SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 1-9875
STANDARD COMMERICAL CORPORATION
Incorporated under the laws of I.R.S. Employer
North Carolina Identification No. 13-1337610
2201 MILLER ROAD, WILSON, NORTH CAROLINA 27893
TELEPHONE NUMBER (919)291-5507
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
_______________________ ___________________________________________
COMMON STOCK, $0.20 PAR VALUE NEW YORK STOCK EXCHANGE
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 13(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
-----
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED TO THE BEST
OF REGISTRANT'S KNOWLEDGE IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF THE
REGISTRANT. $143,360,000.
AT JUNE 11, 1997 THERE WERE 12,558,800 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
<PAGE>
PART II
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is principally engaged in purchasing, processing, storing,
selling and shipping leaf tobacco. The Company also purchases, processes and
sells various types of wool. For both the tobacco and wool business, the ability
to obtain raw materials at favorable prices is an important element of
profitability although it is generally more important for wool than for tobacco
because some customers pay the Company to purchase and process tobacco on a
cost-plus basis. Obtaining raw materials at favorable prices must be coupled
with a thorough knowledge of the types and grades of raw materials to assure the
profitability of processing and blending to a customer's specifications.
Processing is capital intensive and profit therefrom depends upon the volume of
material processed and the efficiency of the factory operations. Due to the much
larger number of dealers and customers for wool and the far more numerous trades
involved, wool revenue tends to be more susceptible to market price fluctuations
than tobacco.
Historically, the cost of the Company's materials, services and supplies
has exceeded 85.0% of revenues. The cost of raw materials, interest expense and
certain processing and freight costs are variable and thus are related to the
level of sales. Short-term borrowings are used to finance raw material inventory
purchases and accordingly the interest expense associated with these purchases
is included in cost of sales. In the wool business, freight charges are also a
significant element of cost of sales. Most procurement costs (other than raw
materials), certain processing costs, and most selling, general and
administrative expenses ("SG&A") are fixed. The major elements of SG&A are
employee costs, including salaries and marketing expenses.
Tobacco sales are generally denominated in U.S. dollars whereas wool
purchases and sales are typically denominated in the currency of the source
country and destination country, respectively. The Company regularly monitors
its foreign exchange position and has not experienced material gains or losses
on foreign exchange fluctuations. The Company enters into forward contracts
solely for the purpose of limiting its exposure to short-term changes in foreign
exchange rates.
Assets and liabilities of foreign subsidiaries are translated at period-end
exchange rates. The effects of these translation adjustments are reported as a
separate component of shareholders' equity. Exchange gains and losses arising
from transactions denominated in a currency other than the functional currency
of the entity involved and translation adjustments in countries with highly
inflationary economies are included in net income.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's Consolidated
Statements of Income as a percentage of sales for the three most recent fiscal
years. Any reference in the table and the following discussion to any given year
is a reference to the Company's fiscal year ended March 31.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Sales........................................................ 100.0% 100.0% 100.0%
Cost of sales
-- Materials, services and supplies....................... 89.9 90.3 90.4
-- Interest............................................... 2.4 3.0 2.9
----- ----- -----
Gross profit............................................ 7.7 6.7 6.7
Selling, general and administrative expenses................. 5.4 5.7 6.6
Restructuring charges........................................ -- 0.9 --
Interest expense............................................. 0.7 0.7 0.8
Interest income.............................................. 0.4 0.3 0.4
Other income (expense), net.................................. 0.4 0.5 1.2
----- ----- -----
Income (loss) before taxes.............................. 2.4 0.2 0.8
Income taxes................................................. 0.9 0.5 1.3
Minority interests........................................... 0.3 0.4 0.8
Equity in earnings (losses) of affiliates.................... 0.1 0.0 (0.4)
----- ----- -----
Income (loss) from continuing operations................ 1.3% (0.7)% (1.7)%
----- ----- -----
----- ----- -----
</TABLE>
COMPARISON OF THE YEAR ENDED MARCH 31, 1997 TO THE YEAR ENDED MARCH 31, 1996
SALES. Sales for 1997 were $1,354.3 million, a decrease of 0.4% from the
prior year. Sales for the tobacco division were $997.4 million, an increase of
7.8% from 1996. The increase in tobacco division sales was due to higher average
prices and improved sales mix. Tobacco volumes sold decreased by 4.8% from the
prior year, which included sales of old crop tobacco. Volume increases in the
United States partially offset declines in other areas.
<PAGE>
Nontobacco sales for 1997 were $356.8 million, a decrease of 17.8% from the
prior year. The decrease in nontobacco sales was primarily due to lower average
wool prices. Wool volumes were lower than the prior year as volume increases in
Argentina, South Africa and the United Kingdom were offset by declines in other
markets as the Company focused its efforts on its scouring and topmaking
operations.
GROSS PROFIT AND COST OF SALES. Gross profit for 1997 increased by $14.2
million from $90.5 million in the prior year to $104.7 million and increased as
a percentage of sales. Gross profit for the tobacco division increased by $4.8
million from $80.5 million, or 8.7% of tobacco division sales, in the prior year
to $85.3 million, or 8.6% of tobacco division sales. The increase in tobacco
division gross profit was due primarily to the 7.8% increase in tobacco division
sales and a 22.2% decrease in interest due to lower average interest rates
during 1997.
Nontobacco gross profit for 1997 increased by $9.4 million from $10.0
million, or 2.3% of nontobacco sales, in the prior year to $19.4 million, or
5.4% of nontobacco sales. The increase in gross profit was due to a 24.7%
decrease in interest for the wool division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 decreased by $4.8 million, primarily as a
result of lower personnel and travel expenses related to the lower headcount and
were lower as a percentage of sales. Selling, general and administrative
expenses for the tobacco division decreased by $1.9 million from $53.5 million,
or 5.8% of tobacco division sales, in the prior year to $51.6 million, or 5.2%
of tobacco division sales.
Nontobacco selling, general and administrative expenses for 1997 decreased
by $2.9 million from $24.1 million, or 5.6% of nontobacco sales, in the prior
year to $21.2 million, or 5.9% of nontobacco sales. The increase in nontobacco
selling, general and administrative expenses as a percentage of sales was due to
the 17.8% reduction in nontobacco sales.
RESTRUCTURING CHARGES. Restructuring charges for 1996 of $12.5 million
($11.0 million after tax) reflect a provision made for the restructuring of the
nontobacco operations. The major components of the restructuring charges relate
to the wool division and include: (i) approximately $2.1 million associated with
the closure of the wool processing facility in Argentina; (ii) approximately
$3.6 million for the write-off of goodwill; (iii) approximately $2.8 million
associated with the write-off of export incentive allowances; and (iv)
approximately $2.5 million of expenses related to the terminated sale of the
wool division and other miscellaneous restructuring costs. To date in Argentina,
the wool processing operations have been discontinued, the factory has been
leased to a third party, 181 employees have been terminated and certain impaired
assets have been written down. Identifiable expenses connected with the closure
of the processing facility included in the fiscal 1996 results of operations
totaled $603,000, including personnel costs of approximately $300,000 and plant
overhead. The Company continues to maintain a sales function in Argentina. In
Australia, operations have been consolidated under one management team to better
and more efficiently serve this market. The wool tops departments in the German
and French companies have been reorganized to streamline their marketing
efforts. The Company has undertaken a feasibility study to improve operational
efficiencies in the French topmaking factory. For 1997, the restructuring
resulted in lower overhead costs of approximately $1.1 million. With the
exception of the export incentive issue, which is expected to be resolved in
fiscal 1998, substantially all incurred amounts relating to the restructuring
had been expended at March 31, 1997. The charge for the export incentive
allowance relates to a subsequently discontinued South African export incentive
program under which a Company claim was initially approved and then subsequently
disallowed. The issue is currently before the Supreme Court of South Africa. The
Company believes that an unfavorable settlement would not have a material impact
on liquidity.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME (EXPENSE), NET. Interest
expense and interest income for 1997 remained essentially constant with the
prior year. Other income (expense), net for 1997 decreased by $1.2 million.
INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS (LOSSES) OF
AFFILIATES. Income taxes increased $6.0 million for 1997 compared to the prior
year. Prior year income tax provisions were required for certain jurisdictions
where profits were earned despite overall pretax losses. Income tax charges or
credits vary as a percentage of pretax income or loss due to differences in tax
rates and relief available in areas where profits are earned or losses are
incurred.
Minority interests for 1997 decreased by $0.9 million due to sales and
earning decreases in the Company's 51.0% owned oriental tobacco businesses in
Greece and Turkey.
Equity in earnings (losses) of affiliates for 1997 increased $1.5 million
from the prior year both in absolute dollars and as a percentage of sales,
primarily due to improved earnings of Far East affiliates.
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations
for 1997 increased by $26.3 million from a loss of $9.4 million in the prior
year to $16.9 million. Income (loss) from discontinued operations in 1996
reflects the reversal of a $10.1 million provision for the loss on the disposal
of the wool division. An agreement to sell this division expired by its terms in
December 1995. Net income for 1997 was $16.9 million, or $1.78 per share,
compared to net income of $0.6 million, or $0.01 per share, for the prior year.
COMPARISON OF THE YEAR ENDED MARCH 31, 1996 TO THE YEAR ENDED MARCH 31, 1995
SALES. Sales for 1996 were $1,359.5 million, an increase of 12.5% from the
prior year. Sales for the tobacco division were $925.5 million, an increase of
22.4% from 1995. The increase in tobacco division sales was due to a 10.4%
increase in volumes, higher average prices and a change in sales mix. Tobacco
sales in the United States achieved record volumes
<PAGE>
despite lower processing for stabilization pools. Gains in Turkey resulted
largely from sales of old crop tobacco purchased from the local monopoly.
Increased demand in Greece combined with the timing of shipments led to
substantial increases in sales. Volume growth continued in Malawi and Zimbabwe
and the Company is continuing to expand in certain secondary markets in Africa.
Nontobacco sales for 1996 were $434.0 million, a decrease of 5.2% from the
prior year. The decrease in nontobacco sales was primarily due to lower wool
volumes, which decreased 13.6% from the prior year. Various factors resulted in
difficult trading conditions in the wool industry. The lowering of worldwide
inventory levels, a drop in European apparel sales, and tighter controls on
imports in China were major factors in the 33.3% year-to-year drop in the
Australian market price indicator. Sales of merino wool for the apparel industry
were affected most drastically. The Company believes that wool prices will
slowly rise over the next few years as the Australian stockpile is further
reduced.
GROSS PROFIT AND COST OF SALES. Gross profit for 1996 increased by $9.0
million from $81.5 million in the prior year to $90.5 million and remained
constant as a percentage of sales. Interest expense included in cost of sales
increased proportionately with the increase in sales. In addition, during the
year ended March 31, 1995 the Company wrote-off approximately $5.3 million of
inventory, primarily as a result of poor tobacco market conditions in prior
years, as compared to write-offs of $1.4 million during fiscal 1996. Gross
profit for the tobacco division increased by $31.3 million from $49.2 million,
or 6.5% of tobacco division sales, in the prior year to $80.5 million, or 8.7%
of tobacco division sales. The increase in tobacco division gross profit was
primarily due to the 22.4% increase in the tobacco division sales.
Nontobacco gross profit for 1996 decreased by $22.2 million from $32.2
million, or 7.0% of nontobacco sales, in the prior year to $10.0 million, or
2.3% of nontobacco sales. The decrease in nontobacco gross profit was due to the
5.2% decrease in sales and a 21.3% increase in interest due to higher average
rates paid by the wool division on short-term borrowings incurred while the
Company attempted to sell the wool division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 decreased by $2.9 million and decreased as a
percentage of sales. Selling, general and administrative expenses for the
tobacco division decreased by $3.8 million from $57.3 million, or 7.6% of
tobacco division sales, in the prior year to $53.5 million, or 5.8% of tobacco
division sales. The decrease in tobacco division selling, general and
administrative expenses as a percentage of sales in 1996 was due to significant
provisions for receivables of $9.2 million, including a $6.5 million write-off
in Italy and approximately $2.0 million of write-offs in the former Soviet Union
due to deteriorating business conditions in that market. Also contributing to
the decrease were debt restructuring and redundancy costs of $2.0 million and
$0.5 million, respectively, that were taken in 1995.
Nontobacco selling, general and administrative expenses for 1996 increased
by $0.8 million from $23.3 million, or 5.1% of nontobacco sales, in the prior
year to $24.1 million, or 5.6% of nontobacco sales. The increase in nontobacco
selling, general and administrative expenses as a percentage of sales was
primarily due to the effect of lower prices on sales.
RESTRUCTURING CHARGES. Restructuring charges for 1996 of $12.5 million
($11.0 million after tax) reflect a provision made for the restructuring of the
nontobacco operations. The major components of the restructuring charges relate
to the wool division and include: (i) approximately $2.1 million for closure of
a wool processing facility in Argentina; (ii) approximately $3.6 million for the
write-off of goodwill; (iii) approximately $2.8 million associated with the
write-off of export incentive allowances; and (iv) approximately $2.5 million
for expenses related to the terminated sale of the wool division and other
miscellaneous restructuring costs.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME (EXPENSE), NET. Interest
expense and interest income for 1996 remained essentially constant with the
prior year. Other income (expense), net for 1996 decreased by $7.3 million from
1995, as a $13.5 million pretax gain on the disposal of assets in Korea in 1995
more than offset a 1996 gain on the sale of marketable securities in Turkey and
$0.5 million in proceeds from staff training subsidies in Greece provided by the
European Economic Commission (EEC) as part of a standards and practices
harmonization to facilitate membership in the EEC program.
INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS (LOSSES) OF
AFFILIATES. Income taxes for 1996 totaled $6.8 million compared to $16.4 million
the prior year. Income taxes in 1995 included a provision of $1.8 million for an
income tax assessment under appeal and a nonrecurring charge of $1.6 million on
dividends remitted by a foreign subsidiary that could not be offset by foreign
tax credits. In both years, income tax provisions were required for certain
jurisdictions where profits were earned despite overall pretax losses. Tax
charges or credits vary as a percentage of pretax income or loss due to
differences in tax rates and relief available in areas where profits are earned
or losses are incurred.
Minority interests for 1996 decreased by $4.8 million from the prior year.
The portion of income attributable to minority interest of $9.6 million in 1995
included the gain on the sale of property in Korea discussed above.
Equity in earnings (losses) of affiliates for 1996 decreased by $4.4
million from the prior year. The Company's share of losses in affiliates
decreased to $69,000 in 1996 from $4.5 million in 1995 primarily because the
prior year included losses by an Italian affiliate which became a consolidated
subsidiary in December 1996.
INCOME (LOSS) FROM CONTINUING OPERATIONS. The loss from continuing
operations for 1996 decreased by $11.1 million from the prior year. Income
(loss) from discontinued operations reflects the $10.1 million provision made in
1995 for a loss on the disposal of the wool division. When the sales agreement
lapsed in December 1995 due principally to difficulty in
obtaining certain regulatory approvals and declining market conditions, the
provision was reversed in 1996 and overall net income in 1996 was $608,000, or
$0.01 per share, compared to a net loss of $30.5 million, or $3.34 per share, in
1995.
<PAGE>
SEASONALITY AND QUARTERLY RESULTS
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and variations in the mix of
sales, causes quarterly fluctuations in financial results.
LIQUIDITY AND CAPITAL EXPENDITURES
Working capital at March 31, 1997 was $120.1 million, up from $55.8 million
at March 31, 1996. Most of the increase was due to the application of the $47.0
million of net proceeds of the Equity Offering to reduce short-term borrowings.
The remaining increase was due to contributions from operating activities, which
further reduced short-term borrowings and the current portion of long-term debt.
Capital expenditures were $17.3 million, $12.2 million and $12.8 million
for the fiscal years ended March 31, 1995, 1996, and 1997. The Company expects
capital expenditures to total approximately $17.4 million for the fiscal year
ending March 31, 1998. Capital expenditures for 1997 related mostly to expansion
of warehouse facilities in Greece and routine expenditures in the U.S. tobacco
division. The Company continues to closely monitor its inventories which
fluctuate depending on seasonal factors and business conditions.
For 1997, cash provided by operating activities totaled $34.7 million
primarily due to improved operating earnings and a $22.7 million increase in
payables, which more than offset a $22.8 million increase of receivables related
to higher sales. Cash employed in investing activities of $4.4 million for 1997
included capital expenditures of $12.8 million mostly for tobacco activities of
$11.0 million, including $4.4 million in Greece, $3.0 million in the United
States, $1.8 million for the nontobacco segment and $0.5 million in Turkey, net
of asset dispositions of $8.4 million.
FINANCING ARRANGEMENTS. On August 1, 1997, the Issuer consummated the sale
and issuance of the Initial Notes in aggregate principal amount of $115.0
million. Simultaneously, the Issuer and two of its subsidiaries (collectively,
the "Borrowing Subsidiaries") entered into the Global Bank Facility. The Global
Bank Facility provides for borrowings of $200.0 million for working capital and
other general corporate purposes, and bears interest initially at LIBOR plus
1.0%. The borrowings under the Global Bank Facility are guaranteed by the Parent
and certain of its tobacco subsidiaries and secured by substantially all of the
assets of the Issuer and the Borrowing Subsidiaries and a pledge of all of the
capital stock of the Parent's subsidiaries not otherwise pledged to secure other
obligations. The Issuer has guaranteed the obligations of each of the Borrowing
Subsidiaries and each of the Borrowing Subsidiaries will guarantee the
obligations of one another under this facility. The Global Bank Facility will
mature on the third anniversary of the Refinancing Plan.
As of March 31, 1997, the Company had local lines totaling approximately
$265.0 million for tobacco operations in Africa, Europe and the Far East.
Separate facilities were in place for the wool operations totaling approximately
$127.0 million. In 1997, the Company's total borrowing requirements ranged from
a high of $372.7 million in November 1996 to a low of $294.9 million in April
1996. The Company incurs short-term debt to finance its seasonally adjusted
working capital needs, which typically peak in the third quarter, under
unsecured lines of credit with several banks.
Based on the improving outlook for the business, management anticipates
that it will be able to service the interest and principal on its indebtedness,
maintain adequate working capital and provide for capital expenditures out of
operating cash flow and available borrowings under its credit facilities. The
Company's future operating performance will be subject to economic conditions
and to financial, political, agricultural and other factors, many of which are
beyond the Company's control.
On November 13, 1991, the Parent issued $69.0 million of its 7 1/4%
Convertible Subordinated Debentures due March 31, 2007 (the "Debentures"). The
Debentures are currently convertible into shares of the Parent's Common Stock at
a
<PAGE>
conversion prices (as adjusted for subsequent stock dividends) of $29.38. The
Debentures are subordinated in right of payment to all senior indebtedness, as
defined, of the Parent. As of March 31, 1995, the Debentures became redeemable
in whole or in part at the option of the Parent at any time. Beginning March 31,
2003, the Parent will be obligated to make annual sinking fund payments
sufficient to retire at least 5% of the principal amount of issued Debentures
reduced by earlier conversions, redemptions, and repurchases. Holders of the
Debentures have the right to demand redemption under certain conditions,
including a change in control of the Parent, certain mergers and consolidations
and certain distributions with respect to the Parent's capital stock. The Parent
may elect to redeem Debentures under these circumstances in Common Stock in lieu
of cash.
As a result of the recent Equity Offering, which appreciably broadened the
Parent's shareholder base, the Board of Directors has voted to discontinue
issuing quarterly stock dividends. Certain debt agreements to which the Parent
and its subsidiaries are parties contain financial covenants which could
restrict the payment of cash dividends. Under its most restrictive covenant, the
Parent had approximately $17.5 million of retained earnings available for
distribution as dividends at March 31, 1997. At this time, it is uncertain when
or if the Board will resume the payment of cash dividends.
On January 31, 1997, the Company terminated the Employee Stock Ownership
Plan (the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of
approximately $2.5 million in cash and the issuance of 14,075 shares of Common
Stock. The remaining 62,875 shares of unallocated ESOP Preferred Stock were
cancelled.
TAX AND REPATRIATION MATTERS
The Parent and its subsidiaries are subject to income tax laws in each of
the countries in which they do business through wholly-owned subsidiaries and
through affiliates. The Company makes a comprehensive review of the income tax
requirements of each of its operations, files appropriate returns and makes
appropriate income tax planning analyses directed toward the minimization of its
income tax obligations in these countries. Appropriate income tax provisions are
determined on an individual subsidiary level and at the corporate level on both
an interim and annual basis. The Parent provides valuation allowances on
deferred tax assets for its subsidiaries that have a history of losses.
Management cannot assert that there will likely be sufficient profits generated
by these subsidiaries in the near future to offset these losses. The change
during 1997 is due to the utilization of tax loss carryforwards for which no
benefit had been recognized in prior years. The loss carryforwards which give
rise to the valuation allowances will expire in 2001 and thereafter. These
processes are followed using an appropriate combination of internal staff at
both the subsidiary and corporate levels as well as independent outside advisors
in review of the various tax laws and in compliance reporting for the various
operations.
The undistributed earnings of certain foreign subsidiaries are not subject
to additional foreign income taxes nor considered to be subject to U.S. income
taxes unless remitted as dividends. The Company intends to reinvest such
undistributed earnings indefinitely; accordingly, no provision has been made for
U.S. taxes on those earnings. The Parent regularly reviews the status of the
accumulated earnings of each of its U.S. and foreign subsidiaries as part of its
overall financing plans.
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF STANDARD COMMERCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Standard
Commercial Corporation as of March 31, 1997 and 1996 and the related
consolidated statements of income and retained earnings and of cash flows for
each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at March 31, 1997
and 1996 and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 18, 1997
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
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<S> <C> <C>
ASSETS
Cash.................................................................................. $ 41,117 $ 78,688
Receivables (Note 3).................................................................. 266,560 252,117
Inventories (Notes 1 and 4)........................................................... 256,519 259,781
Prepaid expenses...................................................................... 6,285 3,690
Marketable securities (Note 1)........................................................ 837 5,325
-------- --------
Current assets...................................................................... 571,318 599,601
Property, plant and equipment (Notes 1 and 5)......................................... 122,013 134,498
Investment in affiliates (Notes 1 and 6).............................................. 12,533 11,442
Other assets (Notes 1, 7 and 11)...................................................... 29,821 37,283
-------- --------
Total assets........................................................................ $735,685 $782,824
-------- --------
-------- --------
LIABILITIES
Short-term borrowings (Note 8)........................................................ $272,325 $373,625
Current portion of long-term debt (Note 10)........................................... 8,985 11,665
Accounts payable (Note 9)............................................................. 141,145 133,737
Taxes accrued (Note 16)............................................................... 28,758 24,776
-------- --------
Current liabilities................................................................. 451,213 543,803
Long-term debt (Note 10).............................................................. 70,252 31,818
Convertible subordinated debentures (Note 10)......................................... 69,000 69,000
Retirement and other benefits (Note 11)............................................... 19,127 18,498
Deferred taxes (Notes 1 and 16)....................................................... 5,819 9,632
Commitments and contingencies (Note 12)............................................... -- --
-------- --------
Total liabilities................................................................... 615,411 672,751
-------- --------
MINORITY INTERESTS (Note 1)........................................................... 30,312 27,473
-------- --------
ESOP redeemable preferred stock (Note 13)............................................. -- 8,748
Unearned ESOP compensation (Note 13).................................................. -- (6,320)
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $1.65 par value (Note 13)
Authorized shares 1,000,000; Issued none (1996 -- 87,477 to ESOP)
Common stock, $0.20 par value (Note 13)
Authorized shares 100,000,000; 12,126,270 and 11,624,275 shares issued
March 31, 1997 and 1996 respectively................................................ 2,425 2,325
Additional paid-in capital (Note 13).................................................. 50,324 43,660
Unearned restricted stock plan compensation (Note 13)................................. (321) (435)
Treasury stock at cost (Note 13), 2,591,790 and 2,490,661 shares at
March 31, 1997 and 1996, respectively............................................... (3,799) (2,384)
Retained earnings..................................................................... 58,089 46,450
Cumulative translation adjustments (Notes 1 and 14)................................... (16,756) (9,444)
-------- --------
Total shareholders' equity.......................................................... 89,962 80,172
-------- --------
Total liabilities and equity........................................................ $735,685 $782,824
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales.................................................... $1,354,270 $1,359,450 $1,213,565
Cost of sales
-- Materials, services and supplies (Note 4)............ 1,217,380 1,227,568 1,097,119
-- Interest............................................. 32,197 41,369 34,981
---------- ---------- ----------
Gross profit........................................ 104,693 90,513 81,465
Selling, general and administrative expenses............. 72,782 77,608 80,509
Restructuring charges (Note 2)........................... -- 12,500 --
Other interest expense................................... 9,920 9,559 9,947
Other income (expense), net (Note 15).................... 10,254 11,412 18,971
---------- ---------- ----------
Income (loss) before taxes.......................... 32,245 2,258 9,980
Income taxes (Notes 1 and 16)............................ 12,782 6,836 16,370
---------- ---------- ----------
Income (loss) after taxes........................... 19,463 (4,578) (6,390)
Minority interests (Note 1).............................. (3,938) (4,795) (9,634)
Equity in earnings (losses) of affiliates (Note 6)....... 1,412 (69) (4,470)
---------- ---------- ----------
Income (loss) from continuing operations............ 16,937 (9,442) (20,494)
Income (loss) from discontinued operations
(Note 2)............................................... -- 10,050 (10,050)
---------- ---------- ----------
Net income (loss)................................... 16,937 608 (30,544)
ESOP preferred stock dividends, net of tax............... (347) (474) (485)
---------- ---------- ----------
Net income (loss) applicable to common stock........ 16,590 134 (31,029)
Retained earnings at beginning of year................... 46,450 50,530 84,807
Common stock dividends................................... (4,951) (4,214) (3,248)
---------- ---------- ----------
Retained earnings at end of year.................... $ 58,089 $ 46,450 $ 50,530
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per common share (Note 1):
Primary -- from continuing operations.................... $ 1.78 $ (1.07) $ (2.25)
-- from discontinued operations................. -- $ 1.08 $ (1.09)
-- net.......................................... $ 1.78 $ 0.01 $ (3.34)
-- average shares outstanding................... 9,314 9,307 9,288
Fully diluted -- net..................................... $ 1.69 * *
-- average shares outstanding.............. 11,793 * *
</TABLE>
- ---------------
* Not applicable because fully diluted calculations included adjustments which
are antidilutive.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................ $ 16,937 $ 608 $ (30,544)
Depreciation and amortization.................................. 20,866 24,393 16,413
Minority interests............................................. 3,938 4,795 9,634
Deferred income taxes.......................................... (484) (968) 793
Undistributed losses of affiliates net of dividends received... (1,268) 166 4,626
Gain on disposition of property, plant and equipment........... (2,252) (1,093) (13,581)
Loss (income) from discontinued operations..................... -- (10,050) 10,050
Other.......................................................... 2,483 (5,244) 3,404
-------- -------- ---------
40,220 12,607 795
Net changes in working capital other than cash
Receivables.................................................... (22,807) (24,752) 59,665
Inventories.................................................... (5,475) 85,901 38,342
Current payables............................................... 22,721 (23,909) (3,382)
-------- -------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES............................ 34,659 49,847 95,420
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment
-- additions................................................... (12,816) (12,211) (17,328)
-- dispositions............................................... 5,072 3,151 16,274
Minority interest................................................ -- (7,740) --
Business (acquisitions) dispositions............................. 3,304 440 (2,605)
-------- -------- ---------
CASH USED FOR INVESTING ACTIVITIES............................... (4,440) (16,360) (3,659)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings............................... 10,405 9,645 10,442
Repayment of long-term borrowings................................ (21,131) (14,968) (29,113)
Net change in short-term borrowings.............................. (54,257) (5,330) (86,406)
Net proceeds of equity offering.................................. -- -- --
Dividends paid, net of tax....................................... (347) (474) (485)
Purchase and retirement of ESOP Preferred Stock.................. (2,460) -- --
Other............................................................ -- 114 213
-------- -------- ---------
CASH USED FOR FINANCING ACTIVITIES............................... (67,790) (11,013) (105,349)
-------- -------- ---------
Increase/(decrease) in cash for period........................... (37,571) 22,474 (13,588)
Cash at beginning of period...................................... 78,688 56,214 69,802
-------- -------- ---------
CASH AT END OF PERIOD............................................ $ 41,117 $ 78,688 $ 56,214
-------- -------- ---------
-------- -------- ---------
Cash payments for
-- interest.................................................... $ 42,790 $ 44,426 $ 47,588
-- income taxes............................................... $ 9,057 $ 6,433 $ 8,441
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
a) CONSOLIDATION. The accounts of all subsidiary companies are included in
the consolidated financial statements and all intercompany transactions have
been eliminated. Investments in affiliated companies are accounted for by the
equity method of accounting.
b) FOREIGN CURRENCY. Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates. The effects of these translation
adjustments are reported in a separate component of shareholders' equity.
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved and translation
adjustments in countries with highly inflationary economies are included in net
income.
c) MARKETABLE SECURITIES. Marketable securities are classified as available
for sale and consist of liquid equity securities. The specific identification
method is used to determine gains and losses when securities are sold.
d) INTANGIBLE ASSETS. The Company's policy is to amortize goodwill on a
straight line basis over its estimated useful life not to exceed 40 years. The
Company assesses recoverability of goodwill based on management's projections of
future cash flows of acquired businesses.
e) PROPERTY, PLANT AND EQUIPMENT. The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations over
the estimated useful lives, primarily 3-30 years, of the assets on a
straight-line basis.
f) INVENTORIES. Inventories, which are primarily packed leaf tobacco and
wool, are stated at the lower of specific cost or estimated net realizable
value. Cost of tobacco includes a proportion of interest, buying commission
charges and factory overheads which can be related directly to specific items of
inventory. Cost of wool includes all direct costs except interest. Items are
removed from inventory on an actual cost basis.
g) REVENUE RECOGNITION. Sales and revenue are recognized on the passage of
title.
h) INCOME TAXES. The Company provides deferred income taxes on differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss carryforwards.
i) MINORITY INTERESTS. Minority interests represent the interest of third
parties in the net assets of certain subsidiary companies.
j) COMPUTATION OF EARNINGS PER COMMON SHARE. Primary earnings per share are
computed by dividing earnings, less preferred stock dividends payable to ESOP,
net of tax, by the weighted average number of shares outstanding during each
year. Earnings per share and weighted average number of shares outstanding for
all prior periods have been restated to give effect to the increase in number of
shares outstanding resulting from quarterly stock dividends. Fully diluted
earnings per share assumes the conversion into common stock of all the 7 1/4%
Convertible Subordinated Debentures and ESOP preferred stock at the date of
issue, thereby increasing the weighted average number of shares deemed to be
outstanding during each period, and adding back to primary earnings the
after-tax interest expense.
k) NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS. In February 1997, Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE, was issued. This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. The adoption of this
Statement will not have a material impact on the Company's financial statements.
In October 1995, Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued. Statement No. 123, which
was effective for the Company beginning April 1, 1996, requires expanded
disclosure
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES -- Continued
of stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will apply APB No. 25 to its
stock-based compensation awards to employees and will disclose the pro forma
effect on net income and earnings per share.
l) LONG-LIVED ASSETS. As required, the Company adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Accordingly,
long-lived assets are reviewed for impairment on a market-by-market basis
whenever events or changes in the circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is required, the
projected future undiscounted future cash flows attributable to each market
would be compared to the carrying value of the long-lived assets (including an
allocation of goodwill, if appropriate) of that market if a write-down to fair
value is required. The Company also evaluates the remaining useful lives to
determine whether events and circumstances warrant revised estimates of such
lives.
m) USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
n) RECLASSIFICATION. Certain amounts in prior year statements have been
reclassified for conformity with current statement presentation.
NOTE 2 -- DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
a) DISCONTINUED OPERATIONS. In fiscal 1995, the Company entered into an
agreement to sell its wool operations. During the third quarter of fiscal 1996,
the proposed sale was terminated. Accordingly, the results of operations of the
wool business for the prior periods have been reclassified from discontinued
operations to continuing operations. The estimated loss on disposal of $10.1
million in 1995 was reversed in 1996. The estimated loss was determined by
deducting the $56 million estimated net asset value of discontinued wool
operations (i.e., sales price) from the $66.1 million value of net assets held
for sale.
Assets, liabilities, revenues and operating profits (losses) for the fiscal
year ending 1995, the year the wool operations were reported as discontinued
operations, were as follows:
<TABLE>
<CAPTION>
1995
--------------
<S> <C>
(IN THOUSANDS)
Total assets....................................................................................... $294,290
Total liabilities.................................................................................. 216,326
Revenues........................................................................................... 440,112
Pretax operating income............................................................................ 10,002
</TABLE>
In December 1993, the Company completed the sale of its Caro-Green Nursery
business to Zelenka Nursery Inc. At March 31, 1997, the consolidated balance
sheet includes notes receivable from the purchaser totaling approximately $2.7
million.
b) RESTRUCTURING CHARGES. As a result of the termination of the sale of the
wool operations, the Company implemented a reorganization plan for its
nontobacco business and determined that a pretax restructuring charge of $12.5
million ($11.0 million after-tax) was appropriate. The major components of the
restructuring charges relate to the wool division and
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES -- Continued
include: (i) approximately $2.1 million associated with the closure of the wool
processing facility in Argentina; (ii) approximately $3.6 million for the
write-off of goodwill; (iii) approximately $2.8 million associated with the
write-off of export incentive allowances; and (iv) approximately $2.5 million of
expenses related to the terminated sale of the wool division and other
miscellaneous restructuring costs. To date in Argentina, the wool processing
operations have been discontinued, the factory has been leased to a third party,
181 employees have been terminated and certain impaired assets have been written
down. Identifiable expenses connected with the closure of the processing
facility included in the fiscal 1996 results of operations totaled $603,000,
including personnel costs of approximately $300,000 and plant overhead. The
Company continues to maintain a sales function in Argentina. In Australia,
operations have been consolidated under one management team to better and more
efficiently serve this market. The wool tops departments in the German and
French companies have been reorganized to streamline their marketing efforts.
The Company has undertaken a feasibility study to improve operational
efficiencies in the French topmaking factory. For the year ended March 31, 1997,
the restructuring resulted in lower depreciation, amortization and personnel
costs of approximately $1.1 million. With the exception of the export incentive
issue, which is expected to be resolved in fiscal 1998, substantially all
incurred amounts related to the restructuring had been expended at March 31,
1997. The charge for the export incentive allowance relates to a subsequently
discontinued South African export incentive program under which a Company claim
was initially approved and then subsequently disallowed. The issue is currently
before the Supreme Court of South Africa. The Company believes that an
unfavorable settlement would not have a material impact on liquidity.
NOTE 3 -- RECEIVABLES
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts........................................................................................ $180,926 $173,413
Advances to suppliers................................................................................. 48,349 36,701
Affiliated companies.................................................................................. 9,773 17,357
Other................................................................................................. 31,113 30,196
-------- --------
270,161 257,667
Allowances for doubtful accounts...................................................................... (3,601) (5,550)
-------- --------
$266,560 $252,117
-------- --------
-------- --------
</TABLE>
NOTE 4 -- INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Tobacco............................................................................. $181,349 $160,721
Nontobacco.......................................................................... 75,170 99,060
-------- --------
$256,519 $259,781
-------- --------
-------- --------
</TABLE>
Tobacco inventories at March 31, 1997 and 1996 included capitalized
interest, totaling $4.3 million and $4.2 million, and valuation reserves for
tobacco and wool of $4.9 million and $5.2 million, respectively. Inventory
valuation provisions included in cost of sales totaled approximately $0.9
million, $1.4 million and $5.3 million in 1997, 1996 and 1995, respectively.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Land.................................................................................................. $ 14,063 $ 15,318
Buildings............................................................................................. 77,116 76,464
Machinery and equipment............................................................................... 131,124 133,959
Furniture and fixtures................................................................................ 13,157 12,023
Construction in progress.............................................................................. 2,322 1,210
-------- --------
237,782 238,974
Accumulated depreciation.............................................................................. (115,769) (104,476)
-------- --------
$122,013 $134,498
-------- --------
-------- --------
</TABLE>
Depreciation expense was $18.1 million, $18.1 million and $14.7 million in
1997, 1996 and 1995, respectively.
NOTE 6 -- INVESTMENT IN AFFILIATES
a) Net investment in affiliated companies are represented by the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Net current assets (liabilities)................................................................... $ 4,421 $ 4,445
Property, plant and equipment...................................................................... 29,446 24,156
Other long-term assets (liabilities)............................................................... (132) 1,977
Interests of other shareholders.................................................................... (21,033) (19,018)
-------- --------
Company's interest................................................................................. 12,702 11,560
Provision for withholding taxes.................................................................... (169) (118)
-------- --------
Net investments.................................................................................... $ 12,533 $ 11,442
-------- --------
-------- --------
</TABLE>
b) The results of operations of affiliated companies were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Sales................................................................................. $119,022 $ 82,527 $ 99,236
-------- -------- --------
Income (loss) before taxes............................................................ $ 5,627 $ 2,493 (2,468)
Income taxes.......................................................................... 2,104 2,259 1,074
-------- -------- --------
Net income (loss)..................................................................... $ 3,523 $ 234 $ (3,542)
-------- -------- --------
Company's share....................................................................... $ 1,463 $ (260) $ (4,567)
Withholding taxes..................................................................... (51) 191 97
-------- -------- --------
Equity in earnings (losses)........................................................... $ 1,412 $ (69) $ (4,470)
-------- -------- --------
Dividends received.................................................................... $ 148 $ 96 $ 154
-------- -------- --------
-------- -------- --------
</TABLE>
c) Balances with the unconsolidated affiliates are for the procurement of
tobacco inventory as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Purchases of tobacco...................................................................... $41,952 $18,932 $26,421
Receivables from unconsolidated affiliates................................................ 9,773 17,357 17,190
Advances on purchases of tobacco.......................................................... 10,394 12,615 15,477
Payables to unconsolidated affiliates..................................................... 3,449 18 1,098
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- INVESTMENT IN AFFILIATES -- Continued
The Company's significant affiliates and percentage of ownership at March 31,
1997 follow: Adams International Ltd, 49.0% (Thailand), Siam Tobacco Export
Corporation Ltd, 49.0% (Thailand), Tobacco Processors (Lilongwe) Ltd, 51.9%
(Malawi) and Independent Wool Dumpers Pty Ltd, 16.8% (Australia). Audited
financial statements of affiliates are obtained annually.
NOTE 7 -- OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Cash surrender value of life insurance policies (face amount $42,765)................................... $12,775 $12,567
Policy loans............................................................................................ 6,246 6,780
------- -------
6,529 5,787
Bank deposits........................................................................................... 418 118
Receivables............................................................................................. 14,588 17,851
Due from affiliates..................................................................................... 39 823
Investments............................................................................................. 2 3,294
Excess of purchase price of subsidiaries over net assets acquired -- net of accumulated amortization of
$7,354 (1996 -- $7,231)............................................................................... 4,224 4,347
Other................................................................................................... 4,021 5,063
------- -------
$29,821 $37,283
------- -------
------- -------
</TABLE>
NOTE 8 -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Weighted average interest on borrowings at end of year................................... 8.0% 8.5% 9.8%
Weighted average interest rate on borrowings during the year (1)......................... 8.0% 9.0% 9.2%
Maximum amount outstanding at any month-end.............................................. $372,747 $433,646 $450,590
Average month-end amount outstanding..................................................... $337,178 $388,875 $401,923
Amount outstanding at year-end (2)....................................................... $272,325 $373,625 $378,955
</TABLE>
- ---------------
(1) Computed by dividing short-term interest expense and amortized financing
costs by average short-term debt outstanding.
(2) During the first quarter of fiscal 1998 the Company completed a secondary
issue of 3,022,500 shares, from which the $47.0 million proceeds have been
applied as a reduction of short-term borrowings. Accordingly, since the
application of the equity proceeds will preclude the use of working capital
to satisfy these obligations, $47.0 million has been reclassified as
long-term debt in accordance with SFAS 6, "Classification of Short-Term
Obligations Expected to be Refinanced". For periods after March 31, 1997,
the equity proceeds of $47.0 million will be reported as an increase in
shareholders' equity. This amount has been excluded from the calculation of
average month-end amounts outstanding.
At March 31, 1997, under agreements with various banks, total short-term
credit facilities for continuing operations of $646.9 million (1996 -- $694.0
million) were available to the Company of which $71.0 million (1996 -- $53.0
million) were being utilized for letters of credit and guarantees and $299.0
million (1996 -- $287.0 million) were unused.
The Company's revolving credit facilities at March 31, 1997 included a
$100.0 million facility for U.S. tobacco operations and a $155.0 million master
credit facility for non-U.S. tobacco operations the ("MFA"), both expiring in
June 1998, in addition to local lines of approximately $265.0 million. Also,
separate facilities totaling $127.0 million are in place for wool operations.
At March 31, 1997 substantially all of the Company's assets were pledged
against current and long-term borrowings.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts........................................................................................ $108,476 $100,286
Affiliated companies.................................................................................. 3,449 18
Other accruals and payables........................................................................... 29,220 33,433
-------- --------
$141,145 $133,737
-------- --------
-------- --------
</TABLE>
NOTE 10 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
6.48% fixed rate loans repayable annually through 1998.................................................. $ 3,637 $ 6,472
Floating rate loan at prime through March 1999 (1997 average 8.25%)..................................... 8,667 --
10.4% loan repayable annually through 2000.............................................................. 4,900 6,000
Floating rate note, at 82% of prime, repayable in 2001 (1997 average 8.25%)............................. 2,940 2,940
11.95% loan repayable through 2001...................................................................... 2,346 3,129
Italian prime + 1/8% payable through 2002 (1997 average 10.6%).......................................... 3,458 4,273
9.82% fixed rate loan repayable annually through 2005................................................... 3,282 3,566
9.25% note repayable through 2005....................................................................... 1,762 1,978
9.25% fixed rate loan repayable annually through 1997................................................... -- 820
Floating rate loan at 1.5% above LIBOR repayable annually through 1998.................................. -- 1,175
Floating rate loan, at 1.75% above LIBOR, repayable quarterly through March 1999........................ -- 1,535
Senior notes, at 1.75% above LIBOR repayable quarterly through March 1999............................... -- 3,103
Floating rate loan, at 1.75% above three-month negotiable CD rate, repayable quarterly through March
2002.................................................................................................. -- 6,533
Other................................................................................................... 1,202 1,959
------- -------
32,194 43,483
Current portion......................................................................................... (8,985) (11,665)
Revolving credit facilities (See Note 8)................................................................ 47,043 --
------- -------
$70,252 $31,818
------- -------
------- -------
</TABLE>
Long-term debt maturing after one year (excluding the reclassification of
the $47.0 million net proceeds of the equity offering as discussed in Note 8) is
as follows: 1999 -- $11,537; 2000 -- $3,963; 2001 -- $4,760; 2002 -- $716; and
thereafter -- $2,233.
At March 31, 1997, the Company reclassified $47.0 million of borrowings
under its revolving credit facilities as long-term debt. See Note 8 for a
discussion of the reclassification of $47.0 million at March 31, 1997. Because
the proceeds from these transactions were applied to reduce short-term
borrowings, and obviated the use of working capital to satisfy these short term
obligations, the Company reclassified these amounts per SFAS 6. The Company had
both the intent and ability to refinance these amounts on a long-term basis.
Certain debt agreements to which the Parent and its subsidiaries are
parties contain financial covenants (relating to, among other things: minimum
net worth and interest coverage ratios; and limits on capital expenditures,
permitted investments, indebtedness advances and liens) which could restrict the
payment of cash dividends.
CONVERTIBLE SUBORDINATED DEBENTURES
On November 13, 1991 the Company issued $69.0 million of 7 1/4% Convertible
Subordinated Debentures due March 31, 2007. Adjusted for subsequent stock
dividends, the debentures currently are convertible into shares of common stock
of the Company at a conversion price of $29.38. The debentures are subordinated
in right of payment to all senior indebtedness, as
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- LONG-TERM DEBT -- Continued
defined, of the Company, and as of March 31, 1995 became redeemable in whole or
in part at the option of the Company any time. Beginning March 31, 2003 the
Company will make annual payments to a sinking fund which will be sufficient to
retire at least 5% of the principal amount of issued Debentures reduced by
earlier conversions, redemptions and repurchases.
At March 31, 1997, substantially all of the Company's assets were pledged
against current and long-term borrowings.
NOTE 11 -- BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time salaried employees in the United States and a
Supplemental Executive Retirement Plan ("SERP") covering benefits otherwise
limited by Section 401(a)(17) (Compensation Limitation) and Section 415
(Benefits Limitation) of the Internal Revenue Code. Various other pension plans
are sponsored by foreign subsidiaries. Benefits under the plans are based on
employees' years of service and eligible compensation. Foreign plans which are
significant and considered to be defined benefit pension plans have adopted
Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS. The Company's policy is to contribute amounts to the U.S. plan
sufficient to meet or exceed funding requirements of federal benefit and tax
laws.
U.S. PLAN
A summary of pension costs follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost -- benefits earned during the year..................................................... $ 498 $ 433 $ 421
Interest cost on projected benefit obligation....................................................... 649 549 501
Recognized return on plan assets.................................................................... (832) (670) (583)
Net amortization.................................................................................... (29) (72) (37)
----- ----- -----
Net pension cost.................................................................................... $ 286 $ 240 $ 302
----- ----- -----
----- ----- -----
</TABLE>
The funded status of the U.S. plans, which include a book-reserve SERP, at
March 31 is shown below:
<TABLE>
<CAPTION>
ABO EXCEEDS
ASSETS EXCEED ABO ASSETS
------------------- -----------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- ------ ------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
-- vested............................................................... $ 7,265 $ 6,429 $ -- $ --
-- nonvested benefits 44 56 486 334
------- ------- ------ ------
Accumulated benefit obligation................................................ 7,309 6,485 486 334
Benefits attributable to projected salaries................................... 2,142 1,989 51 152
------- ------- ------ ------
Projected benefit obligation.................................................. 9,451 8,474 537 486
Plan assets at fair value..................................................... 11,505 10,391 -- --
------- ------- ------ ------
Assets in excess of (less than) projected obligation.......................... 2,054 1,917 (537) (486)
Unamortized net transition gain............................................... (306) (367)
Unrecognized prior service cost............................................... (44) (55) 44 88
Unrecognized experience gain.................................................. (693) (389) (6) (6)
------- ------- ------ ------
Prepaid (accrued) pension costs............................................... $ 1,011 $ 1,106 $ (499) $ (404)
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
The projected benefit obligation at March 31, 1997, 1996 and 1995 was
determined using an assumed discount rate of 7.375%, 7.25% and 7.25%,
respectively, and assumed future compensation increases of 5.00%, 5.25% and
5.25%, respectively. The assumed long-term rate of return on plan assets was
8.0%, 8.0% and 8.0% at March 31, 1997, 1996 and 1995, respectively. Assets
consist of pooled equity and fixed income funds managed by an independent
trustee.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- BENEFITS -- Continued
NON-U.S. PLANS
A summary of pension costs follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost -- benefits earned during the year............................................... $ 1,367 $ 1,507 $ 1,428
Interest cost on projected benefit obligation................................................. 2,310 2,646 2,414
Recognized return on plan assets.............................................................. (2,348) (2,004) (1,655)
Net amortization.............................................................................. 49 222 147
------- ------- -------
Net pension cost.............................................................................. $ 1,378 $ 2,371 $ 2,334
------- ------- -------
------- ------- -------
</TABLE>
The funded status of non-U.S. plans, which include book-reserve plans, at
March 31 is shown below:
<TABLE>
<CAPTION>
ASSETS EXCEED ABO ABO EXCEEDS ASSETS
------------------ --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- -------- --------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
-- vested.................................................................. $18,455 $11,575 $ 7,857 $ 12,945
-- nonvested benefits...................................................... 120 454 -- 48
------- ------- -------- --------
Accumulated benefit obligation................................................... 18,575 12,029 7,857 12,993
Benefits attributable to projected salaries...................................... 5,255 4,394 517 1,200
------- ------- -------- --------
Projected benefit obligation..................................................... 23,830 16,423 8,374 14,193
Plan assets at fair value........................................................ 26,150 17,402 -- 4,484
------- ------- -------- --------
Assets in excess of (less than) projected obligation............................. 2,320 979 (8,374) (9,709)
Unamortized net transition loss.................................................. 679 854 927 943
Unrecognized prior service cost.................................................. (2,094) (113) -- 913
Unrecognized experience gain..................................................... 566 (1,193) 56 (817)
Additional minimum liability..................................................... -- -- (1,031) (914)
------- ------- -------- --------
Prepaid (accrued) pension costs.................................................. $ 1,471 $ 527 $ (8,422) $ (9,584)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
The assumptions used in 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- -------------- -------------
<S> <C> <C> <C>
Discount rates.............................................................. 7.375% to 8.5% 7.75% to 8.5% 7.5% to 8.5%
Compensation increases...................................................... 5.50% to 7.0% 3.25% to 6.5% 5.5% to 7.0%
Long-term rates of return on plan assets.................................... 10.0% 10.0% 10.0%
</TABLE>
Plan assets consist primarily of common stocks, pooled equity and fixed
income funds. The pension costs and obligations for non-U.S. plans shown above
also include certain unfunded book-reserve plans.
The Company also sponsors a 401(k) savings incentive plan for most
full-time salaried employees in the United States. The expense for this plan was
$196,000 in 1997, $144,000 in 1996 and $127,000 in 1995.
The Company provides health care and life insurance benefits for
substantially all of its retired salaried employees in the U.S. These benefits
are accounted for in accordance with Statement of Financial Accounting Standards
No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS,
which requires the accrual of the estimated cost of retiree benefit payments
during the years the employee provides services.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- BENEFITS -- Continued
The components of the net periodic cost of postretirement benefits for
1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost............................................................................. $193,942 $176,148 $168,613
Interest cost on accumulated benefit obligation.......................................... 493,527 522,164 405,299
Amortization of plan amendments.......................................................... (138,904) (136,649) (138,904)
-------- -------- --------
Net periodic cost........................................................................ $548,565 $561,663 $435,008
-------- -------- --------
-------- -------- --------
</TABLE>
The components of the liability included in the consolidated balance sheet
at March 31, 1997 and 1996 of the actuarial present value of benefits for
services rendered to date were:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current retirees.................................................................................. $ 489,487 $ 504,723
Active employees eligible to retire............................................................... 2,731,768 2,423,723
Active employees not eligible to retire........................................................... 3,343,157 4,041,795
---------- ----------
Total............................................................................................. 6,564,412 6,970,241
Unrecognized net gain (loss)...................................................................... 259,872 (672,154)
Unrecognized prior service cost................................................................... 972,323 1,111,227
---------- ----------
Accumulated postretirement benefit obligation..................................................... $7,796,607 $7,409,314
---------- ----------
---------- ----------
</TABLE>
The accumulated postretirement benefit obligation (APBO) was determined
using an 8.0% weighted-average discount rate. The medical cost trend rate used
in determining the APBO was assumed to be 12.5% in 1997. This rate was assumed
to gradually decline to 6.5% in 2004, and remain at that level thereafter.
Assuming a one percent increase in the medical cost trend rates, the
aggregate of the service and interest cost components of the net periodic
pension cost for 1997 would increase by $126,000 and the APBO as of March 31,
1997 would increase by $915,000. In general, postretirement benefit costs are
insured or paid as claims are incurred.
The ongoing impact of Statement 106 as it relates to employees of foreign
subsidiaries is immaterial. The Company expenses the cost of these benefits as
incurred.
EMPLOYEE STOCK OPTIONS
In March 1997, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The agreement, which was ratified by the Board
of Directors on April 14, 1997, provides for the grant of nonqualified options
to purchase 100,000 shares of the Company's common stock at an exercise price
equal to the fair market value as of the date of grant. These options will
become exercisable (contingent on continued employment with the Company) in
equal annual installments over a three-year period. No options are currently
exercisable.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows: 1998 -- $3,601,757;
1999 -- $2,650,260; 2000 -- $1,964,891; 2001 -- $54,720; 2002 -- $24,203 and
thereafter $143,364. Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 1997, 1996 and
1995 were $3,049,100, $3,811,000 and $963,000, respectively.
The Company operates a processing facility under a service agreement which
guarantees reimbursement of all of the facility's costs including operating
expenses and management fees. This lease is not considered a commitment of the
Company.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- Continued
The Company has commitments for capital expenditures of approximately $17.4
million, all of which are expected to be incurred in fiscal 1998.
The previously reported joint Canadian-U.S. criminal investigation into
alleged violations of law relating to the importation, exportation and taxation
of tobacco has been discontinued. The Canadian investigation is continuing as to
individual Canadian and U.S. citizens. Management does not believe that it will
have a material adverse effect on the Company's financial statements as a whole,
liquidity or future results of operations.
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 statements as a whole, liquidity or future
results of operations.
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.
NOTE 13 -- COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES UNEARNED
OF COMMON STOCK COMMON ADDITIONAL RESTRICTED
---------------------- STOCK PAID IN STOCK PLAN TREASURY STOCK
ISSUED TREASURY PAR VALUE CAPITAL COMPENSATION AT COST
---------- --------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
March 31, 1994.................................. 10,913,459 2,346,318 $ 2,183 $ 34,875 $ (649) $ (583)
401(k) contributions............................ 8,585 2 125
Dividends reinvested............................ 19,391 4 302
RSP compensation earned......................... 134
RSP shares forfeited............................ (435) -- --
Stock dividends................................. 219,289 47,160 43 2,986 (650)
---------- --------- --------- ------------ ------------ --------------
March 31, 1995.................................. 11,160,289 2,393,478 2,232 38,288 (515) (1,233)
401(k) contributions............................ 12,283 3 141
Dividends reinvested............................ 729 -- 8
RSP compensation earned......................... 80
RSP shares forfeited............................ (1,359) -- (37)
Stock dividends................................. 452,333 97,183 90 5,260 (1,151)
---------- --------- --------- ------------ ------------ --------------
March 31, 1996.................................. 11,624,275 2,490,661 2,325 43,660 (435) (2,384)
401(k) contribution............................. 16,122 3 196
Dividends reinvested............................ 662 -- 10
RSP compensation earned......................... 114
RSP shares forfeited............................ (557) -- (10)
Stock dividends................................. 471,693 101,129 94 6,226 (1,415)
ESOP conversion................................. 14,075 3 242
---------- --------- --------- ------------ ------------ --------------
March 31, 1997.................................. 12,126,270 2,591,790 $ 2,425 $ 50,324 $ (321) $ (3,799)
---------- --------- --------- ------------ ------------ --------------
---------- --------- --------- ------------ ------------ --------------
</TABLE>
The Company maintains a Performance Improvement Compensation Plan
administered by the Compensation Committee of the Board of Directors as an
incentive for designated employees. In June 1993, the Board adopted a Restricted
Stock Plan ("RSP") as a means of awarding those employees to the extent that
certain performance objectives were met, restricted shares of the Company's
common stock pursuant to the RSP, the Compensation Committee of the Board
awarded 36,454
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- COMMON STOCK -- Continued
shares of Restricted Stock in fiscal 1994, of which 36,280 were issued as of
March 31, 1994. The shares were issued subject to a seven-year restriction
period.
The Company has a 401(k) savings incentive plan in the United States to
which the employer contributes shares of common stock under a matching program,
and a dividend reinvestment plan.
Treasury stock represents shares in the Company acquired by a foreign
affiliate prior to its becoming a wholly-owned subsidiary.
On January 31, 1997, the Company terminated the Employee Stock Ownership
Plan (the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of
$2,460,287 in cash and the issuance of 14,075 shares of Common Stock. The
remaining 62,875 shares of unallocated ESOP Preferred Stock were canceled.
Subsequent to March 31, 1997 the Company completed the registration and
sale of 3,022,500 shares of common stock, the proceeds of which were used to
repay approximately $47.0 million of short-term indebtedness outstanding under
the MFA (see Note 8), and a notes offering, the proceeds of which were used to
retire the Company's existing U.S. Revolving Credit Facility, to repay certain
long-term bank loans in the United States and to reduce indebtedness under the
MFA. Assuming these transactions were consummated on April 1, 1996, after-tax
interest savings of $4,491,000 (which gives effect to a contractual 1.25%
reduction of the interest rate on all outstanding borrowings under the MFA and
a contractual reduction in certain fees and expenses under the MFA, each of
which resulted from the permanent reduction of the Company's borrowings below a
specified level) would have increased the net income and primary
and fully diluted earnings per share would have been $1.70 and $1.64,
respectively, and the corresponding weighted-average shares outstanding for
purposes of these computations would have been 12,383,000 and 14,861,000 after
giving effect to the increase of 45,500 shares resulting from quarterly stock
dividends. This computation, which also gives effect to the Company's new
$200.0 million Global Bank Facility entered into at the time of the notes
offering, is summarized as follows:
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Net income applicable to Common Stock.......................................................... $ 16,590,000 $ 19,890,000
Add -- After tax interest savings.............................................................. 4,491,000 4,491,000
------------ ------------
Pro forma net income applicable to Common Stock................................................ $ 21,081,000 $ 24,381,000
Average number of shares outstanding........................................................... 9,314,461 11,792,809
Add -- increase in shares outstanding.......................................................... 3,068,000 3,068,000
------------ ------------
Pro forma average number of shares outstanding................................................. 12,382,461 14,860,809
Pro forma earnings per share................................................................... $1.70 $1.64
</TABLE>
NOTE 14 -- FOREIGN CURRENCY
Changes in the translation adjustment component of shareholders' equity are
shown below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Beginning balance April 1.................................................................. $ (9,444) $(4,319) $(17,984)
Net change in translation of foreign financial statements.................................. (7,312) (5,125) 13,665
-------- ------- --------
Ending Balance March 31.................................................................... $(16,756) $(9,444) $ (4,319)
-------- ------- --------
-------- ------- --------
</TABLE>
Net amounts included in the income statement relating to foreign currency
losses from continuing operations were $920,000, $276,000, and $756,000 in 1997,
1996 and 1995, respectively.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 15 -- OTHER INCOME (EXPENSE) -- NET
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Other income
Interest................................................................................... $ 4,493 $ 4,430 $ 4,644
Gain on asset sales and dispositions....................................................... 4,668 4,476 14,650
Rents received............................................................................. 610 441 233
Other...................................................................................... 3,520 4,976 2,162
------- ------- -------
13,291 14,323 21,689
------- ------- -------
Other expense
Amortization of goodwill................................................................... (132) (197) (582)
Other...................................................................................... (2,905) (2,714) (2,136)
------- ------- -------
(3,037) (2,911) (2,718)
------- ------- -------
$10,254 $11,412 $18,971
------- ------- -------
------- ------- -------
</TABLE>
NOTE 16 -- INCOME TAXES
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Depreciation.......................................................................................... $10,528 $11,377
Capitalized interest.................................................................................. 1,183 763
Income recognition in foreign subsidiaries............................................................ 14,983 16,673
Prepaid pension assets................................................................................ 1,232 898
------- -------
Total deferred tax liabilities........................................................................ 27,926 29,711
------- -------
Deferred tax assets:
NOL carried forward................................................................................... 7,138 8,766
Valuation allowance................................................................................... (5,503) (7,021)
Postretirement benefits other than pensions........................................................... 3,071 2,919
Uniform capitalization................................................................................ 143 186
All other, net........................................................................................ 1,963 1,925
------- -------
Total deferred tax assets............................................................................... 6,812 6,775
------- -------
Net deferred tax liabilities............................................................................ $21,114 $22,936
------- -------
------- -------
</TABLE>
The net deferred tax liabilities include approximately $15,295 and $13,304
of current liabilities at March 31, 1997 and 1996, respectively.
The Parent has provided valuation allowances on deferred tax assets for
certain foreign subsidiaries based on their history of losses. Management cannot
assert that there will likely be sufficient profits generated by these
subsidiaries in the near future to offset these losses.
The change during 1997 is due to the utilization of tax loss carryforwards
for which no benefit had been recognized in prior years. The loss carryforwards
which give rise to the valuation allowances will expire in 2001 and thereafter.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- INCOME TAXES -- Continued
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Current
Federal.................................................................................... $ 445 $ 130 $ 3,686
Foreign.................................................................................... 12,793 7,455 11,470
State and local............................................................................ 28 219 421
------- ------- -------
13,266 7,804 15,577
------- ------- -------
Deferred
Federal.................................................................................... 707 (1,131) (1,154)
Foreign.................................................................................... (1,194) 160 1,938
State and local............................................................................ 3 3 9
------- ------- -------
(484) (968) 793
------- ------- -------
Income tax provision......................................................................... $12,782 $ 6,836 $16,370
------- ------- -------
------- ------- -------
</TABLE>
c) Components of deferred taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Tax on differences in timing of income recognition in foreign subsidiaries.................... $ (353) $(2,565) $ 2,055
Utilization of NOL carried forward............................................................ -- 185 --
Capitalized interest.......................................................................... 420 (248) (29)
DISC income................................................................................... -- -- (89)
Other......................................................................................... (551) 1,660 (1,144)
------- ------- -------
$ (484) $ (968) $ 793
------- ------- -------
------- ------- -------
</TABLE>
d) The provision for income taxes is determined on the basis of the
jurisdiction imposing the tax liability. As some of the income of foreign
companies may also be currently subject to U.S. tax, the U.S. and foreign income
taxes shown do not compare directly with the segregation of pretax income
between domestic and foreign companies that follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Pretax income
Domestic................................................................................... $ 3,663 $ 264 $ (89)
Foreign.................................................................................... 28,582 1,994 10,069
------- ------- -------
$32,245 $ 2,258 $ 9,980
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- INCOME TAXES -- Continued
e) The following is a reconciliation of the income tax provision to the
expense calculated at the U.S. federal statutory rate.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Expense (benefit) at U.S. federal statutory tax rate......................................... $11,286 $ 768 $ 3,393
Foreign tax losses for which there is no relief available.................................... 321 4,359 9,750
U.S. tax on foreign income................................................................... 500 200 2,912
Different tax rates in foreign subsidiaries.................................................. 680 (177) (1,073)
Other -- net................................................................................. (5) 1,686 1,388
------- ------- -------
$12,782 $ 6,836 $16,370
------- ------- -------
------- ------- -------
</TABLE>
NOTE 17 -- DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of March
31, 1997 is provided below in accordance with Statement of Financial Accounting
Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.
Certain estimates and judgments were required to develop the fair value amounts,
which are not necessarily indicative of the amounts that would be realized upon
disposition, nor do they indicate the Company's intent or ability to dispose of
such instruments.
CASH AND CASH EQUIVALENTS: For purposes of the Consolidated Statement of
Cash Flows, the Company considers all highly liquid investments with a maturity
of three months or less to be cash equivalents. The estimated fair value of cash
and cash equivalents approximates carrying value.
SHORT-TERM AND LONG-TERM DEBT: The fair value of the Company's short-term
borrowings, which primarily consists of bank borrowings, approximates its
carrying value. The estimated fair value of long-term debt, including the
current portion, is approximately $90.7 million, compared with a carrying value
of $101.2 million, based on discounted cash flows for fixed-rate borrowings,
with the fair value of floating-rate borrowings considered to approximate
carrying value. Amounts reclassified from short-term borrowings to long-term
debt have been excluded for fair value computations (See Note 8).
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 18 -- SEGMENT INFORMATION
The Company is engaged primarily in purchasing, processing and selling leaf
tobacco and wool. Its activities other than these are minimal. Geographic
information is determined by the areas in which the companies conducting these
activities are registered. Generally, sales between segments are made at
prevailing market prices.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
GEOGRAPHIC AREAS
Sales
United States.................................................................. $ 466,066 $ 375,842 $ 288,143
Europe......................................................................... 737,346 781,910 702,606
Other areas.................................................................... 273,728 319,428 355,529
Intersegment eliminations...................................................... (122,870) (117,730) (132,713)
---------- ---------- ----------
$1,354,270* $1,359,450* $1,213,565*
---------- ---------- ----------
---------- ---------- ----------
Operating income, net of interest
United States.................................................................. $ 5,748 $ 3,576 $ 2,598
Europe......................................................................... 26,926 10,616 (9,406)
Other areas.................................................................... 2,906 (8,609) 20,425
Corporate expenses............................................................. (3,335) (3,325) (3,637)
---------- ---------- ----------
Income before taxes................................................................. $ 32,245 $ 2,258 $ 9,980
---------- ---------- ----------
---------- ---------- ----------
Assets
United States.................................................................. $ 150,555 $ 163,002 $ 142,793
Europe......................................................................... 445,085 469,247 503,397
Other areas.................................................................... 120,683 133,075 148,359
Investment in affiliates....................................................... 12,533 11,442 12,905
Corporate assets............................................................... 6,829 6,058 6,035
---------- ---------- ----------
$ 735,685 $ 782,824 $ 813,489
---------- ---------- ----------
---------- ---------- ----------
U.S. Exports
Europe......................................................................... $ 87,531 $ 103,526 $ 69,348
Far East....................................................................... 42,908 46,726 80,474
Other areas.................................................................... 6,000 5,007 12,369
---------- ---------- ----------
$ 136,439 $ 155,259 $ 162,191
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ---------------
* One tobacco customer accounted for 24.1%, 17.4% and 14.2% of total sales in
1997, 1996 and 1995, respectively.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 18 -- SEGMENT INFORMATION -- Continued
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
BUSINESS SEGMENTS
Sales
Tobacco............................................................................ $ 997,449 $ 925,549 $ 755,971
Nontobacco......................................................................... 356,821 433,901 457,594
---------- ---------- ----------
$1,354,270* $1,359,450* $1,213,565*
---------- ---------- ----------
---------- ---------- ----------
Operating income, net of interest
Tobacco............................................................................ $ 32,421 $ 28,373 $ 2,759
Nontobacco......................................................................... 3,159 (22,790) 10,858
Corporate expenses................................................................. (3,335) (3,325) (3,637)
---------- ---------- ----------
Income before taxes..................................................................... $ 32,245 $ 2,258 $ 9,880
---------- ---------- ----------
---------- ---------- ----------
Interest expense included above
Tobacco............................................................................ $ 32,288 39,381 $ 35,207
Nontobacco......................................................................... 9,829 11,547 9,721
---------- ---------- ----------
$ 42,117 $ 50,928 $ 44,928
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization expense
Tobacco............................................................................ $ 16,613 $ 14,615 $ 11,278
Nontobacco......................................................................... 4,253 9,778 5,135
---------- ---------- ----------
$ 20,866 $ 24,393 $ 16,413
---------- ---------- ----------
---------- ---------- ----------
Equity in earnings of affiliates
Tobacco............................................................................ $ 1,242 $ (217) $ (4,489)
Nontobacco......................................................................... 170 148 19
---------- ---------- ----------
$ 1,412 $ (69) $ (4,470)
---------- ---------- ----------
---------- ---------- ----------
Assets
Tobacco............................................................................ $ 521,202 $ 532,627 $ 499,587
Nontobacco......................................................................... 207,654 244,139 307,867
Corporate assets................................................................... 6,829 6,058 6,035
---------- ---------- ----------
$ 735,685 $ 782,824 $ 813,489
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures
Tobacco............................................................................ $ 10,981 $ 10,398 $ 11,177
Nontobacco......................................................................... 1,835 1,813 6,151
---------- ---------- ----------
$ 12,816 $ 12,211 $ 17,328
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ---------------
* One tobacco customer accounted for 24.1%, 17.4% and 14.2% of total sales in
1997, 1996 and 1995, respectively.
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedules:
(i) Report on Independent Auditors on Financial Statement
Schedules: See Item 8.
(ii) Schedule I - condensed Financial Information of Registrant
(previously filed).
Schedule II - Valuation and Qualifying Accounts *
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
COL. C
COL. A COL. B ADDITIONS COL. D COL. E
- ------------------------------------------------- ----------- -------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED MARCH 31, 1995
DEDUCTED FROM ASSET ACCOUNTS
Allowance for doubtful accounts................ $ 7,696,167 $ 9,164,938 $11,493,835 $ 5,367,270
Inventory...................................... 14,578,000 5,296,148 5,666,757 14,207,391
----------- ----------- ----------- ----------- -----------
Total............................................ $22,274,167 $14,461,086 $17,160,592 $19,574,661
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
YEAR ENDED MARCH 31, 1996
DEDUCTED FROM ASSET ACCOUNTS
Allowance for doubtful accounts................ $ 5,367,270 $ 328,156 $ 145,199 $ 5,550,227
Inventory...................................... 14,207,391 1,394,334 10,427,299 5,174,426
----------- ----------- ----------- ----------- -----------
Total............................................ $19,574,661 $ 1,722,490 $10,572,498 $10,724,653
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
YEAR ENDED MARCH 31, 1997
DEDUCTED FROM ASSET ACCOUNTS
Allowance for doubtful accounts................ $ 5,550,227 $ 1,055,067 $ 3,004,567 $ 3,600,727
Inventory...................................... 5,174,426 877,403 1,116,004 4,935,825
----------- ----------- ----------- ----------- -----------
Total............................................ $10,724,653 $ 1,932,470 $ 4,120,571 $ 8,536,552
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<PAGE>
<PAGE>
(iii) All other schedules are omitted because they are either not
applicable or the required information is included in the
data mentioned in Item 8 and incorporated herein by
reference.
(b) Reports on Form 8-K: No report on Form 8-K was filed during the
quarter ended March 31, 1997.
(c) The following exhibits were filed as part of this Report, as
originally filed:
3. (i) There is incorporated by reference herein the Company's
Restated Articles of Incorporation and the amendment
thereof designating the rights, preferences and limitations
of the Company's Series A Preferred Stock filed as Exhibits
4(a) (i) and (ii) to the Company's Registration on Form S-8
#33-59760.
(ii) There is incorporated by reference herein the Company's
amended Bylaws filed as Exhibit 3(ii) to the Company's
report on Form 10-K for the year ended March 31, 1994.
4. (i) There is incorporated by reference herein the Company's
Shareholder Protection Rights Agreement filed as
Exhibit 4 to the Company's Report on Form 8-K dated
April 5, 1994.
(ii) There is incorporated herein by reference the Master
Facilities Agreement dated May 5, 1995 between the
Company and certain subsidiaries and Deutsche Bank A.G.
and a number of other banks filed as Exhibit 4(ii) to the
Company's Report on Form 10-K for the year ended
March 31, 1995.
(iii) There is incorporated herein by reference, the Second
Supplemental Agreement dated July 16, 1996 between the
Company and certain subsidiaries and Deutsche Bank A.G.
et al filed as Exhibit 4(iii) to the Company's report on
Form 10-Q for the quarter ending September 30, 1996 which
amends Exhibit 4(ii) above.
(iv) There is incorporated herein by reference the Loan and
Security Agreement dated as of May 2, 1995 between Standard
Commercial Tobacco Co., Inc., a subsidiary of the
Company and NationsBank of Georgia, N.A. filed as
Exhibit 4(iii) to the Company's Report on Form 10-K for
the year ended March 31, 1995.
(v) There is incorporated herein by reference the Amendment
No. 3, dated July 15, 1996 filed as Exhibit 4(i) to the
Company's report on Form 10-Q for the quarter ending
September 30, 1996 which amends Exhibit 4(iv) above.
(vi) There is incorporated herein by reference the Company
Guaranty Agreement dated as of May 2, 1995 with respect
to the Loan and Security Agreement referred to in 4(iii)
above filed as Exhibit 4(iv) to the Company's Report on
Form 10-K for the year ended March 31, 1995.
(vii) There is incorporated herein by reference, the Second
Amended and Restated Parent Guaranty Agreement dated as
of July 15, 1996 filed as Exhibit 4(ii) to the Company's
report on Form 10-Q for the quarter ending September 30,
1996 whereby the Company guarantees the indebtedness
under Exhibit 4(v) above.
10. (i) There is incorporated herein by reference the Company's
Performance Improvement Compensation Plan filed as
Exhibit 10 to the Company's Report on Form 10-K for the
year ended March 31, 1993.
<PAGE>
(ii) There is incorporated herein by reference Agreement
dated as of May 2, 1995 between the Company and Ery W.
Kehaya filed as Exhibit 10 to the Company's Report on
Form 10-K for the year ended March 31, 1995.
(iii) There is incorporated herein by reference Agreement dated
as of March 24, 1997 between the Company and Robert E.
Harrison filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-3 dated May 8, 1997.
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for the year
ended March 31, 1997 which except for information expressly
incorporated by reference into items 1 and 5 not deemed
to be "filed" as a part of this Report.
21. List of subsidiaries.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Standard has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
STANDARD COMMERCIAL CORPORATION
By: /s/ Robert E. Harrison
_____________________________________________
November 21, 1997 Robert E. Harrison, President, Chief Executive
Officer and Chief Financial Officer
