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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 1-9875
[STANDARD COMMERCIAL LOGO]
STANDARD COMMERCIAL CORPORATION
Incorporated under the laws of I.R.S Employer
North Carolina Identification No. 13-1337610
2201 MILLER ROAD, WILSON, NORTH CAROLINA 27893
TELEPHONE NUMBER (919) 291-5507
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, $0.20 PAR VALUE NEW YORK STOCK EXCHANGE
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED TO THE BEST
OF REGISTRANT'S KNOWLEDGE IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT: $47,074,000.
AT MAY 31, 1996 THERE WERE 9,137,200 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
PORTIONS OF THE REGISTRANT'S (1) ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED MARCH 31, 1996 AND (2) PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON AUGUST 13, 1996 ARE INCORPORATED BY REFERENCE INTO
PARTS I, II, III AND IV.
PART I
ITEM 1. BUSINESS.
The Registrant (referred to herein as "Standard" or the "Company") is
principally engaged in two international businesses - tobacco and wool.
From its beginning in 1910 as a small dealer in oriental tobacco, the
Company has expanded through internal growth and acquisitions and is the world's
third largest leaf tobacco dealer. The Company does not manufacture cigarettes
or other consumer tobacco products. For many years prior to 1978, the Company's
operations were conducted almost exclusively outside of the United States. In
fiscal 1996, tobacco operations accounted for 68% of total revenues, and
approximately 39% of tobacco revenues resulted from sales by U.S. subsidiaries.
The majority of tobacco sales consists of exports from the country of origin.
As a result of acquisitions commencing in 1985, the Company has also
created a major integrated group of wool companies which purchase, process and
sell wool to topmakers and spinners of yarn used in the manufacture of worsted
and woolen products. The Company is one of the world's largest handlers of wool.
The Company does not raise sheep or produce textile products. In fiscal 1996,
wool operations accounted for 31% of total revenues, and 2% of wool revenues
resulted from sales by its U.S. subsidiary.
An agreement to sell the wool business in fiscal 1995 lapsed due to
difficulty in obtaining certain regulatory approvals. Results of wool
operations were reinstated as continuing operations in the December 1995
quarter.
Other than the reinstatement of the wool business as continuing
operations there have been no significant changes in business segments since
April 1, 1995. Contributions to gross revenue from businesses other than tobacco
and wool for the past three years have not been material. See "Other Operations
and Investments."
The Company's operations are subject to the usual international
business risks, including changing political conditions and currency
fluctuations, and exchange controls and import/export restrictions in some
countries. The Company takes these factors into account in making its business
decisions.
TOBACCO OPERATIONS
TRENDS IN TOBACCO CONSUMPTION
In recent years, American-blend cigarettes have gained market share
in several major foreign markets, including Asia (particularly Japan and other
Pacific Rim countries), Europe and the Middle East. In Asia, local manufacturers
have imported increasing quantities of flue-cured and burley tobacco in order to
produce cigarettes to compete with the growing market for imported American- or
light-blend cigarettes. In addition, American- or light-blend cigarettes have
gained market share in Western Europe. In Eastern Europe, several cigarette
manufacturing facilities that were previously state-owned have been sold to
multinational cigarette manufacturers, thereby creating new opportunities for
leaf merchants.
Following a period in 1992 and 1993 of significantly increased
consumer demand for discount or value-priced cigarettes in the United States and
certain other major markets, the U.S. market has stabilized with premium brands
having regained market share. Price competition among cigarette manufacturers
has remained intense, forcing independent leaf tobacco dealers to expand their
ability to obtain less-expensive, foreign-grown tobacco of export quality.
Market expansion has caused international cigarette manufacturers to place
greater reliance on the services of internationally strong leaf tobacco dealers
that have the ability to purchase, process and sell tobacco on a global basis.
While worldwide production of American- or light-blend cigarettes is
increasing as described above, consumption of cigarettes has declined in certain
countries in recent years, especially in the United States and certain other
industrialized countries.
Worldwide cigarette production largely determines the level of demand
for leaf tobacco. In recent years, the consumption of cigarettes has stabilized
or declined in many industrialized nations but has continued to grow in most
developing countries. There has also been increased demand for higher quality
cigarettes in Eastern European countries, Turkey and Russia and the other states
of the former Soviet Union. Reports regarding the alleged harmful effects of
cigarette smoking have been publicized for many years and, together with
restrictions on cigarette advertising and smoking in public places, mandatory
warning statements and increased taxes on tobacco products, have had and
continue to have a negative impact on sales of tobacco products in certain
markets. However, the Company believes that its broad customer base and sources
of supply help to mitigate the effects of declines in consumption in particular
areas of the world, as it has a large amount of business in areas where
consumption is rising and with established customers who are catering to the
increasing demand for light-blend cigarettes by consumers in Asia, Europe and
the Middle East.
PURCHASING
The tobacco in which the Company deals is grown in approximately 30
countries. Management believes that its diversity in sources of supply, combined
with a relatively broad customer base, places it in a particularly strong
position worldwide within its industry. The Company relies primarily on
revolving lines of bank credit and internal resources to finance its purchases.
Quite often the tobacco serves as collateral for the credit. The period of
exposure, with some exceptions, generally is limited to a tobacco season lasting
only a few months.
Although most purchases of tobacco are made against specific customer
orders or indications of interest, the Company has from time to time purchased
tobacco for its own inventory when it believed there was a reasonable
opportunity to resell the tobacco at a profit, or when it anticipated its
customers' needs before receiving firm orders or indications of interest.
Purchases for inventory are generally made in foreign markets. The Company
rarely purchases tobacco in the United States without a firm order or indication
of interest. All tobacco purchases are being monitored closely with a goal of
reducing the Company's exposure to price fluctuations and to reducing its costs
of carrying inventory. For the most part, there are no formal contracts between
the Company and its various suppliers of tobacco.
The Company generally employs its own buyers to purchase tobacco on
auction markets, directly from growers and pursuant to marketing agreements with
government monopolies. Tobacco is generally sold in the United States to the
highest bidder at public auction. At present, the greatest amounts of tobacco
purchased by the Company outside the United States come from Argentina, Brazil,
China, Greece, Malawi, Thailand, Turkey and Zimbabwe.
Approximately 60-70% of the Company's tobacco purchases are made
against customer orders or indications of interest. This committed inventory
should normally total approximately $110-$150 million and the carrying costs are
normally reimbursed by the customer. The orders or indications of interest may
be written or oral. Historically, tobacco customers have been extremely reliable
in honoring these commitments, and the Company believes that its position in
respect of its committed tobacco inventories is adequately protected. By the end
of fiscal 1996 the Company's committed tobacco inventory was $120 million which
is consistent with somewhat lower carrying values and a conscious effort to
reduce inventories.
Argentina, Brazil, China, Greece, Turkey and Thailand are major
tobacco producers, but there are no tobacco auctions in these markets. In these
markets, with the exception of Brazil where the Company acts as export agent for
Souza Cruz, an affiliate of British-American Tobacco Company, the Company buys
tobacco directly from farmers or agricultural cooperatives in advance of firm
orders or indications of interest although such purchases are usually made with
some knowledge of its customers' requirements. The Company engages in this type
of uncommitted transaction because of the strategic importance of these markets
in the tobacco supply system. In order to serve its customers properly, the
Company must have a presence in these markets. During fiscal 1996 the Company
substantially reduced uncommitted tobacco inventories to $31 million at March
31, 1996 (excluding $10 million of unprocessed tobacco and packing material)
which is in line with the estimated range of $30-$60 million (depending on
prevailing market conditions) needed to conduct normal business operations.
PROCESSING
Tobacco purchased by the Company generally is perishable and must be
processed within a relatively short period of time to prevent deterioration in
quality. Consequently, processing facilities are usually located near the areas
where the tobacco is purchased. Prior to processing, steps are taken to ensure
consistent quality of the tobacco. These steps include regrading and removing
undesirable leaves, dirt and other foreign matter. Most of the tobacco is then
blended and threshed; however, some of it is processed in whole-leaf form.
Threshing involves mechanically separating the stem from the tissue portions of
the leaf, which are called strips, and sieving out small scrap. Considerable
expertise is required to produce strips of large particle size and to minimize
scrap.
Strips and stems are redried and packed separately. Redrying involves
further reducing the natural moisture left in the tobacco after it has been
cured by the growers. The objective is to pack tobacco at safe moisture levels
so that it can be held by the customer in storage for long periods of time.
Quality control checks are continually performed during processing to ensure
that the product meets customer specifications as to yield, particle size,
moisture content and chemistry. Customers are frequently in attendance at the
factory to monitor results while their tobacco is being processed.
Redried tobacco is packed in hogsheads, cartons, cases or bales for
storage and shipment. Packed tobacco generally is transported in the country of
origin by truck or rail, and exports are moved by ocean container vessels or
freighters.
As of the end of fiscal 1996, Standard processed its tobacco in three
wholly-owned plants in the United States and 16 other facilities around the
world owned or leased by subsidiaries and affiliates. In addition, Standard has
access to other processing plants in which it has no ownership interest. In all
cases, tobacco processing is under the direct supervision of Company personnel.
From time to time the Company purchases and sells tobacco processed by others.
Modern laboratory facilities are maintained by the Company to assist in
selecting tobacco for purchase and to test tobacco during and after processing.
In addition, Standard does laboratory testing for a number of its customers and
others.
The Company believes that its plants are highly efficient and are
adequate for its purposes. The Company also believes that tobacco throughput
could be increased without major capital expenditures.
SELLING
Standard's customers include most of the world's leading
manufacturers of cigarettes and other consumer tobacco products. These customers
are located in some 85 countries throughout the world. Standard employs its own
salesmen, who travel extensively to visit customers and to attend tobacco
markets worldwide with these customers, and it also uses agents for sales to
customers in certain countries. Sales are made on open account to customers who
qualify based on experience or are made against letters of credit opened by the
customer prior to shipment. Virtually all sales are made in United States
dollars. Payment for most tobacco sold by the Company is received after the
tobacco has been processed and shipped. However, some customers pay the Company
before the tobacco has been processed and shipped.
In fiscal 1996, the Company's five largest customers accounted for
approximately 39% of total sales (57% of tobacco sales). In 1996, one customer
accounted for 17% of total sales (1995 - 14%). In 1994, another customer
accounted for 10% of total sales.
Although there are no formal purchase contracts with any of these
customers, the Company has done business with most of them for many years. In
the unlikely event that the Company were to lose two or more of its larger
customers, it could have a material adverse effect on the Company's business.
At March 31, 1996 and 1995, the Company had outstanding orders of
approximately $120 million and $109 million, respectively, for tobacco in
inventory.
REGULATION
Reports with respect to the allegedly harmful physical effects of
cigarette smoking have been publicized for many years and, together with
restrictions on cigarette advertisements, requirements that warning statements
be placed on cigarette packaging and in advertising, increased taxes on tobacco
products and controls in certain countries on imports, production and prices,
have had and continue to have an adverse impact on sales of tobacco products in
many world markets. In addition, litigation is pending against some of the
leading United States manufacturers of consumer tobacco products seeking damages
for health problems alleged to have resulted from the use of tobacco in various
forms. It is not possible to predict the outcome of such litigation or what
effect adverse developments in pending or future litigation against
manufacturers might have on the business of the Company.
Although the consumption of cigarettes has decreased in the United
States and some other countries in recent years, cigarette consumption in many
countries to which the Company makes considerable sales has increased during the
same period. In addition, the consumption of American- or light-blend cigarettes
has increased in both Western and Eastern Europe, even though total cigarette
consumption has not. Exports of cigarettes from the United States have increased
significantly in recent years as well. The Company believes that any materially
adverse effect on its business from a significant decrease in consumption in any
area in which it does business will be reduced by its worldwide customer base
though it is impossible to predict the extent to which any such decrease will
affect the Company's business. In addition, governments in many countries
continue to raise the excise tax on cigarettes and other tobacco products.
During fiscal 1996 import quotas were introduced in the United States
to aid domestic producers of tobacco. This action coincided with the elimination
of the domestic content law enacted in the United States in July 1993 (effective
January 1, 1994) which was determined to be in violation of GATT. While in
effect, the domestic content law dramatically reduced the demand for tobaccos
grown outside of the United States and contributed to the decline in world
tobacco prices in 1993. Since foreign tobacco tends to be considerably cheaper
than tobacco grown in the United States, this law resulted in a significant cost
to domestic cigarette producers. It also disrupted the existing supply and
demand balance and resulted in an oversupply of foreign tobacco in the world. In
addition, there were several proposals before Congress to increase the federal
excise tax imposed on a pack of cigarettes as much as $2.00 per pack. The
likelihood of a tax increase of this magnitude in the near term now appears
remote.
COMPETITION
Competition among independent leaf tobacco dealers is based primarily
on the price charged for products and services, the ability to meet customer
demands and specifications in sourcing, purchasing, blending, processing and
financing tobacco and the ability to develop and maintain long-standing customer
relationships by demonstrating a knowledge of customer preferences and
requirements. Although most of the Company's principal customers also purchase
tobacco from the Company's major competitors, the Company's relationships with
its largest customers span many years and the Company believes that it has the
personnel, expertise, facilities and technology to remain successful in the
industry.
Competition for purchasing tobacco varies depending on the market
involved. Normally, there are from six to eight buyers at each of the United
States flue-cured and burley auctions, representing both leaf tobacco dealers
and buying staffs of certain cigarette manufacturers. The number of competitors
in foreign markets varies from country to country, but there is competition in
all areas to purchase the available tobacco. Among independent leaf tobacco
dealers, the principal competitors are Universal Corporation, DiMon Incorporated
(formed by the April 1, 1995 merger of Dibrell Brothers and Monk-Austin) and
Intabex Services Ltd. Of the independent leaf tobacco dealers, the Company
believes it ranks third in worldwide market share.
SEASONALITY
The Company's tobacco business is dependent on agricultural cycles
and is seasonal in nature. For example, the Company purchases flue-cured tobacco
grown in the United States during the five-month period beginning in July and
ending in November, while burley tobacco grown in the United States is purchased
from late November until January or February. Tobacco in Brazil is purchased
from January through May. Tobacco in Malawi and Zimbabwe is purchased from April
through October. Other markets around the world last for similar periods at
varying times of the year. Accordingly, while the leaf tobacco business is
seasonal in any given region and such seasonality may impact the Company's
quarterly results of operations, the global nature of the Company's business
enables it to be involved in purchasing, processing and selling tobacco
throughout the year and reduces the overall effect of seasonality on the
Company's business.
The processing cycle for leaf tobacco is relatively short. Processing
is conducted throughout the tobacco purchasing season and is usually complete
within two to three months following purchase of the tobacco. Consequently, the
components of the Company's working capital relating to purchasing, processing
and selling leaf tobacco (for example, tobacco inventory, advances to suppliers
and current liabilities such as seasonal lines of credit and accounts payable)
reach their peak in the second and third fiscal quarters and accounts
receivable, revenues and operating income peak in the third and fourth fiscal
quarters. The Company customarily invoices tobacco when it is delivered in
accordance with the terms of the contract. Therefore, tobacco inventory will
vary from quarter to quarter depending on fluctuations in shipping schedules and
the seasonality of the Company's business.
WOOL
GENERAL
Following a policy decision in January 1995 to divest its wool
operations as a part of the Company's strategy to deleverage its balance sheet,
the Company subsequently entered into an agreement to sell its wool business to
Chargeurs of Paris, France. Due to difficulty in obtaining certain regulatory
approvals the seller and purchaser jointly announced in December 1995 that they
had allowed the agreement to lapse.
The Company entered the wool business in 1985 through a series of
acquisitions to diversify into a line of business that would complement its
traditional operations. The Company does not raise sheep or produce textile
products. Like the tobacco business, the wool business involves the worldwide
purchase, value-added processing and sale of an agricultural commodity. Like the
tobacco business of 35 to 40 years ago, the wool industry is highly fragmented,
with a large number of small dealers handling wool, often from limited origins.
From the outset, Standard's strategy was to build a large international network,
primarily through the acquisition of well established dealers and processors.
The Company believes that as a result of its acquisitions and the consolidation
of the wool industry, which is continuing, it has become one of the largest
dealers and processors, handling wool from 10 major producing areas, of which
the most significant are Australia, New Zealand, South Africa, South America and
the United Kingdom. Standard owns and operates processing facilities in six
countries, including scouring mills in Australia, New Zealand, South Africa and
the United Kingdom and combing mills in Chile and France. The Company also uses
the services of commission processors in Argentina, Australia, Belgium, Germany
and Italy.
Following record high prices in 1988, the wool industry experienced a
severe downturn beginning in 1989 that was triggered by the withdrawal of China
from international wool markets, economic turmoil in Eastern Europe and the
states of the former Soviet Union and recessionary conditions in Western Europe.
These events led to a decrease in demand for wool on the world market. At the
same time a worldwide oversupply situation had developed, largely due to
artificially high prices caused by the Australian support program.
Prior to 1991, Australian wool growers operated under a government
price support program. Under this program, the Australian government accumulated
a stockpike of 848,000 metric tons (raw weight) of wool. In 1991 the Australian
government abandoned its price support program, effectively creating a free
market for wool. Under free market conditions, prices fell substantially and
immediately, creating difficult trading conditions for the wool industry, and
establishing the market conditions necessary for a correction in what had become
a major imbalance between supply and demand. At present, Wool International, an
organization created by the Australian government, is responsible for the
reduction of the stockpile, which on May 31, 1996 totaled 269,500 metric tons
(the equivalent of approximately 40 % of one year's Australian production). This
stockpile is scheduled to be reduced at a fixed rate to reach a level of 184,000
metric tons by June 1997, at which point the disposal rate will be adjusted as
appropriate.
Worldwide wool production in 1996 was below current demand for the
second consecutive year, and production by the five major wool exporting
countries has declined by 15% over the past five years. As a result, since 1992,
all surplus stocks around the world have been sold with the exception of the
stockpile in Australia.
PURCHASING
There are two broad categories of wool fibers: fine from merino sheep
and coarse from crossbred sheep. Standard trades in both types. Merino wool is
used to make products for the apparel trade such as fine sweaters and worsted
fabrics for high quality suits. Crossbred wool is used to make carpets, coarser
worsted fabrics such as upholstery and draperies, and woolens used in knitwear
and hand-knitting yarns. Most merino wool for export is produced in Australia
followed by South America and South Africa. The main sources of crossbred wool
for export are New Zealand, South America and the United Kingdom.
Standard deals in wool from 10 major producing areas, of which the
most significant are Australia, New Zealand, South Africa, South America and the
United Kingdom. The Company has buying offices in all of these areas. The
Company's employees buy wool at auctions and through negotiations with wool
growers. Although most wool is shorn before it is purchased, some wool is
purchased "on the back" before shearing. As in its tobacco business, most of the
Company's purchases are made against specific customer orders. Australia is by
far the largest producer of wool in the world and its wool prices generally
influence world prices. Standard typically pays for its wool purchases in the
currency of the country of origin, and usually hedges the currencies of its
purchase and sale commitments with forward transactions. The Company does not
engage in currency transactions for the purpose of speculation.
PROCESSING
Wool is purchased in its raw or naturally greasy state, and must be
scoured (washed) before it can be used to make finished products. The Company
sells some greasy wool to topmakers, but most of the wool is blended and scoured
and/or further processed into tops, to customer specifications. The scouring is
done at the Company's plants in Australia, New Zealand, South Africa and the
United Kingdom or by commission scourers in Argentina, Australia and Belgium.
Similarly, tops are produced in the Company's plants in Chile and France and by
commission combers in Argentina, Italy and Germany. The Company's French plant
also refines wool grease removed during the scouring process into a variety of
types of lanolin, a valuable byproduct.
A top is a continuous strand of the straightened, longer wool fibers
that have been separated from the short fibers. Topmaking involves seven
processes: blending, scouring, carding, gilling, combing, finishing and packing
to quality standards specified by the customer. Carding machines elongate and
align the fibers to produce a "gilled sliver" of parallel fibers. Gilled slivers
are combined to produce a stronger, more parallel sliver which is combed to make
a top suitable for spinning. Tops are wound into bobbins weighing approximately
22 pounds which are packed and shipped to customers in the apparel industry for
further manufacture. The Company maintains laboratory facilities for analyzing
and testing wool and lanolin.
SELLING
The Company currently derives approximately 62% of its wool revenues
from sales to customers in Europe, with sales to the Far East, North America and
other areas making up the balance. Processed wool (i.e., scoured and tops)
accounts for approximately 61% of the Company's wool revenues, followed by
greasy wool - 31%, specialty fibers - 7% and lanolin - 1%. Greasy wool is sold
primarily to customers in Western Europe, the Far East and the United States.
Scoured wool is shipped to carpet, woolen, felting, quilt and mattress
manufacturers located in Europe, the Far East and the United States. Tops are
sold primarily to West European yarn spinners for processing and sale to
manufacturers of worsted fabrics. Lanolin is sold primarily to manufacturers of
cosmetics and pharmaceutical products. The Company's largest wool customer
accounts for less than 1% of total consolidated sales and 3% of its total wool
sales for fiscal 1996. Sales are typically made in local currencies of the
customers.
The Company relies primarily on short-term bank credit and internal
resources to finance its wool purchases. The period of exposure generally is
limited to only a few months.
At March 31, 1996 and 1995, the Company had outstanding orders for
wool of approximately $140 million and $136 million, respectively.
COMPETITION
The wool trading and first stage processing industry is more
fragmented than the leaf tobacco business. Major competitors include Chargeurs,
a publicly traded French company, Bremer Woll-Kaemmerei, A.G., a German public
company, and a number of Japanese trading firms. Key factors for success in the
wool business are broad market coverage, a full range of wool types, technical
expertise in buying and processing and high quality customer service. The
Company believes that its processing and marketing capabilities and buying and
trading expertise enable it to compete effectively, and that its broad
geographical base enables it to react quickly to price changes and to supply
wool or similar types and blending quality from different countries or areas.
SEASONALITY
Wool is generally purchased over a greater portion of the year than
tobacco, and wool growing seasons occur at different times of the year in
different countries as well. Wool purchasing is generally lower during the first
and second quarters as the result of lower summer demand for wool products in
the northern hemisphere, when processors and users close down for holidays and
vacations in Europe. Generally, revenues and operating activities tend to peak
in the third fiscal quarter and remain at a relatively high level in the fourth
fiscal quarter. The Company sells on a forward basis overall, as well as for
prompt delivery, and thereby keeps its processing mills at full capacity
throughout the year and uses commission scourers and combers to handle any
overflow.
OTHER OPERATIONS AND INVESTMENTS
The Company is engaged in one other smaller activity: Carolina Home
Center, a wholesale/retail building materials and home supply center located in
Wilson, North Carolina. The Company has ceased operating Bela Duty Free
Import-Export (89% owned), and has sold its interest in approximately 50 duty
free shops (in which it had interests of from 25% to 50%) to the other joint
owners. Neither of these ventures are a part of the Company's long-term
strategy.
EMPLOYEES
At March 31, 1996, the Company had a total of approximately 2,285
full-time employees (including approximately 515 in the United States) and
approximately 2,300 employed by affiliated tobacco companies. Of the Company's
full-time employees, approximately 1,610 are in the tobacco business,
approximately 640 are in the wool business and approximately 35 have duties
relating to other operations. The tobacco business typically employs an
additional 6,700 to 6,800 part-time employees during peak production periods.
The Company's principal subsidiary in the United States has a
collective bargaining agreement with a union covering the majority of its hourly
employees, many of whom are seasonal. The agreement expires on May 31, 1999. The
Company believes its relations with employees covered by this agreement are
good. Employees at the French wool plant are also represented by a labor union
under an agreement subject to renewal every December 31. The Company believes
that its relations with its employees in France are good.
GENERAL
The Company does not own any material patents, trademarks, licenses,
franchises or concessions, nor does it engage in any significant research
activity.
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment have not had, and are
not anticipated to have, any material effect upon the competitive position of
the Company. The Company has initiated programs to comply with regulations not
being enforced in certain foreign countries concerning effluent control at its
wool mills.
The Company's consolidated operations are conducted mainly by
companies registered in the United States and Europe. Segment information is
shown in Note 18 of the Notes to the Consolidated Financial Statements and is
incorporated herein by reference.
ITEM 2. PROPERTIES.
Standard's principal corporate offices and the headquarters for its
United States tobacco operations are located in Wilson, North Carolina. It also
has administrative offices in Godalming (south of London), England.
The Company conducts its tobacco processing operations in facilities
near the area of production in the case of tobacco and near its customers in the
case of wool. In certain places, long-standing arrangements exist with local
companies to process tobacco in their plants under the supervision of Company
personnel.
The Company believes the properties it uses are generally
well-maintained and in good operating condition and are suitable and adequate
for the normal growth of its business.
A current summary showing the principal operating properties owned or
leased (as indicated by *) by the Company or its affiliates is shown below:
AREA
TOBACCO OPERATIONS LOCATION USE (SQUARE FEET)
United States Wilson, NC Factory/storage 1,008,000
Oxford, NC Factory/storage 624,700
King, NC Factory 134,600
Springfield, KY Factory/storage 292,000
Thailand Chiengmai Factory/storage 872,000
Banphai Factory/storage 377,000
Turkey Izmir Factory/storage 431,300
Izmir Storage 204,500*
Greece Alexandria Factory/storage 402,000
Salonica Factory/storage 772,700
Salonica Factory/storage 236,300*
Zimbabwe Harare Factory/storage 565,800*
Harare Storage 233,500
Malawi Limbe Factory/storage 414,000
Lilongwe Factory/storage 776,000
Spain Benavente Factory/storage 206,000
Benavente Storage 132,400*
Coria Buying Center 18,300*
Talayuela Buying Center 21,500
Italy Caserta Factory/storage 800,000*
WOOL OPERATIONS
Australia Fremantle Factory/storage 240,500
Chile Punta Arenas Factory/storage 57,000
France Tourcoing Factory/storage 964,900
Netherlands Dongen Storage 23,700
New Zealand Christchurch Factory/storage 100,300
South Africa Port Elizabeth Factory/storage 70,000*
United Kingdom Bradford Factory/storage 165,000
OTHER OPERATIONS
United States Wilson, NC Bldg. supply dealer 125,000
ITEM 3. LEGAL PROCEEDINGS.
The joint Canadian-U.S. criminal investigation referenced in our
March 31, 1995, Annual Report on Form 10-K is continuing. All Canadian charges
referenced in that report have now been dismissed and no charges are pending
against the Company or any of its employees. The investigation by the office of
the United States Attorney for the Eastern District of North Carolina is
continuing. Although the extent of liability, if any, which the Company or any
of its subsidiaries might have as a result of that investigation cannot be
determined, management does not believe that it will have a material adverse
effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
quarter ended March 31, 1996.
EXECUTIVE OFFICERS OF THE COMPANY AT MARCH 31, 1996
NAME AGE POSITIONS
Ery W. Kehaya 72 Chairman of the Board
J. Alec G. Murray 59 President and Chief Executive Officer
Marvin W. Coghill 62 Chairman - Tobacco Division
Henry R. Grunzke 64 Chairman - Wool Division
Thomas M. Evins, Jr. 56 Regional Manager - North & Central America
Tobacco Operations
Robert E. Harrison 42 Senior Vice President and
Chief Financial Officer
Guy M. Ross 63 Vice President and Secretary
Ery W. Kehaya II 43 Vice President, and Operations Director -
Tobacco Division
Mark W. Kehaya 28 Vice President - Planning
Krishnamurthy Rangarajan 53 Vice President and Assistant Secretary
Keith H. Merrick 42 Treasurer and Assistant Secretary
Hampton R. Poole, Jr. 44 Controller and Assistant Treasurer
Information concerning executive officers who are also directors is
contained in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on August 13, 1996 which, except for the material under
the headings "Compensation Committee Report" and "Performance Graph" is
incorporated herein by reference and made a part hereof. Business experience
during the past five years of other executive officers is set forth below:
Mr. Ross became Treasurer in 1980 and Secretary in 1981 following
the Company's purchase of the American leaf business of Imperial Tobacco Ltd.
(UK). He was employed by Imperial for 14 years including 10 as Vice President of
Finance and Administration. He became a Vice President of the Company in 1992.
Ery W. Kehaya II was appointed Vice President in 1992. He became
Operations Director - Tobacco Division in 1996 after being named Sales Director
in 1993. He has been an officer of Standard Commercial Tobacco Co., Inc., a
subsidiary, for more than five years, serving as Executive Vice President since
1992 and as Senior Vice President-Sales before that. He is the son of Ery W.
Kehaya, Chairman of the Board.
Mark W. Kehaya was appointed Vice President in 1994. Prior to joining
the Company in 1993 he was employed at Bankers Trust Company and Fieldstone
Private Capital Group as an associate and attended Duke University Fuqua School
of Business. He is the son of Ery W. Kehaya, Chairman of the Board.
Mr. Rangarajan was employed by the Company in 1978 after
qualifying as a chartered accountant. He became Chief Accountant in 1981,
Assistant Vice President in 1986 and Vice President in 1988.
Mr. Merrick was employed by the Company in 1992 and became Treasurer
in 1993 after being named Assistant Treasurer and Assistant Secretary in 1992.
He was formerly a Vice President of First Union National Bank of North Carolina.
Mr. Poole Jr. was appointed Controller and Assistant Treasurer in
1993. He has been an officer of Standard Commercial Tobacco Co., Inc., a
subsidiary, for more than five years and is currently serving as
Secretary-Treasurer.
The above persons will remain in office until the directors' meeting
following the annual meeting of shareholders on August 13, 1996.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information called for by Items 5, 6 and 7 is contained in the
Company's 1996 Annual Report to Shareholders as detailed below and incorporated
herein by reference and made a part hereof.
Item Caption in Annual Report Page No.
5 Quarterly Financial Data (Unaudited)` 23
6 Selected Financial Data 23
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The data appearing on pages 11 through 21 of the Company's 1996
Annual Report to Shareholders, and the Independent Auditors' Report on page 22 ,
are incorporated herein by reference and made a part hereof.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 10, 11, 12 and 13 is included in
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on August 13, 1996 and is incorporated herein by reference, except
for the material under the heading "Compensation Committee Report" and
"Performance Graph." The information concerning executive officers of the
Company follows Item 4 of Part 1 of this Report.
PART IV
ITEM 14 EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules: The financial
statement schedules called for under Regulation
S-X are either not applicable or the information
is included in the data mentioned in Item 8 and
incorporated herein by reference.
(b) Reports on Form 8-K: No report on Form 8-K was
filed during the quarter ended March 31, 1996.
(c) The following exhibits are filed as part of this Report:
3. (i) There is incorporated by reference
herein the Company's Restated Articles
of Incorporation and the amendment
thereof designating the rights,
preferences and limitations of the
Company's Series A Preferred Stock
filed as Exhibits 4(a) (i) and (ii) to
the Company's Registration on Form S-8
#33-59760.
(ii) There is incorporated by reference
herein the Company's amended Bylaws
filed as Exhibit 3(ii) to the
Company's report on Form 10-K for the
year ended March 31, 1994.
4. (i) There is incorporated by reference
herein the Company's Shareholder
Protection Rights Agreement filed as
Exhibit 4 to the Company's Report on
Form 8-K dated April 5, 1994.
(ii) There is incorporated herein by
reference the Master Facilities
Agreement dated May 5, 1995 between
the Company and certain subsidiaries
and Deutsche Bank A.G. and a number of
other banks filed as Exhibit 4(ii) to
the Company's Report on Form 10-K for
the year ended March 31, 1995.
(iii) There is incorporated herein by
reference the Loan and Security
Agreement dated as of May 2, 1995
between Standard Commercial Tobacco
Co., Inc., a subsidiary of the Company
and NationsBank of Georgia, N.A. filed
as Exhibit 4(iii) to the Company's
Report on Form 10-K for the year ended
March 31, 1995.
(iv) There is incorporated herein by
reference the Company Guaranty
Agreement dated as of May 2, 1995 with
respect to the Loan and Security
Agreement referred to in 4(iii) above
filed as Exhibit 4(iv) to the
Company's Report on Form 10-K for the
year ended March 31, 1995.
10. (i) There is incorporated herein by
reference the Company's Performance
Improvement Compensation Plan filed as
Exhibit 10 to the Company's Report on
Form 10-K for the year ended March 31,
1993.
(ii) There is incorporated herein by
reference Agreement dated as of May 2,
1995 between the Company and Ery W.
Kehaya filed as Exhibit 10 to the
Company's Report on Form 10-K for the
year ended March 31, 1995.
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for
the year ended March 31, 1996 which, except for
information expressly incorporated by reference
into Items 1, 5, 6, 7 and 8 is not deemed to be
"filed" as a part of this Report.
21. List of subsidiaries.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Standard has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
STANDARD COMMERCIAL CORPORATION
By: /s/ J Alec G Murray
June 28, 1996 J Alec G Murray, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on June 16, 1996 by the following persons on behalf of the
Registrant in the capacities indicated.
/s/ J Alec G Murray President and Director
- --------------------------------
J Alec G Murray (Chief Executive Officer)
/s/ Robert E Harrison Senior Vice President and Director
- --------------------------------
Robert E Harrison (Chief Financial Officer)
/s/ Guy M Ross Vice President
- --------------------------------
Guy M Ross (Principal Accounting Officer)
/s/ Ery W Kehaya
- --------------------------------
Ery W Kehaya Chairman of the Board of Directors
/s/ Marvin W Coghill
- --------------------------------
Marvin W Coghill Director
/s/ William A Ziegler
- --------------------------------
William A Ziegler Director
/s/ Henry R Grunzke
- --------------------------------
Henry R Grunzke Director
/s/ William S Barrack Jr
- --------------------------------
William S Barrack Jr Director
/s/ Thomas M Evins Jr
- --------------------------------
Thomas M Evins Jr Director
/s/ Charles H Mullen
- --------------------------------
Charles H Mullen Director
/s/ Daniel M Sullivan
- --------------------------------
Daniel M Sullivan Director