SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 1-9875
[STANDARD LOGO]
STANDARD COMMERCIAL CORPORATION
Incorporated under the laws of I.R.S. Employer
North Carolina Identification No. 13-1337610
2201 MILLER ROAD, WILSON, NORTH CAROLINA 27893
Telephone Number 252-291-5507
Former name, former address and former fiscal year, if changed since
last report - Not applicable
On November 1, 1998 the registrant had outstanding 12,821,269 shares of Common
Stock ($.20 par value).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) had been subject to such filing requirements for
the past 90 days.
YES X NO
----- ----
<PAGE>
PART I FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30 March 31
------------- ---------
1998 1997 1998
---- ---- ----
(unaudited)
ASSETS
<S> <C> <C> <C>
Cash................................................................... $38,586 $51,278 $ 34,116
Receivables............................................................ 229,528 214,907 254,469
Inventories............................................................ 438,867 421,027 361,418
Prepaid expenses....................................................... 8,745 8,335 8,674
Marketable securities.................................................. 726 961 656
-----------------------------------------
Current assets.................................................... 716,452 696,508 659,333
Property, plant and equipment.......................................... 109,600 115,767 113,572
Investment in affiliates............................................... 16,505 12,720 12,647
Other assets........................................................... 61,810 38,376 53,921
-----------------------------------------
Total assets...................................................... $904,367 $863,371 $839,473
=========================================
LIABILITIES
Short-term borrowings.................................................. $362,996 $291,725 $267,799
Current portion of long-term debt...................................... 4,682 4,212 4,987
Accounts payable....................................................... 113,105 149,283 144,585
Taxes accrued.......................................................... 17,959 24,404 22,863
-----------------------------------------
Current liabilities............................................... 498,742 469,624 440,234
Long-term debt......................................................... 125,508 128,066 128,083
Convertible subordinated debentures.................................... 69,000 69,000 69,000
Retirement and other benefits.......................................... 20,198 19,284 19,479
Deferred taxes......................................................... 2,698 4,974 2,776
-----------------------------------------
Total liabilities................................................. 716,146 690,948 659,572
-----------------------------------------
MINORITY INTERESTS..................................................... 30,302 31,019 30,271
-----------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $1.65 par value; authorized shares 1,000,000 Issued
none (1997 - none)
Common stock, $0.20 par value; authorized shares 100,000,000
Issued 15,436,402 (Sept. 97 - 15,304,115; Mar 98 - 15,424,555)...... 3,087 3,061 3,085
Additional paid-in capital............................................. 101,922 100,163 101,788
Unearned restricted stock plan compensation............................ (1,819) (271) (1,996)
Treasury shares, 2,617,707 (Sept. 97 - 2,617,707; Mar 98 - 2,617,707).. (4,250) (4,250) (4,250)
Retained earnings...................................................... 88,335 63,150 82,943
Cumulative translation adjustments..................................... (29,356) (20,449) (31,940)
-----------------------------------------
Total shareholders' equity........................................ 157,919 141,404 149,630
-----------------------------------------
Total liabilities and equity...................................... $904,367 $863,371 $839,473
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Second quarter ended Six months ended
September 30 September 30
------------- ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales - tobacco............................................. $ 166,234 $ 207,686 $ 392,491 $ 420,533
- nontobacco.......................................... 42,810 79,567 106,961 167,035
-------- -------- -------- --------
Total sales............................................. 209,044 287,253 499,452 587,568
Cost of sales - materials, services and supplies............ 180,548 254,128 441,188 527,317
- interest.................................... 3,840 5,414 9,053 12,680
-------- -------- -------- --------
Gross profit............................................ 24,656 27,711 49,211 47,571
Selling, general and administrative expenses................. 17,849 17,520 35,846 35,179
Other interest expense....................................... 4,574 3,955 8,891 6,171
Other income (expense) - net................................. 3,666 2,082 6,306 4,472
-------- -------- -------- --------
Income before taxes..................................... 5,899 8,318 10,780 10,693
Income taxes................................................. (1,171) (2,243) (3,381) (2,602)
-------- -------- -------- --------
Income after taxes...................................... 4,728 6,075 7,399 8,091
Minority interests........................................... (1,146) (1,218) (1,895) (1,509)
Equity in earnings of affiliates............................. 436 424 529 550
-------- -------- -------- --------
Net income.............................................. 4,018 5,281 6,033 7,132
Retained earnings at beginning of period..................... 84,958 57,869 82,943 58,089
Common stock dividends....................................... (641) - (641) (2,071)
--------- -------- --------- --------
Retained earnings at end of period........................... $ 88,335 $ 63,150 $ 88,335 $ 63,150
======== ======== ======== ========
Earnings per common share
Basic - net................................................ $0.31 $0.41 $0.47 $0.60
- average shares outstanding........................ 12,816 12,798 12,813 11,950
Diluted - net............................................... $0.31 $0.40 $0.47 $0.60
- average shares outstanding........................ 15,164 15,146 15,161 14,298
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands; unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30
------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................................... $6,033 $7,132
Depreciation and amortization................................................ 9,366 10,511
Minority interests........................................................... 1,895 1,509
Deferred income taxes........................................................ (400) (614)
Undistributed earnings of affiliates net of dividends received............... (529) (550)
Gain on disposition of property, plant and equipment......................... (3,692) (3,410)
Other........................................................................ (1,526) 911
--------------------------------
11,147 15,489
Net changes in working capital other than cash
Receivables.................................................................. 19,870 42,853
Inventories.................................................................. (85,390) (170,743)
Current payables............................................................. (28,787) 18,283
--------------------------------
CASH USED FOR OPERATING ACTIVITIES.............................................. (83,160) (94,118)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment - additions...................................... (6,289) (8,928)
- dispositions................................... 9,432 5,519
Business (acquisitions) dispositions............................................ (6,778) (3,353)
---------------------------------
CASH USED FOR INVESTING ACTIVITIES.............................................. (3,635) (6,762)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings............................................. 95,197 (27,642)
Proceeds from long-term borrowings.............................................. 106 110,028
Repayment of long-term borrowings............................................... (3,534) (15,498)
Net proceeds of equity offering................................................. - 47,043
Dividends paid.................................................................. (641) -
Other........................................................................... 137 (2,890)
---------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES.......................................... 91,265 111,041
--------------------------------
Increase in cash for period..................................................... 4,470 10,161
Cash at beginning of period..................................................... 34,116 41,117
--------------------------------
CASH AT END OF PERIOD........................................................... $ 38,586 $51,278
================================
Cash payments for - interest.................................................... $15,651 $13,165
- income taxes................................................ $6,016 $3,021
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
The interim statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K.oThe interim period financial statements
have been prepared by the Company without audit and contain all of the
adjustments which are, in the opinion of the management, necessary for a fair
statement of the results of operations. All such adjustments are of normal,
recurring nature and there were no material changes in accounting policies
during the period ended September 30, 1998. Because of the nature of the
Company's businesses, fluctuations in results for interim periods are not
necessarily indicative of business trends or results to be expected for a full
year.
2.INVENTORIES
September 30 March 31
------------ --------
(In thousands) 1998 1997 1998
---- ---- ----
Tobacco $373,277 $345,081 $284,822
Nontobacco 65,590 75,946 76,596
------ -------- --------
Total $438,867 $421,027 $361,418
======= ======== ========
3.COMPREHENSIVE INCOME
Effective June 1997, the Company adopted Statement of Financial Accounting
Standards No.130, Reporting comprehensive income ("SFAS 130"). This statement
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid in capital in the equity section of the balance sheet .
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
The components of comprehensive income were as follows:
Quarter Ended Six months ended
September 30 September 30
------------ --------------
1998 1997 1998 1997
----- ---- ---- ----
(In thousands)
Net income $4,018 $5,281 $6,033 $7,132
Other comprehensive income:
Translation adjustment 3,080 (3,457) 2,583 (3,694)
----- ------- ------- ------
Total comprehensive income $7,098 $1,824 $8,616 $3,438
------ ------- ------ ------
4.DERIVATIVE INSTRUMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. This Statement must be adopted by the Company in the
year 2000, but may be adopted in any earlier fiscal quarter, and is not to be
applied retroactively. If the Company had adopted SFAS No. 133 as of July 1,
1998, the impact would not have been material to its results of operations or
financial position.
5.EARNINGS PER SHARE
Earnings per share has been presented in conformity with Statement of Financial
Accounting Standards No.128. In computing the diluted per-share amounts the
incremental shares from assumed conversion of 7 1/4% Convertible Subordinated
Debentures are not included because the calculations include adjustments which
are antidilutive.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
6.SENIOR NOTES
On August 1, 1997 the Company completed a $115 million Rule 144A private
placement of 8 7/8% Senior Notes Due 2005. The Senior Notes were subsequently
Registered with the Securities & Exchange Commission and an exchange offer was
completed on December 31, 1997. The proceeds were used to repay indebtedness
under existing bank credit facilities and certain long-term debt. Consequently
$115 million short-term borrowings were classified as long-term debt at June
30, 1997.
The notes were issued by Standard Commercial Tobacco Co., Inc. (the "Issuer"), a
wholly owned subsidiary of the Company. The Company and Standard Wool, Inc., a
wholly-owned subsidiary of the Company (the "Guarantors"), jointly and
severally, guarantee on a senior basis, the full and prompt performance of the
issuer's obligations under the terms of the indenture. Management has
determined that full financial statements of the Guarantors would not be
material to investors and such financial statements are not provided. The
following supplemental combining financial statements present information
regarding the issuer and the Guarantors.
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE SHEET
September 30, 1998
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ------------ ------------ -----
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash $ 9,472 $ 19 $ 72 $ 29,023 $ - $ 38,586
Receivables 42,150 560 308 186,510 - 229,528
Intercompany receivables 139,763 16,747 22 12,787 (169,319) -
Inventories 92,641 - 1,263 344,963 - 438,867
Prepaids and other 970 81 43 7,651 - 8,745
Marketable securities - 1 - 725 - 726
-----------------------------------------------------------------------------
Current assets 284,996 17,408 1,708 581,659 (169,319) 716,452
Property, plant and equipment 21,471 - 71 88,058 - 109,600
Investment in subsidiaries 73,538 229,297 38,478 166,766 (508,079) -
Investment in affiliates 3,527 - - 12,978 - 16,505
Other noncurrent assets 6,454 13,223 - 42,133 - 61,810
-----------------------------------------------------------------------------
Total assets $389,986 $259,928 $40,257 $891,594 ($677,398) $904,367
=============================================================================
Liabilities
Short-term borrowings $ 15,100 $ - $ - $ 347,896 $ - $ 362,996
Current portion of long-term debt - - - 4,682 - 4,682
Accounts payable 20,212 2,911 37 89,945 - 113,105
Intercompany payables 29,422 32,120 1,851 105,926 (169,319) -
Taxes accrued 5,583 (2,176) (88) 14,640 - 17,959
-----------------------------------------------------------------------------
Current liabilities 70,317 32,855 1,800 563,089 (169,319) 498,742
Long-term debt 117,940 - - 7,568 - 125,508
Convertible subordinated debentures - 69,000 - - - 69,000
Retirement and other benefits 8,291 675 - 11,232 - 20,198
Deferred taxes 221 (2,316) - 4,793 - 2,698
-----------------------------------------------------------------------------
Total liabilities 196,769 100,214 1,800 586,682 (169,319) 716,146
-----------------------------------------------------------------------------
Minority interests - - - 30,302 - 30,302
-----------------------------------------------------------------------------
Shareholders' equity
Common stock 993 3,087 25,404 136,305 (162,702) 3,087
Additional paid-in capital 130,860 101,923 - 64,838 (195,699) 101,922
Unearned restricted stock
plan compensation (627) (25) (8) (1,159) - (1,819)
Treasury stock at cost - (4,250) - - - (4,250)
Retained earnings 76,383 88,335 9,558 107,064 (193,005) 88,335
Cumulative translation adjustments (14,392) (29,356) 3,503 (32,438) 43,327 (29,356)
-----------------------------------------------------------------------------
Total shareholders' equity 193,217 159,714 38,457 274,610 (508,079) 157,919
-----------------------------------------------------------------------------
Total liabilities and equity $389,986 $259,928 $40,257 $891,594 ($677,398) $904,367
=============================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Second quarter ended September 30, 1998.
(In thousands; unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other Wool
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ---------- ------------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 30,577 $ - $ 364 $ 217,143 $ (39,040) $ 209,044
Cost of sales:
Materials services and supplies 27,349 - 350 191,889 (39,040) 180,548
Interest (44) - - 3,884 3,840
------------------------------------------------------------------------------
Gross profit 3,272 - 14 21,370 24,656
Selling, general &
administrative expenses 3,735 738 105 13,271 17,849
Other interest expense 2,777 1,307 (2) 492 4,574
Other income (expense)- net (260) 3,827 (47) 146 3,666
------------------------------------------------------------------------------
Income (loss) before taxes (3,500) 1,782 (136) 7,753 5,899
Income taxes (1,327) 606 (46) 1,938 1,171
------------------------------------------------------------------------------
Income (loss) after taxes (2,173) 1,176 (90) 5,815 4,728
Minority interests - - - (1,146) (1,146)
Equity in earnings of affiliates - - - 436 436
Equity in earnings of subsidiaries 6,251 2,842 (1,146) - (7,947) -
------------------------------------------------------------------------------
Net income 4,078 4,018 (1,236) 5,105 (7,947) 4,018
Retained earnings at beginning
of period 72,305 84,958 10,794 101,959 (185,058) 84,958
Common stock dividends - (641) - - (641)
------------------------------------------------------------------------------
Retained earnings at end of period $ 76,383 $ 88,335 $ 9,558 $ 107,064 $ (193,005) $ 88,335
==============================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Six months ended September 30, 1998
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales $ 59,911 $ - $ 955 $ 512,726 $ (74,140) $ 499,452
Cost of sales:
Materials services and supplies 53,221 - 904 461,203 (74,140) 441,188
Interest 58 - - 8,995 - 9,053
-----------------------------------------------------------------------------
Gross profit 6,632 - 51 42,528 49,211
Selling, general &
administrative expenses 6,691 1,380 206 27,569 - 35,846
Other interest expense 5,567 2,614 - 710 - 8,891
Other income (expense)- net 4,295 3,961 (103) (1,847) - 6,306
-----------------------------------------------------------------------------
Income (loss) before taxes (1,331) (33) (258) 12,402 10,780
Income taxes (589) (11) (88) 4,069 - 3,381
-----------------------------------------------------------------------------
Income (loss) after taxes (742) (22) (170) 8,333 - 7,399
Minority interests - - - (1,895) - (1,895)
Equity in earnings of affiliates - - - 529 - 529
Equity in earnings of subsidiaries 8,557 6,055 (1,590) - (13,022) -
-----------------------------------------------------------------------------
Net income 7,815 6,033 (1,760) 6,967 (13,022) 6,033
Retained earnings at beginning
of period 68,568 82,943 11,318 100,097 (179,983) 82,943
Common stock dividends - (641) - - - (641)
-----------------------------------------------------------------------------
Retained earnings at end of period $ 76,383 $ 88,335 $ 9,558 $ 107,064 $ (193,005) $ 88,335
=============================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
Six months ended September 30, 1998
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ------------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities $ (15,260) $ 465 $ (145) $ (68,220) $ - $ (83,160)
-------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment
- additions (1,645) - (25) (4,619) - (6,289)
- disposals 4,614 - - 4,818 - 9,432
Business (acquisitions) dispositions - - - (6,778) - (6,778)
-------------------------------------------------------------------------
Cash provided by (used in)
investing activities 2,969 - (25) (6,579) - (3,635)
-------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 15,100 - - 80,097 - 95,197
Proceeds from long-term borrowings - - - 106 - 106
Repayment of long-term borrowings (168) - - (3,366) - (3,534)
Dividends paid - (641) - - - (641)
Other - 137 - - - 137
-------------------------------------------------------------------------
Cash provided by (used in)
financing activities 14,932 (504) - 76,837 - 91,265
-------------------------------------------------------------------------
Increase (decrease) in cash for year 2,641 (39) (170) 2,038 - 4,470
Cash at beginning of year 6,831 58 242 26,985 - 34,116
-------------------------------------------------------------------------
Cash at end of year $ 9,472 $ 19 $ 72 $ 29,023 $ - $ 38,586
=========================================================================
Cash paymentsfor - Interest $ 4,962 $ 5 $ - $ 10,684 $ - $ 15,651
- Income taxes $ 336 $ 2,053 $ - $ 3,627 $ - $ 6,016
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE SHEET
September 30, 1997
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------- -----
Assets
<S> <C> <C> <C> <C> <C> <C>
Cash $ 20,167 $ - $ 300 $ 30,811 $ - $ 51,278
Receivables 24,284 3,303 867 186,453 - 214,907
Intercompany receivables 142,937 18,380 8 61,780 (223,105) -
Inventories 71,618 - 1,178 348,231 - 421,027
Prepaids and other 53 208 13 8,061 - 8,335
Marketable securities - 1 - 960 - 961
---------------------------------------------------------------------------
Current assets 259,059 21,892 2,366 636,296 (223,105) 696,508
0
Property, plant and equipment 21,890 - 59 93,818 - 115,767
Investment in subsidiaries 88,726 211,199 34,620 89,822 (424,367) -
Investment in affiliates - - - 12,720 - 12,720
Other noncurrent assets 7,732 13,252 - 17,392 - 38,376
---------------------------------------------------------------------------
Total assets $ 377,407 $246,343 $ 37,045 $ 850,048 $ (647,472) $ 863,371
===========================================================================
Liabilities
Short-term borrowings $ 5,740 $ - $ - $ 285,985 $ - $ 291,725
Current portion of long-term debt 328 - - 3,884 - 4,212
Accounts payable 25,133 308 48 123,794 - 149,283
Intercompany accounts payable 28,063 34,811 4,713 155,518 (223,105) -
Taxes accrued 3,776 - - 20,628 - 24,404
---------------------------------------------------------------------------
Current liabilities 63,040 35,119 4,761 589,809 (223,105) 469,624
Long-term debt 120,742 - - 7,324 - 128,066
Convertible subordinated debentures - 69,000 - - - 69,000
Retirement and other benefits 7,990 559 - 10,735 - 19,284
Deferred taxes 82 - - 4,892 - 4,974
---------------------------------------------------------------------------
Total liabilities 191,854 104,678 4,761 612,760 (223,105) 690,948
---------------------------------------------------------------------------
Minority interests - - - 31,019 - 31,019
---------------------------------------------------------------------------
Shareholders' equity
Common stock 993 3,061 22,604 66,749 (90,346) 3,061
Additional paid-in capital 132,513 100,163 - 69,490 (202,003) 100,163
Unearned restricted stock
plan compensation (80) (10) - (181) - (271)
Treasury stock at cost - (4,250) - - - (4,250)
Retained earnings 52,127 63,150 8,040 89,316 (149,483) 63,150
Cumulative translation adjustments - (20,449) 1,640 (19,105) 17,465 (20,449)
---------------------------------------------------------------------------
Total shareholders' equity 185,553 141,665 32,284 206,269 (424,367) 141,404
---------------------------------------------------------------------------
Total liabilities and equity $ 377,407 $246,343 $ 37,045 $ 850,048 $ (647,472) $ 863,371
===========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Second quarter Ended September 30, 1997
(In thousands; unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other Wool
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor)Guarantors) Eliminations Total
-------- ----------- ---------- ----------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales $ 61,046 $ - $ 883 $ 254,324 $ (29,000) $ 287,253
Cost of sales:
Materials services and supplies 54,809 - 835 227,484 (29,000) 254,128
Interest 1,009 - - 4,405 5,414
---------------------------------------------------------------------------
Gross profit 5,228 - 48 22,435 - 27,711
Selling, general &
administrative expenses 2,415 545 69 14,491 - 17,520
Other interest expense 2,204 1,378 - 373 3,955
Other income (expense) net 1,093 962 (78) 105 - 2,082
---------------------------------------------------------------------------
Income (loss) before taxes 1,702 (961) (99) 7,676 - 8,318
Income taxes 579 (184) - 1,848 - 2,243
---------------------------------------------------------------------------
Income (loss) after taxes 1,123 (777) (99) 5,828 - 6,075
Minority interests - - - (1,218) (1,218)
Equity in earnings of affiliates - - - 424 424
Equity in earnings of subsidiaries 4,639 6,058 395 - (11,092) -
---------------------------------------------------------------------------
Net income 5,762 5,281 296 5,034 (11,092) 5,281
Retained earnings at beginning
of period 46,365 57,869 7,744 84,282 (138,391) 57,869
Common stock dividends - - - - - -
---------------------------------------------------------------------------
Retained earnings at end of period $ 52,127 $ 63,150 $ 8,040 $ 89,316 $ (149,483) $ 63,150
===========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Six months ended September 30, 1997
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Sales $ 128,830 $ - $ 2,188 $ 533,267 $ (76,717) $ 587,568
Cost of sales:
Materials services and supplies 119,472 - 2,047 482,515 (76,717) 527,317
Interest 2,124 - - 10,556 - 12,680
---------------------------------------------------------------------------
-
Gross profit 7,234 - 141 40,196 - 47,571
Selling, general &
administrative expenses 5,302 1,283 136 28,458 - 35,179
Other interest expense 2,503 2,745 - 923 - 6,171
Other income (expense) net 1,076 1,445 (153) 2,104 - 4,472
---------------------------------------------------------------------------
Income (loss) before taxes 505 (2,583) (148) 12,919 - 10,693
Income taxes 171 (878) - 3,309 - 2,602
---------------------------------------------------------------------------
Income (loss) after taxes 334 (1,705) (148) 9,610 - 8,091
Minority interests - - - (1,509) - (1,509)
Equity in earnings of affiliates - - - 550 - 550
Equity in earnings of subsidiaries 7,266 8,837 1,385 - (17,488) -
---------------------------------------------------------------------------
Net income 7,600 7,132 1,237 8,651 (17,488) 7,132
Retained earnings at beginning
of period 44,527 58,089 6,803 80,665 (131,995) 58,089
Common stock dividends - (2,071) - - - (2,071)
---------------------------------------------------------------------------
Retained earnings at end of period $ 52,127 $ 63,150 $ 8,040 $ 89,316 $ (149,483) $ 63,150
===========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
Six months ended September 30, 1997
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used for)
operating activities $ 79,999 $ (46,686) $ 214 $ (174,687) $ 47,042 $ (94,118)
---------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment
- additions (2,073) - (33) (6,822) - (8,928)
- disposals 15 - - 5,504 - 5,519
Minority interests - - - - - -
Net advances from (to) -
group companies (128,548) - - 128,548 - -
Collections of note receivable - - - - - -
Business (acquisitions) dispositions - - - (3,353) - (3,353)
---------------------------------------------------------------------------
Cash provided by (used for)
investing activities (130,606) - (33) 123,877 - (6,762)
---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 109,028 - - 1,000 - 110,028
Repayment of long-term borrowings (8,819) - - (6,679) - (15,498)
Net change in short-term borrowings (30,537) - - 49,937 (47,042) (27,642)
Net proceeds of equity offering - 47,043 - - - 47,043
Other - (684) - (2,206) - (2,890)
---------------------------------------------------------------------------
Cash provided by (used for)
financing activities 69,672 46,359 - 42,052 (47,042) 111,041
---------------------------------------------------------------------------
Net increase (decrease) in cash 19,065 (327) 181 (8,758) - 10,161
Cash at beginning of period 1,102 327 119 39,569 - 41,117
---------------------------------------------------------------------------
Cash at end of period $ 20,167 $ - $ 300 $ 30,811 $ - $ 51,278
===========================================================================
Interest $ 1,259 $ 2,566 $ - $ 9,340 $ - $ 13,165
Income taxes $ - $ 882 $ - $ 2,139 $ - $ 3,021
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the quarter ended September 30, 1998 were $209.0 million, a decrease
of 27.2% from a year earlier. Sales for the six months period were $499.5
million, a decrease of 15.0% from same period a year earlier. Most of the
change was due to continuing difficulties in the wool segment and lower prices
in the tobacco segment. Sales of $166.2 million and $392.5 million for the
quarter and six months, respectively, for the tobacco division were down 20.0%
and 6.7% from the corresponding period in 1997. Overall, for the quarter,
tobacco volume was up 11.6% due to increases in Africa, the US and South
America, but the volume gains were offset by lower average prices worldwide.
For the six months, volume was either higher or level with the prior year in
all regions but again offset by lower prices. Nontobacco sales of $42.8
million and $107.0 million for the quarter and six months respectively, were
down 46.2% and 36.0% primarily as the result of depressed market conditions as
the industry continues to deal with the impact of the Asian currency problems
and the summer holiday schedules in Europe.
Gross margin for the quarter and six months improved from the 1997 periods due
primarily to an improvement in tobacco sales mix, lower interest in the wool
segment and a reduction in interest expense resulting from the application of
the proceeds of the senior notes issue to reduce short term borrowings.
Selling, general and administrative expenses increased slightly due to
inflationary factors. An increase in other interest expense is due to the
senior notes issue mentioned previously and the other income was higher to the
gains on sales of fixed assets.
The effect on net income of changes in sales mix and other factors were offset
by softness in the wool segment as income before taxes is lower for the
quarter and six months. The variation in income tax charges or credits as a
percentage of pretax income due to differences in tax rates and relief
available in areas where profits are earned or losses are incurred resulted in
an effective tax rate of 19.9% in the current quarter compared to 27.0% a year
earlier.
Net income was $4.0 million, or $0.31 per share on a diluted basis with 15.2
million average shares outstanding versus $5.3 million, or $0.40 per share on
15.2 million shares outstanding for the quarter. Net income for the six months
was $6.0 million or $0.47 per share versus $7.1 million or $0.60 per share for
the prior year period.
Liquidity and Capital Resources
Working capital at September 30, 1998 was $217.7 million, compared to $226.9
million a year earlier. Most of the decrease was due to the utilization of
working capital towards business acquisitions and additions to property plant
and equipment. Capital expenditures during 1998 of $6.3 million consisted
primarily of routine expenditures of $4.9 million in the tobacco division and
$1.4 million in the wool division. During the same period the Company
increased its holding in its Spanish operations from 66.33% to 96.31% and also
invested an additional amount in its Indian and Tanzanian operations. Cash
used in operating activities totaled $83.2 million mainly due to increase in
inventories and a decrease in payables. The Company continues to closely
monitor its inventory levels which fluctuate depending on seasonal factors and
business conditions.
During the first quarter of fiscal 1998 the Company completed a secondary issue
of 3,022,500 shares, from which the company received $47 million. Certain debt
agreements to which the Company and its subsidiaries are parties contain
financial covenants which could restrict the payment of cash dividends. Under
its most restrictive covenant, the Company had approximately $31.9 million of
retained earnings available for distribution as dividends at September 30,
1998.
Based on the outlook for the tobacco and wool divisions, and the recent
refinancing activity, 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.
Year 2000 Issues
Background
The approach of the year 2000 has heightened concern over potential problems
with data systems and devices that may or may not be able to process dates
properly after 1999. Affected systems and devices may fail or malfunction if not
remediated or replaced. The Company formed a steering committee in 1997 to
assess the Company's year 2000 readiness and to develop a plan to ensure
readiness. The steering committee, which includes representatives from all
functional areas of the Company, meets monthly to monitor progress on the plan,
advise group companies on issues and allocate resources for solutions. The plan
adopted consists of two main areas of focus.
<PAGE>
Year 2000 Plan
1. Internal year 2000 issues
Internal year 2000 issues include the effects of date changes on the company's
technology, including hardware, software and equipment containing other embedded
systems such as programmable logic controllers ("PLC"). The Company actually
began addressing internal year 2000 issues before the formation of the steering
committee. From 1991 to 1994 the Company began to move away from mainframe based
systems and became early adopters of PC, LAN, and client-server solutions to
meet our information needs. The Company internally developed new manufacturing
and inventory applications using tools that accommodate dates as proper date
types rather than encoded string variables or limited serial numeric dates. The
internally developed applications and year 2000 compliant financial systems were
installed in many group companies in the mid-1990's.
The steering committee's plan for assessing internal year 2000 readiness
consists of identifying technology at each location, evaluating the exposure of
such technology to year 2000 problems, testing the technology for problems and
resolving any problems noted. The critical technology identified includes
manufacturing, inventory and financial systems. The Company has made substantial
progress on the internal plan. Most group companies have already developed
comprehensive inventories of technology and evaluated their exposure. In
locations where the company uses externally provided software or PLC technology
in equipment, testing is being done and vendor surveys have been performed.
Members of the steering committee will visit locations to assess the
completeness of the listings and assist in evaluating readiness, and the Company
has hired a dedicated full-time information resources technician to perform
testing at major locations. The Company expects the identification, evaluation,
and testing phases of the plan to be fully completed by June 1999. As noted
above, the use of the Company's internally developed manufacturing and inventory
applications has alleviated the major issues associated with year 2000 at most
locations. Only one location, a European subsidiary manufacturing facility, had
pervasive year 2000 issues. The Company is in the process of replacing the
systems in that location with our internally developed software and expects to
be complete the project by March 1999.
Although there can be no absolute assurance that the year 2000 plan will be able
to identify all potential problem areas, the Company is presently on schedule
and believes that the internal phase of the plan will be completed by July 1999.
Contingency plans are currently being developed to sustain operations and
continue to provide a high level of customer service.
2. External year 2000 issues
The Company's plan for addressing external year 2000 issues consists primarily
of communicating with its suppliers, financial institutions, customers and other
business partners to determine the extent of their year 2000 readiness.
Responses are being catalogued and follow-up communications are ongoing as
necessary. The Company expects to complete the process of assessing the
readiness of its significant third parties by June 30, 1999. Certain significant
customers and suppliers are located in foreign countries where the awareness of
year 2000 problems and remediation efforts may be behind that of the United
States. Additionally, the company is subject to operational risks relating to
the readiness of utilities, transportation facilities, financial service
providers and government operated services that could interrupt business unit
operations. The Company cannot predict the outcome of other companies'
remediation efforts.
Costs
The Company currently plans to complete its year 2000 plan by June 30, 1999. The
total remaining cost of completing the plan is estimated at $0.8 million, which
includes the cost of installing internally developed manufacturing software in
the European subsidiary, any software upgrades from vendors necessary to be
compliant and the cost of consultants and employees assigned to implement the
plan. These amounts do not include estimated costs to implement contingency
plans that are being developed. The costs associated with year 2000 issues are
expensed as incurred and are funded with cash flow from operations. As of
September 30, 1998 the Company has incurred and expensed approximately $0.3
related to the identification, evaluation, and testing phases of the plan. The
company does not expect the total costs of addressing these issues to be
material to its consolidated financial position or results of operations.
Risk Assessment
At this time, the Company believes its most reasonably likely worst case
scenario is that processing and shipping at key locations may be disrupted due
to year 2000 issues of utilities, transportation providers and government
operated services in foreign countries. Such issues could impair the Company's
ability to process and deliver products. There can be no absolute assurance that
such a scenario would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
<PAGE>
Contingency Plans
Contingency plans are being developed so that the Company's operational and data
systems can be expected to function on January 1, 2000 and beyond. The
contingency plans will be structured to address primarily the risk that third
parties' year 2000 issues will disrupt operations. The Company expects to
complete its contingency plans by June 30, 1999.
Conversion to the Euro Currency
On January 1, 1999, eleven of the European Union countries will begin the
conversion from their national currencies to the "Euro". In the initial phase,
the national currencies will continue to exist until full conversion in July
2002. The Company's subsidiaries affected by the conversion are developing
procedures and modifying financial reporting to accommodate the new currency.
The Company anticipates that the Euro conversion will not have a material
adverse effect on its financial condition or results of operation.
Forward Looking Statements
Statements in this report that are not purely statements of historical fact
may be deemed to be forward-looking. Readers are cautioned that any such
forward-looking statements are based upon management's current knowledge and
assumptions, and actual results could be affected in a material way by many
factors, including ones over which the Company has little or no control, e.g.
unforeseen changes in shipping schedules; the balance between supply and
demand; and market, economic, political and weather conditions. More
information regarding certain of these factors is contained in the Company's
other SEC filings, copies of which are available upon request from the
Company. The Company assumes no obligation to update any of these
forward-looking statements.
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of shareholders was held on August 11, 1998.
b. Four persons nominated by management were elected as directors,
without opposition, for Terms expiring in 2001 as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
William S Barrack, Jr 10,843,365 14,831
Charles H Mullen 10,845,474 12,722
J Alec G Murray 10,845,672 12,524
William S Sheridan 10,843,679 14,517
In addition, the following other directors remained in office after the
meeting: Ery W Kehaya; Marvin W Coghill; Robert E Harrison; William A
Ziegler; Daniel M Sullivan and Henry R Grunzke.
c. The appointment of Deloitte & Touche LLP as the Company's
independent auditors for fiscal 1999 was approved by a vote of
10,848,982 shares in favor, 3,898 shares against and 5,317 shares
abstaining.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following exhibits are filed as a part of this report:
11 Computation of Earnings per Common Share.
27 Financial Data Schedule
b. The Company did not file any reports on Form 8-K during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 6, 1998 STANDARD COMMERCIAL CORPORATION
(Registrant)
By /s/ Robert E Harrison By /s/ Robert A Sheets
---------------------------------- ------------------------
Robert E Harrison Robert A Sheets
President, Chief Executive Officer Vice President and Chief
Financial Officer
STANDARD COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Second quarter ended Six months ended
September 30 September 30
---------------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
BASIC EARNINGS PER SHARE
<S> <C> <C> <C> <C>
Net income applicable to common stock......................... $ 4,018 $ 5,281 $ 6,033 $ 7,132
Basic average shares outstanding.............................. 12,815,865 12,797,716 12,812,853 11,950,459
Basic earnings per common share - net......................... $0.31 $0.41 $0.47 $0.60
DILUTED EARNINGS PER SHARE
Net income applicable to common stock........................ $ 4,018 $ 5,281 $ 6,033 $ 7,132
Add - after-tax interest expense on 7 1/4% convertible
Subordinated debentures at November 1................ 825 825 1,650 1,650
------- ------- ------- -----
Net income applicable to common stock......................... $ 4,843 $ 6,106 $ 7,683 $ 8,782
------- ------- ------- -----
Basic average shares outstanding.............................. 12,815,865 12,797,716 12,812,853 11,950,459
Increase in shares outstanding assuming
- conversion of 7 1/4% convertible
subordinated debentures at November 1................ 2,348,536 2,348,536 2,348,536 2,348,536
Diluted average shares outstanding............................ 15,164,401 15,146,252 15,161,389 14,298,995
Diluted earnings per common share - net....................... $0.32* $0.40 $0.51* $0.61*
</TABLE>
* Calculation of diluted earnings per share includes adjustments which are
antidilutive. Therefore, basic and diluted are shown as the same on the face of
the income statement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEHDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND RETAINED
EARNINGS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 38,586
<SECURITIES> 726
<RECEIVABLES> 229,528<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 438,867
<CURRENT-ASSETS> 716,452
<PP&E> 109,600<F1>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 904,367
<CURRENT-LIABILITIES> 498,742
<BONDS> 194,508
0
0
<COMMON> 3,087
<OTHER-SE> 154,832
<TOTAL-LIABILITY-AND-EQUITY> 904,367
<SALES> 499,452
<TOTAL-REVENUES> 499,452
<CGS> 450,241
<TOTAL-COSTS> 450,241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,780
<INCOME-TAX> 3,381
<INCOME-CONTINUING> 6,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,033
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
<FN>
<F1> Shown net in financial statements.
<F2> Not shown separately under materiality guidelines.
</FN>
</TABLE>
