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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 Commission File Number
March 31, 1994 1-9875
STANDARD COMMERCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
North Carolina 13-1337610
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2201 Miller Road, Wilson, North Carolina 27893
(Address of principal executive offices)
Registrant's 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
71/4% Convertible Subordinated New York Stock Exchange
Debentures Due 2007
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 state-
ments incorporated by reference in Part III of this Form 10-K or any amend-
ment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $69,650,000.
At May 25, 1994 there were 8,568,024 shares of the registrant's common stock
outstanding.
Portions of the registrant's proxy statement for the Annual Meeting of Share-
holders to be held on August 9, 1994 are incorporated by reference into Parts
I and III.
PART I
Item 1. Business.
The Company is principally engaged in two international
businesses - tobacco and wool. It is the world's second largest
independent leaf tobacco dealer, purchasing and processing all
types of tobacco for sale to domestic and foreign manufacturers of
cigarettes, cigars and pipe tobacco. The Company does not
manufacture cigarettes or other consumer tobacco products.
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 believes it is one of the largest wool traders in the
world. The Company does not raise sheep or produce textile
products.
Recent Events
In fiscal 1992, the Company began to increase its purchases of
tobacco prior to receipt of firm orders or indications of interest
from customers in response to then prevailing shortages in the
market. A number of events contributed to the reversal of those
shortages. First, there were large crop production increases in
Brazil, China, Zimbabwe and several other countries in 1993.
Second, content limitations imposed by the United States government
on the amount of foreign tobacco permitted in cigarettes
manufactured in the United States forced domestic cigarette
manufacturers to reduce usage of foreign tobacco, decreasing their
rate of usage of existing foreign leaf inventories and causing them
to defer new leaf purchases. Third, the anticipated increase in
the United States excise tax on cigarettes and other tobacco
products affected the demand for tobacco in the short run. Fourth,
lower than expected demand for both cigarettes and tobacco in the
states of the former Soviet Union contributed to the surplus.
Finally, the decision in 1993 by Philip Morris Companies Inc. to
lower the price of its premium cigarette brands, which other
manufacturers followed, further contributed to the uncertainty in
the tobacco markets. As a result of these events, the worldwide
shortage in the tobacco market became a surplus and prices for
certain tobaccos declined significantly beginning in 1993.
Consequently, the Company took a pretax charge in the first quarter
of fiscal 1994 of $16.3 million for an inventory provision
included in cost of sales and an additional charge of $6.9 million
in the fourth quarter of fiscal 1994.
In the normal course of business, the Company believes that it
has little or no exposure to price changes with respect to its
committed tobacco inventories. Although the percentage varies on
a seasonal basis, there are typically firm orders or indications of
interest for approximately 60-70% of the Company's tobacco
inventories. These commitments, which may be written or oral,
typically specify both quantities and prices. Historically,
tobacco customers have been extremely reliable in honoring these
commitments, and the Company believes that its position in respect
of committed tobacco inventories is adequately protected.
The Company's operating results declined in fiscal 1994,
reflecting lower tobacco sales volume and prices and a write-down
in the value of the Company's uncommitted inventory. Increased
leaf production in several major producing countries continued
through 1993 and this, together with deferral of purchases by
manufacturers, led to an oversupply situation and weaker pricing in
1993. Some major cigarette manufacturers appear to be reducing
their inventories. Purchases by United States manufacturers are
also being impacted by restrictions on the use of imported tobacco
and an expected fall-off in demand if excise taxes are increased
significantly. The decline in tobacco prices is expected to result
in reduced future crop production in many countries. The Company
expects that such reduction, together with increased demand for
cigarettes in certain Asian, African and Eastern European
countries and resumption of purchases by major multinational
manufacturers, will stabilize tobacco prices. The Company believes
that as a result the current surplus will be corrected over the
next one or two years. However, there can be no assurances that
the projected reductions in tobacco supply and increases in demand
will be sufficient to bring margins back to historical levels.
In countries such as Argentina, Brazil, China, Greece, Turkey
and Thailand where there is no auction system, leaf dealers must
have a presence in order to serve their customers properly. In
such countries, except in Brazil where the Company acts as export
agent for BAT Industries ("BAT"), the Company buys tobacco direct
from farmers or agricultural cooperatives in advance of firm orders
or indications of interest. These purchases are held as
uncommitted inventory until the Company has a firm order or
indication of interest from a buyer regarding these purchases, but
no firm sales price or volume is established at the time the
Company commits to buy the tobacco. The Company engages in this
type of transaction because of the strategic importance of these
markets in the tobacco supply system.
The Company estimates that it needs to maintain $30-$60
million of uncommitted inventory as part of its normal business.
The Company has some exposure to price fluctuations with respect to
these inventories. However, the Company usually has had some
discussions with prospective buyers prior to purchasing the tobacco
for uncommitted inventory. During fiscal 1992, the Company began
to increase its uncommitted inventories in response to then
prevailing shortages in the market. Although this program was
initiated by management of the tobacco division, it was implemented
in a decentralized manner. Uncommitted inventories peaked at
approximately $165 million in December 1992. The relationship
between the supply of and demand for tobacco appears to be
stabilizing. Part of this is due to reduced plantings. In
addition, the worldwide demand for tobacco (in particular in Asia
and Europe) is gaining strength.
The Company has developed a strategic plan to improve its
profitability, to reduce inventories, thereby reducing debt, and to
strengthen and expand its unique customer relationships. The key
elements of this plan are as follows:
(bullet) Improve Corporate Risk Management. The Company is seeking
to improve its risk management through (a) restructuring its
purchasing and inventory management, (b) enhancing its information
systems, and (c) implementing new controls over capital
expenditures. The Company has revised its tobacco inventory
management and control systems to prevent a recurrence of the
inventory-related problems that developed in 1993 and has initiated
stricter guidelines to curtail purchases of uncommitted tobacco
inventory. A key element of the improved risk management is the
Standard Inventory Control Committee, which oversees the Company's
global tobacco purchasing programs, monitors the Company's
committed and uncommitted inventory positions, and reviews customer
credit quality to reduce the Company's risk profile. The Company
is implementing the Worldwide Available For Sale ("WAFS") System to
provide management with daily updates of tobacco inventories. The
current system does not have this capability. Management believes
that these steps will substantially improve the Company's ability
to control and manage its tobacco inventory risks. The Company has
also established stricter approval guidelines for new capital
expenditures based on a critical analysis of anticipated risks and
rates of returns.
(bullet) Reduce Leverage. The Company intends to reduce its leverage
significantly by (a) reducing its aggregate tobacco inventory, both
committed and uncommitted, by approximately $100-$125 million,
(b) selling noncore businesses and other nonessential assets, and
(c) reducing capital expenditures through more stringent approval
requirements. The Company has curtailed tobacco purchases in
advance of firm orders or indications of interest. The Company has
undertaken a program that has reduced uncommitted inventory to
approximately $87 million (excluding tobacco awaiting processing
and packing materials) as of March 31, 1994 from a peak of
approximately $165 million as of December 1992. The Company is
engaged in ongoing discussions regarding bulk sales, with the
objective of lowering uncommitted inventory to $30-$60 million, a
level that the Company believes is necessary for normal operations,
over the next 12-18 months. Further, the Company believes that it
is currently holding a larger than normal amount of committed
inventory (approximately $170 million as of March 31, 1994) due to
delays in shipping requested by customers as a result of economic
conditions in the industry and the previous buildup of uncommitted
inventory. Standard believes that it can reduce its committed
tobacco inventory to approximately $120 - $150 million, which is
consistent with historical levels and is, in the judgment of the
Company, an appropriate level. In addition, in December 1993, the
Company sold its unprofitable Caro-Green Nursery business for a
gain and intends to sell its remaining noncore businesses as well
as excess real estate of its Tobacco Division. The Company also
intends to reduce its net capital expenditures, which have averaged
approximately $20 million for the past three years, to
approximately $10 million in fiscal 1995. It believes that this
can be done while maintaining its current high level of operating
efficiency. The Company anticipates that the net proceeds from any
inventory reduction and the sale of noncore businesses will be
applied to pay down debt.
(bullet) Improve Profitability. The Company intends to improve its
profitability by (a) lowering carrying charges through the sale of
excess uncommitted inventory, (b) reducing operating expenses, and
(c) creating and renegotiating strategic alliances. The Company is
currently incurring significant costs associated with holding
excessive uncommitted inventory. These include the cost of
insurance, interest and warehousing. As the Company reduces its
uncommitted inventory to targeted levels, the Company estimates
that carrying charges can be lowered by up to $11 million annually.
The Company is currently implementing operating expense reductions
that are expected, when fully implemented in fiscal 1996, to
generate approximately $8 million of annual cost savings. These
operating expense reductions will be accomplished primarily by a
reduction in the number of employees, particularly in the Tobacco
Division. In addition, the Company has developed new strategic
alliances with customers. As an example, the Company has entered
into a contract for specialized processing with R.J. Reynolds
Tobacco, to which it has sold tobacco for many years. Similarly,
the Company has recently renegotiated its unique export agency
agreement with BAT. The Company anticipates that both agreements
will increase earnings.
(bullet) Reorganize Corporate Management. During fiscal 1995, the
Company will centralize its management and financial service
functions in Wilson, North Carolina. This will include relocation
of the Chief Executive Officer to, and the consolidation of the tax
and management accounting departments in, the Company's executive
offices in Wilson. The Company believes that the consolidation
will improve communications, increase management efficiency, and
reduce expenses.
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 imported American-blend
cigarettes, which have become increasingly popular. In addition,
American-blend cigarettes have gained market share in Western
Europe, and it is anticipated that recent measures taken by the
European Union to regulate the tar and nicotine content of
cigarettes sold in member countries will result in increased
production of American-blend cigarettes in 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.
During the same period, consumer demand for discount or value-
priced cigarettes has increased significantly in the United States
and certain other major markets. As a result, price competition
among cigarette manufacturers has intensified, forcing independent
leaf tobacco dealers to expand their ability to obtain less
expensive foreign grown tobaccos of export quality. Accordingly,
sales of foreign grown tobaccos have increased in relation to sales
of United States tobaccos. The increased demand for American-blend
cigarettes and discount or value-priced cigarettes has caused
cigarette manufacturers to place greater reliance on the services
of strong international leaf tobacco dealers that have the ability
to purchase, process and sell tobacco on a global basis.
While worldwide production of American-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 in Eastern European countries,
Turkey and Russia and the other states of the former Soviet Union
for higher quality cigarettes. 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 on the rise and
with established customers who are catering to the increasing
demand for American-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 short-term bank
credit and internal resources to finance its purchases. In a few
instances, 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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
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. All tobacco
purchases are now monitored by the Standard Inventory Control
Committee with a goal of reducing the Company's exposure to price
fluctuations and to reducing its costs of carrying inventory. Such
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. 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 $120-$150
million. The carrying costs of such committed inventory 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. The Company believes
that it is currently holding a larger than normal amount of
committed inventory (approximately $170 million as of March 31,
1994) due to delays in shipping requested by customers as a result
of economic conditions in the industry and the previous buildup of
uncommitted inventory and that it can reduce its committed tobacco
inventory to approximately $120-$150 million, which is consistent
with historical levels.
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 BAT, 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 customer's 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. The Company estimates that it
needs to maintain $30-$60 million (depending on prevailing market
conditions) of uncommitted inventory as part of its normal
business.
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 1994, Standard processed its tobacco
in three wholly owned plants in the United States and 17 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 already processed. 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 1994, the Company's five largest customers accounted
for approximately 53% of tobacco sales and 34% of the Company's
total consolidated sales. In fiscal 1994, Japan Tobacco Inc.,
Philip Morris Companies Inc. and BAT each accounted for more than
10% of the Company's tobacco sales. Japan Tobacco Inc., the
largest single customer in fiscal 1994, accounted for less than 11%
of total consolidated 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, 1994 and 1993, the Company had outstanding orders
of approximately $170 million and $168 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-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 developed countries and particularly the
United States have raised or signaled their intention to raise the
excise tax on cigarettes and other tobacco products.
A domestic content law was enacted in the United States in
July 1993 (effective January 1, 1994) to aid domestic producers of
tobacco. The law requires that 75% of the tobacco used by
manufacturers in the United States must be grown in the United
States. The enactment of the 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 that 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 are currently several proposals now
pending before Congress to increase the federal excise tax imposed
on a pack of cigarettes. The proposals would increase the current
excise tax from $0.24 to as much as $2.00 per pack. The Company is
not in a position to estimate the impact of an excise tax increase
on the industry or the Company. However, there can be no assurance
that such a tax will not result in a substantial decrease in
demand.
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, Dibrell, Monk-Austin, Inc. and Intabex Services Ltd.
Of the independent leaf tobacco dealers, the Company believes it
ranks second 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 and processing
leaf tobacco (for example, tobacco inventory and 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
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
has been 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 seven
countries, including scouring mills in Argentina, Australia, New
Zealand, South Africa and the 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 stockpile 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 13, 1994 totaled 659,000 metric tons (the equivalent
of approximately 90% of one year's Australian production). This
stockpile is scheduled to be reduced at a fixed rate, commencing
July 1994, to reach a level of 303,000 metric tons by June 1997, at
which point the disposal rate will be adjusted as appropriate. If
the rate of liquidation were to be increased, wool prices could
decline.
Worldwide wool production in 1994 was below current demand for
the second consecutive year, and production by the five major wool
exporting countries has declined by 30% over the past four years.
As a result, since 1992, all surplus stocks around the world have
been sold with the exception of the stockpile in Australia.
At current levels, wool prices are very competitive with other
fibers and are benefiting from the increase in consumer demand for
natural fibers. Long drought periods in South Africa and some
Eastern Australian areas, combined with a reduction of the sheep
population in New Zealand due to severe winter conditions in 1992
have contributed to a decline in production over the past two
seasons. As worldwide economies have started to recover from
recession, the wool industry has seen an increase in demand. China
has resumed purchasing wool and is the largest buying country.
Under free market trading conditions and with improving demand,
Standard's Wool Division operated profitably in each of the past
three fiscal years.
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 Argentina, Australia, New Zealand, South Africa
and the United Kingdom or by commission scourers in 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's French plant spins a small amount of
yarn from wool, rabbit hair and synthetic fibers for sale to
specialized apparel manufacturers in Western Europe. The Company
maintains laboratory facilities for analyzing and testing wool and
lanolin.
Selling
The Company currently derives approximately 80% 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 - 32%,
specialty fibers - 6% and lanolin - 1%. Greasy wool is sold
primarily to customers in Western Europe, the Far East and the
United States. Wool shipments to the United States in fiscal 1994
increased by more than 50% over 1993 as the result of new business
with Burlington Industries, Inc. 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 3% of total
consolidated sales and 8% of its total wool sales for fiscal 1994.
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, 1994 and 1993, the Company had outstanding orders
for wool of approximately $138 million and $134 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 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 of 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 several other smaller activities,
none of which is an integral part of its long-term strategy. The
Company operates Carolina Home Center, a wholesale/retail building
materials and home supply center located in Wilson, North Carolina
and has an investment in farm land in Manitoba, Canada. The
Company also owns 89% of Bela Duty Free Import-Export, which is the
principal supplier of goods to 50 duty free shops (in which it has
interests from 25% to 50%) catering to cross-border travelers in
Eastern Europe. The number of such duty free shops has expanded
rapidly since the Company started this business in fiscal 1992.
The Company is actively exploring the sale of these other
businesses.
Employees
At March 31, 1994, the Company had a total of approximately
2,060 full-time employees (including approximately 490 in the
United States) and approximately 2,500 employed by affiliated
tobacco companies. Of the Company's full-time employees,
approximately 1,300 are in the tobacco business, approximately 720
are in the wool business and approximately 40 have duties relating
to other operations. The Tobacco Division employs an additional
6,000 to 7,000 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, 1996. The Company believes its relations with
employees covered by this agreement are good. Plant employees in
France 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 begun a substantial capital expenditures program in
certain foreign countries to comply with regulations 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 20 of the Notes to the Consolidated
Financial Statements included herein 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 generally conducts its 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,N.C Factory/storage 1,008,000
Oxford, N.C. Factory/storage 624,700
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*
Brazil Bahia Factory/storage 147,600
Bahia Factory/storage 56,900*
Arapiraca Factory 122,700*
Arapiraca Storage 173,300
Paraguay Asuncion Factory/storage 75,000
Dominican Republic Imbert Factory/storage 53,800*
Jacagua Factory/storage 32,300*
Navarette Storage 38,400*
Wool Operations
Argentina Buenos Aires Factory/storage 82,500
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, N.C. Bldg. supply dealer 125,000
The Company also owns agricultural land in Manitoba, Canada
that it leases to third parties.
During fiscal 1994, the Company added approximately 125,000
square feet of new storage space for its tobacco operations in
Wilson, North Carolina. The nursery property in Wilson and
agricultural land at nearby Rocky Mount, North Carolina were sold
during fiscal 1994.
Item 3. Legal Proceedings.
None.
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, 1994.
Executive Officers of the Company
Name Age Positions
Ery W. Kehaya 70 Chairman of the Board
J. Alec G. Murray 57 President and Chief Executive
Officer
Marvin W. Coghill 60 Chairman - Tobacco Division
Anthony A. D. Arrowsmith 45 Senior Vice President and Chief
Financial Officer
J. Anthony Johnston 59 Chairman - Wool Division
Henry R. Grunzke 62 Commercial Director - Wool
Division
Thomas M. Evins, Jr. 54 Regional Manager - North
American Tobacco Operations
Guy M. Ross 61 Vice President and Secretary
Ery W. Kehaya II 41 Vice President and Sales
Director - Tobacco Division
Krishnamurthy Rangarajan 51 Vice President
Keith H. Merrick 40 Treasurer and Assistant
Secretary
Hampton R. Poole, Jr. 42 Controller and Assistant
Treasurer
Information concerning executive officers who are also
directors will be contained in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on
August 9, 1994 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 and
Tobacco Division Sales-Director in 1993. He has been an officer of
Standard Commercial Tobacco Co., Inc., a subsidiary, for the past
five years, serving as Executive Vice President since 1992 and as
Senior Vice President-Sales before that. Ery W. Kehaya II 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, an 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 is also a Vice President of
Standard Commercial Tobacco Co., Inc., a subsidiary. 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 9,
1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) The common stock of the Company is listed on the New York
Stock Exchange under the symbol STW. The high and low sales prices
of said stock for the past two years as reported by said Exchange
are set forth below:
Quarter Ended High Low
June 30, 1992 30 26-7/8
September 30, 1992 34-7/8 29-3/8
December 31,1992 34-5/8 27-1/8
March 31, 1993 32-7/8 19
June 30, 1993 27 17-1/4
September 30, 1993 19-7/8 13
December 31, 1993 17 14-3/8
March 31, 1994 18-1/2 14
(b) As of May 25, 1994 the Company had approximately 711
record holders of its common stock.
(c) The Company pays dividends quarterly. During the fiscal
year ended March 31, 1993, annual dividends were $.54. During the
year ended March 31, 1994, annual dividends were $.50. The ability
of the Company to pay dividends in the future may be restricted by
covenants contained in credit agreements and indentures to which
the Company or subsidiaries are parties. These agreements require
the maintenance of certain working capital ratios, leverage ratios,
interest coverage ratios and minimum tangible net worth. Under the
most restrictive covenant, the Company had $3.4 million of retained
earnings available for distribution as dividends at March 31, 1994.
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial
information of the Company for each of the fiscal years in the
five-year period ended March 31, 1994. The selected financial data
below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere herein. See also
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation.
Years Ended March 31,
1994 1993 1992 1991 1990
Income Statement Data:
(In millions)
Sales:
Tobacco $671.5 $871.4 $827.7 $688.8 $539.5
Wool 346.4 348.6 333.8 333.3 379.8
Other 24.1 16.1 11.8 5.4 6.1
Total sales 1,042.0 1,236.1 1,173.3 1,027.5 925.4
Cost of sales 991.3 1,124.2 1,066.9 951.0 876.5
Selling, general and administrative
expenses 78.7 73.9 68.4 55.6 48.8
Other income (expense) - net 3.6 (0.7) (0.3) 1.2 0.6
Income (loss) before taxes (24.4) 37.3 37.7 22.1 0.7
Income (loss) from continuing operations (36.5) 22.2 23.8 12.7 (3.2)
Income (loss) from discontinued
operations 0.7 (1.5) (2.2) (3.2) (1.7)
Extraordinary items - 0.5 0.6 (19.2) -
Net income (loss) (35.8) 21.2 22.2 (9.7) (4.9)
Per Share (Primary)
Earnings (loss) from continuing
operations $(4.32) $2.58 $2.89 $1.54 $(0.38)
Earnings (loss) from discontinued
operations 0.08 (0.18) (0.27) (0.38) (0.21)
Extraordinary items- - 0.06 0.08 (2.33) -
Net earnings(loss) (4.24) 2.46 2.70 (1.17) (0.59)
Dividends paid 0.50 0.54 0.52 0.52 0.51
March 31,
1994 1993 1992 1991 1990
Balance Sheet Data:
Current assets $710.5 $759.8 $590.8 $469.1 $444.6
Current liabilities (1) 640.0 592.5 445.2 394.7 336.1
Total assets 890.8 926.4 723.8 582.0 541.5
Total long term debt 98.2 128.8 100.9 30.9 36.9
Total debt 597.3 598.7 447.6 340.6 297.4
Shareholders' equity 102.6 151.1 133.0 117.0 132.7
(1) Current liabilities at March 31, 1994 include short-term debt
of $465.4 million and the current portion of long-term debt of
$33.7 million.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.
The following discussion should be read in conjunction with
the Selected Consolidated Financial Information and the
Consolidated Financial Statements and Notes thereto appearing
elsewhere herein.
General
Standard derives revenues and profits from the purchasing,
processing and selling of tobacco and wool. In its leaf tobacco
business, most buying is done on the basis of firm orders or
indications of interest. For both the tobacco and wool businesses,
the ability to obtain raw materials at favorable prices is an
important element of profitability, although it is generally more
important for wool than for tobacco because some customers pay
Standard to purchase and process tobacco on a cost-plus basis.
Obtaining raw materials at favorable prices must be coupled with a
thorough knowledge of the types and grades of raw materials to
assure the profitability of processing and blending to a customer's
specifications. Processing is capital intensive and profit
therefrom depends upon the volume of material processed and the
efficiency of the factory operations. Due to the much larger
number of dealers and customers for wool and the far more numerous
trades involved, wool revenue tends to be more susceptible to
market price fluctuations than tobacco.
The cost of Standard's raw material and processing typically
exceeds 85% of revenues. In the wool business, freight charges are
also a significant element of the cost of sales. The cost of raw
materials, interest expense and certain processing and freight
costs are variable and thus are related to the level of sales.
Most procurement costs (other than raw materials), certain
processing costs, and most selling, general and administrative
expenses ("SG&A") are fixed. The major elements of SG&A are
employee costs, including salaries, and marketing expenses.
Tobacco sales are generally denominated in United States
dollars, whereas wool purchases and sales are typically denominated
in the currency of the source country and destination country,
respectively. The Company regularly monitors its foreign exchange
position and has not experienced material gains or losses on
transactions denominated in foreign currencies. The Company enters
into forward contracts solely for the purpose of limiting its
exposure to short-term changes in foreign exchange rates.
Assets and liabilities of foreign subsidiaries are translated
at year-end exchange rates. The effects of these translation
adjustments are reported in a separate component of shareholders'
equity. Exchange gains and losses arising from transactions
denominated in a currency other than the functional currency of the
entity involved and translation adjustments in countries with
highly inflationary economies are included in net income.
See Note 20 of the Notes to Consolidated Financial Statements
included elsewhere herein for information concerning geographic
segments and separate information for the tobacco and wool
segments.
Results of Operations
Fiscal 1994 Compared to Fiscal 1993
Sales for fiscal 1994 of $1.04 billion were down by 15.7% from
the record level of $1.24 billion achieved in fiscal 1993. Tobacco
sales of $671.5 million were down by 22.9% as the result of a 14.2%
decrease in volume, attributed to pervasive slow demand throughout
the industry, and lower unit prices resulting from current market
conditions and a change in the sales mix. The demand for tobacco
has been adversely affected by a worldwide surplus, recent federal
legislation that limits the amount of foreign tobacco that can be
used in cigarettes manufactured in the United States and
uncertainty created by proposed higher Federal excise taxes in the
United States. Although the volume of wool sold in fiscal 1994
increased by 13.1%, revenues were down marginally to $346.4 million
because of lower average unit prices and a change in the sales mix
attributed to a large year-to-year increase in the volume of greasy
(raw) wool sales. Tobacco, wool and other businesses accounted for
64.4%, 33.3% and 2.3% of total fiscal 1994 sales, respectively.
Severely depressed tobacco prices affected the entire industry
during fiscal 1994 and deferrals of purchases by many manufacturers
resulted in the Company having a much higher level of uncommitted
inventory than planned. As a result, the Company recorded
inventory provisions totaling $23.2 million in fiscal 1994 of which
$14 million was carried forward against year-end inventories. The
inventory write down plus the reduced volume of sales and pressure
on margins led to a $26.7 million operating loss (including
interest expense of $29.5 million) for the tobacco business in
fiscal 1994 versus a comparable profit of $37.3 million (after
interest expense of $30.5 million) in fiscal 1993.
The operating profit for wool increased from $2.5 million (net
of interest expense of $8.7 million) in fiscal 1993 to $5.5
million (after interest expense of $6.7 million) in fiscal 1994 as
the result of higher volume, improved margin levels and tighter
expense controls.
Other businesses showed an operating profit after interest
expense of $1.6 million in fiscal 1994 versus $1.0 million in
fiscal 1993.
SG&A expense increased by $4.8 million to $78.7 million in
fiscal 1994 from $73.9 million in the prior year. Unusual factors
affecting fiscal 1994 SG&A included an increase of $1.2 million
applicable to entities acquired during the prior fiscal year being
consolidated for all of 1994 but for only a portion of the prior
fiscal year subsequent to acquisition; $1.8 million of nonrecurring
costs associated with restructuring and a terminated merger
agreement; and a reserve of $5 million against a contingency
reported in the Company's December 31, 1993 Form 10-Q. The
contingency involves the collectability of a $17 million receivable
owed to a 50% owned Italian tobacco affiliate by a former employee,
and its potential impact on the affiliate's ability to repay a
liability of $34 million due to the Company. Full recovery of the
affiliate's receivable is being pursued through the combination of
a fidelity insurance claim, secured assets and legal action against
the debtor and certain other parties. In view of the uncertainties
and the timescale of the recovery efforts, management deemed it
prudent to record the reserve after reviewing a range of possible
outcomes.
During fiscal 1994, the Company realized a pretax gain of
approximately $3.2 million on the sale of land and buildings in
Izmir, Turkey. The gain is included in other income and $1.6
million has been allocated to the minority shareholder.
In total, after corporate expenses of $4.9 million, the
Company incurred a pretax loss of $24.4 million in fiscal 1994
compared to pretax income of $37.3 million in fiscal 1993,
including corporate expenses of $3.6 million. Income taxes totaled
$5.1 million in fiscal 1994 compared to $12.5 million in fiscal
1993. Tax charges or credits vary as a percentage of pretax income
or loss due to differences in tax rates and relief available in
areas where profits are earned or losses are incurred. In fiscal
1994, a tax provision was required for certain jurisdictions where
profits were earned despite an overall pretax loss.
The portion of income attributable to minority interests
increased from $2.4 million in fiscal 1993 to $3.8 million in
fiscal 1994 due to increased earnings (including $1.6 million from
the gain of the sale of the Turkish property mentioned above) of
subsidiaries in which there are minority shareholders. The
Company's share of losses in affiliates increased from $104,000 in
fiscal 1993 to $3.2 million in fiscal 1994, primarily because of
operating losses in the 50% owned Italian affiliate.
Discontinued operations include an operating profit of $59,000
net of tax and an after-tax gain of $630,000 on the sale of Caro-
Green Nursery in fiscal 1994 and the restatement of corresponding
operating results for prior years.
For fiscal 1994, the Company recorded a net loss of $35.8
million or $4.24 per share compared to net income of $21.2 million
or $2.46 per share ($2.25 fully diluted) achieved in fiscal 1993.
Fiscal 1993 Compared to Fiscal 1992
Sales for fiscal 1993 reached a record high of $1.24 billion,
up 5.4% from the prior year's then record level of $1.17 billion.
Tobacco sales at $871.4 million increased by 5.3% with lower
average prices attributable to market conditions and a change in
the sales mix partly offsetting a volume increase of 14.0%. Wool
sales increased by 4.5% to $348.6 million, and the volume of wool
sold increased by 1.2%. Tobacco, wool and other businesses
accounted for 70.5%, 28.2% and 1.3% of total fiscal 1993 sales,
respectively.
The fiscal 1993 increases in volume of tobacco and wool sold
and improved margins on tobacco and other businesses more than
offset lower margins on wool. The overall improvement in margins
was reduced by a $1.5 million increase in interest expense and a
$5.5 million increase in SG&A expenses (total SG&A expenses in
fiscal 1993 included $7.0 million attributable to businesses
acquired or first consolidated in fiscal 1993) and resulted in a
1.0% decline in pretax income.
The effective tax rate increased from 29.3% in fiscal 1992 to
33.6% in fiscal 1993. The effective rate may vary from year to
year because of the difference in tax rates and relief available in
areas where profits or losses are earned or incurred.
Income attributable to minority interests decreased due to
reduced earnings of subsidiaries in which there are minority
shareholders, while equity in earnings of affiliates declined as a
result of losses incurred by some companies in which the Company
does not have a controlling interest.
The losses from discontinued operations in 1993 and 1992 were
attributable to the restatement of results following the sale of
Caro-Green Nursery in fiscal 1994.
For fiscal 1993, the Company achieved net income of $21.2
million or $2.46 per share ($2.25 fully diluted) compared to $22.3
million or $2.70 per share ($2.59 fully diluted) a year earlier.
During fiscal 1993, the weighted average number of shares
outstanding increased by 2.5% primarily because of shares issued
for the W.A. Adams Company acquisition (18.9% fully diluted because
the effect of issuing convertible debt in November 1991 applied to
all of fiscal 1993 and only part of fiscal 1992).
Total assets of the Company increased from $724 million at
March 31, 1992 to $926 million at March 31, 1993. Approximately
50% of the increase was accounted for by assets of companies
acquired during fiscal 1993. Year-to-year increases of $118
million in tobacco inventories and $119 million in short-term
borrowings were attributed to delayed deliveries under contracts
with customers in the states of the former Soviet Union and to
generally weaker trading conditions in fiscal 1993.
Liquidity and Capital Resources
Standard's purchasing and processing activities of its tobacco
and wool businesses and the receivables resulting from the
marketing of these products are seasonal. The tobacco and wool
seasons vary from country to country. This seasonality is
mitigated by Standard's presence in virtually all tobacco and wool
exporting countries. In fiscal 1994, the Company's total
borrowings ranged from a peak of $628 million to a low of $565
million. The Company expects its total borrowing requirements will
be reduced as it reduces its overall tobacco inventory levels.
Standard normally uses short-term bank facilities to provide its
working capital, with borrowing typically peaking in the Company's
third quarter.
The Company's efforts to reduce existing tobacco inventories
and to reduce purchases prior to receipt of customer orders or
indications of interest largely accounted for the swing of $129
million from cash used for operating activities of $81 million in
fiscal 1993 to $48 million in cash generated by operating
activities in fiscal 1994. Cash used for investing activities in
fiscal 1994 consisted primarily of $27 million of capital
expenditures, which included $22 million for the tobacco business,
mainly in the United States, Greece and Turkey, and $5 million for
the wool business, primarily in France. The reduction in cash
provided by financing activities, (i.e. reduced usage of short-term
credit facilities) reflects the Company's emphasis on reducing
inventory levels.
Working capital at March 31, 1994 was $70.5 million, down from
$167.3 million at March 31, 1993. In addition to the loss for
1994, the primary reasons for the decrease include the
reclassification of $20 million of long-term debt to current, net
repayment of long-term debt of $9 million, additional current
liabilities of $13.6 million due to the implementation of Statement
of Financial Accounting Standards No. 109, Accounting for Income
Taxes, and net additions to property, plant and equipment of $17.8
million.
The Company has reclassified $20.0 million of long-term debt
to current, because it was not in compliance with certain loan
covenants at March 31, 1994. Further, on March 31, 1994 the
Company was not in compliance with covenants in certain loan
agreements with respect to $14.2 million of outstanding long-term
debt and its $150 million U.S. short-term credit facilities (of
which $65 million was outstanding at March 31, 1994). However, the
lenders involved have amended the related agreements to permit the
Company to be in compliance with such covenants as of March 31,
1994. Under its most restrictive amended covenant, the Company had
$3.4 million of retained earnings available for distribution as
dividends at March 31, 1994.
The Company has received commitments in respect of the new
U.S. 364-day credit facilities for an amount of $150 million, and
has also received commitments from several European banks for 364-
day credit facilities of $250 million. Availability under these
new credit facilities beyond September 15, 1994 will be conditional
upon the closing of a $100 million private placement of long-term,
senior secured notes. The net proceeds of this placement will be
used to refinance existing indebtedness. The maximum drawing under
the new U.S. credit facilities will be $130 million which are
scheduled to reduce progessively through its expiration on July 25,
1995.
Management expects the placement of the new senior secured
notes to be successful. In the event it is not completed,
management believes that there are a number of viable refinancing
alternatives, including the sale of convertible debentures,
preferred stock or common stock.
The Company intends to reduce its uncommitted inventories and
its borrowings to finance such inventories. Based on current
operations and anticipated working capital improvements, the
Company expects that it will be able to service the interest and
principal on its indebtedness as well as its working capital needs
and capital expenditures and other operating expenses out of cash
flow from operations and available borrowings under new credit
facilities being currently negotiated. If the Company is unable to
extend or refinance its credit facilities, its ability to operate
its business and meet its obligations may be materially adversely
affected. The Company's future operating performance will be
subject to future economic conditions and to financial, business,
political and other factors, many of which are beyond the Company's
control.
Of the Company's consolidated retained earnings in the amount
of $85 million at March 31, 1994, $25 million represented the
earnings of foreign subsidiary corporations which are generally
neither subject to foreign income taxes nor considered to be
subject to United States income taxes unless earnings are remitted
to the Company as dividends. The Company intends to invest these
undistributed earnings overseas indefinitely. However, if the
Company needed funds and any portion of these retained earnings
were to be remitted as dividends to the United States, it would
become subject to taxation in the United States. Various credit
facilities may restrict the ability of the Company to transfer such
undistributed earnings to the United States.
There were no significant changes in accounting policies
during 1994, except for accounting for postretirement benefits
other than pensions and accounting for income taxes discussed in
Notes 11 and 16 to the Consolidated Financial Statements.
PART III
Item 8. Financial Statements and Supplementary Data.
An index to the financial statements appears following Part IV
and is followed by the financial statements.
Item 9. Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure.
None.
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 will be
included in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on August 9, 1994 and is
incorporated herein by reference, except for the material under the
headings "Compensation Committee Report" and "Performance Graph."
The information concerning executive officers of the Company
follows Item 4 of Part I of this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) 1. An index of the financial statements follows this
Part IV.
2. Except for Schedule III (Condensed Financial
Information of Registrant), which is attached
hereto, the financial statement schedules called
for under Regulation S-X are either not applicable
or the information is included in the financial
statements described above.
(b) A report on Form 8-K was filed under date of April 5,
1994 describing under Item 5 the adoption of a
Shareholder Protection Rights Agreement.
(c) The following exhibits are filed as part of this Report:
(3)(i) There is incorporated by reference herein the
Company's restated charter 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) Amended bylaws of the Company.
(4) 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.
(11) Computation of Earnings per Common Share.
(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
July 13, 1994 By:/s/ J Alec G Murray
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 July 13, 1994 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/ Anthony A D Arrowsmith Senior Vice President and Director
Anthony A D Arrowsmith (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/ A Winniett Peters
A Winniett Peters Director
/s/ R Anthony Garrett
R Anthony Garrett Director
/s/ William A Ziegler
William A Ziegler Director
/s/ Henry R Grunzke
Henry R Grunzke Director
/s/ J Anthony Johnston
J Anthony Johnston Director
/s/ William S Barrack Jr
William S Barrack Jr Director
/s/ Thomas M Evins Jr
Thomas M Evins Jr Director
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets at
March 31, 1994 and 1993 F-3
Consolidated Statement of Income
and Retained Earnings for the years
ended March 31, 1994, 1993 and 1992 F-4
Consolidated Statement of Cash Flows
for the years ended March 31, 1994,
1993 and 1992 F-5
Notes to Consolidated Financial Statements F-6
F-1
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of Standard Commercial Corporation.
We have audited the accompanying consolidated balance sheets of Standard
Commercial Corporation as of March 31, 1994 and 1993 and the related
consolidated statements of income and retained earnings and of cash flows
for each of the three years in the period ended March 31, 1994. Our audits
also included the financial statement schedule referred to under Item 14.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly in
all material respects, the financial position of the Company at March 31,
1994 and 1993 and the results of its operations and its cash flows for each
of the three years in the period ended March 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As described in note 10 to the consolidated financial statements, the
Company has received commitments from various United States and European
banks for a total of up to $400 million of credit facilities which will
substantially replace or extend existing facilities, including facilities
for an amount of $150 million in the United States. Availability
under these new credit facilities beyond September 15, 1994 is subject to
the closing of a $100 million private placement of long-term, senior
secured notes.
As discussed in notes 11 and 16 to the consolidated financial statements,
effective April 1, 1993 the Company changed its method of accounting for
postretirement benefits other than pensions and its method of accounting for
income taxes.
DELOITTE & TOUCHE
Raleigh, North Carolina
July 13, 1994
F-2
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
March 31
1994 1993
(In thousands)
Assets
Cash $ 69,802 $ 47,552
Current receivables (Note 2) 264,511 318,645
Inventories (Notes 1 and 3) 369,332 387,997
Prepaid expenses 5,991 4,739
Marketable securities at cost (approximate market) 828 869
Current assets 710,464 759,802
Property, plant and equipment (Notes 1 and 4) 128,024 118,772
Investment in affiliates (Notes 1 and 5) 14,601 18,559
Other assets (Notes 1 and 6) 37,682 29,234
Total assets $ 890,771 $926,367
Liabilities
Short-term borrowings (Notes 7 and 10) $ 465,361 $457,250
Accounts payable (Notes 8 and 10) 156,917 129,952
Taxes accrued (Note 16) 17,702 5,305
Current liabilities 639,980 592,507
Long-term debt (Notes 9 and 10) 29,169 59,762
Convertible subordinated debentures (Note 9) 69,000 69,000
Retirement and other benefits (Notes 11 and 13) 17,182 10,456
Deferred taxes (Notes 1 and 16) 10,640 24,411
Commitments and contingencies (Note 12) -- --
Total liabilities 765,971 756,136
Minority Interests 20,773 18,544
ESOP redeemable preferred stock (Note 13) 9,200 9,200
Unearned ESOP compensation (Note 13) (7,822) (8,623)
Shareholders' Equity
Preferred stock, $1.65 par value (Note 13)
Authorized shares 1,000,000; issued 92,005 to ESOP
Common stock, $0.20 par value (Note 13)
Authorized shares 20,000,000
Issued 10,913,459 shares (1993-10,863,023) 2,183 2,172
Additional paid-in capital (Note 13) 34,875 33,928
Unearned restricted stock plan compensation (Note 13) (649) --
Treasury stock at cost, 2,346,318 shares (Note 13) (583) (583)
Retained earnings 84,807 125,139
Cumulative translation adjustments (Notes 1 and 14) (17,984) (9,546)
Total shareholders' equity 102,649 151,110
Total liabilities and equity $ 890,771 $926,367
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31
1994 1993 1992
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
Sales $1,042,014 $ 1,236,084 $1,173,300
Cost of sales (Note 3) 991,332 1,124,188 1,066,876
Selling, general and administrative expenses 78,731 73,925 68,412
Other income (expense) -- net (Note 15) 3,612 (680) (340)
Income (loss) before taxes (24,437) 37,291 37,672
Income taxes (Notes 1 and 16) 5,070 12,546 11,048
Income (loss) after taxes (29,507) 24,745 26,624
Minority interests (3,765) (2,421) (3,593)
Equity in earnings (losses) of affiliates (Note 5) (3,226) (104) 812
Income (loss) from continuing operations (36,498) 22,220 23,843
Income (loss) from discontinued operations (Note 17) 689 (1,547) (2,216)
Income (loss) before extraordinary items (35,809) 20,673 21,627
Extraordinary items (Note 16) -- 503 624
Cumulative effect of accounting changes (Notes 11 and 16) 23 -- --
Net income (loss) (35,786) 21,176 22,251
ESOP preferred stock dividends net of tax (486) (364) --
Income (loss) applicable to common stock (36,272) 20,812 22,251
Retained earnings at beginning of year 125,139 108,890 90,926
Common stock dividends (4,060) (4,563) (4,287)
Retained earnings at end of year $ 84,807 $ 125,139 $108,890
Earnings (loss) per common share (Note 1)
Primary
-from continuing operations $(4.32) $2.58 $2.89
-from discontinued operations $0.08 $(0.18) $(0.27)
-extraordinary items -- $0.06 $0.08
-cumulative accounting changes -- -- --
-net $(4.24) $ 2.46 $2.70
-average shares outstanding 8,552,813 8,447,564 8,245,501
Fully diluted
-from continuing operations * $2.34 $2.77
-from discontinued operations * $(0.14) $(0.24)
-extraordinary items -- $0.05 $ 0.06
-cumulative accounting changes -- -- --
-net * $2.25 $2.59
-average shares outstanding * 10,771,065 9,058,858
Dividends paid per share $0.50 $0.54 $0.52
*Not applicable because fully diluted calculations include adjustments
which are antidilutive.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31
1994 1993 1992
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(35,786) $ 21,176 $ 22,251
Depreciation and amortization 16,260 16,524 10,229
Minority interests 3,765 2,421 3,593
Deferred income taxes (1,047) 5,763 1,769
Undistributed losses of affiliates, net of
dividends received 3,976 618 30
Gain on disposition of property, plant and equipment (4,729) (411) (549)
Other (1,190) (2,966) (297)
(18,751) 43,125 37,026
Net changes in working capital other than cash
Receivables 35,799 (73,502) (2,035)
Inventories 5,691 (76,610) (73,873)
Current payables 24,918 26,021 (2,491)
Cash provided by (used for) operating activities 47,657 (80,966) (41,373)
Cash flows from investing activities
Property, plant and equipment -additions (27,257) (24,096) (21,543)
-dispositions 9,460 1,773 1,570
Payment for acquisitions and investments (2,427) (7,310)* (11,053)
Cash used for investing activities (20,224) (29,633) (31,026)
Cash flows from financing activities
Proceeds from long-term borrowings 14,332 32,817 78,586
Repayment of long-term borrowings (23,309) (11,060) (10,249)
Net change in short-term borrowings 8,111 79,808 30,154
Dividends paid, net of tax (4,546) (4,927) (4,287)
Other 229 232 195
Cash provided by (used for) financing activities (5,183) 96,870 94,399
Increase/(decrease) in cash for year 22,250 (13,729) 22,000
Cash at beginning of year 47,552 61,281 39,281
Cash at end of year $ 69,802 $ 47,552 $ 61,281
Cash payments for -interest $ 34,610 $ 41,909 $ 37,876
-income taxes $ 5,708 $ 12,930 $ 3,318
________________________
*Total price for acquisitions less $694 cash received $ 23,900
Deduct noncash items
Series A Preferred Stock 9,200
Common Stock 7,390
Net cash cost of acquisitions $ 7,310
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
a) Consolidation. The accounts of all subsidiary companies are included in
the consolidated financial statements and all intercompany transactions
have been eliminated.
Investments in affiliated companies are accounted for by the equity method
of accounting.
b) Foreign currency. Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates. The effects of these translation
adjustments are reported in a separate component of shareholders' equity.
Exchange gains and losses arising from transactions denominated in a
currency other than the functional currency of the entity involved and
translation adjustments in countries with highly inflationary economies
are included in net income.
c) Intangible assets. The Company's policy is to amortize goodwill on a
straight line basis over its estimated useful life not to exceed 40 years.
d) Property, plant and equipment. The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations
over the estimated useful lives of the assets on a straight-line basis.
e) Inventories. Inventories, which are primarily packed leaf tobacco and
wool, are stated at the lower of specific cost or estimated net realizable
value. Cost of tobacco includes a proportion of interest, buying commission
charges and factory overheads which can be related directly to specific
items of inventory. Cost of wool includes all direct costs except interest.
Items are removed from inventory on an actual cost basis.
f) Revenue recognition. Sales and revenue are recognized on the passage of
title.
g) Income taxes. Certain policies used for financial statement purposes
differ from those used for income tax purposes, thereby causing a deferral
of taxes on income.
h) Computation of earnings per common share. Primary earnings per share
are computed by dividing earnings, less preferred stock dividends payable
to ESOP net of tax, by the weighted average number of shares outstanding
during each year. Fully diluted earnings per share assumes the conversion
into common stock of all the 7 1/4% Convertible Subordinated Debentures
and ESOP preferred stock at the date of issue, thereby increasing the
weighted average number of shares deemed to be outstanding during each
period, and adding back to primary earnings the after-tax interest expense.
i) Reclassification. Certain amounts in prior year statements have been
reclassified for conformity with current statement presentation.
(2) CURRENT RECEIVABLES
1994 1993
(In thousands)
Trade accounts $163,771 $188,313
Advances to suppliers 37,737 68,089
Affiliated companies 45,562 44,765
Other 25,137 20,070
272,207 321,237
Allowances for doubtful accounts (7,696) (2,592)
$264,511 $318,645
Included in receivables from affiliated companies is $34 million due from
Transcatab SpA ("Transcatab"), a 50% owned tobacco affiliate. A reserve of
$5 million was recorded in 1994 against a contingency related to this
receivable, and is included in Allowances for doubtful accounts.
F-6
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The contingency involves the collectibility of a $17 million
receivable due to Transcatab from the other 50% owner and his affiliates and
the potential impact on Transcatab's ability to repay the amounts owed to the
Company. Full recovery of the $17 million receivable is being pursued through
a combination of a fidelity insurance claim, secured assets and legal action
against the debtor and certain other parties. However, in view of the
uncertainties and the timescale of the recovery efforts, management deemed it
prudent to record the reserve after reviewing a range of potential outcomes.
(3) INVENTORIES
1994 1993
(In Thousands)
Tobacco $268,948 $305,256
Wool 98,496 75,445
Other 1,888 7,296
$369,332 $387,997
Interest capitalized in year-end tobacco inventories totaled $7.4 million
and $8.4 million, and inventory valuation reserves were $15.0 million and $2.7
million at March 31, 1994 and 1993, respectively. Interest included in cost of
sales totaled approximately $29.4 million, $31.2 million and $31.1 million in
1994, 1993 and 1992, respectively. Inventory valuation provisions included in
cost of sales totaled approximately $23.8 million, $1.8 million and $2.2
million in 1994, 1993 and 1992, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
1994 1993
(In Thousands)
Land $ 12,981 $ 14,318
Buildings 67,504 55,735
Machinery and equipment 110,228 100,642
Investment properties 1,178 1,296
Furniture and fixtures 9,029 8,512
Construction in progress 1,259 5,076
202,179 185,579
Accumulated depreciation (74,155) (66,807)
$128,024 $118,772
Depreciation expense was $14.1 million, $15.5 million and $9.8 million in
1994, 1993 and 1992, respectively.
(5) AFFILIATED COMPANIES
a) Investments in affiliated companies are represented by the following:
1994 1993
(In Thousands)
Net current assets $ (9,219) $ (3,840)
Fixed assets 55,503 52,687
Long-term liabilities (6,458) (3,495)
Interests of other shareholders (24,820) (26,412)
Company's interest 15,006 18,940
Provision for withholding taxes (405) (381)
Net Investment $ 14,601 $ 18,559
F-7
STANDARD COMMERCIAL CORPORATON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(5) AFFILIATED COMPANIES (Continued)
b) The results of affiliated companies were:
Year ended March 31
1994 1993 1992
(In Thousands)
Sales $112,237 $108,950 $ 71,712
Income before taxes $ (4,236) $ 2,781 $ 1,752
Income taxes 1,140 1,477 650
Net income $ (5,376) $ 1,304 $ 1,102
Company's share $ (3,162) $ (4) $ 836
Amortization of goodwill (40) (40) (56)
Withholding taxes (24) (60) 32
Equity in earnings (losses) $ (3,226) $ (104) $ 812
Dividends received $ 750 $ 514 $ 842
(6) OTHER ASSETS
1994 1993
(In Thousands
Cash surrender value of life insurance policies (face amount $42,550,000) $ 10,586 $ 8,807
Policy loans (2,901) (2,899)
7,685 5,908
Bank deposits 598 1,050
Receivables 11,775 4,213
Investments 3,572 3,354
Excess of purchase price of subsidiaries over net assets acquired - net of
accumulated amortization of $2,786,000 (1993 - $2,373,000) 8,773 9,211
Other 5,279 5,498
$ 37,682 $ 29,234
(7) SHORT-TERM BORROWINGS
1994 1993 1992
(In Thousands)
Weighted average interest on borrowings at end of year 6.7% 6.9% 7.2%
Weighted average interest rate on borrowings during the year* 6.7% 8.4% 7.6%
Maximum amount outstanding at any month-end $487,046 $457,250 $342,890
Average month-end amount outstanding $453,214 $390,083 $305,114
Amount outstanding at year-end $465,361 $457,250 $338,232
*Computed by dividing short-term interest expense by average short-term
debt outstanding.
Under agreements with various banks, short-term credit facilities amounting
to approximately $904 million were available to the Company at March 31, 1994
(1993 - $914 million). At March 31, 1994, approximately $216 million (1993 -
$153 million) of these facilities were being utilized for letters of credit and
guarantees and $223 million (1993 - $304 million) were unused. There are no
compensating balance requirements, and interest rates on borrowings under the
lines are based upon terms of the various agreements.
F-8
(8) ACCOUNTS PAYABLE
1994 1993
(In thousands)
Trade accounts $ 94,531 $ 89,870
Current portion of long-term debt 33,702 12,597
Affiliated companies 870 1,470
Other accruals and payables 27,814 26,015
$156,917 $129,952
(9) LONG-TERM DEBT
1994 1993
(In thousands)
Floating rate note, at 1% above LIBOR repayable July 1994 $15,000 $20,000
9.98% senior notes, repayable annually through September 1995 10,000 15,000
Floating rate loan, at 1.25% above three-month negotiable CD
rate, repayable quarterly through March 2002 7,725 8,624
Floating rate loan, at 1.25% above LIBOR, repayable quarterly
through June 1997 6,500 8,500
Floating rate note, at 82% of prime, repayable in 2001 2,940 2,940
6.5% loan repayable annually through 1998 4,000 --
6.45% loan repayable annually through 1998 4,944 --
6.49% loan repayable annually through 1998 3,200 --
Floating rate loan at 1.5% above LIBOR repayable annually
through 1998 2,350 2,350
9.25% fixed rate loan repayable annually through 1997 2,460 3,280
6.75% loan repayable annually through 1997 -- 4,000
12.25% loan repayable annually through 1995 742 1,506
8.65% loan repayable annually through 1994 -- 897
Other 3,010 5,262
62,871 72,359
Current portion (33,702) (12,597)
$ 29,169 $ 59,762
Long-term debt maturing after one year is as follows: 1996 - $7,645,000;
1997 - $7,648,000; 1998 - $5,201,000; 1999 - $2,058,000; 2000 - $1,449,000;
and thereafter - $5,168,000.
Convertible Subordinated Debentures
On November 13, 1991 the Company issued $69.0 million of 7 1/4%
Convertible Subordinated Debentures due March 31, 2007. The debentures are
convertible into shares of common stock of the Company at a conversion price
of $32.45. The debentures are subordinated in right of payment to all senior
indebtedness (as defined) of the Company, and are redeemable in whole or in
part at the option of the Company any time on or after March 31, 1995.
Beginning March 31, 2003 the Company must make annual sinking fund payments
in an amount equal to 5% of the principal amount of issued Debentures reduced
by earlier conversions, redemptions and repurchases.
(10) COMPLIANCE WITH COVENANTS AND RESTRUCTURING OF DEBT FACILITIES
The Company has reclassified $20.0 million of long-term debt to current,
because it was not in compliance with certain loan covenants at March 31,
1994. Further, on March 31, 1994 the Company was not in compliance with
covenants in certain loan agreements with respect to $14.2 million of
outstanding long-term debt and its $150 million U.S. short-term credit
facilities (of which $65 million was outstanding at March 31, 1994). However,
the lenders involved have amended the related agreements to permit the Company
to be in compliance with such covenants as of March 31, 1994. Under its most
restrictive amended covenant, the Company had $3.4 million of retained earnings
available for distribution as dividends at March 31, 1994. The Company has
received commitments in respect of the new U.S.
(10) COMPLIANCE WITH COVENANTS AND RESTRUCTURING OF DEBT FACILITIES (continued)
364-day credit facilities for an amount of $150 million, and has also received
commitments from several European banks for 364-day credit facilities of $250
million. Availability under these new credit facilities beyond September 15,
1994 will be conditional upon the closing of a $100 million private placement
of long-term, senior secured notes. The net proceeds of this placement will
be used to refinance existing indebtedness. The maximum drawing under the
new U.S. credit facilities will be $130 million which are scheduled to reduce
progressively through its expiration on July 27, 1995.
Management expects the placement of the new senior secured notes to be
successful. In the event it is not completed, management believes there are
a number of viable refinancing alternatives, including the sale of convertible
debentures, preferred stock or common stock.
(11) BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time salaried employees in the United States. Various
other pension plans are sponsored by foreign subsidiaries. Benefits under the
plans are based on employees' years of service and eligible compensation.
Foreign plans which are significant and considered to be defined benefit
pension plans have adopted Statement of Financial Accounting Standards No. 87,
Employer's Accounting for Pensions. The Company's policy is to contribute
amounts to the U.S. plan sufficient to meet or exceed funding requirements
of federal benefit and tax laws.
A summary of pension costs for 1994, 1993 and 1992 follows:
1994 1993 1992
(In thousands)
Benefit cost for service during the year $ 1,710 $ 1,621 $ 1,781
Interest cost on projected benefit obligation 2,015 1,818 2,068
Recognized return on plan assets (2,129) (1,849) (1,692)
Net amortization 100 102 314
Net pension cost $ 1,696 $ 1,692 $ 2,471
The assumed long-term rate of return on plan assets used in determining
net pension costs was 10% for the U.S. and foreign plans, and projected
benefit obligations were determined using assumed discount rates of 7.25%
for all of the plans. Assumed rates of increase in future compensation levels
were 5.5% for the U.S. plan and from 6.5% to 7% for foreign plans.
The following table sets forth the funded status and amounts recorded in
the consolidated balance sheet for the Company's defined benefit pension plans:
Year ended March 31
U.S. Plan Foreign Plans
1994 1993 1994 1993
(In Thousands)
Actuarial present value of benefit obligations:
- vested benefits $ 6,131 $ 5,143 $ 11,967 $10,550
- nonvested benefits 40 21 307 270
Accumulated benefit obligation 6,171 5,164 12,274 10,820
Effect of projected salary increases 1,604 1,595 7,914 6,646
Projected benefit obligation 7,775 6,759 20,188 17,466
Plan assets at fair value (7,991) (7,677) (17,937) (15,347)
Deficiency (excess) of assets over projected obligation (216) (918) 2,251 2,119
Unamortized net transition asset (obligation) 489 550 (881) (949)
Unrecognized prior service cost (149) (171) (878) (969)
Unrecognized experience (gain) loss (992) (101) (123) 575
Accrued (prepaid) pension cost $ (868) $ (640) $ 369 $ 776
(11) BENEFITS (Continued)
In addition to amounts in the table above, long-term benefit liabilities
include $9.8 million and $10.5 million shown in the balance sheet at March 31,
1994 and 1993, respectively, for the actuarially determined obligations of
other benefits.
Assets of the U.S. and some foreign plans consist of pooled equity and
fixed income funds managed by independent trustees. Obligations of other
foreign plans are provided for by purchasing insurance policies or establishing
book reserves.
The Company also sponsors a 401(k) savings incentive plan for most
full-time salaried employees in the United States. The expense for this plan
was $143,000 in 1994, $129,000 in 1993 and $114,000 in 1992.
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106 Employers' Accounting for Postretirement
Benefits other than Pensions, with respect to benefits provided under U.S.
plans. The Company provides certain health care and life insurance benefits
for substantially all of its retired salaried employees. SFAS 106 requires
the Company to accrue the estimated cost of retiree benefit payments during
the years the employee provides services. The Company previously expensed
the cost of these benefits, which are principally health care, as premiums
were paid or claims were incurred. SFAS 106 allows recognition of the
cumulative effect of the liability in the year of adoption or the amortization
of the obligation over a period of up to twenty years. The Company elected
to recognize the cumulative effect of this obligation on the immediate
recognition basis. The cumulative, noncash effect of adopting SFAS 106 as
of April 1, 1993 was an increase in accrued postretirement health care
costs of $6.0 million and a decrease in net earnings of $3.7 million or
$0.43 per share.
The effect of adopting SFAS 106 was to decrease after-tax income from
continuing operations by $542,000 or $0.06 per share. In 1993 and 1992,
the Company recognized $96,000 and $71,000 respectively, as an expense for
postretirement benefits which were not funded.
The components of the net periodic cost of postretirement benefits for
1994 are as follows:
Service cost $427,774
Interest cost on accumulated benefit obligation 550,651
Net cost $978,425
The components of the liability included in the consolidated balance
sheet at March 31, 1994 actuarial present value of benefits for services
rendered to date were:
Current retirees $ 972,084
Active employees eligible to retire 3,540,465
Active employees not eligible to retire 2,370,488
Accumulated postretirement benefit obligation $6,883,037
The accumulated post-retirement benefit obligation (APBO) was determined
using a 7.5% weighted-average discount rate. The medical cost trend rates
used in determining the APBO were assumed to be 13% and 11.5% in 1994
for pre-Medicare and post-Medicare benefits, respectively. These rates were
assumed to gradually decline to 6.5% and 6.0% in 2000, respectively, and
remain at that level thereafter.
Assuming a one percent increase in the medical cost trend rates, the
aggregate of the service and interest cost components of the net periodic
pension cost for 1994 would increase by $115,000 and the APBO as of March 31,
1994 would increase by $756,000. In general, postretirement benefit costs are
paid as claims are incurred. The Company decided to exercise the option, under
SFAS 106, to recognize the entire net transition obligation during 1994.
Accordingly, the related amortization is not included in the net periodic cost.
The impact of SFAS 106 as it relates to employees of foreign subsidiaries
has not been determined. The Company currently expenses the cost of these
benefits as incurred and plans to adopt SFAS 106 accounting by fiscal 1996.
(12) COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows: 1995 - $962,000;
1996 - $580,000; 1997 - $461,000; 1998 - $360,000; 1999 - $356,000 and
thereafter $608,000.
(12) COMMITMENTS AND CONTINGENCIES (Continued)
Some of the leases are subject to escalation. Expenses under operating leases
in 1994, 1993 and 1992 were $788,000, $877,000 and $845,000, respectively.
The Company has commitments for capital expenditures of approximately $7
million all of which will be incurred in fiscal 1995, including $4 million
for the tobacco business and $3 million for wool operations.
Third-party borrowings guaranteed by the Company at March 31, 1994
totaled approximately $19 million.
On May 1, 1993 a foreign subsidiary of the Company received notices of
proposed tax adjustments of approximately $4 million to its returns for the
years 1985 through 1992. The Company believes the assessments are without
merit and intends to vigorously contest the proposed deficiencies, and that
any adjustment which might result would not have a material effect on the
consolidated financial position of the Company.
Other contingencies, consisting of guarantees, pending litigation and other
claims, in the opinion of management, are not considered to be material in
relation to the Company's financial position or results of operations.
At March 31, 1994 and 1993 assets of approximately $51 million and $43
million, respectively, were pledged against current and long-term borrowings.
Concentration of Credit and Off-Balance Sheet Risks
Financial instruments that potentially subject the Company to a
concentration of credit risks consist principally of cash and trade
receivables relating to customers in the tobacco and wool industries.
Cash is deposited with high-credit-quality financial institutions.
Concentration of credit risks related to receivables is limited because of the
diversity of customers and locations.
(13) COMMON STOCK, PREFERRED STOCK AND ADDITIONAL PAID-IN CAPITAL
Common Additional
Number of Shares Stock Paid in
of Common Stock Par Value Capital
Issued Treasury (In thousands)
March 31, 1991 10,587,029 2,346,318 $ 2,117 $ 26,165
401 (k) contributions 5,435 -- 1 114
Dividends reinvested 3,174 -- 1 81
March 31, 1992 10,595,638 2,346,318 2,119 26,360
401 (k) contributions 4,407 -- 1 128
Dividends reinvested 3,680 -- 1 101
Business acquisition 259,298 -- 51 7,339
March 31, 1993 10,863,023 2,346,318 2,172 33,928
401 (k) contributions 8,591 -- 2 143
Dividends reinvested 5,565 -- 1 89
Restricted stock plan 36,280 -- 8 715
March 31, 1994 10,913,459 2,346,318 $ 2,183 $ 34,875
The Company has a 401(k) savings incentive plan in the United States to
which the employer contributes shares of common stock under a matching
program, and a dividend reinvestment plan.
Treasury stock represents shares in the Company acquired by a foreign
affiliate prior to its becoming a wholly-owned subsidiary.
An employee stock ownership plan (the "ESOP") established by W.A.Adams
Company ("Adams") prior to its acquisition, exchanged the Adams common stock
held by the ESOP for 92,005 shares of Series A Cumulative Preferred
Stock (the "ESOP Stock"), stated value $100 per share and par value $1.65
per share, issued by the Company. In return the Company guaranteed a bank
loan taken out by the ESOP to acquire the Adams stock. The loan is included in
long-term debt and a related reduction is offset against the ESOP Stock as
"unearned ESOP compensation".
(13)COMMON STOCK, PREFERRED STOCK AND ADDITIONAL PAID-IN CAPITAL (Continued)
The ESOP Stock is convertible into 262,871 shares of Standard Commercial
Common Stock, subject to adjustment under certain conditions, and bears
cumulative dividends at a rate of 8% of stated value per annum payable
quarterly in arrears when, as and if declared by the Company's Board of
Directors. Dividends on the ESOP stock must be paid before any
dividends may be declared or paid on the common stock. In the event of the
Company's liquidation, holders of the ESOP stock are entitled to receive a
value of $100 per share, together with any unpaid dividends, before any
distribution to common stock holders. The ESOP Stock is redeemable at the
option of the Company, in whole or in part, on or after August 1, 1996 at a
price of $100 per share plus accrued and unpaid dividends, and ESOP
participants have a put option at the stated value on any Preferred Stock
received. Holders of the ESOP Stock have voting rights with respect to
certain matters that may be submitted to a vote of holders of the Company's
Common Stock.
In August 1992, the Company's shareholders approved a Performance
Improvement Compensation Plan, which authorized the Company's Board of
Directors to effect an incentive plan for designated employees. In June
1993, the Board adopted a Restricted Stock Plan ("RSP") as a means of
awarding those employees, to the extent that certain performance objectives
are met, restricted shares of the Company's common stock pursuant to the
RSP. The Compensation Committee of the Board awarded 36,454 shares of
Restricted Stock in the current year, 36,280 of which were issued as of
March 31, 1994. The shares were issued subject to a seven-year
restriction period.
(14) FOREIGN CURRENCY
Changes in the translation adjustment component of shareholders'
equity are shown below:
1994 1993 1992
(In thousands)
Beginning balance April 1 $ (9,546) $(3,789) $(1,603)
Net change in translation of
foreign currency financial statements (8,438) (5,757) (2,186)
Ending balance March 31 $(17,984) $(9,546) $(3,789)
The net amounts included in the income statement relating to foreign
currency gains and (losses) were $(26,000), $153,000, and $(1,985,000) in
1994, 1993 and 1992, respectively.
Various subsidiaries of the Company have entered into foreign currency
exchange contracts to reduce their exposure to net purchase and sales
commitments and other balances denominated in currencies other than the
subsidiaries functional currencies. At March 31, 1994 contracts totaling
$87.5 million were outstanding, with an unrealized gain of $92,000 at
that date.
(15) OTHER INCOME (EXPENSE) - NET
Year ended March 31
1994 1993 1992
(In thousands)
Other income
Interest $ 5,884 $ 5,829 $ 4,892
Gain on asset dispositions 4,358 1,164 548
Rents received 659 457 377
Other 701 780 1,553
11,602 8,230 7,370
Other expense
Interest (7,173) (8,183) (6,815)
Amortization of goodwill (413) (352) (381)
Other (404) (375) (514)
(7,990) (8,910) (7,710)
$ 3,612 $ (680) $ (340)
(16)INCOME TAXES
Effective April 1, 1993 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting For Income Taxes, which
required a change in the method of accounting for income taxes from the
deferred method to the liability method. The cumulative effect of adopting
SFAS 109 was to increase income by $3.7 million. Deferred income taxes
reflect the net tax effect of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating-loss carryforwards.
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
March 31, 1994 April 1, 1993
(In thousands)
Deferred tax liabilities:
Depreciation $ 11,911 $15,736
Capitalized interest 1,024 658
Differences in timing of income
recognition in foreign subsidiaries 13,363 15,484
Prepaid pension assets 1,122 985
DISC income 89 178
Total deferred tax liabilities 27,509 33,041
Deferred tax assets:
NOL carryforward 7,188 7,485
Valuation allowance (5,280) (5,618)
Postretirement benefits other than pensions 2,712 2,360
Other accrued liabilities 228 181
Uniform capitalization 426 697
All other, net 304 1,052
Total deferred tax assets 5,578 6,157
Net deferred tax liabilities $ 21,931 $26,884
The net deferred tax liabilities include approximately $11.3 million
of current liabilities at March 31, 1994.
b) Income tax provisions are detailed below:
Year ended March 31
1994 1993 1992
(In thousands)
Current
Federal $ (356) $ 368 $ 1,747
Foreign . 5,839 5,645 7,022
State and local 634 770 510
6,117 6,783 9,279
Deferred
Federal 96 2,082 75
Foreign (1,144) 3,616 1,694
State and local 1 65 --
(1,047) 5,763 1,769
Income tax provision $ 5,070 $12,546 $11,048
c) Components of deferred taxes follow:
Year ended March 31
1994 1993 1992
(In thousands)
Tax on differences in timing of income
recognition in foreign subsidiaries $(1,370) $3,616 $1,694
Utilization of NOL carried forward 31 2,025 --
Capitalized interest 366 (104) (152)
DISC income (89) (77) (77)
Other 15 303 304
$(1,047) $5,763 $1,769
(16)INCOME TAXES (Continued)
d) The provision for income taxes is determined on the basis of the
jurisdiction imposing the tax liability. As some of the income of foreign
companies may also be currently subject to U.S. tax, the U.S. and foreign
income taxes shown do not compare directly with the segregation of pretax
income between domestic and foreign companies that follows:
Year ended March 31
1994 1993 1992
(In thousands)
Pretax income
Domestic $ 5 $ 6,335 $ (2)
Foreign (24,442) 30,956 37,674
$(24,437) $37,291 $37,672
e) The following is a reconciliation of the income tax provision to the
expense (benefit) calculated at the U.S. federal statutory rate.
Year ended March 31
1994 1993 1992
(In thousands)
Expense (benefit) at U.S.
federal statutory tax rate $(7,629) $12,679 $12,808
Foreign tax losses for which
there is no relief available 13,467 1,109 26
U.S. tax on foreign income 408 1,000 1,300
Different tax rates in foreign subsidiaries (1,482) (2,759) (3,736)
Other-net 306 517 650
$ 5,070 $12,546 $11,048
f) Consolidated retained earnings at March 31, 1994 include undistributed
earnings in the amount of $25,000,000 (1993-$64,000,000) of certain foreign
subsidiary companies which are generally neither subject to foreign income
taxes nor considered to be subject to United States income taxes unless
remitted as dividends. The Company intends to reinvest these undistributed
earnings indefinitely, and consequently no provision has been made for taxes
which would become due should they be remitted as dividends to the United
States.
g) Prior to the adoption of SFAS 109, realization of tax loss
carryforwards was accounted for as an extraordinary item. Accordingly, the
consolidated statements of income for 1993 and 1992 include $503,000 and
$624,000, respectively, of such benefits.
(17)DISCONTINUED OPERATIONS
In December 1993, the Company completed the sale of its Caro-Green
Nursery business to Zelenka Nursery Inc. The operating results and gain
on disposal for Caro-Green Nursery are reported as discontinued operations
and, accordingly, prior period results have been restated. Following is a
summary of the discontinued operations.
Year ended March 31
1994 1993 1992
(In thousands)
Sales $4,993 $ 3,394 $ 4,843
Pretax operating (income) loss 89 (2,340) (3,417)
Income tax (expense) benefit from operations (30) 793 1,201
Gain on disposal of Caro-Green
Nursery, less income taxes of $325 630 -- --
Income (loss) from discontinued operations $ 689 $(1,547) $(2,216)
At March 31, 1994, the consolidated balance sheet includes notes
receivable from the purchaser totaling approximately $6.1 million.
(18)ACQUISITIONS
The total cost of acquisitions and investments during 1994, 1993 and
1992, net of cash acquired, was $2.4 million, $23.9 million and $11.1
million, respectively. Included in the totals for 1993 is the acquisition
of W.A.Adams Company, which was acquired for consideration which included
preferred stock, common stock and cash. The acquisition was accounted for
as a purchase, with no resulting goodwill. The Company made no other
significant business acquisitions during these years.
The results of operations for fiscal 1993 would not have been materially
different if the acquisitions had been consummated at the beginning of the
year. The following supplemental pro forma information presents certain
estimated consolidated results of operations of the Company for fiscal 1992
as if the acquisitions had been made at the beginning of that period.
Unaudited Proforma Results:
Year ended
March 31, 1992
(In thousands)
Sale $1,269,823
Income before extraordinary items 23,066
Net income ($2.73 per share) 23,690
(19)DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments
as of March 31, 1994 is provided below in accordance with Statement of
Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments. Certain estimates and judgments were required to
develop the fair value amounts, which are not necessarily indicative of
the amounts that would be realized upon disposition, nor do they indicate
the Company's intent or ability to dispose of such instruments.
Cash and cash equivalents: The estimated fair value of cash and cash
equivalents approximates carrying value.
Other assets: Included in other assets are certain long-term
investments, amounting to $3.6 million, which are carried on a cost basis.
The estimated fair values of these investments is $8.3 million, based on
quoted market prices for publicly traded companies and other valuation
techniques for other investments.
Short-term and long-term debt: The fair value of the Company's
short-term borrowings, which primarily consists of bank borrowings,
approximates its carrying value. The estimated fair value of long-term debt,
including the current portion, is approximately $143 million, compared with
a carrying value of $132 million, based on discounted cash flows for fixed
rate borrowings, with the fair value of floating rate borrowings considered
to approximate carrying value.
(20)SEGMENT INFORMATION
The Company is engaged primarily in purchasing, processing and selling
leaf tobacco and wool. Its activities other than these are minimal.
Geographic information is determined by the areas in which the companies
conducting these activities are registered. Generally, sales between segments
are made at prevailing market prices.
(20)SEGMENT INFORMATION (Continued)
Year ended March 31
1994 1993 1992
GEOGRAPHIC AREAS (In thousands)
Sales
United States $ 299,914 $ 338,681 $ 267,004
Europe 585,062 790,087 871,280
Other areas 267,899 283,017 321,336
Inter region eliminations (110,861) (175,701) (286,320)
$1,042,014* $1,236,084 $1,173,300
Operating income net of interest
United States $ 3,648 $ 8,945 $ 2,651
Europe (24,645) 26,304 32,791
Other areas 1,423 5,619 5,716
Corporate expenses (4,863) (3,577) (3,486)
Income (loss) before taxes $ (24,437) $ 37,291 $ 37,672
Assets
United States $ 182,429 $ 220,935 $ 134,354
Europe 562,300 567,284 465,005
Other areas 123,483 113,626 101,220
Investment in affiliates 14,601 18,559 18,840
Corporate assets 7,958 5,963 4,400
$ 890,771 $ 926,367 $ 723,819
U.S. Exports
Europe $ 79,105 $ 94,047 $ 78,145
Far East 92,641 79,951 64,362
Other areas 1,900 13,396 12,397
$ 173,646 $ 187,394 $ 154,904
(20)SEGMENT INFORMATION (Continued)
Year ended March 31
1994 1993 1992
(In thousands)
BUSINESS SEGMENTS
Sales
Tobacco $ 671,495* $ 871,364 $ 827,717
Wool 346,420 348,638 333,754
Other businesses 24,099 16,082 11,829
$1,042,014 $1,236,084 $1,173,300
Operating income net of interest
Tobacco $ (26,699) $ 37,316 $ 35,095
Wool 5,541 2,527 6,226
Other businesses 1,584 1,025 (163)
Corporate expenses (4,863) (3,577) (3,486)
Income (loss) before taxes $ (24,437) $ 37,291 $ 37,672
Interest expense included above
Tobacco $ 29,487 $ 30,466 $ 29,473
Wool 6,655 8,695 8,268
Other businesses 448 256 188
$ 36,590 $ 39,417 $ 37,929
Depreciation and amortization expense
Tobacco $ 9,398 $ 9,630 $ 4,473
Wool 4,546 5,349 4,747
Other businesses 158 514 578
Equity in earnings of affiliates
Tobacco $ (3,514) $ (361) $ 391
Wool 245 166 302
Other businesses 43 91 119
$ (3,226) $ (104) $ 812
Year ended March 31
1994 1993 1992
(In thousands)
Assets
Tobacco $ 618,367 $688,309 $ 469,128
Wool 230,811 197,386 217,318
Other businesses 19,034 16,150 14,133
Investments in affiliates
-Tobacco 12,125 16,330 16,759
-Wool 1,454 1,296 1,349
-Other 1,022 933 732
Corporate assets 7,958 5,963 4,400
$ 890,771 $926,367 $ 723,819
Capital expenditures
Tobacco $ 21,954 $ 17,484 $ 13,936
Wool 4,723 6,421 7,491
Other businesses 580 191 116
$ 27,257 $ 24,096 $ 21,543
_____________
*Includes sales to one customer of $108,757,000 in 1994. No customer
contributed more than 10% of sales in 1993 or 1992.
COMPANY REPORT ON FINANCIAL STATEMENTS
Standard Commercial Corporation is responsible for the preparation of the
financial statements, related financial data and other information in this
annual report. The financial statements are prepared in accordance with
generally accepted accounting principles and include amounts based on
estimates and judgment where appropriate.
In meeting its responsibility for both the integrity and fairness of these
statements and information, the Company depends on the accounting system
and related internal controls that are designed to provide reasonable
assurance that transactions are authorized and recorded in accordance with
established procedures, that assets are safeguarded and that proper and
reliable records are maintained.
The concept of reasonable assurance is based on the recognition that the
cost of an internal control system should not exceed the related benefits.
Because of inherent limitations in any system of controls, there can be no
absolute assurance that errors or irregularities will not occur.
Nevertheless, we believe that our internal controls provide reasonable
assurance as to the integrity and reliability of our financial records.
As an integral part of the internal control system, the Company maintains a
professional staff of internal auditors who monitor compliance with and
assess the effectiveness of the internal controls and recommend improvements
thereto. TheAudit Committee of the Board of Directors, composed solely of
independent directors, meets quarterly with the Company's management and
internal auditors, and at least annually with its independent auditors, to
review matters relating to financial reporting, internal controls and the
extent and results of the audit effort. The internal auditors and
independent auditors have direct access to the Audit Committee with or
without management present.
The financial statements have been examined by Deloitte & Touche, independent
auditors, who render an independent professional report on the Company's
financial statements. Their appointment was recommended by the Audit
Committee, approved by the Board of Directors and ratified by the
shareholders. Their report on the financial statements is based on auditing
procedures which include reviewing internal control and performing selected
tests of transactions and records as they deem appropriate. These auditing
procedures are designed to provide reasonable assurance that the financial
statements are fairly presented in all material respects.
Schedule III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
Standard Commercial Corporation March 31
1994 1993
In thousands
Assets
Cash $ 1,396 $ 1,100
Marketable securities at cost 27 27
Current receivables 16,535 36,019
Prepaid expenses 616 1,450
Current assets 18,574 38,602
Property, plant and equipment at 0 535
cost
Accumulated depreciation 0 0
Net property, plant and 0 535
equipment
Investment in subsidiaries 170,985 207,554
Investment in affiliates and 300 82
other companies
Intangible assets, net 3,173 3,826
Deferred income taxes 82 0
Cash surrender value of officer's 7,659 5,882
life insurance
Total Assets $200,773 $256,481
Liabilities
Accounts payable trade $ 45 $ 44
Current portion of long-term debt 12,705 7,750
Other accruals and payables 1,281 1,466
Current liabilities 14,031 9,260
Long-term debt 11,520 24,374
Convertible subordinated 69,000 69,000
debentures
Deferred income taxes 0 97
Other liabilities 963 1,480
Total liabilities 95,514 104,211
ESOP redeemable preferred stock 9,200 9,200
Unearned ESOP compensation (7,822) (8,623)
Shareholders' equity:
Common stock 2,183 2,172
Additional paid-in capital 34,875 33,928
Retained earnings 84,807 125,139
Cumulative translation adjustments (17,984) (9,546)
Total shareholders'equity 103,881 151,693
Total liabilities and equity $200,773 $256,481
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
STATEMENT OF INCOME AND RETAINED EARNINGS
Standard Commercial Corporation Year ended March 31
1994 1993 1992
In thousands
Selling,general and administrative $ 4,973 $ 2,610 $ 4,927
expenses
Other income:
Equity in earnings(losses) of (28,317) 26,667 28,737
subsidiaries
Interest 20 39 28
Gain on asset dispositions 174 0 0
Life insurance proceeds 0 0 656
Intercompany fees 121 38 64
Miscellaneous 3 3 14
Total other income (27,999) 26,747 29,499
Other expense:
Interest 5,287 4,785 3,848
Intercompany fees 833 781 711
Total other expense 6,120 5,566 4,559
Income(loss)before income taxes (39,092) 18,571 20,013
Income tax benefit (3,093) (2,605) (2,230)
Income(loss)before extraordinary (35,999) 21,176 22,251
item
Cumulative offset of accounting 213 0 0
changes
Net Income(loss) (35,786) 21,176 22,251
ESOP preferred stock dividends (486) (364) 0
net of tax
Net Income(loss)applicable (36,272) 20,612 22,251
to common stock
Retained earnings at beginning 125,139 108,890 90,926
of year
Common stock dividends (4,060) (4,563) (4,287)
Retained earnings at end of year $ 84,807 $125,139 $108,890
Dividends received from 0 0 0
subsidiaries
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
STATEMENT OF CASH FLOWS
Standard Commercial Corporation Year ended March 31
1994 1993 1992
In thousands
Cash provided by (used for) $ 11,322 ($ 2,326) ($44,432)
operations
Cash flows from investing activities:
Proceeds from asset dispositions 709 0 0
Payment for acquisitions and (189) (10,599) 0
investments
Cash provided by (used for) 520 (10,599) 0
investing activities
Cash flows from financing activities:
Proceeds from long-term borrowings 0 10,000 69,000
Repayment of long-term borrowings (7,000) (6,500) (5,000)
Dividends paid (4,546) (4,927) (4,287)
Cash used by financing activities (11,546) (1,427) 59,713
Increase(decrease)in cash for year 296 (14,352) 15,281
Cash at beginning of year 1,100 15,452 171
Cash at end of year $ 1,396 $ 1,100 $ 15,452
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
NOTES TO FINANCIAL STATEMENTS
Standard Commercial Corporation ("the Company") is a holding
company with investments in subsidiaries and affiliates operating
primarily in the tobacco and wool industries.
1. Basis of Presentation
The accompanying condensed financial information of Standard
Commercial Corporation (the "Company") has been prepared on a
parent company only basis in accordance with generally accepted
accounting principles.
Certain information and foot note disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted
pursuant to rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Information should be read in
conjunction with the Company's consolidated financial statements
and notes thereto included elsewhere herein.
2. Current Receivables
In thousands 1994 1993
Intercompany receivables $13,107 $31,296
Taxes receivable 3,132 3,505
Note receivable 0 678
Other 296 540
$10,535 $36,019
3. ESOP Redeemable Preferred Stock
An employee stock ownership plan (the "ESOP") established by
W.A. Adams Company ("Adams") prior to its acquisition by the
Company exchanged the Adams common stock held by the ESOP for
92,005 shares of Series A Cumulative preferred Stock (the "ESOP
Stock"), stated value $100 per share and par value $1.65 per
share, issued by the Company. In return the Company guaranteed a
bank loan taken out by the ESOP to acquire the Adams stock. The
loan is included in long-term debt and a related reduction is
offset against the ESOP Stock as "unearned ESOP compensation".
The ESOP Stock is convertible into 262,871 shares of Standard
Commercial Common Stock subject to adjustment under certain
conditions, and bears cumulative dividends at a rate of 8% of
stated value per annum, payable quarterly in arrears when, as and
if declared by the Company's Board of Directors. Dividends on
the ESOP Stock must be paid before any dividends may be declared
or paid on the Company's common stock. In the event of the
Company's liquidation, holders of the ESOP stock are entitled to
receive a value of $100 per share, together with any unpaid
dividends, before any distribution to common stock holders. The
ESOP Stock is redeemable at the option of the Company, in whole
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
or in part, on or after August 1, 1996 at a price of $100 per
share plus accrued and unpaid dividends, and ESOP participants
have a put option at the stated value on any Preferred Stock
received. Holders of the ESOP Stock have voting rights with
respect to certain matters that may be submitted to a vote of
holders of the Company's Common Stock.
4. Long-Term Debt
In thousands 1994 1993
9.98% senior notes, repayable
annually through
September 1995 $10,000 $15,000
Floating rate loan, at 1.25%
above three-month negotiable
CD rate, repayable quarterly
through March 2002 7,725 8,624
Floating rate loan, at 1.25%
above LIBOR, repayable quarterly
through June 1997 6,500 8,500
24,225 32,124
Current Portion (12,705) (7,750)
$11,520 $24,374
Long-term debt maturing after one year is as follows:
1996 - $2,885,000; 1997 - $2,930,000; 1998 - 1,478,000;
1999 - $1,026,000; 2000 - $1,076,000; and thereafter
$2,125,000.
Convertible Subordinated Debentures
On November 13, 1991 the Company issued $69.0 million of
7.25% Convertible Subordinated Debentures due March 31, 2007.
The debentures are convertible into shares of common stock of the
Company at a conversion price of $32.45. The debentures are
subordinated in right of payment to all senior indebtedness (as
defined) of the Company, and are redeemable in whole or in part
at the option of the Company any time on or after March 31, 1995.
Beginning March 31, 2003 the Company must make annual sinking
fund payments in an amount equal to 5% of the principal amount of
issued Debentures reduced by earlier conversions, redemptions and
repurchases.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
5. Compliance with Covenants
The Company has reclassified $5 million of long-term debt to
current portion, because it was not in compliance with certain
covenants at March 31, 1994. Further, at March 31, 1994 the
Company was not in compliance with covenants in certain loan
agreements with respect to $14.2 million of outstanding long-term
debt and covenants on certain subsidiaries' credit facilities and loan
agreements to which the Company is guarantor, and which are being
refinanced, were not complied with. However, the lenders involved
have amended the related agreements to permit compliance with
those covenants at March 31, 1994. Under its most restrictive
amended covenant, the Company had $3.4 million of retained
earnings available for distribution as dividends at March 31,
1994. The Company has received commitments in respect of the new
U.S. 364-day credit facilities for an amount of $150 million, and
has also received commitments from several European banks for
364-day credit facilities of $250 million. Availability under
these new credit facilities beyond September 15, 1994 will be
conditional upon the closing of a $100 million private placement
of long-term, senior secured notes. The net proceeds of this
placement will be used to refinance existing indebtedness. The
maximum drawing under the new U.S. credit facilities will be $130
million which are scheduled to reduce progressively through its
expiration on July 27, 1995.
Management expects the placement of the new senior secured
notes to be successful. In the event it is not completed,
management believes there are a number of viable refinancing
alternatives, including the sale of convertible debentures,
preferred stock or common stock.
Exhibit Index
Exhibit No. Description Page
3(i) There is incorporated by referenceherein
the Company's restated charter 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
3(ii) Amended bylaws of the Company
4 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
11 Computation of Earnings per Common Share
21 List of subsidiaries
23 Consent of Independent Public Accountants
27 Financial Data Schedule