carolina
* Adams International Ltd, Bangkok, Thailand
* Exelka SA, Salonica, Greece
* Siam Tobacco Export Corporation Limited
Chiengmai, Thailand
* Spierer Tutun Ihracat Sanayi Ticaret AS, Izmir, Turkey
* Stancom Tobacco Company (Malawi) Limited
Lilongwe, Malawi
* Stancom Tobacco (Private) Limited, Harare, Zimbabwe
* Standard Commercial Tobacco Co of Canada Ltd Tillsonburg, Ontario, Canada
* Standard Commercial Tobacco Company (UK) Ltd Godalming, Surrey, England
* Tobacco Processors Lilongwe Ltd, Lilongwe, Malawi
* Tobacco Processors (Malawi) Ltd, Limbe, Malawi
* Transcatab SpA, Caserta, Italy
* Trans-Continental Leaf Tobacco Corporation
Vaduz, Liechtenstein
* Werkhof GmbH, Hamburg, Germany
* World Wide Tobacco Espana, Benavente, Spain
24
<PAGE>
INVESTOR INFORMATION
SHAREHOLDERS
Inquiries and information requests should be directed to:
Corporate Secretary
Standard Commercial Corporation
P.O. Box 450
Wilson NC 27894-0450
Contact: Guy M. Ross
Telephone: 919-291-5507
Fax: 919-237-0018
DIVIDEND POLICY
It is the policy of the Company to pay quarterly cash dividends on its
common stock as business conditions permit. However, to conserve cash, one per
cent stock dividends have been distributed in lieu of cash for several quarters.
At this time it is uncertain when cash dividends will be resumed.
Dividends are paid near the middle of June, September, December and
March to shareholders of record at the beginning of the month in which paid.
DIVIDEND REINVESTMENT PLAN
Shareholders may acquire additional shares of common stock through
automatic reinvestment of cash dividends and/or optional cash investments
without payment of brokerage commissions or service fees.
For information about dividend reinvestment or optional cash
investments, write to the Corporate Secretary or Dividend Disbursing Agent.
COMMON STOCK TRANSFER
AGENT AND REGISTRAR, AND
DIVIDEND DISBURSING AGENT
Listed: NYSE Symbol: STW
First Union National Bank
Shareholder Services Group
230 S. Tryon Street, 10th Floor
Charlotte NC 28288-1154
Contact: Ann Harris
Telephone: 704-383-8009
1-800-829-8432
Fax: 704-374-6114
TRUSTEE FOR CONVERTIBLE
SUBORDINATED DEBENTURES
Listed: NYSE Symbol: STW H
First Union National Bank
Bond Administration Department
230 S. Tryon Street, 9th Floor
Charlotte NC 28288-1179
Contact: Shannon Stahel
Telephone: 704-374-2075
Fax: 704-383-7316
STANDARD COMMERCIAL CORPORATION
MAILING ADDRESS
P.O. Box 450
Wilson NC 27894-0450
Street Address
2201 Miller Road
Wilson NC 27893
Telephone: 919-291-5507
Fax: 919-237-0018
Telex: 802840 (STANCOM WISN)
Cable: STANDARDCOM WILSON
E-Mail: scc/wilson/info@
sccwisn.attmail.com
1996 ANNUAL MEETING
August 13, 1996, 12 noon
Wilson Country Club
West Nash Road
Wilson, North Carolina
10-K REPORT
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K is available without charge to shareholders upon
written request to the Corporate Secretary.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
150 Fayetteville Street Mall
P.O. Box 2778
Raleigh NC 27602
GENERAL COUNSEL
Rosenman & Colin
575 Madison Avenue
New York NY 10022-2585
Contact: William M. Kaplan
Telephone: 212-940-8810
Fax: 212-940-8776
STANDARD COMMERCIAL (UK)
Standard House, Weyside Park,
Godalming, Surrey GU7 1XE
England
Telephone: 011-44-1483-860171
Fax: 011-44-1483-860176
Telex: 858369 SCTCUK G
<PAGE>
STANDARD COMMERCIAL CORPORATION
2210 Miller Rd, Wilson NC 27893
Telephone 919-291-5507
Fax 919-237-0018
STANDARD COMMERCIAL CORPORATION EXHIBIT 21
SUBSIDIARIES AND AFFILIATES AT MARCH 31, 1996
<TABLE>
<CAPTION>
State or Country
Name of Company of Organization
<S> <C> North Carolina
Standard Commercial Corporation
W A Adams Company North Carolina
General Processors Inc. North Carolina
P.M.A. Tobaccos Inc. North Carolina
The Tobacco Trading Corporation Virginia
Adams International Ltd. Thailand
Exportadora de Tobaco de Honduras S.A. de C.V. Honduras
Carolina Home Center Inc. North Carolina
Jas. I. Miller Tobacco Company Inc. North Carolina
Standard Commercial Tobacco Co. Inc. North Carolina
Carolina Trading Corporation North Carolina
CRES Tobacco Company Inc North Carolina
Jas. I. Miller Tobacco Co. Ltd. Jamaica
Standard Commercial Services Inc. North Carolina
Spierer Freres & Cie S.A. Switzerland
Exelka S.A. Greece
Translanta S.A. Greece
Eryka International S.A. Liechtenstein
Spierer Tutun Ihracat Sanayi Ticaret A.S. Turkey
Hermes Tutun Ihracat A.S. Turkey
Standard Commercial Tobacco Company of Canada Ltd. Canada
British Leaf Tobacco Company of Canada Ltd. Canada
Standard Commercial Tobacco Company (UK) Ltd. United Kingdom
Andrew Chalmers (India) Ltd. United Kingdom
N.G. Fleming Ltd. United Kingdom
Saloman Bros. Tobacco Company Ltd. United Kingdom
Leoni & Dent Ltd. United Kingdom
P.L. Leverson Ltd. United Kingdom
Siemssen Threshie (Jamaica) Ltd. Jamaica
Siemssen Threshie (Malawi) Ltd. Malawi
Stancom Tobacco Company (Malawi) Ltd. Malawi
Tobacco Processors (Malawi) Ltd. Malawi
Limbe Properties Limited Malawi
Standard Commercial Tobacco Co. (Overseas) Ltd. United Kingdom
Tobacco Processors (Lilongwe) Ltd. Malawi
Stancom Zambia (Pvt) Ltd Zambia
Standard Wool (UK) Ltd. United Kingdom
Jacomb Hoare (Bradford) Ltd. United Kingdom
Thomas Chadwick & Sons Ltd. United Kingdom
Standard Wool Chile S.A. Chile
Standard Commercial Tobacco Services (UK) Ltd. United Kingdom
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION EXHIBIT 21
SUBSIDIARIES AND AFFILIATES AT MARCH 31, 1996
<TABLE>
<CAPTION>
State or Country
Name of Company of Organization
<S> <C>
Standard Commercial Corporation (continued) North Carolina
Standard Wool Inc. Delaware
Standard Wool France S.A. France
Peignage de la Tossee S.A. France
Eusebe Carpentier S.A. France
Advhus Gestion Societe Civile France
Dotra B.V. Netherlands
Tentler & Co. B.V. Netherlands
F Whitley (NZ) Limited New Zealand
De Spa & Co Ltd. New Zealand
Industex Ltd. New Zealand
S H Allen & Sons (Pty) Ltd. Australia
Trans-Continental Leaf Tobacco Corporation Leichtenstein
AOZT Transcontinental Leaf Tobacco Corporation Russia
Eryka Mediterranee S.A.R.L. Greece
Esaltab (Zimbabwe) (Pvt.) Ltd Zimbabwe
Inter-Rural Development Corporation Ltd. Liechtenstein
Trans-Continental Farming Ltd. Canada
Siam Tobacco Export Corporation Ltd. Thailand
Stancom Tobacco (Private) Ltd Zimbabwe
Combined Tobacco Buyers (Private) Ltd Zimbabwe
Tobacco Development Company of Africa (Private) Ltd Zimbabwe
Tobacco Processors (Zimbabwe) (Private) Ltd Zimbabwe
Standard Wool S.A. Panama
Standard Wool Deutschland GmbH Germany
Lanimex Trading GmbH Germany
Lohman & Company Wollhandel GmbH Germany
Prolaine Wollhandels GmbH Germany
Standard Wool South Africa (Pty) Ltd South Africa
Standard Wool Australia (Pty.) Ltd. Australia
Hulme Wool Scouring Co. (1938) Pty. Ltd. Australia
Standard Wool Farming Pty. Ltd. Australia
Mascot Wools Pty. Ltd. Australia
Stawool Brokers Pty. Ltd. Australia
Independent Wool Dumpers Pty. Ltd. Australia
Standard Wool Holdings S.A. Argentina
Roca SACIF Argentina
Standard Wool Argentina Argentina
Pole Fueguina S.A. Argentina
Transcatab SpA Italy
Trans-Continental Participacoes e Empreendimentos Ltda. Brazil
Transhellenic Tobacco S.A. Greece
World Wide Tobacco Espana S.A. Spain
Transconti Srl Italy
Werkhof GmbH Germany
Bela Duty Free Import-Export GmbH Germany
</TABLE>
INDEPENDENT AUDITORS' CONSENT EXHIBIT 23
We hereby consent to the incorporation by reference in Registration
Statement 33-25499 on Form S-3 and in Registration Statement 33-59760 on Form
S-8 of our report dated June 28, 1996 included in this report on Form 10-K of
Standard Commercial Corporation for the year ended March 31, 1996.
Deloitte & Touche, LLP
Raleigh, North Carolina
June 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 78,688
<SECURITIES> 5,325
<RECEIVABLES> 173,413
<ALLOWANCES> (5,550)
<INVENTORY> 259,781
<CURRENT-ASSETS> 599,601
<PP&E> 238,974
<DEPRECIATION> (104,476)
<TOTAL-ASSETS> 782,824
<CURRENT-LIABILITIES> 543,803
<BONDS> 100,818
8,748
0
<COMMON> 2,325
<OTHER-SE> 77,847
<TOTAL-LIABILITY-AND-EQUITY> 782,824
<SALES> 1,359,450
<TOTAL-REVENUES> 1,359,450
<CGS> 1,268,937
<TOTAL-COSTS> 1,268,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,129
<INCOME-PRETAX> 2,258
<INCOME-TAX> 6,836
<INCOME-CONTINUING> (9,442)
<DISCONTINUED> 10,050
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
