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, 1997
COMMISSION FILE NUMBER 1-9875
[STANDARD 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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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: $143,360,000.
AT JUNE 11, 1997 THERE WERE 12,558,800 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
PORTIONS OF THE REGISTRANT'S (1) ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED MARCH 31, 1997 AND (2) PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON AUGUST 12, 1997 ARE INCORPORATED BY REFERENCE INTO
PARTS I, II, III AND IV.
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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.
Standard is one of the three global independent leaf tobacco merchants
serving the large multinational cigarette manufacturers and is one of the
largest independent merchants of oriental leaf tobacco, a key component of
American-blend cigarettes. The Company also has a leading market presence in a
number of the emerging and low-cost flue-cured and burley tobacco growing
regions, including China, India, Malawi and Tanzania. Founded in 1910, the
Company purchases, processes, stores, sells and ships tobacco grown in over 30
countries, servicing cigarette manufacturers from 20 processing facilities
strategically located throughout the world. The Company is also engaged in
purchasing, processing and selling various types of wool and is a world leader
in the trading of scoured wool.
There have been no significant changes in business segments since
April 1, 1996. 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."
Variability of Annual and Quarterly Financial Results
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and variations in the mix of
sales, cause quarterly fluctuations in financial results. Sales and revenue
recognition by the Company is based upon the passage of title, which typically
occurs on the date of shipment. The nature of the Company's businesses is such
that it is not possible to predict the timing of shipments or orders with a high
degree of precision, and advances or delays in either are not unusual.
Therefore, the comparability of the Company's financial results, particularly
quarter-to-quarter comparisons, which may be significantly affected by these
factors, should be considered when evaluating the Company's performance. In
addition, the Company's business may be adversely affected by poor weather or
other agricultural factors, many of which are beyond the control of the Company.
For example, the tobacco leaf industry in the United States was disrupted in
calendar 1993 by below average quality tobacco crops.
Total tobacco inventories normally peak in the Company's third fiscal
quarter as large volumes of tobacco grown in the northern hemisphere are
purchased and held in various conditions of processing prior to shipment to
customers. Receivables typically peak in the fourth quarter as those tobaccos
are shipped and invoiced. Revolving credit borrowings and trade payables
normally peak with inventories.
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. Wool trading is generally lower during the first and second
fiscal quarters as a result of reduced demand during the summer for wool
products in the northern hemisphere, when processors and users close down for
holidays and vacations in Europe. Generally, wool revenues reach high levels in
the third fiscal quarter and peak in the fourth fiscal quarter.
International Business Risks
The Company's international operations are subject to a number of
political and economic risks, including unsettled social and political
conditions, nationalization, expropriation, import and export restrictions,
confiscatory taxation, exchange controls, renegotiation or nullification of
existing contracts, inflationary economies and currency risks, strikes and risks
related to the restrictions of repatriation of earnings or proceeds from
liquidated assets of foreign subsidiaries. In certain countries, the Company has
advanced funds or guaranteed local loans or lines of credit for the purchase of
tobacco from growers, and expects to continue such practices in the future. Risk
of repayment is normally limited to the tobacco season, and the maximum exposure
occurs within a shorter period.
The Company's tobacco business is generally conducted in U.S. dollars,
as is the business of the industry as a whole. However, local country operating
costs, including the purchasing and processing costs for tobaccos, are subject
to the effects of exchange fluctuations of the local currency against the U.S.
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dollar. The Company attempts to minimize such currency risks by matching the
timing of its working capital borrowing needs against the tobacco purchasing and
processing funds requirements in the currency of the country of tobacco origin.
Fluctuations in the value of foreign currencies can significantly affect the
Company's operating results and/or its shareholders' equity.
Wool purchases and sales are typically denominated in the currency of
the source country and destination country, respectively. The Company typically
pays for its wool purchases in the country of origin, and generally hedges the
currencies of its purchase and sale commitments with forward transactions.
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. The Company does not
engage in currency transactions for the purpose of speculation.
Government Regulation and Environmental Compliance
In recent years, governmental entities in the United States at all
levels have taken or have proposed actions that may have the effect of reducing
consumption of cigarettes. These activities have included: (i) the U.S.
Environmental Protection Agency's classification of tobacco environmental smoke
as a "Group A" (known human) carcinogen; (ii) restrictions on the use of tobacco
products in public places and places of employment including a proposal by the
U.S. Occupational Safety and Health Administration to ban smoking in the work
place; (iii) proposals by the U.S. Food and Drug Administration to sharply
restrict cigarette advertising and promotion and to regulate nicotine as a drug;
(iv) increases in tariffs on imported tobacco; (v) proposals to increase sales
and excise taxes on cigarettes; (vi) the recently announced policy of the U.S.
government to link certain federal grants to the enforcement of state laws
banning the sale of tobacco products to minors; (vii) lawsuits against cigarette
manufacturers by several U.S. states seeking reimbursement of Medicaid and other
expenditures by such states claimed to have been made to treat diseases
allegedly caused by cigarette smoking; and (viii) the recent enactment of
stricter regulations designed to prohibit sales of cigarettes to minors. It is
not possible to predict the outcome of such actions or litigation or the effect
adverse determinations against the manufacturers might have on leaf merchants,
like the Company, or the extent to which governmental activities and litigation
might adversely affect the Company's business directly.
In calendar 1993, Congress enacted the 75/25 Rule, intended to limit
the importation of tobacco into the United States by requiring that all
cigarettes manufactured in the United States, including those manufactured for
export, contain at least 75.0% domestically grown tobacco. Although the 75/25
Rule was repealed in 1995, principally because it was inconsistent with GATT,
and was replaced with import quotas designed to assist domestic tobacco growers,
it had the effect in calendar 1993 and 1994 of drastically decreasing demand for
imports of foreign tobacco for use in the domestic production of cigarettes. It
is not possible to predict the extent to which future governmental or third
party actions might adversely affect the Company's business.
A number of foreign countries have also taken steps to restrict or
prohibit cigarette advertising and promotion, to increase taxes on cigarettes
and to discourage cigarette smoking. In some cases, such restrictions are more
onerous than those in the U.S. For example, advertising and promotion of
cigarettes has been banned or severely restricted for a number of years in
Australia, Canada, Finland, France, Italy, Singapore and a number of other
countries. It is not possible to predict the extent to which these actions might
adversely affect the Company's business.
Although the Company's wool scouring and top making operations involve
discharges of significant amounts of effluent waste, the Company believes that
it is currently in compliance with applicable foreign laws which have been
enacted or adopted regulating the discharge of such materials into the
environment or otherwise relating to the protection of the environment. The
Company believes it is in material compliance with foreign and domestic laws
applicable to its tobacco operations. Such compliance has not had, and is not
anticipated to have, any material effect upon the competitive position of the
Company.
The Leaf Tobacco Industry
Multinational cigarette manufacturers, with one principal exception,
rely primarily on global independent leaf tobacco merchants, such as the
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Company, to process and supply leaf tobacco used in the manufacturing process.
Leaf tobacco merchants select, purchase, process, store, pack, ship and, in a
growing number of emerging markets, provide agronomy expertise and financing for
growing leaf tobacco. Presently, there are three global independent leaf tobacco
merchants, including the Company. Important trends in the leaf tobacco industry
include:
Growth of American-Blend Cigarettes. American-blend cigarettes have
gained market share in several major foreign markets, including Asia
(particularly Pacific Rim countries), Europe and the Middle East in recent
years. American-blend cigarettes contain approximately 50.0% flue-cured, 35.0%
burley and 15.0% oriental tobacco, contain less tar and nicotine, and taste
milder than locally produced cigarettes containing dark and semioriental tobacco
historically consumed in certain parts of the world. According to the Tobacco
Merchants Association (the "TMA"), American-blend cigarette consumption
(excluding China) has increased from 1.7 trillion units in calendar 1990 to 1.9
trillion units in calendar 1996, an increase of 10.8%. The TMA estimates that
worldwide American-blend tobacco consumption (excluding China) will increase an
additional 5.5% to more than 2.0 trillion units by the year 2000. The TMA also
estimates that worldwide American-blend cigarette consumption (excluding China),
as a percentage of total consumption, has also experienced substantial growth,
increasing from 47.9% in 1990 to 52.5% in 1996, and is projected to reach 54.3%
by the year 2000. As American-blend cigarettes have continued to gain global
market share, the demand for export quality flue-cured, burley and oriental
tobacco sourced and processed by leaf tobacco merchants has grown accordingly.
Several multinational cigarette manufacturers have made significant investments
in the Former Soviet Union, which the Company believes may lead to increased
demand for and sale of American-blend tobacco. As American-blend cigarettes have
gained market share, the demand for export quality American-blend tobacco
sourced and processed by the three global independent leaf tobacco merchants,
including the Company, has grown accordingly.
Growth in Foreign Operations of Nultinational Cigarette Manufacturers.
Several multinational cigarette manufacturers have expanded their operations
throughout the world, including in Africa, Asia, Central and Eastern Europe and
the Former Soviet Union, in order to increase their access to and penetration of
these markets. As cigarette manufacturers expand their global operations, the
Company believes there will be increased demand for local sources of leaf
tobacco and local tobacco processing facilities, primarily due to the
semiperishable nature of unprocessed leaf tobacco and the existence of domestic
tobacco content laws in certain countries. The Company also believes that the
international expansion of cigarette manufacturers will cause these
manufacturers to place greater reliance on the services of financially strong
leaf tobacco merchants with the ability to source and process tobacco on a
global basis and to help develop higher quality local tobacco sources.
Growth in Foreign Sourced Tobacco. In an effort to respond to cigarette
manufacturers' increasing demand for lower cost American-blend tobacco, the
major leaf tobacco merchants have made significant investments in Africa, Asia,
Europe and South America, the principal sources of flue-cured, burley and
oriental tobacco outside the United States. The Company expects this trend to
continue in the foreseeable future as the quality of foreign grown tobacco
continues to improve.
Improved Market Conditions. The global leaf tobacco industry is
currently recovering after experiencing a disruption in demand and reduction in
pricing during calendar 1993 and 1994. The disruption of the industry in the
United States during these years arose from a convergence of adverse factors,
including: (i) enactment of the 75/25 Rule, which was later repealed; (ii) a
below average quality 1993 tobacco crop in the United States; and (iii) the
proposal of legislation in the summer of 1993 to increase significantly the
federal excise tax on cigarettes (although such legislation was never enacted),
that resulted in reluctance by manufacturers to build inventories. Concurrent
with the reduction in demand for imported tobacco related to the 75/25 Rule and
lower than expected initial demand for tobacco in Africa, Asia, Central and
Eastern Europe and the Former Soviet Union, the worldwide price of tobacco
declined due to oversupply attributable to record foreign tobacco crops. This
combination of reduced demand and lower prices had a negative impact on the
financial performance of the leaf tobacco merchants and resulted in significant
increases in uncommitted tobacco inventories held by merchants.
In calendar 1994 and 1995, the demand and supply imbalance in the
worldwide tobacco market began to improve. Leaf tobacco production outside the
United States was curtailed in response to the lower prices and high levels of
uncommitted inventories. The 75/25 Rule was repealed principally because it was
inconsistent with GATT, and was replaced by a series of less stringent import
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quotas. This resulted in cigarette manufacturers in the United States resuming
traditional purchases of foreign sourced tobacco. The combination of lower
levels of tobacco production and increased demand had a positive impact on
worldwide tobacco prices and a corresponding positive impact on the
profitability of the industry, and resulted in significant reductions in
uncommitted tobacco inventories.
Consolidation of Tobacco Merchants. Leaf tobacco merchants continue to
consolidate through worldwide acquisitions and mergers. As recently as 1989,
there were eight major international merchants. Presently, there are three
global independent leaf tobacco merchants, including the Company, which
purchase, process, store, sell and ship leaf tobacco worldwide. The Company
believes that it has experienced growth in tobacco revenue as a result of this
industry consolidation as the multinational cigarette manufacturers diversify
their sourcing partners of quality leaf tobacco.
Tobacco Operations
The Company has developed an extensive international network through
which it purchases, processes and sells tobacco. In addition to processing
facilities in North Carolina and Kentucky, the Company owns or has an interest
in processing facilities in Zimbabwe, a significant exporter of flue-cured
tobacco; Malawi, a leading exporter of burley tobacco; and Greece and Turkey,
the leading exporters of oriental tobacco. The Company also has processing
facilities in Italy, Spain and Thailand. In addition, the Company has entered
into contracts, joint ventures and other arrangements for the purchase and
processing of tobacco grown in substantially all countries that produce
export-quality flue-cured, burley and oriental tobacco, including Argentina,
Brazil, Canada, China, India, Kenya, Kyrgyzstan, Tanzania and Ukraine.
Purchasing. The tobacco in which the Company deals is grown in over 30
countries. Management believes that its diversity in sources of supply, combined
with a broad customer base, helps shield the Company from seasonal fluctuations
in quality, yield or price of tobacco crops grown in any one region. 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 and the maximum exposure is limited to a shorter period.
Tobacco is generally purchased at auction or directly from growers.
Tobacco grown in the United States, Canada, India, Malawi and Zimbabwe is
purchased at auction. The Company generally employs its own buyers to purchase
tobacco on auction markets, directly from growers and pursuant to marketing
agreements with government monopolies. At present, the largest amounts of
tobacco purchased by the Company outside the United States come from Argentina,
Brazil, China, Greece, India, Italy, Malawi, Spain, Thailand, Turkey and
Zimbabwe.
Although Argentina, China, Greece, Italy, Spain, Turkey and Thailand
are major tobacco producers, there are no tobacco auctions in these markets. In
these markets, the Company buys tobacco directly from farmers, agricultural
cooperatives or government agencies in advance of firm orders or indications of
interest although such purchases are usually made with some knowledge of its
customers' requirements. In certain of these markets the Company advances or
finances the purchase of fertilizer and other supplies to assist farmers in
growing the crop. These advances generally are repaid with deliveries of tobacco
by the farmers. During fiscal 1997 and the twelve months ended March 31, 1996,
the maximum aggregate amount of advances by the Company was $43.6 million and
$29.8 million, respectively.
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, the Company has located its processing
facilities near the areas where it purchases tobacco. Prior to and during
processing, the Company takes a number of steps 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 to meet customer
specifications and threshed; however, some of it is processed in whole-leaf form
and sold to certain customers of the Company. 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
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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 present 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 ship.
The Company processes its tobacco in four wholly-owned plants in the
United States and 12 other facilities around the world owned or leased by
subsidiaries and affiliates. In addition, the Company has access to four other
processing plants in which it has no ownership interest. In all cases, tobacco
processing is under the direct supervision of Company personnel. Modern
laboratory facilities are maintained by the Company to assist in selecting
tobacco for purchase and to test tobacco during and after processing.
The Company believes that its plants are highly efficient and are
adequate for its purposes. The Company also believes that tobacco throughput at
its existing facilities could be increased without major capital expenditures.
Selling. The Company's customers include all of the world's leading
manufacturers of cigarettes and other consumer tobacco products. These customers
are located in approximately 85 countries throughout the world. The Company
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 U.S.
dollars. Payment for most tobacco sold by the Company is received after the
tobacco has been processed and shipped.
The consumer tobacco business in most markets is dominated by a small
number of large multinational cigarette manufacturers and by government
controlled entities. In fiscal 1997, the Company's five largest customers
accounted for approximately 49.6% of total sales (67.3% of tobacco sales). In
fiscal years 1997, 1996 and 1995, one customer accounted for 24.1%, 17.4% and
14.2% of total sales, respectively. The Company believes that formal purchase
contracts are not customary in the global leaf tobacco industry and agreements
to purchase tobacco generally result from the supplier's course of dealings with
its customers. The Company has done business with most of its customers for many
years. The Company believes that it has good relationships with its large
customers.
As of March 31, 1997, the Company had tobacco inventory of $181 million
compared to $161 million at March 31, 1996 and outstanding orders of
approximately $146 million and $120 million, respectively. The level of tobacco
fluctuates from period to period and is significant only to the extent it
reflects short-term changes in demand for leaf tobacco.
Competition
The leaf tobacco industry is highly competitive. 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, Universal and Dimon, 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. In addition, the Company believes that the consolidation of the leaf
tobacco industry may provide opportunities for it to enhance its relationship
with and increase sales to certain cigarette manufacturers.
Worldwide Tobacco Presence
United States. The Company owns and operates a total of four processing
facilities located in North Carolina and Kentucky and purchases tobacco at all
major markets in the United States, including flue-cured tobacco markets in
North Carolina, South Carolina, Virginia, Georgia and Florida; burley tobacco
markets in Kentucky, Tennessee, Virginia and North Carolina; and light air-cured
tobacco markets in Maryland and Pennsylvania. In the United States, flue-cured
and burley tobacco are generally sold at public auction to the highest bidder.
The price of such tobacco is supported under an industry-funded federal program
that also restricts tobacco production through a quota system. U.S. grown
tobacco is more expensive than most non-U.S. tobacco, resulting in a declining
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trend in exports, which management believes should be offset by increased demand
for foreign tobacco.
Brazil. The Company currently purchases leaf tobacco in Brazil as the
agent for Souza Cruz, a subsidiary of B.A.T. which has approximately 80.0% of
the domestic cigarette market in Brazil. The Company fills orders and earns a
commission from Souza Cruz based upon the sales price of the tobacco. In March
1997, the Company signed a letter of intent (which is subject to significant
conditions of closing) to purchase a 74.9% ownership interest in Meridional, the
fourth largest leaf tobacco processor in Brazil. This strategic acquisition
complements the Company's continuing 26-year partnership in Brazil with Souza
Cruz, and will provide the Company with direct ownership of a processing
facility in the second largest leaf tobacco growing region in the world
(excluding China).
Turkey and Greece. The Company is one of the largest merchants of
flue-cured, burley and oriental tobacco in Turkey. In both Turkey and Greece,
the oriental tobacco markets are more fragmented than the major flue-cured and
burley tobacco markets in other parts of the world. The Company believes that
the fragmented nature of the oriental tobacco markets and its leading presence
in these markets provides it with an excellent opportunity to expand revenues.
The Company also purchases and processes flue-cured and burley tobacco in
Greece. The Company processes tobacco in Turkey and Greece in two 51.0% owned
facilities.
Malawi, Zimbabwe and Tanzania. In Malawi, the largest exporter of
low-cost burley tobacco in the world, the Company has a leading market position
and services the large multinational cigarette manufacturers from its 51.9%
owned facility in Lilongwe and its 50.0% owned facility in Limbe. The Company
also is a leader in the purchase and processing of flue-cured and dark-fired
tobacco, which are also processed in the Company's facilities. In Zimbabwe, the
Company purchases flue-cured tobacco and to a lesser extent burley tobacco,
which it processes in its minority-owned facility. In Tanzania, one of the key
emerging growing regions of low-cost filler tobacco, the Company has
historically been one of the largest exporters of flue-cured tobacco. The
Company supervised the processing of this tobacco in a government-owned
facility, which was privatized in calendar 1995. The Company is currently
exploring other alternatives, including the construction of a new Company-owned
and -operated processing facility strategically located in the Tanzanian
flue-cured tobacco growing region.
China, Thailand and India. The Company has provided agronomy services
and funded a variety of projects in China since 1981 and believes that it is the
largest independent exporter of Chinese leaf tobacco. The Company currently
operates two government-owned tobacco processing facilities in China. The
Company is expanding its presence in China and expects to increase its
production in the area through strategic alliances with the Chinese government.
The Company has an executed letter of intent (subject to certain conditions) to
build its third processing facility in China, which will process low-cost filler
tobacco in the Guizhou province. The Company is also one of the leading
exporters of flue-cured, burley and oriental leaf tobacco from Thailand, which
it purchases directly from farmers or in some cases from a middlemen or curers.
Flue-cured tobacco is grown mainly in Northern Thailand, burley tobacco is grown
in Central Thailand and oriental leaf tobacco is grown in Northeast Thailand.
The Company currently processes tobacco in Thailand in two facilities in which
the Company owns a minority interest. In India, an emerging source of low-cost
filler tobacco, the Company purchases primarily flue-cured tobacco. The Company
has executed a letter of intent with a local partner, who has started
construction of a new processing facility in Guntur.
Other Foreign Operations. The Company also has foreign subsidiaries,
joint ventures and affiliates that purchase, process and sell tobacco grown in
other countries throughout the world, including Italy, Kenya, Spain and Zaire.
The Wool Industry
The Company is a world leader in the trading of scoured wool and a
major trader and processor of wool tops. As a result of a series of acquisitions
commencing in 1985, the Company owns and operates an integrated group of wool
companies which purchase, process and sell wool to other wool processors,
felting companies, knitters and spinners of yarn, and manufacturers of worsted
and woolen products. The Company does not raise sheep or produce textile
products. In fiscal 1996, the Company derived approximately 26.4% of its revenue
from its wool division.
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The wool industry is highly fragmented, with a large number of small
dealers handling wool, often from limited origins. There are two broad
categories of wool fibers: fine wool from merino sheep and coarse wool from
crossbred sheep. 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 Africa and South America. The
main sources of crossbred wool for export are New Zealand, the United Kingdom
and South America.
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 of wool 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 stockpile of 827,000 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
leading to the development of 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 March 31, 1997 totaled
319,000 metric tons (the equivalent of approximately 50% of one year's current
Australian production). Wool International has announced its intention to reduce
this stockpile at a fixed rate of 23,625 metric tons per quarter to a level of
approximately 297,000 metric tons by June 30, 1997, at which time the disposal
rate will be adjusted to a minimum of 15,750 metric tons per quarter.
Worldwide wool production in 1997 was below current demand for the
second consecutive year, and production by the five major wool exporting
countries has declined by 15.0% over the past five years. As a result, since
1992, all surplus stocks around the world have been sold with the exception of
the remaining stockpile in Australia.
Operations
From the outset, the Company's strategy has been to build a large
international wool network, primarily through the acquisition of
well-established traders and processors. The Company believes that as a result
of its acquisitions and the continuing consolidation of the wool industry, it
has become one of the world's largest traders and processors of wool. The
Company owns and operates processing facilities in five countries, including
scouring mills in New Zealand, South Africa and the United Kingdom and combing
mills in Chile and France. The Company is participating in negotiations with the
Western Australian government to set up a joint venture scouring facility. The
Company also uses the services of commission processors in Argentina, Australia,
Belgium, Germany and Italy.
Purchasing. The Company deals in wool from all of the major producing
areas, the most significant of which are Argentina, Australia, Chile, New
Zealand, South Africa 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. The Company 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 further processed. The Company sells
some greasy wool to topmakers, but most of the wool is blended and scoured
and/or further processed into tops, to meet customer specifications. The
scouring is done at the Company's plants in 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
-8-
<PAGE>
commission combers in Argentina, Australia, 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 marketable byproduct.
A top is a continuous strand of straightened and combed, 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 align the
fibers to produce a "sliver" of parallel fibers while removing foreign matter.
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 22.0 pounds which are packed and shipped to customers in the
apparel industry for further manufacturing. The Company maintains laboratory
facilities for analyzing and testing wool and lanolin.
Selling. The Company currently derives approximately 66.0% 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. In fiscal 1997, processed wool
(i.e., scoured and tops) accounted for approximately 67.0% of the Company's wool
revenues, followed by greasy wool (25.0%), specialty fibers (2.0%) and lanolin
and others (6.0%). 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 Western European yarn spinners for
processing and sale to manufactures of worsted fabrics. Lanolin is sold
primarily to manufacturers of cosmetics and pharmaceutical products. The
Company's largest wool customer accounted for less than 2.0% of total sales and
5.0% of total wool sales for fiscal 1997. 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, 1997 and 1996, the Company had
outstanding orders for wool for approximately $109.0 million and $136.0 million,
respectively.
Competition
The wool industry is more fragmented than the leaf tobacco industry.
Major competitors include Chargeurs, ADF, BWK, and a number of Japanese trading
firms, the largest of which is Itochu. 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 trading base enables it to react quickly to price changes and to
supply wool of similar types and blending quality from different countries or
areas while keeping the highest quality standards.
Other Operations and Investments
The Company is engaged in another small noncore activity: Stancom Home
Center operates a wholesale/retail building materials and home supply center
located in Wilson, North Carolina. Revenues and earnings of this business are
not material
Employees
At March 31, 1997, the Company had a total of approximately 2,200
full-time employees (including approximately 530 in the United States) and
approximately 2,035 employed by affiliated tobacco companies. Of the Company's
full-time employees, approximately 1,560 are in the tobacco business,
approximately 610 are in the wool business and approximately 30 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.
-9-
<PAGE>
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.
Statements in this document that are not purely statements of historical
fact may be deemed to be forward-looking. Readers are cautioned that any such
forward-looking statements are based upon management's current knowledge and
assumptions, and actual results could be affected in a material way by many
factors, including ones over which the Company has little or no control, e.g.
unforeseen changes in shipping schedules; the balance between supply and demand;
and market, economic, political and weather conditions. For more details
regarding such factors, see the Company's filings with the Securities and
Exchange Commission. The Company assumes no obligation to update any of these
forward-looking statements.
ITEM 2. PROPERTIES.
Tobacco Operations
The Company generally conducts its tobacco processing operations in
facilities near the area of production. In certain places, long-standing
arrangements exist with local companies to process tobacco in their plants under
the supervision of Company personnel. A current summary showing the principal
tobacco operating properties of the Company or its affiliates is shown below:
<TABLE>
<CAPTION>
Area
Location Principal 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
TURKEY
Izmir Factories (2)/storage 431,300
Izmir Storage 204,500*
GREECE
Alexandria Factory/storage 402,000
Salonica Factory/storage 772,700
Salonica Factory/storage 236,300*
MALAWI
Limbe Factory/storage 414,000
Lilongwe Factory/storage 776,000
ZIMBABWE
Harare Factory/storage 565,800*
Harare Storage 233,500
-10-
<PAGE>
THAILAND
Chiengmai Factory/storage 872,000
Banphai Factory/storage 377,000
ITALY
Caserta Factory/storage 800,000*
SPAIN
Benavente Factory/storage 206,000
Benavente Storage 132,400*
Coria Buying Center 18,300*
Talayuela Buying Center 21,500
</TABLE>
* Leased facility
Wool Operations
The Company generally conducts its scoured wool operations in the
country of origin, and processes wool tops in France and Chile. A current
summary showing the principal wool operating properties of the Company or its
affiliates is shown below:
<TABLE>
<CAPTION>
Area
Location Principal Use (Square Feet)
<S> <C>
AUSTRALIA
Fremantle Storage 200,000
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
</TABLE>
* Leased facility.
Other Operations
<TABLE>
<S> <C>
UNITED STATES
Wilson, NC Bldg. supply dealer 125,000
</TABLE>
The Company believes its properties are generally well-maintained, in
good operating condition and are suitable and adequate for the normal growth of
its business.
ITEM 3. LEGAL PROCEEDINGS.
The previously reported joint Canadian-U.S. criminal investigation into
alleged violations of law relating to the importation, exportation and taxation
of tobacco has been discontinued. The Canadian investigation is continuing as to
individual Canadian and U.S. citizens. Management does not believe that it will
have a material adverse effect on the Company's financial position.
-11-
<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, 1997.
Executive Officers of the Company at March 31, 1997
<TABLE>
<CAPTION>
Name Age Positions
<S> <C>
Robert E. Harrison 43 President, Chief Executive Officer,
Chief Financial Officer
J. Alec G. Murray 60 Chairman of the Board
Marvin W. Coghill 63 Chairman - Tobacco Division
Paul H. Bicque 53 Managing Director - Wool Division
Thomas M. Evins, Jr. 57 Regional Manager-North & Central America
Tobacco Operations
Guy M. Ross 64 Vice President and Secretary
Ery W. Kehaya II 45 Vice President and Operations Director -
Tobacco Division
Mark W. Kehaya 29 Vice President - Planning
Krishnamurthy Rangarajan 54 Vice President and Assistant Secretary
Michael K. McDaniel 47 Vice President - Human Resources
Keith H. Merrick 43 Vice President and Treasurer
Hampton R. Poole, Jr. 45 Vice President and Controller
</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 12, 1997 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:
Guy M. Ross was Treasurer from 1980 to 1993 and became 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 years
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-Operations of the tobacco
division in 1995 after being named Sales Director in 1993 and a Corporate Vice
President in 1992. 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. He is the son of Ery W. Kehaya, Chairman Emeritus.
Mark W. Kehaya was appointed Financial Director of the tobacco division
in August 1996 after being named Vice President-Planning in August 1994. Prior
to joining the Company in 1993, he was employed as an associate of Fieldstone
Private Capital Group from 1990 to 1992 and as an analyst at Bankers Trust
Company from 1989 to 1990. He is the son of Ery W. Kehaya, Chairman Emeritus.
Krishnamurthy Rangarajan was employed by the Company in 1978 after
qualifying as a Chartered Accountant. He was elected a Vice President in 1988
after being named Assistant Vice President in 1986 and Chief Accountant in 1981.
Michael K. McDaniel joined the Company as Director - Human Resources in
November 1996 and was elected Vice President - Human Resources in June 1997.
From 1995 to November 1996 he was a partner in a human resources consulting
firm, and from 1978 to 1995 he was Director of Human Resources and
Organizational Development for the City of Wilson, North Carolina.
Keith H. Merrick has served as Treasurer of the Company since 1993 and
was elected a Vice President in 1996. Prior to joining the Company, he was
employed as a Vice President of First Union National Bank of North Carolina.
Hampton R. Poole, Jr. was appointed Vice President in 1996 and has
served as Controller of the Company since 1993. He joined the Company in 1984
and has been an officer of Standard Commercial Tobacco Co., Inc., a
subsidiary, for more than five years. Mr. Poole is a Certified Public
Accountant.
The above persons will remain in office until the directors' meeting
following the annual meeting of shareholders on August 12, 1997.
-12-
<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 1997 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) 26
6 Selected Financial Data 26
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
</TABLE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The data appearing on pages 14 through 24 of the Company's 1997 Annual
Report to Shareholders, and the Independent Auditors' Report on page 25 , 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 12, 1997 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.
PART IV
ITEM 14 EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules:
(i) Report of Independent Auditors on Financial
Statement Schedules.
(ii) Schedule I - Condensed Financial Information
of Registrant.
-13-
<PAGE>
(iii) All other schedules are omitted because they
are either not applicable or the required
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, 1997.
(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 Second Supplemental Agreement dated July
16, 1996 between the Company and certain
subsidiaries and Deutsche Bank A.G. et al
filed as Exhibit 4(iii) to the Company's
report on Form 10-Q for the quarter ending
September 30, 1996 which amends Exhibit
4(ii) above.
(iv) 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.
(v) There is incorporated herein by reference
the Amendment No. 3, dated July 15, 1996
filed as Exhibit 4(i) to the Company's
report on Form 10-Q for the quarter ending
September 30, 1996 which amends Exhibit
4(iv) above.
(vi) 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.
(vii) There is incorporated herein by reference,
the Second Amended and Restated Parent
Guaranty Agreement dated as of July 15, 1996
filed as Exhibit 4(ii) to the Company's
report on Form 10-Q for the quarter ending
September 30, 1996 whereby the Company
guarantees the indebtedness under Exhibit
4(v) above.
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.
-14-
<PAGE>
(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.
(iii) There is incorporated herein by reference
Agreement dated as of March 24, 1997 between
the Company and Robert E. Harrison filed as
Exhibit 10.3 to the Company's Registration
Statement on Form S-3 dated May 8, 1997.
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for the
year ended March 31, 1997 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.
-15-
<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/ Robert E Harrison
----------------------------------------------------
June 18, 1997 Robert E Harrison, President, Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on June 18, 1997 by the following persons on behalf of the
Registrant in the capacities indicated.
<TABLE>
<S> <C>
/s/ Robert E Harrison President, and Director
- ------------------------------------------------- (Principal Executive Officer and Principal Financial Officer)
Robert E Harrison
/s/ Guy M Ross Vice President
- ------------------------------------------------- (Principal Accounting Officer)
Guy M Ross
/s/ J Alec G Murray Chairman of the Board of Directors
- -------------------------------------------------
J Alec G Murray
/s/ Ery W Kehaya Chairman Emeritus and Director
- -------------------------------------------------
Ery W Kehaya
/s/ Marvin W Coghill Director
- -------------------------------------------------
Marvin W Coghill
/s/ William A Ziegler Director
- -------------------------------------------------
William A Ziegler
/s/ Henry R Grunzke Director
- -------------------------------------------------
Henry R Grunzke
/s/ William S Barrack Jr Director
- -------------------------------------------------
William S Barrack Jr
/s/ Thomas M Evins Jr Director
- -------------------------------------------------
Thomas M Evins Jr
/s/ Charles H Mullen Director
- -------------------------------------------------
Charles H Mullen
/s/ Daniel M Sullivan Director
- -------------------------------------------------
Daniel M Sullivan
</TABLE>
-16-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Standard Commercial Corporation
We have audited the consolidated financial statements of Standard Commercial
Corporation (the "Company") as of March 31, 1997, and have issued our report
thereon dated June 18, 1997 and 1996 and for each of the three years in the
period ended March, 31, 1997, such financial statements and report are included
in your 1997 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also includes the financial statement schedule of the
Company, listed in Item 14. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 18, 1997
-17-
<PAGE>
STANDARD COMMERCIAL CORPORATION (the "Registrant") SCHEDULE I
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31
In thousands, except share data 1997 1996
-----------------------------------
<S> <C>
Assets
Cash and cash equivalents............................................. $ 327 $ 3,851
Intercompany accounts receivable...................................... 16,606 16,617
Current portion of notes receivable from Zelenka Nursery, Inc......... 500 500
Income taxes receivable............................................... 153 3,086
Other receivables..................................................... 995 2,651
Prepaids and other.................................................... 155 617
-----------------------------------
Current assets................................................... 18,736 27,322
Investment in subsidiaries............................................ 159,014 149,469
Long-term notes receivable from Zelenka Nursery, Inc.................. 2,183 2,683
Cash surrender value of life insurance policies (net of policy
loans (1997 - $6,780; 1996 - $6,550)............................... 6,529 5,758
Deferred loan costs................................................... 1,585 1,744
Deferred income taxes................................................. 2,260 86
Other noncurrent assets............................................... 340 361
-----------------------------------
Total assets.......................................................... $190,647 $187,423
===================================
Liabilities
Intercompany accounts payable......................................... $ 29,895 $ 20,756
Current portion of long-term debt..................................... - 3,765
Other payables and accrued expenses................................... 982 3,072
-----------------------------------
Current liabilities................................................ 30,877 27,593
Long-term debt........................................................ - 7,407
Convertible subordinated debt......................................... 69,000 69,000
Retirement and other benefits......................................... 499 404
-----------------------------------
Total liabilities.................................................. 100,376 104,404
-----------------------------------
ESOP redeemable preferred stock....................................... - 8,748
Unearned ESOP compensation............................................ - (6,320)
-----------------------------------
Shareholders' equity
Preferred stock $1.65 par value; shares authorized - 1,000,000;
shares issued and outstanding:
1997 - 0; 1996 - 87,477.......................................... - -
Common stock, $0.20 par value; shares authorized -
100,000,000; shares issued: 1997 - 12,126,270
1996 - 11,624,275................................................ 2,425 2,325
Additional paid-in capital............................................ 50,324 43,660
Unearned restricted stock plan compensation........................... (12) (16)
Treasury stock at cost: 1997 - 2,591,790 shares; 1996 -
shares 2,490,661................................................. (3,799) (2,384)
Retained earnings..................................................... 58,089 46,450
Cumulative translation adjustments.................................... (16,756) (9,444)
-----------------------------------
Total shareholders' equity....................................... 90,271 80,591
-----------------------------------
Total liabilities and equity..................................... $190,647 $187,423
===================================
</TABLE>
NOTE: These condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of Standard Commercial
Corporation.
-18-
<PAGE>
STANDARD COMMERCIAL CORPORATION (the "Registrant") SCHEDULE I
CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Year ended March 31
In thousands 1997 1996 1995
-----------------------------------------------------
<S> <C>
Management fee income........................................ $ 9,379 $ 6,340 $ 4,725
-----------------------------------------------------
Selling, general and administrative expenses................. 2,951 3,151 3,460
Interest expense............................................. 5,472 6,092 6,209
Other (income) expense, net.................................. 491 (1,504) 638
-----------------------------------------------------
Income (loss) before taxes................................ 465 (1,399) (5,582)
Income tax expense (benefit)................................. 496 (1,665) 1,103
-----------------------------------------------------
Net income (loss) after taxes............................. (31) 266 (6,685)
Equity in earnings (losses) of subsidiaries.................. 16,968 342 (23,859)
-----------------------------------------------------
Net income (loss)......................................... 16,937 608 (30,544)
ESOP preferred stock dividends, net of tax................... (347) (474) (485)
-----------------------------------------------------
Net income (loss) applicable to common stock.............. 16,590 134 (31,029)
Retained earnings, beginning of year......................... 46,450 50,530 84,807
Common stock dividends....................................... (4,951) (4,214) (3,248)
-----------------------------------------------------
Retained earnings, end of year............................... $ 58,089 $ 46,450 $ 50,530
=====================================================
CONDENSED STATEMENT OF CASH FLOW
Cash provided by operating activities: $9,954 $7,548 $7,082*
Cash flows from investing activities
Collections of note receivable............................ 500 620 -
Business dispositions..................................... - - 1,217
-----------------------------------------------------
Cash provided by investing activities..................... 500 620 1,217
-----------------------------------------------------
Cash flows from financing activities
Proceeds from long-term borrowings........................ - 3,662 -
Repayment of long-term borrowings......................... (11,171) (7,858) (8,857)
Dividends paid, net of tax................................ (347) (474) (485)
Purchase and retirement of ESOP Preferred Stock........... (2,460) - -
-----------------------------------------------------
Cash used in financing activities............................ (13,978) (4,670) (9,342)
-----------------------------------------------------
Increase (decrease) in cash and cash equivalents.......... (3,524) 3,498 (1,043)
Cash and cash equivalents, beginning of year................. 3,851 353 1,396
-----------------------------------------------------
Cash and cash equivalents, end of year....................... $ 327 $3,851 $ 353
=====================================================
Cash paid during the year for - interest.................. $8,105 $2,962 $6,563
- income taxes.............. $ 660 $ 575 $1,052
</TABLE>
* Includes cash dividends of $4,738,000 paid by Standard Wool France SA, a
wholly-owned subsidiary.
NOTE: These condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of Standard Commercial
Corporation.
-19-
STANDARD COMMERCIAL CORPORATION EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Twelve months ended March 31
1997 1996* 1995*
<S> <C>
PRIMARY EARNINGS PER COMMON SHARE
Income (loss) from continuing operations...................... $16,937 $(9,442) $(20,494)
Less - ESOP preferred stock dividends net of tax.............. 347 474 485
-----------------------------------------------------
Income (loss) from continuing operations
applicable to common stock................................. 16,590 (9,916) (20,979)
Income (loss) from discontinued operations.................... - 10,050 (10,050)
-----------------------------------------------------
Net earnings (loss) applicable to common stock................ $16,590 $ 134 $(31,029)
=====================================================
Average number of common shares outstanding................... 9,314,461 9,307,438 9,287,802
Increase applicable to restricted stock awards................ - - -
-----------------------------------------------------
Primary average shares outstanding............................ 9,314,461 9,307,438 9,287,802
=====================================================
Earnings (loss) per common share
- from continuing operations............................... $1.78 $(1.07) $(2.25)
- from discontinued operations............................. - 1.08 (1.09)
-----------------------------------------------------
- net...................................................... $1.78 $0.01 $(3.34)
=====================================================
FULLY DILUTED EARNINGS PER COMMON SHARE*
Income (loss) from continuing operations
applicable to common stock................................. $16,590 $(9,916) $(20,979)
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
-----------------------------------------------------
Adjusted income (loss) from continuing operations............. 19,890 (6,616) (17,653)
Income (loss) from discontinued operations.................... - 10,050 (10,050)
-----------------------------------------------------
Net earnings (loss) applicable to common stock................ $19,890 $3,434 $(27,703)
======================================================
Primary average shares outstanding............................ 9,314,461 9,307,438 9,287,802
Increase in shares outstanding assuming
- conversion of 7 1/4% convertible subordinated
debentures at November 13, 1991........................ 2,279,708 2,190,689 2,126,348
- conversion of ESOP convertible
preferred stock at July 1, 1993........................ 198,640 267,142 262,871
-----------------------------------------------------
Fully diluted average shares outstanding...................... 11,792,809 11,765,269 11,677,021
=====================================================
Earnings (loss) per common share
- from continuing operations............................... $1.69 $(0.56) $(1.51)
- from discontinued operations............................. - 0.85 (0.86)
-----------------------------------------------------
- net...................................................... $1.69 $0.29 $(2.37)
======================================================
</TABLE>
*The calculations of fully diluted earnings per share for 1996 and 1995 include
adjustments which are antidilutive and, therefore, are not shown on the face of
the income statements.
-20-
STANDARD COMMERCIAL
CORPORATION
[LOGO]
1997 ANNUAL REPORT
<PAGE>
[GRAPHIC OF WORLD MAP LOCATIONS]
<PAGE>
Global Supplier of Leaf Tobacco and Wool
BUSINESS DESCRIPTION, STRATEGY AND GOALS
The return to our shareholders is driven by the earnings and cash flow generated
from two international, service-related businesses: purchasing, value-added
processing and selling of leaf tobacco and wool. Standard Commercial, founded in
1910, is headquartered in Wilson, North Carolina and trades on the New York
Stock Exchange under the symbol STW.
The Company's goal is to be an industry leader with respect to the following
disciplines:
(Bullet) Information Systems
(Bullet) Financial Controls
(Bullet) Risk Management
(Bullet) Asset Management
By becoming an industry leader in the above categories, the Company believes
that it can achieve consistent earnings and cash flow results and improve its
working capital turns and operating margins. These results are expected to lead
to stronger financial returns for shareholders.
Each of our businesses is driven by the following growth philosophy:
TEAMWORK + ADAPTING TO CHANGE + SUPERIOR CUSTOMER SERVICE = GROWTH
This philosophy is driven by a culture which encourages people to see themselves
as business owners of the corporation who are accountable for the results of
their business units and the Company as a
whole - people who work together to continuously improve the business processes
and thus the service that the customer receives.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
FINANCIAL HIGHLIGHTS
DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE INFORMATION
<TABLE>
<CAPTION>
For years ended March 31 1997 1996 1995
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Sales $1,354,270 $1,359,450 $1,213,565
Income (loss) from continuing operations 16,937 (9,442) (20,494 )
Income (loss) from discontinued operations - 10,050 (10,050 )
Net income (loss) 16,937 608 (30,544 )
Earnings (loss) per share
Primary - from continuing operations $1.78 $(1.07) $(2.25 )
- from discontinued operations - 1.08 (1.09 )
- net 1.78 0.01 (3.34 )
Fully diluted 1.69 * *
Income (loss) as a percentage of sales
From continuing operations 1.3% (0.7%) (1.7% )
Net 1.3% 0.0% (2.5% )
</TABLE>
*Not applicable because fully diluted calculations include antidilutive
adjustments.
<TABLE>
<CAPTION>
At year-end
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Working capital $120,105 $55,798 $53,187
Working capital ratio 1.27:1.00 1.10:1.00 1.09:1.00
Market price per share 17 7/8 9 13 3/8
- -----------------------------------------------------------------------------------------------------
</TABLE>
CONTENTS
<TABLE>
<S> <C>
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.................. 8
Consolidated Financial Statements..................... 14
Notes to Consolidated Financial Statements............ 17
Independent Auditors' Report.......................... 25
Company Report on Financial Statements................ 25
Selected Financial Data............................... 26
Quarterly Financial Data.............................. 26
Corporate Directors and Officers...................... 27
Division Management and
Principal Trading Companies......................... 28
Investor Information.................................. IBC
</TABLE>
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1
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
DEAR FELLOW INVESTOR:
I am delighted to be addressing you this year as your new President and
CEO, and to report that the pace of change continues unabated at your Company as
we have rededicated ourselves to the twin tasks of growth and shareholder
return. I hope that fiscal 1997 was as encouraging to you as it was to the
Standard team, without whom our improved results would not have been possible.
From a shareholder perspective, Standard was cited by FORTUNE magazine as having
one of the best rates of total return to investors during calendar year
1996 - 113.4% which was more than any other company in our industry. That same
article also painted your Company as one of the least admired companies in its
index. I can assure you that we at Standard Commercial do not accept the latter
results and remain single-mindedly focused on improvement.
For the 12 months ended March 31, 1997, our return on equity of 20% was the
median for our industry. However, our improvement thus far has not been
reflected in our price/earnings ratio which is well below our competitors. Rest
assured that we intend to demonstrate our ability, desire and determination to
remain an effective and strong global supplier of leaf tobacco and wool.
In short, while we are pleased with the turnaround the Company has achieved
after three disappointing years, we are in no way complacent with the results
and remain committed to RAISING THE BAR for ourselves even higher as we pursue
our own growth strategies. To encapsulate this philosophy we have embraced the
following as our formula for success in the future:
TEAMWORK + ADAPTING TO CHANGE + SUPERIOR CUSTOMER SERVICE = GROWTH
It has been with the collective effort of all Standard employees around the
world that we have achieved this dramatic turnaround experienced thus far and
that which we expect to continue going forward. To that end, I would like to
share with you some of the highlights of the past year that have enabled your
Company to be in the growth mode once again.
Starting the year off was the successful renegotiation of our European
banking facilities into a new two-year agreement which gave your Company
sufficient funding for its offshore tobacco business. This $200 million facility
provided us a solid starting point from which we could begin actively doing what
we do well - trading and processing tobacco plus starting to regrow our
business.
Because of our previous disappointing results these funds did not come
cheaply and during the year we continued our process of paying down expensive
debt. In fiscal 1997, our Tobacco Division reduced debt $51 million which,
coupled with a strong focus on asset turnover, reduced interest expense by $8.8
million compared to the previous year. The funds used to accomplish the debt
reduction came from the strong operating cash flow of our tobacco operations and
repayment of intercompany debt by the Wool Division.
Subsequent to the end of fiscal 1997, a highly successful equity issue
added $47 million of new capital to your Company's balance sheet. These proceeds
were used to repay short-term borrowings and, on a pro forma basis, brought our
senior leverage down to 57% of total capitalization, which is below the industry
norm.
As part of our new look, we also re-energized our investor relations
efforts to communicate our turnaround story on "Wall Street". Three new
investment banks, BT Securities, Davenport & Company and Scott & Stringfellow,
have initiated coverage of your Company and joined Wheat First Butcher Singer
with "buy" recommendations. The improved visibility of our stock, taken together
with our improving results and increased market liquidity, should be beneficial
to shareholders. A choppy stock market, combined with negative publicity for the
industry in general, has stalled the upward momentum in our share price we were
experiencing earlier in the year. However, we expect that as we continue to
perform our story will become more widely known and investors should begin to
value us more fairly in the market place.
On the human resources front, fiscal 1997 was also a significant year for
Standard. As a part of our headquarters relocation strategy, the Board appointed
a new Vice President - Human Resources to further
- --
2
<PAGE>
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STANDARD COMMERCIAL CORPORATION
strengthen the Company's focus on planning and caring for our most important
resource - OUR PEOPLE. To that end I am happy to report that we have completed a
worldwide review of our pension programs for their competitiveness and have just
engaged a globally recognized compensation consulting firm to assist with our
efforts to ensure that our pay practices are aligned with corporate growth
objectives, market practices and employee needs and that they are designed to
reward superior performance. I personally am very excited about the positive
opportunity for change that exists.
Regarding our Nontobacco Division, I am happy to report that the management
changes there are also beginning to bear fruit. Despite the ongoing difficult
wool trading conditions, net income was $1.2 million in fiscal 1997 versus a
loss from continuing operations and net of restructuring charges of $8.2 million
the previous year. A more global management approach is being taken with the
entire Wool Division operating in a more cohesive fashion than ever before. If
trading conditions improve as we anticipate, the wool units should be well
positioned to accelerate their contribution. Fiscal 1997 also saw us take a
major step towards separating the assets of the Tobacco and Wool Divisions to
more clearly focus each division's efforts on controlling and improving its own
returns. This process is expected to continue into the future as we work towards
establishing clearer accountabilities.
The Tobacco Division was the real growth engine for us in fiscal 1997,
delivering a return on net assets employed of 16% versus a target of 15%, and
net income growth of 37%. Trading conditions remained buoyant throughout the
year and although we are beginning to see worldwide supply coming more in line
with current demand by manufacturers, we believe that these conditions still
leave us well positioned for growth.
As I mentioned, we are pleased with the progress made to date but are not
satisfied. Our corporate focus remains one of continually improving our asset
and risk management techniques while enhancing our global information technology
to ensure that critical data is available on a timely and actionable basis. We
believe that Standard is, and we intend to remain, the industry leader in the
field of Information Systems.
In the area of growth initiatives, your Company is working on several
exciting projects that I would like to share with you briefly. The first is the
pending acquisition from Seita, the recently privatized French cigarette
monopoly, of its 75% interest in Meridional, the fourth largest leaf tobacco
processor in Brazil. While not complete at this writing, we are hopeful that
this will lead to increasing our share of exports from Brazil, a major tobacco
exporting country. Also, we are currently pursuing additional opportunities for
further growth. We have signed letters of intent for additional operations in
India and China, both countries being major sources of relatively low-priced,
filler-style tobaccos used in the manufacture of less expensive cigarettes. I
have to emphasize that with our new risk management focus, we are taking an
understandably cautious approach to ensure that these and any other potential
expansion opportunities meet our return on investment criteria.
In summary, your Company had a good year in tobacco and wool, has good
people dedicated to growing the business, is looking at a number of growth
accelerating opportunities and, IS COMMITTED TO RAISING THE BAR EVEN HIGHER.
On a final note, I am deeply saddened to report the recent death of one of
our Board members, Fred G. Bond, retired Chief Executive Officer of the U.S.
Flue-Cured Tobacco Cooperative Stabilization Corporation, where he was employed
for 43 years. Fred was a tremendously respected tobacco authority, and the
industry in general and Standard in particular, will miss his humor, wisdom and
great contributions.
Sincerely,
/s/ R. E. HARRISON
- ----------------------
R. E. Harrison
President and Chief Executive Officer
--
3
<PAGE>
TOBACCO BUSINESS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
FY 1997 A YEAR OF ACHIEVEMENTS
In last year's annual report we outlined some of the improvements that the
Tobacco Division had implemented in terms of asset management, risk management,
financial controls and information systems. These improvements translated into
the following highlights for FY97.
(Bullet) Divisional net income increased by 37.5% from FY96, or from 1.2%
to 1.6% of sales.
(Bullet) SG&A decreased by 3.7%, or from 5.8% to 5.2% of sales.
(Bullet) Return on net assets was 16% versus a goal of 15%.
(Bullet) Total asset turns increased to 1.85 from 1.71.
(Bullet) Uncommitted inventory decreased to $22.8 million from $31.5
million.
(Bullet) The Division reduced its total debt by $50.7 million or 16%.
(Bullet) Free cash flow was $23.4 million net of capital expenditure.
The Company's role as a leading tobacco dealer is strengthened
by its broad, balanced sources of supply as shown in the following charts
[GRAPH]
Purchases of Origin Sales by Destination
Africa 19% Far East 16%
Europe 12% South America 3%
Far East 11% Africa & Others 2%
Central & South America 19% Europe 44%
United States 39% United States 35%
GENERAL
The Tobacco Division continued to make progress towards some of its key
goals. The $47.0 million proceeds of the Company's successful stock issue
completed after fiscal year end will be used to reduce borrowings in the
tobacco business which will substantially strengthen the balance sheet of the
Division and reduce interest costs. In addition, the equity offering will
provide additional flexibility to grow the Division's business base.
During FY97 the Company completed installing its proprietary information
systems at its European Sales office and at its Malawi and Zimbabwe operating
facilities. As a result of this progress, approximately 80% of the Company's
sales are tracked daily which helps in monitoring inventory and receivable
turnover and customer exposure limits, and it is expected this will enable the
Company to continue to improve asset turnover.
In addition, to further strengthen the financial controls, the Tobacco
Division is initiating a clear set of operating guidelines which govern the
delegation of decision making authority granted by the CEO.
FY 97 REGIONAL PERFORMANCE HIGHLIGHTS
NORTH AMERICA. The Company achieved its second consecutive record breaking
year in the U.S. with volumes up 7.5%, and a sales increase of 22.4%. These
strong results were achieved despite a small crop of average to poor quality.
- --
4
<PAGE>
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STANDARD COMMERCIAL CORPORATION
AFRICA. In Malawi, the Company continued to consolidate its strong market
position and achieved a 8.4% volume growth and a sales increase of 18.2%. In
addition, these record results were achieved while ending up with minimal
uncommitted inventory.
In Zimbabwe the Company took the strategic decision to decrease its market
share for the 1996 crop due to the high price level of the crop. As a result,
volumes decreased by 19.4%. However, the decrease in volumes was offset by
higher prices and thus sales actually increased by 22.2%. As a result of the
strategy followed by the Company, it has minimal uncommitted tobacco in
Zimbabwe.
In the other African areas, the Company is working to continue to increase
its market presence.
EUROPE. In Europe, the Company benefited from strong processing volumes of
all traditional crops. While the Company continued to expand its current crop
business in Turkey, we did not benefit this year from sales of prior crop Tekel
inventory, which in FY96 increased volumes by 12,200 tons. As a result, total
volumes in Turkey decreased by 50%. In Greece, the Company was able to combine
its oriental operations into one facility, vastly improving operating
efficiencies.
Spain was profitable as volumes, market share and margins continued to
improve during FY97. Conditions in Italy are gradually improving.
FAR EAST. In China, volumes were up 18% although the crop was smaller than
had been originally anticipated.
In Thailand volumes increased by 49% due to the timing of shipments and
increased orders. The Company continues to be the leading exporter of Thai
flue-cured and burley and is the sole exporter of Thai oriental.
In India, volumes decreased due to inventory sales in the previous year.
This decrease was more than offset by price increases.
THE FUTURE
During FY97 demand for tobacco exceeded supply, resulting in higher prices,
which stimulated production. As a result, we are predicting demand and supply to
be more or less in balance during FY98 with prices decreasing in some major
growing regions.
The Company believes that it is well positioned to take advantage of this
trend. First of all, as our uncommitted inventories are below our minimum target
of $30 million, we feel that there will be some attractive opportunities to
purchase tobacco. Secondly, given the recent industry consolidation to three
global tobacco merchants, we believe that we should be able to increase our
order base and market share as manufacturers seek to maintain diversity in their
sources of supply. Thirdly, given the increase in crop sizes, the Company should
be able to source its tobacco needs. Lastly, the Company has initiated several
key projects in Brazil, China, India and Tanzania to accelerate growth.
In the meantime the Division is improving its operational efficiencies
through continuous improvements related to information systems, financial
controls, risk management and asset management.
--
5
<PAGE>
WOOL BUSINESS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
Actions taken by the current management team are resulting in a turnaround
for the Wool Division. Divisional net income totaled $1.2 million in FY97 versus
a loss of $19.2 million in FY96, which included $11.0 million in restructuring
charges. Implementation of more stringent risk management measures and ongoing
monitoring of the Division's trading position, combined with an increase in
inventory turns, contributed to the results.
The restructuring of the Wool Division ownership structure initiated
during the last quarter of FY96 was substantially completed during FY97 and,
with the exception of the UK wool operations, all wool companies are now held
under one major holding company. The Company believes that the Wool Division has
sufficient independent financing in place at each location to support its
business needs, and intends to start negotiations for setting up a global
financing platform during FY98.
During the last quarter of FY97, Wool management presented its first
strategic plan to the Board of Directors.
The strategic plan includes:
(Bullet) completion of a proprietary management information system
designed to significantly improve control over the wool trading
position,
(Bullet) further develop management tools for effective financial control
at division management level,
(Bullet) retaining commercial flexibility, while applying more in-depth
risk management tools to better monitor and control divisional
risk,
(Bullet) optimize asset utilization in order to improve overall financial
performance.
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 2% of total sales.
[GRAPH]
Purchases of Origin Sales by Destination
South Africa 6% Far East 24%
Europe 11% United States 7%
Far East & Others 5% Africa & Others 3%
South America 15% Europe 66%
Australia 49%
New Zealand 14%
Wool trading and primary stage processing continued to operate under
depressed market conditions during FY97. Several spinning and weaving operations
have moved their processing facilities from Europe to India and the Pacific Rim
and more recently the relocation of knitting operations to the same areas have
destabilized supply to the traditionally busy markets in Europe.
Notwithstanding these difficult conditions, the Wool Division has been able
to keep its processing operations working at full capacity without taking undue
risk and without build up of unsold finished goods inventory. Delays in taking
timely delivery of goods by some importers in India and China and
their attempts to renegotiate contracts contributed to the pressure on market
prices during FY97.
Worldwide production of wool during FY97 was lower than total demand for
the third consecutive year, and the industry sees that trend
- --
6
<PAGE>
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STANDARD COMMERCIAL CORPORATION
continuing for some time. The gap has been filled by sales from the Australian
stockpile. The stockpile being sold by Wool International on a fixed minimum
schedule, reached the level of 319,000 metric tons by the end of FY97, around
50% of the estimated yearly production in Australia, compared to 827,000 metric
tons in 1991. At the present rate of reduction, it is forecast that the
stockpile will have been liquidated by the year 2000.
The Company believes that wool prices will continue to firm, and wool
growers have been urged to gradually increase wool production before the
stockpile has been liquidated in order to avoid further widening the gap between
demand and supply at that time.
Standard Wool is one of the world's largest wool trading and wool
processing groups, handling wools from all major producing areas, including
Australia, New Zealand, South America, South Africa and Europe.
The Division operates wool combing plants in France and Chile and scouring
plants in the UK, South Africa, Chile and New Zealand. It also obtains wool
processing on commission in Australia, Argentina, Italy, Germany, Belgium and
New Zealand. The Division also includes a small company handling a large variety
of natural fibres, other than wool, serving niche market customers who often
also buy wool.
The Wool Division will continue to work towards increasing its
effectiveness and profitability by applying total quality management principles,
keeping its processing plants committed to the highest possible quality
standards, and ensuring that its people are consistently trained and motivated.
Its goal is to be a reliable and preferred supplier to the industry, thereby
strengthening its competitive position, and to increase profitability.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
The following discussion should be read in conjunction with the Selected
Financial Data, Consolidated Financial Statements and their related Notes.
GENERAL
The Company is principally engaged in purchasing, processing, storing,
selling and shipping leaf tobacco. The Company also purchases, processes and
sells various types of wool. For both the tobacco and wool businesses, the
ability to obtain raw materials at favorable prices is an important element of
profitability although it is generally more important for wool than for tobacco
because some customers pay the Company 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. Due to the much
larger number of dealers and customers for wool and the far more numerous trades
involved, wool revenue tends to be more susceptible to market price fluctuations
than tobacco.
Historically, the cost of the Company's materials, services and supplies
and interest included in cost of sales has exceeded 90.0% of revenues. In the
wool business, freight charges are also a significant element of the cost of
sales. 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 U.S. dollars whereas wool
purchases and sales are typically denominated in the currency of the source
country and destination country, respectively. 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 period-end
exchange rates. The effects of these translation adjustments are reported as 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
The following table sets forth certain items in the Company's Consolidated
Statements of Income as a percentage of sales for the fiscal years ended March
31, 1997, 1996 and 1995. Any reference in the table and the following discussion
to any given year is a reference to the Company's fiscal year ended March 31.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales
- Materials, services and
supplies 89.9 90.3 90.4
- Interest 2.4 3.0 2.9
-----------------------
Gross profit 7.7 6.7 6.7
Selling, general and administrative
expenses 5.4 5.7 6.6
Restructuring charges - 0.9 -
Other interest expense 0.7 0.7 0.8
Other income (expense), net 0.8 0.8 1.5
-----------------------
Income before taxes 2.4 0.2 0.8
Income taxes 0.9 0.5 1.3
Minority interests (0.3) (0.4) (0.8)
Equity in earnings (losses) of
affiliates 0.1 0.0 (0.4)
-----------------------
Income (loss) from continuing
operations 1.3% (0.7)% (1.7)%
-----------------------
</TABLE>
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8
<PAGE>
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STANDARD COMMERCIAL CORPORATION
FISCAL 1997 COMPARED TO FISCAL 1996
Sales for the twelve months ended March 31, 1997 were $1,354.3 million, a
decrease of 0.4% from the prior year period. Sales for the tobacco division were
$997.4 million, an increase of 7.8% from the corresponding period in 1996. The
increase in tobacco division sales was due to higher average prices and improved
sales mix. Tobacco volumes sold decreased by 4.8% from the prior year period
which included sales of old crop tobacco. Volume increases in the United States
partially offset declines in other areas.
Nontobacco sales for the twelve months ended March 31, 1997 were $356.8
million, a decrease of 17.8% from the prior year period. The decrease in
nontobacco sales was primarily due to lower average wool prices. Wool volumes
were lower than the prior year period as volume increases in Argentina, South
Africa and the United Kingdom were offset by declines in other markets as the
Company focused its efforts on its scouring and topmaking operations.
Gross profit for the twelve months ended March 31, 1997 increased by $14.2
million from $90.5 million in the prior year period to $104.7 million and
increased as a percentage of sales. Gross profit for the tobacco division
increased by $4.8 million from $80.5 million, or 8.7% of tobacco division sales,
in the prior period to $85.3 million, or 8.6% of tobacco division sales. The
increase in tobacco division gross profit was due primarily to the 7.8% increase
in tobacco division sales and a 22.2% decrease in interest.
Nontobacco gross profit for the twelve months ended March 31, 1997
increased by $9.4 million from $10.0 million, or 2.3% of nontobacco sales, in
the prior period to $19.4 million, or 5.4% of nontobacco sales. The increase in
gross profit was due to a 24.7% decrease in interest for the wool division.
Selling, general and administrative expenses for the twelve months ended
March 31, 1997 decreased by $4.8 million and was lower as a percentage of sales.
Selling, general and administrative expenses for the tobacco division decreased
by $1.9 million from $53.5 million, or 5.8% of tobacco division sales, in the
prior period to $51.6 million, or 5.2% of tobacco division sales.
Nontobacco selling, general and administrative expenses for the twelve
months ended March 31, 1997 decreased by $2.9 million from $24.1 million, or
5.6% of nontobacco sales, in the prior period to $21.2 million, or 5.9% of
nontobacco sales. The increase in nontobacco selling, general and administrative
expenses as a percentage of sales was due to the 17.8% reduction in nontobacco
sales.
Restructuring charges for the twelve months ended March 31, 1996 of $12.5
million ($11.0 million after tax) reflect a provision made for the restructuring
of the nontobacco operations. The major components of the restructuring charges
relate to the wool division and include: (i) approximately $2.1 million
associated with the closure of the wool processing facility in Argentina; (ii)
approximately $3.6 million for the write-off of goodwill; (iii) approximately
$2.8 million associated with the write-off of export incentive allowances; and
(iv) approximately $2.5 million of expenses related to the terminated sale of
the wool division and other miscellaneous restructuring costs. To date in
Argentina, the wool processing operations have been discontinued, the factory
has been leased to a third party, 181 employees have been terminated and certain
impaired assets have been written down. In Australia, operations have been
consolidated under one management team to better and more efficiently serve this
--
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
market. The wool tops departments in the German and French companies have been
reorganized to streamline their marketing efforts. The Company has undertaken a
feasibility study to improve operational efficiencies in the French topmaking
factory. For the twelve months ended March 31, 1997, the restructuring resulted
in lower overhead costs of approximately $1.1 million. With the exception of the
export incentive issue, which is expected to be resolved in fiscal 1998,
substantially all incurred amounts relating to the restructuring had been
expended at March 31, 1997.
Other income (expense), net for the twelve months ended March 31, 1997
decreased by $1.2 million.
Income taxes increased $6.0 million for the twelve months ended March 31,
1997 compared to the prior year period. Prior year income tax provisions were
required for certain jurisdictions where profits were earned despite overall
pretax losses. Income 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.
Minority interests for the twelve months ended March 31, 1997 decreased by
$0.9 million due to sales and earning decreases in the Company's 51.0% owned
oriental tobacco businesses in Greece and Turkey.
Equity in earnings (losses) of affiliates for the twelve months ended March
31, 1997 increased $1.5 million from the prior year period both in absolute
dollars and as a percentage of sales.
Income from continuing operations for the twelve months ended March 31,
1997 increased by $26.3 million from a loss of $9.4 million in the prior period
to $16.9 million. Income (loss) from discontinued operations in 1996 reflect the
reversal of a $10.1 million provision for the loss on the disposal of the wool
division. An agreement to sell this division expired by its terms in December
1995. Net income for the twelve months ended March 31, 1997 was $16.9 million,
or $1.78 per share, compared to net income of $0.6 million, or $0.01 per share,
for the prior year period.
FISCAL 1996 COMPARED TO FISCAL 1995
Sales for 1996 were $1,359.5 million, an increase of 12.5% from the prior
year. Sales for the tobacco division were $925.5 million, an increase of 22.4%
from 1995. The increase in tobacco division sales was due to a 10.4% increase in
volumes, higher average prices and a change in sales mix. 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. Increased demand in Greece combined with the timing of
shipments led to substantial increases in sales. Volume growth continued in
Malawi and Zimbabwe and the Company is continuing to expand in certain secondary
markets in Africa.
Nontobacco sales for 1996 were $434.0 million, a decrease of 5.2% from the
prior year. The decrease in nontobacco sales was primarily due to lower wool
volumes, which decreased 13.6% from the prior year. Various factors resulted in
difficult trading conditions in the wool industry. The lowering of worldwide
inventory levels, a drop in European apparel sales, and tighter controls on
imports in China were major factors in the 33.3% 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 further
reduced.
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<PAGE>
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STANDARD COMMERCIAL CORPORATION
Gross profit for 1996 increased by $9.0 million from $81.5 million in the
prior year to $90.5 million and remained constant as a percentage of sales.
Gross profit for the tobacco division increased by $31.3 million from $49.2
million, or 6.5% of tobacco division sales, in the prior year to $80.5 million,
or 8.7% of tobacco division sales. The increase in tobacco division gross profit
was primarily due to the 22.4% increase in the tobacco division sales.
Nontobacco gross profit for 1996 decreased by $22.2 million from $32.2
million, or 7.0% of nontobacco sales, in the prior year to $10.0 million, or
2.3% of nontobacco sales. The decrease in nontobacco gross profit was due to the
5.2% decrease in sales and a 21.3% increase in interest.
Selling, general and administrative expenses for 1996 decreased by $2.9
million and decreased as a percentage of sales. Selling, general and
administrative expenses for the tobacco division decreased by $3.8 million from
$57.3 million, or 7.6% of tobacco division sales, in the prior year to $53.5
million, or 5.8% of tobacco division sales. The decrease in tobacco division
selling, general and administrative expenses as a percentage of sales in 1996
was due to significant provisions for receivables, debt restructuring and
redundancy costs of $6.5 million, $2.0 million and $0.5 million, respectively,
that were taken in 1995.
Nontobacco selling, general and administrative expenses for 1996 increased
by $0.8 million from $23.3 million, or 5.1% of nontobacco sales, in the prior
year to $24.1 million, or 5.6% of nontobacco sales. The increase in nontobacco
selling, general and administrative expenses as a percentage of sales was
primarily due to the effect of lower prices on sales.
Restructuring charges for 1996 of $12.5 million ($11.0 million after tax)
reflect a provision made for the restructuring of the nontobacco operations. The
major components of the restructuring charges relate to the wool division and
include: (i) approximately $2.1 million for closure of a wool processing
facility in Argentina; (ii) approximately $3.6 million for the write-off of
goodwill; (iii) approximately $2.8 million associated with the write-off of
export incentive allowances; and (iv) approximately $2.5 million for expenses
related to the terminated sale of the wool division and other miscellaneous
restructuring costs.
Other income (expense), net for 1996 decreased by $7.6 million from 1995,
as a $13.5 million pretax gain on the disposal of assets in Korea in 1995 more
than offset a 1996 gain on the sale of marketable securities in Turkey and
proceeds from staff training subsidies in Greece.
Income taxes for 1996 totaled $6.8 million compared to $16.4 million the
prior year. Income taxes in 1995 included a provision of $1.8 million for an
income tax assessment under appeal and a nonrecurring charge of $1.6 million on
dividends remitted by a foreign subsidiary that could not be offset by foreign
tax credits. In both years, income 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.
Minority interests for 1996 decreased by $4.8 million from the prior year.
The portion of income attributable to minority interest of $9.6 million in 1995
included the gain on the sale of property in Korea discussed above.
Equity in earnings (losses) of affiliates for 1996 decreased by $4.4
million from the prior
--
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
year. The Company's share of losses in affiliates decreased to $69,000 in 1996
from $4.5 million in 1995 primarily because the prior year included losses by an
Italian affiliate which became a consolidated subsidiary in December 1996.
The loss from continuing operations for 1996 decreased by $11.1 million
from the prior year. Income (loss) from discontinued operations reflects the
$10.1 million provision made in 1995 for a loss on the disposal of the wool
division. When the sales agreement lapsed in December 1995 due principally to
difficulty in obtaining certain regulatory approvals and declining market
conditions, the provision was reversed in 1996 and overall net income in 1996
was $608,000, or $0.01 per share, compared to a net loss of $30.5 million, or
$3.34 per share, in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 was $120.1 million, up from $55.8 million
at March 31, 1996 as contributions from operating activities resulted in reduced
borrowings. Additionally, the net proceeds of $47.0 million from a 3,022,500
secondary share issue completed subsequent to March 31, 1997 resulted in
reclassifying a like amount of short-term borrowings to long-term debt at year
end. Capital expenditures of $12.8 million for the twelve months ended March 31,
1997 related mostly to expansion of warehouse facilities in Greece and routine
expenditures in the U.S. tobacco division. The Company continues to closely
monitor its inventories which were down $3.3 million from the prior year,
primarily because of reduced wool inventory which offset higher tobacco
inventory attributable to increased business activity and higher tobacco prices.
Uncommitted tobacco inventory decreased to $22.8 million from $31.5 million.
FINANCING ARRANGEMENTS. The Company's revolving credit facilities include a
$100.0 million facility for U.S. tobacco operations and a $155.0 million
facility for non-U.S. tobacco operations, both of which expire in June 1998. In
addition, the Company has local lines totaling approximately $265.0 million for
tobacco operations in Africa, Europe and the Far East. Separate facilities are
in place for the wool operations totaling approximately $127.0 million. In 1997,
the Company's total borrowing requirements ranged from a high of $372.7 million
in November 1996 to a low of $294.9 million in April 1996. The Company normally
uses short-term bank facilities to support working capital requirements, which
typically peak in the third quarter.
Based on the improving outlook for the business and the restructuring of
the wool division, 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,
agricultural and other factors, many of which are beyond the Company's control.
Although the Company has historically paid quarterly cash dividends, the
Board of Directors, in response to a tightening of the Company's financial
resources, decided to suspend such dividend payments in December 1995, and has
instead issued quarterly stock dividends since that time. The Board of Directors
intends to return to the Company's historical cash dividend policy at such time
as the Company's financial position justifies such action. The payment and
amount of future dividends will depend upon the Company's financial condition,
earnings and capital requirements and such other factors as the Board deems
relevant. In addition, certain
- --
12
<PAGE>
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
debt agreements to which the Company and its subsidiaries are parties contain
financial covenants, including covenants to maintain a designated maximum
leverage ratio and a minimum tangible net worth, which could have the effect of
restricting or prohibiting the payment of cash dividends. Under its most
restrictive covenant, the Company had approximately $17.5 million of retained
earnings available for distribution as dividends at March 31, 1997. At this
time, it is uncertain when the Company will resume the payment of cash
dividends.
On January 31, 1997, the Company terminated the Employee Stock Ownership
Plan (the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of $2.5
million in cash and the issuance of 14,075 shares of Common Stock. The remaining
62,875 shares of unallocated ESOP Preferred Stock were canceled.
The Company intends to continue to strengthen its financial position by
reducing its overall leverage and its reliance on short-term borrowings. In
addition to its local credit facilities, the Company is currently evaluating
additional financing alternatives, including the establishment of a global
credit facility and a private or public placement of long-term debt securities,
the proceeds of which would be used to reduce short-term borrowings. There can
be no assurance, however, that the Company will be able to complete any such
transactions.
TAX AND REPATRIATION MATTERS
The Company and its subsidiaries are subject to income tax laws in each of
the countries in which they do business through wholly-owned subsidiaries and
through affiliates. The Company makes a comprehensive review of the income tax
requirements of each of its operations, files appropriate returns and makes
appropriate income tax planning analyses directed toward the minimization of its
income tax obligations in these countries. Appropriate income tax provisions are
determined on an individual subsidiary level and at the corporate level on both
an interim and annual basis. These processes are followed using an appropriate
combination of internal staff at both the subsidiary and corporate levels as
well as independent outside advisors in review of the various tax laws and in
compliance reporting for the various operations.
The undistributed earnings of certain foreign subsidiaries are not subject
to additional foreign income taxes nor considered to be subject to U.S. income
taxes unless remitted as dividends. The Company intends to reinvest such
undistributed earnings indefinitely; accordingly, no provision has been made for
U.S. taxes on those earnings. The Company regularly reviews the status of the
accumulated earnings of each of its U.S. and foreign subsidiaries as part of its
overall financing plans.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not purely statements of historical fact
may be deemed to be forward-looking. Readers are cautioned that any such
forward-looking statements are based upon management's current knowledge and
assumptions, and actual results could be affected in a material way by many
factors, including ones over which the Company has little or no control, e.g.
unforeseen changes in shipping schedules; the balance between supply and demand;
and market, economic, political and weather conditions. The Company assumes no
obligation to update any of these forward-looking statements.
--
13
<PAGE>
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
MARCH 31
--------------------
1997 1996
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C>
ASSETS
Cash $ 41,117 $ 78,688
Receivables (Note 3) 266,560 252,117
Inventories (Notes 1 and 4) 256,519 259,781
Prepaid expenses 6,285 3,690
Marketable securities (Note 1) 837 5,325
--------------------
Current assets 571,318 599,601
Property, plant and equipment (Notes 1 and 5) 122,013 134,498
Investment in affiliates (Notes 1 and 6) 12,533 11,442
Other assets (Notes 1, 7 and 11) 29,821 37,283
--------------------
Total assets $735,685 $782,824
--------------------
LIABILITIES
Short-term borrowings (Note 8) $272,325 $373,625
Current portion of long-term debt (Note 10) 8,985 11,665
Accounts payable (Note 9) 141,145 133,737
Taxes accrued (Note 16) 28,758 24,776
--------------------
Current liabilities 451,213 543,803
Long-term debt (Note 10) 70,252 31,818
Convertible subordinated debentures (Note 10) 69,000 69,000
Retirement and other benefits (Note 11) 19,127 18,498
Deferred taxes (Notes 1 and 16) 5,819 9,632
Commitments and contingencies (Note 12) - -
--------------------
Total liabilities 615,411 672,751
--------------------
MINORITY INTERESTS (Note 1) 30,312 27,473
--------------------
ESOP redeemable preferred stock (Note 13) - 8,748
Unearned ESOP compensation (Note 13) - (6,320)
--------------------
SHAREHOLDERS' EQUITY
Preferred stock, $1.65 par value (Note 13) Authorized shares 1,000,000;
Issued none (1996 - 87,477 to ESOP)
Common stock, $0.20 par value (Note 13) Authorized shares 100,000,000;
Issued 12,126,270 shares (1996 - 11,624,275) 2,425 2,325
Additional paid-in capital (Note 13) 50,324 43,660
Unearned restricted stock plan compensation (Note 13) (321) (435)
Treasury stock at cost, 2,591,790 shares (1996 - 2,490,661) (Note 13) (3,799) (2,384)
Retained earnings 58,089 46,450
Cumulative translation adjustments (Notes 1 and 14) (16,756) (9,444)
--------------------
Total shareholders' equity 89,962 80,172
--------------------
Total liabilities and equity $735,685 $782,824
--------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- --
14
<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
--------------------------------------
1997 1996 1995
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
Sales $1,354,270 $1,359,450 $1,213,565
Cost of sales
- Materials, services and supplies (Note 4) 1,217,380 1,227,568 1,097,119
- Interest 32,197 41,369 34,981
--------------------------------------
Gross Profit 104,693 90,513 81,465
Selling, general and administrative expenses 72,782 77,608 80,509
Restructuring charges (Note 2) - 12,500 -
Other interest expense 9,920 9,559 9,947
Other income (expense), net (Note 15) 10,254 11,412 18,971
--------------------------------------
Income (loss) before taxes 32,245 2,258 9,980
Income taxes (Notes 1 and 16) 12,782 6,836 16,370
--------------------------------------
Income (loss) after taxes 19,463 (4,578) (6,390)
Minority interests (Note 1) (3,938) (4,795) (9,634)
Equity in earnings (losses) of affiliates (Note 6) 1,412 (69) (4,470)
--------------------------------------
Income (loss) from continuing operations 16,937 (9,442) (20,494)
Income (loss) from discontinued operations (Note 2) - 10,050 (10,050)
--------------------------------------
Net income (loss) 16,937 608 (30,544)
ESOP preferred stock dividends, net of tax (347) (474) (485)
--------------------------------------
Net income (loss) applicable to common stock 16,590 134 (31,029)
Retained earnings at beginning of year 46,450 50,530 84,807
Common stock dividends (4,951) (4,214) (3,248)
--------------------------------------
Retained earnings at end of year $ 58,089 $ 46,450 $ 50,530
--------------------------------------
Earnings (loss) per common share (Note 1):
Primary - from continuing operations $1.78 $(1.07) $(2.25)
- from discontinued operations - $1.08 $(1.09)
- net $1.78 $0.01 $(3.34)
- average shares outstanding 9,314 9,307 9,288
Fully diluted - net $1.69 * *
- average shares outstanding 11,793 * *
</TABLE>
* Not applicable because fully diluted calculations included adjustments which
are antidilutive.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
--
15
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------
1997 1996 1995
<S> <C> <C> <C>
IN THOUSANDS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 16,937 $ 608 $ (30,544)
Depreciation and amortization 20,866 24,393 16,413
Minority interests 3,938 4,795 9,634
Deferred income taxes (484) (968) 793
Undistributed losses of affiliates net of dividends received (1,268) 166 4,626
Gain on disposition of property, plant and equipment (2,252) (1,093) (13,581)
Loss (income) from discontinued operations - (10,050) 10,050
Other 2,483 (5,244) 3,404
---------------------------------
40,220 12,607 795
Net changes in working capital other than cash
Receivables (22,807) (24,752) 59,665
Inventories (5,475) 85,901 38,342
Current payables 22,721 (23,909) (3,382)
---------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 34,659 49,847 95,420
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment - additions (12,816) (12,211) (17,328)
- dispositions 5,072 3,151 16,274
Minority interest - (7,740) -
Business (acquisitions) dispositions 3,304 440 (2,605)
---------------------------------
CASH USED FOR INVESTING ACTIVITIES (4,440) (16,360) (3,659)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 10,405 9,645 10,442
Repayment of long-term borrowings (21,131) (14,968) (29,113)
Net change in short-term borrowings (54,257) (5,330) (86,406)
Dividends paid, net of tax (347) (474) (485)
Purchase and retirement of ESOP Preferred Stock (2,460) - -
Other - 114 213
---------------------------------
CASH USED FOR FINANCING ACTIVITIES (67,790) (11,013) (105,349)
---------------------------------
Increase/(decrease) in cash for year (37,571) 22,474 (13,588)
Cash at beginning of year 78,688 56,214 69,802
---------------------------------
CASH AT END OF YEAR $ 41,117 $ 78,688 $ 56,214
---------------------------------
Cash payments for - interest $ 42,790 $ 44,426 $ 47,588
- income taxes $ 9,057 $ 6,433 $ 8,441
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- --
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
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. The Company provides deferred income taxes on differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss carryforwards.
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. Earnings per share and weighted average number of shares outstanding for
all prior periods have been restated to give effect to the increase in number of
shares outstanding resulting from quarterly stock dividends. 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 February 1997, Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE, was issued. This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. The adoption of this
Statement will not have a material impact on the Company's financial statements.
In October 1995, Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued. Statement No. 123, which
was effective for the Company beginning April 1, 1996, requires expanded
disclosure 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 No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will apply APB No.
25 to its stock-based compensation awards to employees and will disclose the pro
forma effect on net income and earnings per share.
l) LONG-LIVED ASSETS. As required, the Company adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Accordingly,
long-lived assets are reviewed for impairment on a market-by-market basis
whenever events or changes in the circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is required, the
projected future undiscounted future cash flows attributable to each market
would be compared to the carrying value of the long-lived assets (including an
allocation of goodwill, if appropriate) of that market if a write-down to fair
value is required. The Company also evaluates the remaining useful lives to
determine whether events and circumstances warrant revised estimates of such
lives.
m) 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.
n) 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
--
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
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 (losses) for the fiscal
year ending 1995, the year the wool operations were reported as discontinued
operations, were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1995
<S> <C>
- -----------------------------------------------------------
Total assets $294,290
Total liabilities 216,326
Revenues 440,112
Pretax operating income 10,002
</TABLE>
In December 1993, the Company completed the sale of its Caro-Green Nursery
business to Zelenka Nursery Inc. At March 31, 1997, the consolidated balance
sheet includes notes receivable from the purchaser totaling approximately $2.7
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 business and determined that a pretax restructuring charge of $12.5
million ($11.0 million after-tax) was appropriate. The major components of the
restructuring charges relate to the wool division and include: (i) approximately
$2.1 million associated with the closure of the wool processing facility in
Argentina; (ii) approximately $3.6 million for the write-off of goodwill; (iii)
approximately $2.8 million associated with the write-off of export incentive
allowances; and (iv) approximately $2.5 million of expenses related to the
terminated sale of the wool division and other miscellaneous restructuring
costs. To date in Argentina, the wool processing operations have been
discontinued, the factory has been leased to a third party, 181 employees have
been terminated and certain impaired assets have been written down. In
Australia, operations have been consolidated under one management team to better
and more efficiently serve this market. The wool tops departments in the German
and French companies have been reorganized to streamline their marketing
efforts. The Company has undertaken a feasibility study to improve operational
efficiencies in the French topmaking factory. For the year ended March 31, 1997,
the restructuring resulted in lower depreciation, amortization and personnel
costs of approximately $1.1 million. With the exception of the export incentive
issue, which is expected to be resolved in fiscal 1998, substantially all
incurred amounts related to the restructuring had been expended at March 31,
1997.
3. RECEIVABLES
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- -----------------------------------------------------------
Trade accounts $180,926 $173,413
Advances to suppliers 48,349 36,701
Affiliated companies 9,773 17,357
Other 31,113 30,196
--------------------
270,161 257,667
Allowances for doubtful accounts (3,601) (5,550)
--------------------
$266,560 $252,117
--------------------
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- -----------------------------------------------------------
Tobacco $181,349 $160,721
Nontobacco 75,170 99,060
--------------------
$256,519 $259,781
--------------------
</TABLE>
Tobacco inventories at March 31, 1997 and 1996 included capitalized
interest, totaling $4.3 million and $4.2 million, and valuation reserves for
tobacco and wool of $4.9 million and $5.2 million, respectively. Inventory
valuation provisions included in cost of sales totaled approximately $0.9
million, $1.4 million and $5.3 million in 1997, 1996 and 1995, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- -----------------------------------------------------------
Land $ 14,063 $ 15,318
Buildings 77,116 76,464
Machinery and equipment 131,124 133,959
Furniture and fixtures 13,157 12,023
Construction in progress 2,322 1,210
--------------------
237,782 238,974
Accumulated depreciation (115,769) (104,476)
--------------------
$122,013 $134,498
--------------------
</TABLE>
Depreciation expense was $18.1 million, $18.1 million and $14.7 million in
1997, 1996 and 1995, respectively.
6. AFFILIATED COMPANIES
a) Net investment in affiliated companies are represented by the following:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- -----------------------------------------------------------
Net current assets (liabilities) $ 4,421 $ 4,445
Property, plant and equipment 29,446 24,156
Other long-term assets (liabilities) (132) 1,977
Interests of other shareholders (21,033) (19,018)
--------------------
Company's interest 12,702 11,560
Provision for withholding taxes (169) (118)
--------------------
Net investments $ 12,533 $ 11,442
--------------------
</TABLE>
b) The results of operations of affiliated companies were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
Sales $119,022 $ 82,527 $ 99,236
--------------------------------
Income (loss) before
taxes $ 5,627 $ 2,493 (2,468)
Income taxes 2,104 2,259 1,074
--------------------------------
Net income (loss) $ 3,523 $ 234 $ (3,542)
--------------------------------
Company's share $ 1,463 $ (260) $ (4,567)
Withholding taxes (51) 191 97
--------------------------------
Equity in earnings
(losses) $ 1,412 $ (69) $ (4,470)
--------------------------------
Dividends received $ 148 $ 96 $ 154
--------------------------------
</TABLE>
- --
18
<PAGE>
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
The Company's significant affiliates and percentage of ownership at March 31,
1997 follow: Adams International Ltd, 49.0% (Thailand), Siam Tobacco Export
Corporation Ltd, 49.0% (Thailand), Tobacco Processors (Lilongwe) Ltd, 51.9%
(Malawi) and Independent Wool Dumpers Pty Ltd, 16.8% (Australia). Audited
financial statements of affiliates are obtained annually.
7. OTHER ASSETS
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- ------------------------------------------------------------
Cash surrender value of life insurance
policies (face amount $42,765) $12,775 $12,567
Policy loans 6,246 6,780
------------------
6,529 5,787
Bank deposits 418 118
Receivables 14,588 17,851
Due from affiliates 39 823
Investments 2 3,294
Excess of purchase price of
subsidiaries over net assets
acquired - net of accumulated
amortization of $7,354
(1996 - $7,231) 4,224 4,347
Other 4,021 5,063
------------------
$29,821 $37,283
------------------
</TABLE>
8. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
Weighted average interest
on borrowings at end of
year 8.0% 8.5% 9.8%
Weighted average interest
rate on borrowings
during the year1 8.0% 9.0% 9.2%
Maximum amount
outstanding at any
month-end $372,747 $433,646 $450,590
Average month-end amount
outstanding $337,178 $388,875 $401,923
Amount outstanding at
year-end2 $272,325 $373,625 $378,955
</TABLE>
1 Computed by dividing short-term interest expense and amortized financing costs
by average short-term debt outstanding.
2 During the first quarter of fiscal 1998 the Company completed a secondary
issue of 3,022,500 shares, from which the $47.0 million proceeds have been
classified as long-term debt for accounting purposes and applied as a reduction
of short-term borrowings at March 31, 1997. At June 30, 1997 the $47.0 million
will be reclassified from long-term debt to shareholders' equity. This amount
has been excluded from the calculation of average month-end amounts outstanding.
At March 31, 1997, under agreements with various banks, total short-term
credit facilities for continuing operations of $646.9 million (1996 - $694.0
million) were available to the Company of which $71.0 million (1996 - $53.0
million) were being utilized for letters of credit and guarantees and $299.0
million (1996 - $287.0 million) were unused.
The Company's revolving credit facilities at March 31, 1997 included a $100.0
million facility for U.S. tobacco operations and a $155.0 million master credit
facility for non-U.S. tobacco operations, both expiring in June 1998, in
addition to local lines of approximately $265.0 million. Also, separate
facilities totaling $127.0 million are in place for wool operations.
At March 31, 1997 substantially all of the Company's assets were pledged
against current and long-term borrowings.
9. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- -----------------------------------------------------------
Trade accounts $108,476 $100,286
Affiliated companies 3,449 18
Other accruals and payables 29,220 33,433
--------------------
$141,145 $133,737
--------------------
</TABLE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- ------------------------------------------------------------
6.48% fixed rate loans repayable
annually through 1998 $ 3,637 $ 6,472
Floating rate loan at prime through
March 1999 (1997 average 8.25%) 8,667 -
10.4% loan repayable annually through
2000 4,900 6,000
Floating rate note, at 82% of prime,
repayable in 2001 (1997 average
8.25%) 2,940 2,940
11.95% loan repayable through 2001 2,346 3,129
Italian prime + 1/8% payable through
2002 (1997 average 10.6%) 3,458 4,273
9.82% fixed rate loan repayable
annually through 2005 3,282 3,566
9.25% note repayable through 2005 1,762 1,978
9.25% fixed rate loan repayable
annually through 1997 - 820
Floating rate loan at 1.5% above LIBOR
repayable annually through 1998 - 1,175
Floating rate loan, at 1.75% above
LIBOR, repayable quarterly through
March 1999 - 1,535
Senior notes, at 1.75% above LIBOR
repayable quarterly through March
1999 - 3,103
Floating rate loan, at 1.75% above
three-month negotiable CD rate,
repayable quarterly through March
2002 - 6,533
Other 1,202 1,959
------------------
32,194 43,483
Current portion (8,985) (11,665)
Revolving credit facilities (See Note
8) 47,043 -
------------------
$70,252 $31,818
------------------
</TABLE>
Long-term debt maturing after one year is as follows: 1999 - $11,537;
2000 - $3,963; 2001 - $4,760; 2002 - $716; and thereafter - $2,233.
At March 31, 1997, the Company reclassified $47.0 million of borrowings
under its revolving credit facilities as long-term debt. The Company has both
the intent and ability to refinance this amount on a long-term basis.
CONVERTIBLE SUBORDINATED DEBENTURES
On November 13, 1991 the Company issued $69.0 million of 7 1/4% Convertible
Subordinated Debentures due March 31, 2007. Adjusted for subsequent stock
dividends, the debentures currently are convertible into shares of common stock
of the Company at a conversion price of $29.38. The debentures are subordinated
in right of payment to all senior indebtedness, as defined, of the
--
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
Company, and as of March 31, 1995 became redeemable in whole or in part at the
option of the Company any time. Beginning March 31, 2003 the Company will make
annual payments to a sinking fund 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 31, 1997, substantially all of the Company's assets were pledged
against current and long-term borrowings.
11. BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time salaried employees in the United States and a
Supplemental Executive Retirement Plan ("SERP") covering benefits otherwise
limited by Section 401(a)(17) (Compensation Limitation) and Section 415
(Benefits Limitation) of the Internal Revenue Code. 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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- -------------------------------------------------------------
Service cost - benefits earned
during the year $ 498 $ 433 $ 421
Interest cost on projected benefit
obligation 649 549 501
Recognized return on plan assets (832) (670) (583)
Net amortization (29) (72) (37)
-----------------------
Net pension cost $ 286 $ 240 $ 302
-----------------------
</TABLE>
The funded status of the U.S. plans, which include a book-reserve SERP, at
March 31 is shown below:
<TABLE>
<CAPTION>
Assets exceed ABO exceeds
-----------------------------------
ABO assets
IN THOUSANDS 1997 1996 1997 1996
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
Actuarial present value of
benefit obligations:
- vested $ 7,265 $ 6,429 $ - $ -
- nonvested benefits 44 56 486 334
-----------------------------------
Accumulated benefit obligation 7,309 6,485 486 334
Benefits attributable to
projected salaries 2,142 1,989 51 152
-----------------------------------
Projected benefit obligation 9,451 8,474 537 486
Plan assets at fair value 11,505 10,391 - -
-----------------------------------
Assets in excess of (less than)
projected obligation 2,054 1,917 (537) (486)
Unamortized net transition gain (306) (367)
Unrecognized prior service cost (44) (55) 44 88
Unrecognized experience gain (693) (389) (6) (6)
-----------------------------------
Prepaid (accrued) pension costs $ 1,011 $ 1,106 $ (499) $ (404)
-----------------------------------
</TABLE>
The projected benefit obligation at March 31, 1997, 1996 and 1995 was
determined using an assumed discount rate of 7.375%, 7.25% and 7.25%,
respectively, and assumed future compensation increases of 5.00%, 5.25% and
5.25%, respectively. The assumed long-term rate of return on plan assets was
8.0%, 8.0% and 8.0% at March 31, 1997, 1996 and 1995, 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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------
Service cost - benefits earned
during the year $ 1,367 $ 1,507 $ 1,428
Interest cost on projected
benefit obligation 2,310 2,646 2,414
Recognized return on plan
assets (2,348) (2,004) (1,655)
Net amortization 49 222 147
-----------------------------
Net pension cost $ 1,378 $ 2,371 $ 2,334
-----------------------------
</TABLE>
The funded status of non-U.S. plans, which include book-reserve plans,
at March 31 is shown below:
<TABLE>
<CAPTION>
Assets exceed ABO exceeds
-------------------------------------
ABO assets
IN THOUSANDS 1997 1996 1997 1996
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------
Actuarial present value of
benefit obligations:
- vested $18,455 $11,575 $ 7,857 $12,945
- nonvested benefits 120 454 - 48
-------------------------------------
Accumulated benefit
obligation 18,575 12,029 7,857 12,993
Benefits attributable to
projected salaries 5,255 4,394 517 1,200
-------------------------------------
Projected benefit obligation 23,830 16,423 8,374 14,193
Plan assets at fair value 26,150 17,402 - 4,484
-------------------------------------
Assets in excess of (less
than) projected obligation 2,320 979 (8,374) (9,709)
Unamortized net transition
loss 679 854 927 943
Unrecognized prior service
cost (2,094) (113) - 913
Unrecognized experience gain 566 (1,193) 56 (817)
Additional minimum liability - - (1,031) (914)
-------------------------------------
Prepaid (accrued) pension
costs $ 1,471 $ 527 $(8,422) $(9,584)
-------------------------------------
</TABLE>
The assumptions used in 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
-----------------------------------------------
Discount rates 7.375% TO 8.5% 7.75% to 8.5% 7.5% to 8.5%
Compensation
increases 5.50% TO 7.0% 3.25% to 6.5% 5.5% to 7.0%
Long-term rates of
return on plan
assets 10.0% 10.0% 10.0%
</TABLE>
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 unfunded book-reserve plans.
The Company also sponsors a 401(k) savings incentive plan for most full-time
salaried employees in the United States. The
- --
20
<PAGE>
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
expense for this plan was $196,000 in 1997, $144,000 in 1996 and $127,000 in
1995.
The Company provides health care and life insurance benefits for
substantially all of its retired salaried employees in the U.S. These benefits
are accounted for in accordance with Statement of Financial Accounting Standards
No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS,
which requires the accrual of 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 1997,
1996 and 1995 were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1997 1996 1995
<S> <C> <C> <C>
--------------------------------
Service cost $193,942 $176,148 $168,613
Interest cost on
accumulated benefit
obligation 493,527 522,164 405,299
Amortization of plan
amendments (138,904) (136,649) (138,904)
--------------------------------
Net periodic cost $548,565 $561,663 $435,008
--------------------------------
</TABLE>
The components of the liability included in the consolidated balance sheet
at March 31, 1997 and 1996 of the actuarial present value of benefits for
services rendered to date were:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
------------------------
Current retirees $ 489,487 $ 504,723
Active employees eligible to
retire 2,731,768 2,423,723
Active employees not eligible to
retire 3,343,157 4,041,795
------------------------
Total 6,564,412 6,970,241
Unrecognized net gain (loss) 259,872 (672,154)
Unrecognized prior service cost 972,323 1,111,227
------------------------
Accumulated postretirement
benefit obligation $7,796,607 $7,409,314
------------------------
</TABLE>
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 12.5% in 1997. This rate was assumed
to gradually decline to 6.5% in 2004, 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 1997 would increase by $126,000 and the APBO as of March 31,
1997 would increase by $915,000. In general, postretirement benefit costs are
insured or paid as claims are incurred.
The ongoing impact of Statement 106 as it relates to employees of foreign
subsidiaries is immaterial. The Company expenses the cost of these benefits as
incurred.
EMPLOYEE STOCK OPTIONS
In March 1997, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The agreement, which was ratified by the Board
of Directors on April 14, 1997, provides for the grant of nonqualified options
to purchase 100,000 shares of the Company's common stock at an exercise price
equal to the fair market value as of the date of grant. These options will
become exercisable (contingent on continued employment with the Company) in
equal annual installments over a three-year period. No options are currently
exercisable.
12. COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows: 1998 - $3,601,757;
1999 - $2,650,260; 2000 - $1,964,891; 2001 - $54,720; 2002 - $24,203 and
thereafter $143,364. Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 1997, 1996 and
1995 were $3,049,100, $3,811,000 and $963,000, 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 $17.4
million, all of which are expected to be incurred in fiscal 1998.
The previously reported joint Canadian-U.S. criminal investigation into
alleged violations of law relating to the importation, exportation and taxation
of tobacco has been discontinued. The Canadian investigation is continuing as to
individual Canadian and U.S. citizens. Management does not believe that it will
have a material adverse effect on the Company's financial position.
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.
--
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
13. COMMON STOCK
<TABLE>
<CAPTION>
Common Additional
Number of Shares Stock Paid in
of Common Stock Capital
-------------------------------------------------
Issued Treasury Par Value In thousands
<S> <C> <C> <C> <C>
-------------------------------------------------
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
401(k)
contribution 16,122 3 196
Dividends
reinvested 662 - 10
RSP shares
forfeited (557) - (10)
Stock dividends 471,693 101,129 94 6,226
ESOP conversion 14,075 3 242
-------------------------------------------------
MARCH 31, 1997 12,126,270 2,591,790 $ 2,425 $ 50,324
-------------------------------------------------
</TABLE>
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.
On January 31, 1997, the Company terminated the Employee Stock Ownership
Plan (the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of
$2,460,287 in cash and the issuance of 14,075 shares of Common Stock. The
remaining 62,875 shares of unallocated ESOP Preferred Stock were canceled.
Subsequent to March 31, 1997 the Company completed the registration and sale
of 3,022,500 shares of common stock, priced at $16.75 per share. Assuming that
the net proceeds to the Company from the offering were used to repay short-term
borrowings as of April 1, 1996, primary and fully diluted earnings per share
would have been $1.78 and $1.71, respectively, and the corresponding
weighted-average shares outstanding for purposes of these computations would
have been 12,383,000 and 14,861,000.
14. FOREIGN CURRENCY
Changes in the translation adjustment component of shareholders' equity are
shown below:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- -------------------------------------------------------------
Beginning balance April 1 $ (9,444) $(4,319) $(17,984)
Net change in translation
of foreign financial
statements (7,312) (5,125) 13,665
-------------------------------
Ending Balance March 31 $(16,756) $(9,444) $ (4,319)
-------------------------------
</TABLE>
Net amounts included in the income statement relating to foreign currency
losses from continuing operations were $920,000, $276,000, and $756,000 in 1997,
1996 and 1995, respectively.
15. OTHER INCOME (EXPENSE) - NET
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
Other income
Interest $ 4,493 $ 4,430 $ 4,644
Gain on asset sales and
dispositions 4,668 4,476 14,650
Rents received 610 441 233
Other 3,520 4,976 2,162
-----------------------------
13,291 14,323 21,689
-----------------------------
Other expense
Amortization of goodwill (132) (197) (582)
Other (2,905) (2,714) (2,136)
-----------------------------
(3,037) (2,911) (2,718)
-----------------------------
$10,254 $11,412 $18,971
-----------------------------
</TABLE>
16. INCOME TAXES
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1997 1996
<S> <C> <C>
- ------------------------------------------------------------
Deferred tax liabilities:
Depreciation $10,528 $11,377
Capitalized interest 1,183 763
Income recognition in foreign
subsidiaries 14,983 16,673
Prepaid pension assets 1,232 898
------------------
Total deferred tax liabilities 27,926 29,711
------------------
Deferred tax assets:
NOL carried forward 7,138 8,766
Valuation allowance (5,503) (7,021)
Postretirement benefits other than
pensions 3,071 2,919
Uniform capitalization 143 186
All other, net 1,963 1,925
------------------
Total deferred tax assets 6,812 6,775
------------------
Net deferred tax liabilities $21,114 $22,936
------------------
</TABLE>
The net deferred tax liabilities include approximately $15,295 and $13,304
of current liabilities at March 31, 1997 and 1996, respectively.
- --
22
<PAGE>
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
Current
Federal $ 445 $ 130 $ 3,686
Foreign 12,793 7,455 11,470
State and local 28 219 421
-----------------------------
13,266 7,804 15,577
-----------------------------
Deferred
Federal 707 (1,131) (1,154)
Foreign (1,194) 160 1,938
State and local 3 3 9
-----------------------------
(484) (968) 793
-----------------------------
Income tax provision $12,782 $ 6,836 $16,370
-----------------------------
</TABLE>
c) Components of deferred taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------
Tax on differences in timing
of income recognition in
foreign subsidiaries $ (353) $(2,565) $ 2,055
Utilization of NOL carried
forward - 185 -
Capitalized interest 420 (248) (29)
DISC income - - (89)
Other (551) 1,660 (1,144)
-----------------------------
$ (484) $ (968) $ 793
-----------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
Pretax income
Domestic $ 3,663 $ 264 $ (89)
Foreign 28,582 1,994 10,069
-----------------------------
$32,245 $ 2,258 $ 9,980
-----------------------------
</TABLE>
e) The following is a reconciliation of the income tax provision to the
expense calculated at the U.S. federal statutory rate.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------------
Expense (benefit) at U.S.
federal statutory tax rate $11,286 $ 768 $ 3,393
Foreign tax losses for which
there is no relief
available 321 4,359 9,750
U.S. tax on foreign income 500 200 2,912
Different tax rates in
foreign subsidiaries 680 (177) (1,073)
Other - net (5) 1,686 1,388
-----------------------------
$12,782 $ 6,836 $16,370
-----------------------------
</TABLE>
17. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of March
31, 1997 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: For purposes of the Consolidated Statement of
Cash Flows, the Company considers all highly liquid investments with a maturity
of three months or less to be cash equivalents. The estimated fair value of cash
and cash equivalents approximates carrying value.
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 $90.7 million, compared with a carrying value
of $101.2 million, based on discounted cash flows for fixed-rate borrowings,
with the fair value of floating-rate borrowings considered to approximate
carrying value. Amounts reclassified from short-term borrowings to long-term
debt have been excluded for fair value computations (See Note 8).
--
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
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.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------
GEOGRAPHIC AREAS
Sales
United States $ 466,066 $ 375,842 $ 288,143
Europe 737,346 781,910 702,606
Other areas 273,728 319,428 355,529
Intersegment
eliminations (122,870) (117,730) (132,713)
------------------------------------
$1,354,270* $1,359,450* $1,213,565*
------------------------------------
Operating income net of
interest
United States $ 5,748 $ 3,576 $ 2,598
Europe 26,926 10,616 (9,406)
Other areas 2,906 (8,609) 20,425
Corporate expenses (3,335) (3,325) (3,637)
------------------------------------
Income before taxes $ 32,245 $ 2,258 $ 9,980
------------------------------------
Assets
United States $ 150,555 $ 163,002 $ 142,793
Europe 445,085 469,247 503,397
Other areas 120,683 133,075 148,359
Investment in
affiliates 12,533 11,442 12,905
Corporate assets 6,829 6,058 6,035
------------------------------------
$ 735,685 $ 782,824 $ 813,489
------------------------------------
U.S. Exports
Europe $ 87,531 $ 103,526 $ 69,348
Far East 42,908 46,726 80,474
Other areas 6,000 5,007 12,369
------------------------------------
$ 136,439 $ 155,259 $ 162,191
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
IN THOUSANDS 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------
BUSINESS SEGMENTS
Sales
Tobacco $ 997,449 $ 925,549 $ 755,971
Nontobacco 356,821 433,901 457,594
------------------------------------
$1,354,270* $1,359,450* $1,213,565*
------------------------------------
Operating income net of
interest
Tobacco $ 32,421 $ 28,373 $ 2,759
Nontobacco 3,159 (22,790) 10,858
Corporate expenses (3,335) (3,325) (3,637)
------------------------------------
Income before taxes $ 32,245 $ 2,258 $ 9,880
------------------------------------
Interest expense
included above
Tobacco $ 32,288 39,381 $ 35,207
Nontobacco 9,829 11,547 9,721
------------------------------------
$ 42,117 $ 50,928 $ 44,928
------------------------------------
Depreciation and
amortization expense
Tobacco $ 14,528 $ 12,914 $ 11,004
Nontobacco 4,253 9,778 5,135
------------------------------------
$ 18,781 $ 22,692 $ 16,139
------------------------------------
Equity in earnings of
affiliates
Tobacco $ 1,242 $ (217) $ (4,489)
Nontobacco 170 148 19
------------------------------------
$ 1,412 $ (69) $ (4,470)
------------------------------------
Assets
Tobacco $ 521,202 $ 532,627 $ 499,587
Nontobacco 207,654 244,139 307,867
Corporate assets 6,829 6,058 6,035
------------------------------------
$ 735,685 $ 782,824 $ 813,489
------------------------------------
Capital expenditures
Tobacco $ 10,981 $ 10,398 $ 11,177
Nontobacco 1,835 1,813 6,151
------------------------------------
$ 12,816 $ 12,211 $ 17,328
------------------------------------
</TABLE>
* One tobacco customer accounted for 24.1%, 17.4% and 14.2% of total sales in
1997, 1996 and 1995, respectively.
- --
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
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, 1997 and 1996 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, 1997. 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, 1997
and 1996 and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 18, 1997
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.
--
25
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
- --------------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT SHARE DATA 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,354,270 $1,359,450 $1,213,565 $1,042,014 1,236,084 $1,173,300
Income taxes 12,782 6,836 16,370 5,070 12,546 11,048
Income (loss) from continuing operations 16,937 (9,442) (20,494) (36,498) 22,250 23,843
Income (loss) from discontinued operations - 10,050 (10,050) 689 (1,547) (2,216)
Extraordinary items - - - - 503 624
Cumulative effect of accounting changes - - - 23 -
Net income (loss) 16,937 608 (30,544) (35,786) 21,176 22,251
Current assets 571,318 599,601 616,953 710,464 759,802 590,832
Total assets 735,685 782,824 813,489 890,771 923,367 723,819
Current liabilities 451,213 543,803 563,766 639,980 592,507 445,183
Long-term debt 139,252 100,818 101,403 98,169 128,762 100,896
- --------------------------------------------------------------------------------------------------------------------------------
Average number of shares outstanding 9,314,461 9,307,438 9,287,802 9,238,981 9,089,816 8,943,440
- --------------------------------------------------------------------------------------------------------------------------------
Per share
Earnings (loss) from continuing operations $1.78 $(1.07) $(2.25) $(4.00) $2.40 $2.67
Income (loss) from discontinued operations - 1.08 (1.09) 0.07 (0.17) (0.25)
Extraordinary items - - - - 0.06 0.07
Net earnings (loss) 1.78 0.01 (3.34) (3.93) 2.29 2.49
Dividends paid - - - 0.46 0.50 0.48
Book value at year end 9.44 8.44 8.95 10.85 16.05 14.54
Market price at year end 17.88 9.00 13.38 15.63 26.25 29.38
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and variations in the mix of
sales, causes quarterly fluctuations in financial results.
Quarterly results, dividends and stock prices for the years ended March 31,
1997 and 1996 follow:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARE DATA June 30 Sept 30 Dec 31 March 31 Year
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
1997 Sales $310,391 $249,005 $374,130 $420,744 $1,354,270
Gross profit 21,887 21,972 27,944 32,890 104,693
Income from continuing operations 1,508 2,911 4,480 8,038 16,937
Net income 1,508 2,911 4,480 8,038 16,937
Earnings per share
Primary - from continuing operations 0.15 0.30 0.47 0.85 1.78
- net 0.15 0.30 0.47 0.85 1.78
Fully diluted * * * 0.75 1.69
Dividends paid per share ** ** ** **
Market price - high 12.00 15.00 20.75 21.50 21.50
- low 8.25 11.25 11.75 17.38 8.25
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) 3,751 10,799 - 10,050
Net income (loss) (10,755) 576 1,759 9,028 608
Earnings (loss) per share
Primary - from continuing operations (0.69) (0.35) (0.99) 0.96 (1.07)
- from discontinued operations (0.48) 0.40 1.16 - 1.08
- net (1.17) 0.05 0.17 0.96 0.01
Fully diluted * * * 0.82 *
Dividends paid per share ** ** ** **
Market price - high 15.13 14.38 12.25 10.38 15.13
- low 13.25 10.50 9.25 7.50 7.50
</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 11, 1997 there were 639 shareholders of record.
- --
26
<PAGE>
CORPORATE DIRECTORS AND OFFICERS
AND DIVISION MANAGEMENT
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
CORPORATE DIRECTORS
J Alec G Murray, 1,5 CHAIRMAN OF THE BOARD OF DIRECTORS
Ery W. Kehaya, CHAIRMAN EMERITUS
Marvin W. Coghill, 1 CHAIRMAN - TOBACCO DIVISION
William A. Ziegler, 2,3,4,5 RETIRED PARTNER, SULLIVAN & CROMWELL, ATTORNEYS
Henry R. Grunzke, CONSULTANT; RETIRED CHAIRMAN - WOOL DIVISION
William S. Barrack, Jr., 2,3,4 RETIRED SENIOR VICE PRESIDENT - TEXACO INC.
Thomas M Evins, Jr. REGIONAL MANAGER - NORTH AND CENTRAL AMERICA TOBACCO
OPERATIONS
Charles H. Mullen, 2,3,4,5 RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER -
THE AMERICAN TOBACCO COMPANY
Daniel M. Sullivan, 2,3,4 FOUNDER AND RETIRED CHIEF EXECUTIVE OFFICER -
FROST & SULLIVAN INC.
Robert E. Harrison, 1,4,5 PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER
- ---------------
1 Member of Executive Committee
2 Member of Audit Committee
3 Member of Compensation Committee
4 Member of Finance Committee
5 Member of Nominating Committee
CORPORATE OFFICERS
Robert E. Harrison, PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER
Guy M. Ross, VICE PRESIDENT AND SECRETARY
Ery W. Kehaya II, VICE PRESIDENT
Mark W. Kehaya, VICE PRESIDENT - PLANNING
Michael K. McDaniel, VICE PRESIDENT - HUMAN RESOURCES
Keith H. Merrick, VICE PRESIDENT AND TREASURER
Hampton R. Poole, Jr., VICE PRESIDENT AND CONTROLLER
Krishnamurthy Rangarajan, VICE PRESIDENT AND ASSISTANT SECRETARY
--
27
<PAGE>
DIVISION MANAGEMENT AND PRINCIPAL
TRADING COMPANIES
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
TOBACCO DIVISION MANAGEMENT
Marvin W. Coghill, 1 CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
John H. Saunders, SENIOR VICE PRESIDENT &
REGIONAL MANAGER - AFRICA
Ery W. Kehaya II, 1 VICE PRESIDENT - OPERATIONS
Mark W. Kehaya, 1 FINANCIAL DIRECTOR
Alfred R. Rehm, 1 VICE PRESIDENT - SALES
Simon J. P. Green, ASSISTANT VICE PRESIDENT -
EUROPEAN SALES
Thomas M. Evins, Jr., VICE PRESIDENT, AND
REGIONAL MANAGER - NORTH & CENTRAL AMERICA
Edward A. Majeski, VICE PRESIDENT &
REGIONAL MANAGER - SOUTH AMERICA
Duncan B. Meech, VICE PRESIDENT &
REGIONAL MANAGER - FAR EAST
Constantin J. W. von Esebeck, VICE PRESIDENT &
REGIONAL MANAGER - EUROPE
- ---------------
1 Member of Tobacco Division 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 Freres & Cie SA, GENEVA, SWITZERLAND
* 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
WOOL DIVISION MANAGEMENT
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, NORTH OXFORD, 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
* Stancom Home Center Inc
WILSON, NORTH CAROLINA
- --
28
<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 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 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 near the beginning of the month in which paid.
DIVIDEND REINVESTMENT PLAN
Shareholders of record 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
Customer Information Center
Client Services Group
1525 West W.T. Harris Blvd.-3C3
Charlotte NC 28288-1153
Contact: Ann Harris
Telephone: 704-590-7388 or
1-800-829-8432
Fax: 704-590-7598 or 704-590-7599
TRUSTEE FOR CONVERTIBLE SUBORDINATED DEBENTURES
LISTED: NYSE SYMBOL: STW H
First Union National Bank
Corporate Trust Bond Administration
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
1997 ANNUAL MEETING
August 12, 1997, 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
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Tr Ste 300
P.O. Drawer 17803
Raleigh NC 27607-7506
Telephone: 919-781-4000
Fax: 919-781-4865
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
2201 Miller Rd., Wilson, NC 27893
Telephone 919-291-5507
Fax 919-237-0018
STANDARD COMMERCIAL CORPORATION Exhibit 21
SUBSIDIARIES AND AFFILIATES at March 31, 1997
<TABLE>
<CAPTION>
State or Country
Name of Company of Organization
<S> <C>
Standard Commercial Corporation North Carolina
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
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
-21-
<PAGE>
STANDARD COMMERCIAL CORPORATION Exhibit 21
SUBSIDIARIES AND AFFILIATES at March 31, 1997
State or Country
Name of Company of Organization
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
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
Advhus Gestion Societe Civile France
Tentler & Co. B.V. Netherlands
F Whitley (NZ) Limited New Zealand
De Spa & Co 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
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>
-22-
Independent Auditors' Consent Exhibit 23
We hereby consent to the incorporation by reference in Registration
Statement No. 33-25499 on Form S-3 and in Registration Statement No. 33-59760 on
Form S-8 of our report dated June 18, 1997 included in this report on Form 10-K
of Standard Commercial Corporation for the year ended March 31, 1997.
Deloitte & Touche LLP
Raleigh, North Carolina
June 18, 1997
-23-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME
AND RETAINED EARNINGS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 41,117
<SECURITIES> 837
<RECEIVABLES> 266,560<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 256,519
<CURRENT-ASSETS> 571,318
<PP&E> 122,013<F1>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 735,685
<CURRENT-LIABILITIES> 451,213
<BONDS> 139,252
0
0
<COMMON> 2,425
<OTHER-SE> 87,537
<TOTAL-LIABILITY-AND-EQUITY> 735,685
<SALES> 1,354,270
<TOTAL-REVENUES> 1,354,270
<CGS> 1,249,577
<TOTAL-COSTS> 1,249,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> 32,245
<INCOME-TAX> 12,782
<INCOME-CONTINUING> 16,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,937
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.69
<FN>
<F1>SHOWN NET IN FINANCIAL STATEMENTS
<F2>NOT SHOWN SEPARATELY UNDER MATERIALITY GUIDELINES
</FN>
</TABLE>
