DIMON Inc.

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DIMON Inc.

512 Bridge Street
Danville, Virginia 24543-0681
U.S.A.
(804) 792-7511
Fax: (804) 791-0377
Web site: http://www.dimon-inc.com

Public Company
Incorporated: 1904 as Dibrell Brothers, Inc.; 1920 as A.C. Monk & Co.
Employees: 4,000
Sales: $2.17 billion (1998)
Stock Exchanges: New York
Ticker Symbol: DMN
SICs: 5194 Tobacco & Tobacco Products

DIMON Inc. is the second-largest independent leaf-tobacco merchant in the world and is engaged in virtually all areas of the industry, including purchasing, processing, storing, and selling leaf tobacco. The company owns tobacco leaf growing companies in the United States and more than 30 other countries, as well as 15 factories for processing the product, which is then sold to manufacturers of American-blend cigarettes throughout the world. The company was formed from a 1995 merger of Dibrell Brothers, Inc. and Monk-Austin Inc.

The History of Dibrell Brothers

The origins of DIMON go back to the 1850s, when Richard H. Dibrell became a tobacco merchant in Richmond, Virginia. When Union troops set fire to the capital of the Confederacy shortly before the close of the Civil War, the contents of his warehouse went up in smoke, but not in the form he had anticipated. This resulted in Dibrell’s decision to relocate a portion of his operations in Danville, Virginia. In 1873 he sent his two sons to Danville, where they became leaf-tobacco brokers and formed Dibrell Brothers, a partnership incorporated in 1904 with Richard L. Dibrell as president.

Dibrell Brothers purchased raw tobacco from individual growers or at auction, cured and stored the product, and then sold and transported the processed tobacco to manufacturers. The high cost of transportation, however, made its practice of purchasing tobacco in one state, shipping it to another for processing, and then reshipping it to manufacturers inefficient. Accordingly, the company began acquiring branches, subsidiaries, and affiliates soon after 1900. It also found new buyers abroad. Sales grew from over 65 million pounds of tobacco in 1919 to nearly 93 million pounds in 1931, and the company’s net equity tripled over this period to $3 million. It began, in 1925, a tradition of paying a dividend to its stockholders each year.

The Great Depression of the 1930s failed to halt the growth of Dibrell Brothers, and in this decade the larger U.S. cigarette manufacturers began, for the first time, to do substantial business with the firm. During the 1960s the company installed advanced tipping and threshing equipment to accommodate the requests of its customers for tobacco shipped in strip rather than leaf form. In 1967 Dibrell Brothers built a modern processing facility in Ringgold, Virginia. It also diversified that year for the first time by acquiring Richmond Cedar Works Manufacturing Co., a producer of home ice-cream freezers and decorative woodenware. In 1968, Dibrell Brothers had net income of $1.2 million on net sales of $106.6 million.

The following decade was a period of explosive growth for Dibrell Brothers. Its tobacco operations expanded into Central and South America, the Far East, India, and Italy, with more than 60 percent of its 1980 sales to foreign customers for use in their manufactured tobacco products. At home, the parent firm and its subsidiaries were buying leaf tobacco at auction markets in eight states and processing it at plants in Kentucky, North Carolina, and Virginia. Dibrell Brothers now was believed to be the second-largest independent processor of leaf tobacco in the United States. In addition to Richmond Cedar Works, the company was operating Kentucky Rib-Eye, a chain of eight steak restaurants in three states. Net income in 1980 came to $3.65 million on net sales of $325.3 million.

By acquiring a Dutch company in 1981, Dibrell Brothers gained access to tobacco growers in Brazil, the Dominican Republic, and Zimbabwe. It sold the steakhouse chain in 1983. After rising to $381 million in fiscal 1985, however, company sales dropped as low as $308 million two years later, when Dibrell Brothers lost $ 1 million—the only year it lost money—and closed three of its five U.S. facilities. Also in 1987, however, the firm acquired a majority stake in Florimex, a German-based worldwide distributor of fresh-cut flowers that led the way to a resumption of healthy profits. In 1990 net sales reached $765.4 million, and net income was $12 million. The company sold Richmond Cedar Works that year and also completed the purchase of Florimex by buying out the minority interests. Florimex doubled its annual revenues between 1989 and 1993.

During the late 1980s consumers throughout the world, but especially in the United States, were turning to low-priced, generic cigarettes. This trend, which intensified during the early 1990s, was beneficial to Dibrell Brothers, which had been importing a sizable amount of inexpensive tobacco for years.

In addition, the company responded early to another tobacco industry trend—the popularity of lighter, “American-blend” cigarettes, especially among Eastern Europeans, who previously had smoked very strong, dark-tobacco cigarettes. By 1993 Dibrell held a dominant position in the Brazilian leaf-tobacco market, which trailed only the United States as a source of export. Thirty-seven percent of its fiscal 1992 tobacco revenues came from Brazilian operations.

The History of Monk-Austin

Born on a small tobacco farm outside Durham, North Carolina, in 1876, Albert C. Monk left the farm at age 20 to take a job in a Durham tobacco warehouse. He became a speculator and commission buyer of the product, moving to Farmville, North Carolina, in 1907, where he was instrumental in the formation of the town’s tobacco market. During his first years in Farmville, Monk and his brother J.Y. Monk packed the green tobacco he purchased into hogsheads and shipped it to processors from the local railway station. As the business grew, he built a small factory to house a redrying machine. The firm was incorporated as A.C. Monk & Co. in 1920.

Over the next three decades, A.C. Monk & Co. expanded through part ownership or full interest in tobacco plants in six North Carolina communities: Greenville, Kinston, New Bern, Robersonville, Wendell, and Wilson. It was one of the first U.S. companies to move into the German market after World War II, and by the time the founder died in 1948, had established a worldwide reputation in the tobacco industry. Under the direction of his eldest son, Albert C. Monk, Jr., who became president, and his two other sons, the company continued to prosper. Beginning in 1956, the company moved its New Bern stemming operation to a newly purchased plant in Farmville. In 1972 a ten-acre processing plant, equipped with the most advanced machinery, was opened there. By 1979, all of Monk’s U.S. processing was located at this complex.

A.C. Monk also was expanding abroad. Its efforts during the 1970s resulted in operations in Brazil, Canada, Guatemala, Italy, and South Korea. By 1977, some 80 percent of the firm’s tobacco was being exported to foreign countries. Monk was the nation’s third-largest tobacco supplier and the largest privately held one. A third generation had entered the business, and Albert C. Monk III assumed the presidency in 1984.

A.C. Monk had net income of $7.1 million on net revenues of $296.1 million in 1990. Despite its prosperity, however, the company was doing only one-fifth the business volume of Universal in an era when small, family-owned companies were rapidly becoming obsolete. Accordingly, in 1990, A.C. Monk acquired, for $32.7 million, The Austin Co., a smaller, privately held firm based in Greeneville, Tennessee. It quickly shut Austin’s Greeneville processing plant while retaining a more modern Austin processing facility in Kinston, North Carolina.

Monk-Austin became a giant overnight, with 1991 revenues of $630 million. While sales fell slightly the next year, net income almost tripled, to $27.7 million. That year the company had five operating properties in the United States and one in Brazil and in Zimbabwe, plus part-ownership in properties in Brazil, Malawi, and Mexico. In order to raise more capital to compete with its rivals, Monk-Austin went public in November 1992, selling 3.6 million shares of common stock (about 20 percent of the outstanding shares) at $16.50 each. Monk family members realized about $26.4 million and continued to hold about 70 percent of the stock. The remaining $28.9 million in net proceeds was earmarked to finance expansion and reduce the company’s long-term debt of $66.7 million.

U.S.-grown tobacco accounted for 71 percent of Monk-Austin’s net revenues in fiscal 1990 but only 56 percent in fiscal 1992. In terms of tonnage, 1992 was the first year that Monk-Austin bought less than half of its tobacco in the United States. China was selling tobacco to Monk-Austin for about $2 a kilo, while South American leaf was $4 to $5 a kilo compared to $7 for U.S.-grown tobacco. In Brazil and elsewhere, Monk-Austin was supplying a farmer’s seed, fertilizer, training, and equipment to harvest tobacco in return for a guaranteed price. “This is our home and we are U.S. citizens, and we want to see the tobacco business grow and prosper here in the United States,” Monk-Austin’s chief financial officer told a reporter. “At the same time, we see what is happening in the industry, and you have to follow where the business is growing,” he added.

Company Perspectives:

DIMON strives to be the preferred global supplier of tobacco.

In 1993 Monk-Austin bought out its joint-venture partner in Malawi and acquired T.S. Ragsdale Leaf Co., of Lake City, South Carolina, a small, privately owned tobacco dealer. The company also began building a tobacco processing plant in China, where it had formed a joint venture. That year the company earned record net income of $28.7 million. In 1994 R.J. Reynolds Tobacco Co. hired Monk-Austin to buy most of the tobacco it needed for its U.S.-made cigarettes; R.J. Reynolds had been the last major U.S. cigarette manufacturer to buy all of its own tobacco supplies.

1995: DIMON is Formed

Dibrell Brothers had a disastrous fiscal 1994, chiefly because of a worldwide oversupply of tobacco. The company lost $9.1 million on revenues of $919 million—down from $1.07 billion the previous fiscal year, when it registered record net income of $39.3 million. Monk-Austin was barely profitable. At the same time, both companies were pursuing a merger with Standard Commercial Corp., a tobacco-processing company roughly the same size as Dibrell. When negotiations came to naught because of disagreements over price, Dibrell and Monk-Austin began to talk to each other. In late 1994 they agreed to merge into a new company named DIMON, with Dibrell shareholders receiving 1.5 shares in the firm for each one share given to Monk-Austin shareholders.

By agreeing to the merger, the Monk family gave up control of their firm even though several family members would assume board seats and executive positions. “We didn’t see how we could be effective in this business without growing,” Albert C. Monk III told a reporter. He explained, “We came to the conclusion that we might be better off long term to take a littler share of something that we thought would really be a good thing.... This merger will enable us to do things that neither one of us could do independently or do well.” Dibrell Chairman and Chief Executive Officer Claude Owen became chairman and CEO of DIMON. Monk, chairman and chief executive officer of Monk-Austin, became president of the company and chief executive officer of the international division, located in Farmville.

By the spring of 1995 tobacco sales volume and prices were improving again, partly because manufacturers had agreed to buy part of the surplus tobacco. Another reason was the elimination of a 1994 domestic-content law that had limited the use of foreign tobacco in U.S.-made cigarettes and thus aggravated the worldwide oversupply. One of DIMON’s first acts was to acquire Austrian-held tobacco operations in Greece, Turkey, and Bulgaria with combined annual revenues of about $60 million. The company also acquired two operations in Macedonia in 1998. This so-called Oriental tobacco was an important component of the American-blend cigarette tobacco increasingly popular in world markets.

DIMON lost $30.2 million on revenues of $1.94 billion in 1995. This figure reflected a pretax charge of $40.9 million on tobacco inventories and advances and $25.9 million in restructuring and merger-related charges. The following year, the company reported earnings of $41.3 million on revenues of $2.17 billion, and in 1997 had net income of $77.2 million on revenues of $2.51 billion. The totals were $43.6 million and $2.17 billion, respectively, for 1998.

In early 1997 DIMON purchased Intabex Holdings Worldwide, S.A., the world’s fourth-largest leaf-tobacco dealer, for an estimated $245.6 million in cash, stock, and convertible debentures. Intabex, a privately owned Luxembourg holding company, had annual revenues of about $700 million. The acquisition increased DIMON’s presence in such tobacco-sourcing areas as Argentina, Brazil, and Zimbabwe, as well as the United States, and put the company into Thailand, Sri Lanka, and certain emerging areas within Africa for the first time. The deal also included Compania General de Tabacos de Filipinas, one of the oldest leaf-tobacco dealers in the world and the world’s largest dealer of dark air-cured leaf tobacco, used primarily as cigar wrappers and filler for cigars and cigarettes. However, in 1998 DIMON filed a lawsuit charging that the former chairman and major stockholders of Intabex had misrepresented the value of the company’s assets. DIMON was seeking to reduce the purchase price by $110 million.

DIMON scored a coup in December 1997, when it announced it had reached an agreement with R.J. Reynolds to process all of the cigarette manufacturer’s tobacco in 1998. The agreement was a natural extension of the earlier one that had put Monk-Austin in charge of Reynolds’ leaf-tobacco procuring. DIMON said it would process the leaf at the former Monk-Austin plant in Kinston. The company already was processing leaf tobacco for Philip Morris Cos., Lorillard Tobacco Co., and other cigarette manufacturers.

DIMON’s Florimex subsidiary was the world’s largest importer and exporter of fresh-cut flowers, with annual revenues of nearly $400 million, when the parent company agreed in August 1998 to sell it to USA Floral Products Inc. for about $90 million, plus assumed debt. This was a transaction that had been sought by Monk-Austin before its merger with Dibrell. However, DIMON had initially been unable to sell off the flower business because, according to the rules on pooling-of-interest mergers, a tax penalty would have been imposed on shareholders.

At the end of 1997 DIMON was processing about 3.3 billion of the 12 billion pounds of tobacco produced worldwide each year to produce 5.5 trillion cigarettes a year. Its share of the global leaf-tobacco market was 37 percent. During 1998 DIMON purchased tobacco in about 32 countries and sold to manufacturers in about 60 countries. Approximately 42 percent of the dollar value purchased by the company was bought in the United States. Brazil (14 percent) and Zimbabwe (nine percent) followed. In addition to its factories in Danville, Farmville, and Kinston, DIMON was maintaining three in Brazil, two in Germany and Turkey, and one each in Greece, Italy, Malawi, Thailand, and Zimbabwe. Work on a factory in Tanzania was to be completed in late 1998.

Principal Subsidiaries

Contentnea, Inc.; Kin-Farm, Inc.; DIMON International Tabak B.V. (Netherlands); DIMON International A.G. (Switzerland); Olima Holdings AG (Switzerland); DIMON International Tabak AG (S.A. Ltd.) (Switzerland); Intabex Netherlands B.V.; DIMON Do Brasil Tabacos Ltda. (Brazil); Intabex Holdings Worldwide S.A. (Luxembourg); Compania de Filipinas, S.A. (Spain); DIMON Exportadora de Fumos Ltda. (Brazil).