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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, 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:
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: $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.
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-
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-
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:
Area
Location Principal 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
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-
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
* 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:
Area
Location Principal Use (Square Feet)
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
* Leased facility.
Other Operations
UNITED STATES
Wilson, NC Bldg. supply dealer 125,000
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-
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
Name Age Positions
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
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-
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.
Item Caption in Annual Report Page No.
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
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-
(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-
(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-
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.
/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
-16-
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-
STANDARD COMMERCIAL CORPORATION (the "Registrant") SCHEDULE I
CONDENSED BALANCE SHEET
March 31
In thousands, except share data 1997 1996
-----------------------------------
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
===================================
NOTE: These condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of Standard Commercial
Corporation.
-18-
STANDARD COMMERCIAL CORPORATION (the "Registrant") SCHEDULE I
CONDENSED STATEMENT OF INCOME AND RETAINED EARNINGS
Year ended March 31
In thousands 1997 1996 1995
-----------------------------------------------------
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
* 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-