SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
COMMON STOCK, $0.20 PAR VALUE NEW YORK STOCK EXCHANGE
7 1/4% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2007 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED TO THE BEST
OF REGISTRANT'S KNOWLEDGE IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. [ ]
AT JUNE 11, 1998 THERE WERE 12,809,800 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING. THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT BASED ON THE NEW YORK STOCK EXCHANGE CLOSING
PRICE ON JUNE 11, 1998 WAS APPROXIMATELY: $101,612,000.
PORTIONS OF THE REGISTRANT'S (1) ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED MARCH 31, 1998 AND (2) PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON AUGUST 11, 1998 ARE INCORPORATED BY REFERENCE INTO
PARTS I, II, III AND IV.
<PAGE>
PART I
ITEM 1. BUSINESS.
The Registrant (referred to herein as "Standard" or the "Company") is
principally engaged in two international businesses - tobacco and wool.
Standard is one of the three global independent leaf tobacco merchants
serving the large multinational cigarette manufacturers. The Company has a
leading market presence in a number of the emerging and low-cost flue-cured and
burley tobacco growing regions, including China, India, Malawi and Tanzania.
Founded in 1910, the Company purchases, processes, stores, sells and ships
tobacco grown in over 30 countries, servicing cigarette manufacturers from 20
processing facilities strategically located throughout the world. The Company is
also engaged in purchasing, processing and selling various types of wool and is
a world leader in the trading of scoured wool.
There have been no significant changes in business segments since April
1, 1997. Contributions to gross revenue from businesses other than tobacco and
wool for the past three years have not been material
Variability of Annual and Quarterly Financial Results
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and variations in the mix of
sales, cause quarterly fluctuations in financial results. Sales and revenue
recognition by the Company is based upon the passage of title, which typically
occurs on the date of shipment. The nature of the Company's businesses is such
that it is not possible to predict the timing of shipments or orders with a high
degree of precision, and advances or delays in either are not unusual.
Therefore, the comparability of the Company's financial results, particularly
quarter-to-quarter comparisons, which may be significantly affected by these
factors, should be considered when evaluating the Company's performance. In
addition, the Company's business may be adversely affected by poor weather or
other agricultural factors, many of which are beyond the control of the Company.
Total tobacco inventories normally peak in the Company's third fiscal
quarter as large volumes of tobacco grown in the northern hemisphere are
purchased and held in various conditions of processing prior to shipment to
customers. Receivables typically peak in the fourth quarter as those tobaccos
are shipped and invoiced. Revolving credit borrowings and trade payables
normally peak with inventories.
Wool is generally purchased over a greater portion of the year than
tobacco, and wool growing seasons occur at different times of the year in
different countries. Wool trading is generally lower during the first and second
fiscal quarters as a result of reduced demand during the summer for wool
products in the northern hemisphere, when processors and users close down for
holidays and vacations in Europe. Generally, wool revenues reach high levels in
the third fiscal quarter and peak in the fourth fiscal quarter.
International Business Risks
The Company's international operations are subject to a number of
political and economic risks, including unsettled social and political
conditions, nationalization, expropriation, import and export restrictions,
confiscatory taxation, exchange controls, renegotiation or nullification of
existing contracts, inflationary economies and currency risks, strikes and risks
related to the restrictions of repatriation of earnings or proceeds from
liquidated assets of foreign subsidiaries. In certain countries, the Company has
advanced funds or guaranteed local loans or lines of credit for the purchase of
tobacco from growers, and expects to continue such practices in the future. Risk
of repayment is normally limited to the tobacco season, and the maximum exposure
occurs within a shorter period.
<PAGE>
The Company's tobacco business is generally conducted in U.S. dollars,
as is the business of the industry as a whole. However, local country operating
costs, including the purchasing and processing costs for tobaccos, are subject
to the effects of exchange fluctuations of the local currency against the U.S.
dollar. The Company attempts to minimize such currency risks by matching the
timing of its working capital borrowing needs against the tobacco purchasing and
processing funds requirements in the currency of the country of tobacco origin.
Fluctuations in the value of foreign currencies can significantly affect the
Company's operating results and/or its shareholders' equity.
Wool purchases and sales are typically denominated in the currency of
the source country and destination country, respectively. The Company typically
pays for its wool purchases in the currency of the country of origin, and
generally hedges the currencies of its purchase and sale commitments with
forward transactions.
The Company regularly monitors its foreign exchange position and has
not experienced material gains or losses on foreign exchange fluctuations. The
Company enters into forward contracts solely for the purpose of limiting its
exposure to short-term changes in foreign exchange rates. The Company does not
engage in currency transactions for the purpose of speculation.
Government Regulation and Environmental Compliance
In recent years, governmental entities in the United States at all
levels have taken or have proposed actions that may have the effect of reducing
consumption of cigarettes. These activities have included: (i) the U.S.
Environmental Protection Agency's classification of tobacco environmental smoke
as a "Group A" (known human) carcinogen; (ii) restrictions on the use of tobacco
products in public places and places of employment including a proposal by the
U.S. Occupational Safety and Health Administration to ban smoking in the work
place; (iii) proposals by the U.S. Food and Drug Administration to sharply
restrict cigarette advertising and promotion and to regulate nicotine as a drug;
(iv) increases in tariffs on imported tobacco; (v) proposals to increase sales
and excise taxes on cigarettes; (vi) the recently announced policy of the U.S.
government to link certain federal grants to the enforcement of state laws
banning the sale of tobacco products to minors; (vii) lawsuits against cigarette
manufacturers by several U.S. states seeking reimbursement of Medicaid and other
expenditures by such states claimed to have been made to treat diseases
allegedly caused by cigarette smoking; and (viii) the recent enactment of
stricter regulations designed to prohibit sales of cigarettes to minors. It is
not possible to predict the outcome of such actions or litigation or the effect
adverse determinations against the manufacturers might have on leaf merchants,
like the Company, or the extent to which governmental activities and litigation
might adversely affect the Company's business directly.
Approximately a year ago, the Attorneys General of 40 states reached a
proposed settlement with certain U.S. cigarette manufacturers regarding claims
for reimbursement of health care costs associated with smoking-related
illnesses. The settlement would, among other things, give the FDA the authority
to regulate tobacco products, curtail the advertising of tobacco products and
mandate new and larger warning labels on cigarette packages. Subsequently
various, more stringent bills dealing with these matters have been introduced in
Congress. It is not possible to predict whether legislation will be passed or
what the effect of such legislation will be on pending and future actions
brought by private litigants or the impact the settlement will have on sales of
tobacco products and the Company's business.
In calendar 1993, Congress enacted the 75/25 Rule, intended to limit
the importation of tobacco into the United States by requiring that all
cigarettes manufactured in the United States, including those manufactured for
export, contain at least 75.0% domestically grown tobacco. Although the 75/25
Rule was repealed in 1995, principally because it was inconsistent with GATT,
and was replaced with import quotas designed to assist domestic tobacco growers,
it had the effect in calendar 1993 and 1994 of drastically decreasing demand for
imports of foreign tobacco for use in the domestic production of cigarettes. It
is not possible to predict the extent to which future governmental or third
party actions might adversely affect the Company's business.
A number of foreign countries have also taken steps to restrict or
prohibit cigarette advertising and promotion, to increase taxes on cigarettes
and to discourage cigarette smoking. In some cases, such restrictions are more
onerous than those in the U.S. For example, advertising and promotion of
cigarettes has been banned or severely restricted for a number of years in
Australia, Canada, Finland, France, Italy, Singapore and a number of other
countries. It is not possible to predict the extent to which these actions might
adversely affect the Company's business.
<PAGE>
Although the Company's wool scouring and top making operations involve
discharges of significant amounts of effluent waste, the Company believes that
it is currently in compliance with applicable foreign laws which have been
enacted or adopted regulating the discharge of such materials into the
environment or otherwise relating to the protection of the environment. Such
compliance has not had, and is not anticipated to have, any material effect upon
the competitive position of the Company.
The Leaf Tobacco Industry
Multinational cigarette manufacturers, with one principal exception,
rely primarily on global independent leaf tobacco merchants, such as the
Company, to process and supply leaf tobacco used in the manufacturing process.
Leaf tobacco merchants select, purchase, process, store, pack, ship and, in a
growing number of emerging markets, provide agronomy expertise and financing for
growing leaf tobacco. Presently, there are three global independent leaf tobacco
merchants, including the Company. Important trends in the leaf tobacco industry
include:
Growth of American-Blend Cigarettes. American-blend cigarettes have
gained market share in several major foreign markets, including Asia
(particularly Pacific Rim countries), Europe and the Middle East in recent
years. American-blend cigarettes contain approximately 50% flue-cured, 35%
burley and 15% oriental tobacco, contain less tar and nicotine, and taste milder
than locally produced cigarettes containing dark and semioriental tobacco
historically consumed in certain parts of the world. According to the Tobacco
Merchants Association, the American-blend cigarette consumption (excluding
China) has increased from 1.7 trillion units in calendar 1990 to 1.9 trillion
units in calendar 1996, an increase of 10.8%. The TMA estimates that worldwide
American-blend tobacco consumption (excluding China) will increase an additional
5.5% to more than 2.0 trillion units by the year 2000. The TMA also estimates
that worldwide American-blend cigarette consumption (excluding China), as a
percentage of total consumption, has also experienced substantial growth,
increasing from 47.9% in 1990 to 52.5% in 1996, and is projected to reach 54.3%
by the year 2000. As American-blend cigarettes have continued to gain global
market share, the demand for export quality flue-cured, burley and oriental
tobacco sourced and processed by leaf tobacco merchants has grown accordingly.
Several multinational cigarette manufacturers have made significant investments
in the Former Soviet Union, which the Company believes may lead to increased
demand for and sale of American-blend tobacco. As American-blend cigarettes have
gained market share, the demand for export quality American-blend tobacco
sourced and processed by the three global independent leaf tobacco merchants,
including the Company, has grown accordingly.
Growth in Foreign Operations of Multinational Cigarette Manufacturers.
Several multinational cigarette manufacturers have expanded their operations
throughout the world, including in Africa, Asia, Central and Eastern Europe and
the Former Soviet Union, in order to increase their access to and penetration of
these markets. As cigarette manufacturers expand their global operations, the
Company believes there will be increased demand for local sources of leaf
tobacco and local tobacco processing facilities, primarily due to the
semiperishable nature of unprocessed leaf tobacco and the existence of domestic
tobacco content laws in certain countries. The Company also believes that the
international expansion of cigarette manufacturers will cause these
manufacturers to place greater reliance on the services of financially strong
leaf tobacco merchants with the ability to source and process tobacco on a
global basis and to help develop higher quality local tobacco sources.
Growth in Foreign Sourced Tobacco. In an effort to respond to cigarette
manufacturers' increasing demand for lower cost American-blend tobacco, the
major leaf tobacco merchants have made significant investments in Africa, Asia,
Europe and South America, the principal sources of flue-cured, burley and
oriental tobacco outside the United States. The Company expects this trend to
continue in the foreseeable future as the quality of foreign grown tobacco
continues to improve.
Consolidation of Tobacco Merchants. Leaf tobacco merchants continue to
consolidate through worldwide acquisitions and mergers. As recently as 1989,
there were eight major international merchants. Presently, there are three
global independent leaf tobacco merchants, including the Company, which
purchase, process, store, sell and ship leaf tobacco worldwide. The Company
believes that it has experienced growth in tobacco revenue as a result of this
industry consolidation as the multinational cigarette manufacturers diversify
their sourcing partners of quality leaf tobacco.
<PAGE>
Tobacco Operations
The Company has developed an extensive international network through
which it purchases, processes and sells tobacco. In addition to processing
facilities in North Carolina and Kentucky, the Company owns or has an interest
in processing facilities in Brazil and Zimbabwe, both significant exporters of
flue-cured tobacco; Malawi, a leading exporter of burley tobacco; and Greece and
Turkey, the leading exporters of oriental tobacco. The Company also has
processing facilities in Italy, Spain and Thailand. In addition, the Company has
entered into contracts, joint ventures and other arrangements for the purchase
and processing of tobacco grown in substantially all countries that produce
export-quality flue-cured, burley and oriental tobacco, including Argentina,
Brazil, Canada, China, India, Kenya, Kyrgyzstan, Tanzania and Ukraine.
Purchasing. The tobacco in which the Company deals is grown in over 30
countries. Management believes that its diversity in sources of supply, combined
with a broad customer base, helps shield the Company from seasonal fluctuations
in quality, yield or price of tobacco crops grown in any one region. The Company
relies primarily on revolving lines of bank credit and internal resources to
finance its purchases. Quite often the tobacco serves as collateral for the
credit. The period of exposure, with some exceptions, generally is limited to a
tobacco season and the maximum exposure is limited to a shorter period.
Tobacco is generally purchased at auction or directly from growers.
Tobacco grown in the United States, Canada, India, Malawi and Zimbabwe is
purchased at auction. The Company generally employs its own buyers to purchase
tobacco on auction markets, directly from growers and pursuant to marketing
agreements with government monopolies. At present, the largest amounts of
tobacco purchased by the Company outside the United States come from Argentina,
Brazil, China, Greece, India, Italy, Malawi, Spain, Thailand, Turkey and
Zimbabwe.
Although Argentina, Brazil, China, Greece, Italy, Spain, Turkey and
Thailand are major tobacco producers, there are no tobacco auctions in these
markets. In these markets, the Company buys tobacco directly from farmers,
agricultural cooperatives or government agencies in advance of firm orders or
indications of interest although such purchases are usually made with some
knowledge of its customers' requirements. In certain of these markets the
Company advances or finances the purchase of fertilizer and other supplies to
assist farmers in growing the crop. These advances generally are repaid with
deliveries of tobacco by the farmers. During fiscal 1998, the maximum aggregate
amount of such advances by the Company was $53.2 million.
Processing. Tobacco purchased by the Company generally is perishable
and must be processed within a relatively short period of time to prevent
deterioration in quality. Consequently, the Company has located its processing
facilities near the areas where it purchases tobacco. Prior to and during
processing, the Company takes a number of steps to ensure consistent quality of
the tobacco. These steps include regrading and removing undesirable leaves, dirt
and other foreign matter. Most of the tobacco is then blended to meet customer
specifications and threshed; however, some of it is processed in whole-leaf form
and sold to certain customers of the Company. Threshing involves mechanically
separating the stem from the tissue portions of the leaf, which are called
strips, and sieving out small scrap. Considerable expertise is required to
produce strips of large particle size and to minimize scrap.
Strips and stems are redried and packed separately. Redrying involves
further reducing the natural moisture left in the tobacco after it has been
cured by the growers. The objective is to pack tobacco at safe moisture levels
so that it can be held by the customer in storage for long periods of time.
Quality control checks are continually performed during processing to ensure
that the product meets customer specifications as to yield, particle size,
moisture content and chemistry. Customers are frequently present at the factory
to monitor results while their tobacco is being processed.
Redried tobacco is packed in hogsheads, cartons, cases or bales for
storage and shipment. Packed tobacco generally is transported in the country of
origin by truck or rail, and exports are moved by ship.
The Company processes its tobacco in four wholly-owned plants in the
United States and 12 other facilities around the world owned or leased by
subsidiaries and affiliates. In addition, the Company has access to four other
processing plants in which it has no ownership interest. In all cases, tobacco
processing is under the direct supervision of Company personnel. Modern
laboratory facilities are maintained by the Company to assist in selecting
tobacco for purchase and to test tobacco during and after processing.
<PAGE>
The Company believes that its plants are efficient and are adequate for
its purposes. The Company also believes that tobacco throughput at its existing
facilities could be increased without major capital expenditures.
Selling. The Company's customers include all of the world's leading
manufacturers of cigarettes and other consumer tobacco products. These customers
are located in approximately 85 countries throughout the world. The Company
employs its own salesmen, who travel extensively to visit customers and to
attend tobacco markets worldwide with these customers, and it also uses agents
for sales to customers in certain countries. Sales are made on open account to
customers who qualify based on experience or are made against letters of credit
opened by the customer prior to shipment. Virtually all sales are made in U.S.
dollars. Payment for most tobacco sold by the Company is received after the
tobacco has been processed and shipped.
The consumer tobacco business in most markets is dominated by a small
number of large multinational cigarette manufacturers and by government
controlled entities. In fiscal 1998, the Company's five largest customers
accounted for approximately 49.7% of total sales (64.6% of tobacco sales). In
fiscal years 1998, 1997 and 1996, one customer accounted for 24.1%, 24.1% and
17.4% of total sales, respectively. The Company believes that formal purchase
contracts are not customary in the global leaf tobacco industry and agreements
to purchase tobacco generally result from the supplier's course of dealings with
its customers. The Company has done business with most of its customers for many
years. The Company believes that it has good relationships with its large
customers; however, the loss of any one or more of these customers could have a
material adverse effect on the Company.
As of March 31, 1998, the Company had tobacco inventory of $284.8
million compared to $181.3 million at March 31, 1997. The level of tobacco
fluctuates from period to period and is significant only to the extent it
reflects short-term changes in demand for leaf tobacco.
Competition
The leaf tobacco industry is highly competitive. Competition among
independent leaf tobacco dealers is based primarily on the price charged for
products and services; the ability to meet customer demands and specifications
in sourcing, purchasing, blending, processing and financing tobacco; and the
ability to develop and maintain long-standing customer relationships by
demonstrating a knowledge of customer preferences and requirements. Although
most of the Company's principal tobacco customers also purchase tobacco from the
Company's major tobacco competitors, Universal and Dimon, the Company's
relationships with its largest tobacco customers span many years and the Company
believes that it has the personnel, expertise, facilities and technology to
remain successful in the industry. In addition, the Company believes that the
consolidation of the leaf tobacco industry has provided opportunities for it to
enhance its relationship with and increase sales to certain cigarette
manufacturers.
Worldwide Tobacco Presence
United States. The Company owns and operates a total of four processing
facilities located in North Carolina and Kentucky and purchases tobacco at all
major markets in the United States, including flue-cured tobacco markets in
North Carolina, South Carolina, Virginia, Georgia and Florida; burley tobacco
markets in Kentucky, Tennessee, Virginia and North Carolina; and light air-cured
tobacco markets in Maryland and Pennsylvania. In the United States, flue-cured
and burley tobacco are generally sold at public auction to the highest bidder.
The price of such tobacco is supported under an industry-funded federal program
that also restricts tobacco production through a quota system. U.S. grown
tobacco is more expensive than most non-U.S. tobacco, resulting in a declining
trend in exports, which management believes should be offset by increased demand
for foreign tobacco.
Brazil. The Company currently, and has for many years, sells leaf
tobacco produced in Brazil as the agent for Souza Cruz, a subsidiary of B.A.T.
which has approximately 80.0% of the domestic cigarette market in Brazil. The
Company fills orders and earns a commission from Souza Cruz based upon the sales
price of the tobacco. During fiscal 1998, The MDTL Trust, a trust established by
the Company, acquired 100% of Meridional, the fourth largest leaf tobacco
processor in Brazil. This strategic acquisition complements the Company's
continuing 27-year partnership in Brazil with Souza Cruz, and provides the
Company with direct ownership of a processing facility in the second largest
leaf tobacco growing region in the world (excluding China).
<PAGE>
Turkey and Greece. The Company is one of the largest merchants of
flue-cured, burley and oriental tobacco in Turkey. In both Turkey and Greece,
the oriental tobacco markets are more fragmented than the major flue-cured and
burley tobacco markets in other parts of the world. The Company believes that
the fragmented nature of the oriental tobacco markets and its leading presence
in these markets provides it with an excellent opportunity to expand revenues
through acquisitions and continued strategic investments. The Company also
purchases and processes flue-cured and burley tobacco in Greece. The Company
processes tobacco in Turkey and Greece in two 51.0% owned facilities.
Malawi, Zimbabwe and Tanzania. In Malawi, the largest exporter of
low-cost burley tobacco in the world, the Company has a leading market position
and services the large multinational cigarette manufacturers from its 51.9%
owned facility in Lilongwe and its 50.0% owned facility in Limbe. The Company
also is a leader in the purchase and processing of flue-cured and dark-fired
tobacco, which are also processed in the Company's facilities. In Zimbabwe, the
Company purchases flue-cured tobacco and to a lesser extent burley tobacco,
which it processes in its minority-owned facility. In Tanzania, one of the key
emerging growing regions of low-cost filler tobacco, the Company has
historically been one of the largest exporters of flue-cured tobacco. The
Company supervised the processing of this tobacco in a government-owned
facility, which was privatized in calendar 1995. The Company recently purchased
a 20% interest in a privately-owned and -operated processing facility in
Morogoro, Tanzania.
China, Thailand and India. The Company has provided agronomy services
and funded a variety of projects in China since 1981 and believes that it is the
largest independent exporter of Chinese leaf tobacco. The Company currently
operates two government-owned tobacco processing facilities in China. In fiscal
1998, the Company expanded its presence in China and expects to increase its
production in the area through strategic alliances with the Chinese government.
The Company is also one of the leading exporters of flue-cured, burley and
oriental leaf tobacco from Thailand, which it purchases directly from farmers or
in some cases from a middlemen or curers. Flue-cured tobacco is grown mainly in
Northern Thailand, burley tobacco is grown in Central Thailand and oriental leaf
tobacco is grown in Northeast Thailand. The Company currently processes tobacco
in Thailand in two facilities in which the Company owns a minority interest. In
India, an emerging source of low-cost filler tobacco, the Company purchases
primarily flue-cured tobacco. The Company has entered into a joint venture with
a local partner in Guntur, India for a new processing facility.
Other Foreign Operations. The Company also has foreign subsidiaries,
joint ventures and affiliates that purchase, process and sell tobacco grown in
other countries throughout the world, including Italy, Kenya, Spain and Zaire.
The Wool Industry
The Company is a world leader in the trading of scoured wool and a
major trader and processor of wool tops. As a result of a series of acquisitions
commencing in 1985, the Company owns and operates an integrated group of wool
companies which purchase, process and sell wool to other wool processors,
felting companies, knitters and spinners of yarn, and manufacturers of worsted
and woolen products. The Company does not raise sheep or produce textile
products. For fiscal 1998, the Company derived approximately 23.0% of its
revenue from its wool division.
The wool industry is highly fragmented, with a large number of small
dealers handling wool, often from limited origins. There are two broad
categories of wool fibers: fine wool from merino sheep and coarse wool from
crossbred sheep. Merino wool is used to make products for the apparel trade such
as fine sweaters and worsted fabrics for high quality suits. Crossbred wool is
used to make carpets, coarser worsted fabrics such as upholstery and draperies,
and woolens used in knitwear and hand-knitting yarns. Most merino wool for
export is produced in Australia followed by South Africa and South America. The
main sources of crossbred wool for export are New Zealand, the United Kingdom
and South America.
<PAGE>
Following record high prices in 1988, the wool industry experienced a
severe downturn beginning in 1989 that was triggered by the withdrawal of China
from international wool markets, economic turmoil in Eastern Europe and the
states of the Former Soviet Union and recessionary conditions in Western Europe.
These events led to a decrease in demand for wool on the world market. At the
same time a worldwide oversupply of wool had developed, largely due to
artificially high prices caused by the Australian support program.
Prior to 1991, Australian wool growers operated under a government
price support program. Under this program, the Australian government accumulated
a stockpile of 827,000 metric tons (raw weight) of wool. In 1991 the Australian
government abandoned its price support program, effectively creating a free
market for wool. Under free market conditions, prices fell substantially and
immediately, creating difficult trading conditions for the wool industry, and
leading to the development of market conditions necessary for a correction in
what had become a major imbalance between supply and demand. At present, Wool
International, an organization created by the Australian government, is
responsible for the reduction of the stockpile, which on March 31, 1998 totaled
211,000 metric tons (the equivalent of approximately 35% of one year's current
Australian production). At the present rate of reduction, it is forecast that
the stockpile will be liquidated by the year 2000.
Worldwide wool production during the Company's 1998 fiscal year was
below current demand for the fourth consecutive year, and production by the five
major wool exporting countries has declined by 15.0% over the past five years.
As a result, since 1992, all surplus stocks around the world have been sold with
the exception of the remaining stockpile in Australia.
Operations
From the outset, the Company's strategy has been to build a large
international wool network, primarily through the acquisition of
well-established traders and processors. The Company believes that as a result
of its acquisitions and the continuing consolidation of the wool industry, it
has become one of the world's largest traders and processors of wool. The
Company owns and operates processing facilities in five countries, including
scouring mills in New Zealand, South Africa and the United Kingdom and combing
mills in Chile and France. The Company has entered into a joint venture for an
aqueous scouring facility in Western Australia, the only one of its type in the
region. The Company has also acquired a 33.3% interest in a topmaking facility
in Tasmania. The Company also uses the services of commission processors in
Argentina, Australia, Belgium, Germany and Italy.
Purchasing. The Company deals in wool from all of the major producing
areas, the most significant of which are Argentina, Australia, Chile, New
Zealand, South Africa and the United Kingdom. The Company has buying offices in
all of these areas. The Company's employees buy wool at auctions and through
negotiations with wool growers. Although most wool is shorn before it is
purchased, some wool is purchased "on the back" before shearing. As in its
tobacco business, most of the Company's purchases are made against specific
customer orders. Australia is by far the largest producer of wool in the world
and its wool prices generally influence world prices. The Company typically pays
for its wool purchases in the currency of the country of origin, and usually
hedges the currencies of its purchase and sale commitments with forward
transactions. The Company does not engage in currency transactions for the
purpose of speculation.
Processing. Wool is purchased in its raw or naturally greasy state, and
must be scoured (washed) before it can be further processed. The Company sells
some greasy wool to topmakers, but most of the wool is blended and scoured
and/or further processed into tops, to meet customer specifications. The
scouring is done at the Company's plants in New Zealand, South Africa and the
United Kingdom, and at its jointly owned facility in Australia, and at its
jointly owned facility in Tasmania, or by commission scourers in Argentina,
Australia and Belgium. Similarly, tops are produced in the Company's plants in
Chile and France, and at its jointly owned facility in Tasmania, and by
commission combers in Argentina, Australia, Italy and Germany. The Company's
French plant also refines wool grease removed during the scouring process into a
variety of types of lanolin, a marketable byproduct.
A top is a continuous strand of straightened and combed, longer wool
fibers that have been separated from the short fibers. Topmaking involves seven
processes: blending, scouring, carding, gilling, combing, finishing and packing
to quality standards specified by the customer. Carding machines align the
fibers to produce a "sliver" of parallel fibers while removing foreign matter.
Slivers are combed and combined to produce a stronger "rope" or a top suitable
for spinning. Tops are wound into bobbins weighing approximately 22.0 pounds
which are packed and shipped to customers in the apparel industry for further
manufacturing. The Company maintains laboratory facilities for analyzing and
testing wool and lanolin.
<PAGE>
Selling. The Company currently derives approximately 68.0% of its wool
revenues from sales to customers in Europe, with sales to the Far East, North
America and other areas making up the balance. In fiscal 1998, processed wool
(i.e., scoured and tops) accounted for approximately 67% of the Company's wool
revenues, followed by greasy wool (26%), specialty fibers and lanolin (7%).
Greasy wool is sold primarily to customers in Western Europe, the Far East and
the United States. Scoured wool is shipped to carpet, woolen, felting, quilt and
mattress manufacturers located in Europe, the Far East and the United States.
Tops are sold primarily to Western European yarn spinners for processing and
sale to manufactures of worsted fabrics. Lanolin is sold primarily to
manufacturers of cosmetics and pharmaceutical products. The Company's largest
wool customer accounted for less than 2% of total sales and 5% of total wool
sales for fiscal 1998. Sales are typically made in local currencies of the
customers.
The Company relies primarily on short-term bank credit and internal
resources to finance its wool purchases. The period of exposure generally is
limited to only a few months. At March 31, 1998 and 1997, the Company had
outstanding orders for wool of approximately $87.0 million and $109.0 million,
respectively.
Competition
The wool industry is more fragmented than the leaf tobacco industry.
Major competitors include Chargeurs, ADF, BWK and a number of Japanese trading
firms, the largest of which is Itochu. Key factors for success in the wool
business are broad market coverage, a full range of wool types, technical
expertise in buying and processing and high quality customer service. The
Company believes that its processing and marketing capabilities and buying and
trading expertise enable it to compete effectively, and that its broad
geographical trading base enables it to react quickly to price changes and to
supply wool of similar types and blending quality from different countries or
areas while keeping the highest quality standards.
Other Operations and Investments
The Company is engaged in another small noncore activity: Stancom Home
Center operates a wholesale/retail building materials and home supply center
located in Wilson, North Carolina. Revenues and earnings of this business are
not material.
EMPLOYEES
At March 31, 1998, the Company had a total of approximately 2,187
full-time employees (including approximately 542 in the United States) and
approximately 2,035 full-time employees in affiliated companies. As of that
date, of the Company's full-time employees, approximately 1,573 were in the
tobacco business, approximately 586 were in the wool business and approximately
28 had duties relating to other operations. The tobacco business typically
employs an additional 6,700 to 6,800 part-time employees during peak production
periods.
The Company's principal subsidiary in the United States has a
collective bargaining agreement with a union covering the majority of its hourly
employees, many of whom are seasonal. The agreement expires on May 31, 1999. The
Company believes its relations with employees covered by this agreement are
good. Employees at the French wool plant are also represented by labor unions
under an agreement subject to renewal every December 31. The Company believes
that its relations with its employees in France are good.
GENERAL
The Company does not own any material patents, trademarks, licenses, franchises
or concessions, nor does it engage in any significant research activity.
<PAGE>
ITEM 2. PROPERTIES.
Tobacco Operations
The Company generally conducts its tobacco processing operations in
facilities near the area of production. In certain places, long-standing
arrangements exist with local companies to process tobacco in their plants under
the supervision of Company personnel. A current summary showing the principal
tobacco operating properties of the Company or its affiliates is shown below:
<TABLE>
<CAPTION>
AREA
LOCATION PRINCIPAL USE (SQUARE FEET)
-------- ------------- ------------
<S> <C>
UNITED STATES
Wilson, NC Factory/storage 1,008,000
Oxford, NC Factory/storage 624,700
King, NC Factory 134,600
Springfield, KY Factory/storage 292,000
TURKEY
Izmir Factories (2)/storage 431,300
Izmir Storage 204,500*
GREECE
Alexandria Factory/storage 402,000
Salonica Factory/storage 772,700
Salonica Factory/storage 236,300*
MALAWI
Limbe Factory/storage 414,000
Lilongwe Factory/storage 776,000
ZIMBABWE
Harare Factory/storage 565,800*
Harare Storage 233,500
THAILAND
Chiengmai Factory/storage 872,000
Banphai Factory/storage 377,000
ITALY
Caserta Factory/storage 800,000*
SPAIN
Benavente Factory/storage 206,000
Benavente Storage 132,400*
Coria Buying Center 18,300*
Talayuela Buying Center 21,500
</TABLE>
* Leased facility.
The Company believes its tobacco properties are generally
well-maintained, in good operating condition and are suitable and adequate for
the normal growth of its business.
<PAGE>
Wool Operations
The Company generally conducts its scoured wool operations in the
country of origin, and processes wool tops in France and Chile. A current
summary showing the principal wool operating properties of the Company or its
affiliates is shown below:
<TABLE>
<CAPTION>
AREA
LOCATION PRINCIPAL USE (SQUARE FEET)
-------- ------------- -------------
<S> <C>
AUSTRALIA
Fremantle Storage 200,000
CHILE
Punta Arenas Factory/storage 57,000
FRANCE
Tourcoing Factory/storage 964,900
NETHERLANDS
Dongen Storage 23,700
NEW ZEALAND
Christchurch Factory/storage 100,300
SOUTH AFRICA
Port Elizabeth Factory/storage 70,000*
UNITED KINGDOM
Bradford Factory/storage 165,000
</TABLE>
* Leased facility.
The Company believes its wool properties are generally well-maintained,
in good operating condition and are suitable and adequate for the normal growth
of its business.
ITEM 3 LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is currently involved
in any litigation that the Company believes would, individually or in the
aggregate, have a material adverse effect on the Company's consolidated
financial position, consolidated results of operation or liquidity nor, to the
Company's knowledge, is any such litigation currently threatened against the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
quarter ended March 31, 1998.
<PAGE>
Executive Officers and Certain Key Employees of the Company at June 11, 1998
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ----------
<S> <C>
Robert E. Harrison 44 President and Chief Executive Officer
Marvin W. Coghill 64 Chairman - Tobacco Division
Alfred F. Rehm 49 President - Tobacco Division
Paul H. Bicque 54 Managing Director - Wool Division
Henry C. Babb 53 Vice President - Public Affairs, General Counsel
and Secretary
Ery W. Kehaya, II 46 Vice President, and Tobacco Division
Regional Manager - North America
Michael K. McDaniel 48 Vice President-Human Resources
Robert A. Sheets 43 Vice President and Chief Financial Officer
Keith H. Merrick 43 Vice President and Treasurer
Hampton R. Poole, Jr. 46 Vice President and Controller
Timothy S. Price 39 Vice President - Business Planning
and Development
Krishnamurthy Rangarajan 55 Vice President and Assistant Secretary
</TABLE>
Information concerning executive officers who are also directors is
contained in the Company's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on August 11, 1998 which, except for the material under
the headings "Compensation Committee Report" and "Performance Graph" is
incorporated herein by reference and made a part hereof. Business experience
during the past five years of other executive officers and key employees is set
forth below:
Alfred F. Rehm was appointed Tobacco Division President in April 1998.
He had been Vice President - Sales of the Tobacco Division since February 1995.
He joined the Company in 1978 and his 30 year career in the tobacco industry
includes experience in all phases of the leaf department.
Paul H. Bicque has served as Managing Director of the wool division
since December 1995. From 1992 to December 1995, he served as a Commercial
Director of the wool division. From 1990 until he joined the Company, Mr. Bicque
worked as an international senior management consultant.
Henry C. Babb joined the Company in December 1997 as Vice President -
Public Affairs and General Counsel. He was appointed Secretary in June 1998.
Prior to joining the Company, Mr. Babb practiced law for 28 years, including 17
years as a partner with a prominent general practice law firm in Wilson, North
Carolina.
Ery W. Kehaya, II was appointed Vice President and Regional Manager of
the tobacco division in 1998. He had been named Tobacco Division Vice President
- - Operations in 1995 and Sales Director in 1993, and has been a Corporate Vice
President since 1992. He is the son of Ery W. Kehaya, Chairman Emeritus.
Michael K. McDaniel joined the Company as Director-Human Resources in
November 1996 and was elected Vice President-Human Resources in June 1997. From
1995 to November 1996 he was a partner in a human resources consulting firm, and
from 1978 to 1995 he was Director of Human Resources and Organizational
Development for the City of Wilson, North Carolina.
Robert A. Sheets was appointed Vice President and Chief Financial
Officer in April 1998. He joined the Company in October 1995 as Assistant
Controller. His previous experience included 10 years in the foods and
international tobacco divisions at RJR Nabisco. Mr. Sheets is a Certified Public
Accountant.
Keith H. Merrick has served as Treasurer of the Company since 1993 and
was elected a Vice President in 1996. Prior to joining the Company, he was
employed as a Vice President of First Union National Bank of North Carolina.
Hampton R. Poole, Jr. was appointed Vice President in 1996 and has
served as Controller of the Company since 1993. He joined the Company in 1984
and has been an officer of Standard Commercial Tobacco Co., Inc., a subsidiary,
for more than five years. Mr. Poole is a Certified Public Accountant.
Timothy S. Price was appointed Vice President - Business Planning
and Development in June 1998. He had been Financial Director of the wool
division since December 1995. Previously, he served as Vice President and
Controller of W. A. Adams Company from the time it was acquired by the Company
in June 1992. Mr. Price is a Certified Public Accountant.
Krishnamurthy Rangarajan was employed by the Company in 1978 after
qualifying as a Chartered Accountant. He was elected a Vice President in 1988
after being named Assistant Vice President in 1986 and Chief Accountant in 1981.
The above persons have been appointed for terms continuing until at the
Board of Directors meeting following the Annual Meeting of Shareholders on
August 11, 1998 or until their successors have been duly elected and qualified.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
ITEM 6 - SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information called for by Items 5, 6 and 7 is contained in the
Company's 1998 Annual Report to Shareholders as detailed below and incorporated
herein by reference and made a part hereof.
Item Caption in Annual Report Page No.
---- ------------------------ -------
5 Quarterly Financial Data (Unaudited)` 33
6 Selected Financial Data 33
7 Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-13
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The data appearing on pages 14 through 31 of the Company's 1998 Annual
Report to Shareholders, and the Independent Auditors' Report on page 32, are
incorporated herein by reference and made a part hereof.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by items 10, 11, 12 and 13 is included in
the Company's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held on August 11, 1998 and is incorporated herein by reference, except
for the material under the heading "Compensation Committee Report" and
"Performance Graph." The information concerning executive officers of the
Company follows Item 4 of Part I of this Report.
PART IV
ITEM 14 EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements: See Item 8.
2. Financial Statement Schedule:
(i) Report of Independent Auditors on Financial
Statement Schedule.
(ii) Schedule II - Valuation and Qualifying
Accounts.
(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: None were filed during the
quarter ended March 31, 1998.
(c) The following exhibits are filed as part of this Report:
3. (i) There is incorporated by reference
herein the Company's Restated Articles
of Incorporation.
(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.
<PAGE>
(iv) There is incorporated herein by reference
the Third Supplemental Agreement dated
August 1, 1997 between the Company and
certain subsidiaries and Deutsche Bank A.G.
et al filed as Exhibit 4(I) for the quarter
ended September 30, 1997 which amends 4(ii)
and (iii) 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.
(ii) There is incorporated herein by reference
Agreement dated as of March 24, 1998 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, 1998.
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for the
year ended March 31, 1998 which, except for
information expressly incorporated by reference into
Items 1, 5, 6, 7 and 8 is not deemed to be "filed" as
a part of this Report.
21. List of subsidiaries.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule.
<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
------------------------------------------
June 11, 1998 Robert E Harrison,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on June 11, 1998 by the following persons on behalf of the
Registrant in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Robert E Harrison President, and Director
- ------------------------------------------------- (Principal Executive Officer)
Robert E Harrison
/s/ Robert A Sheets Vice President
- ------------------------------------------------- (Principal Financial and Accounting Officer)
Robert A Sheets
/s/ J Alec G Murray Chairman of the Board of Directors
- -------------------------------------------------
J Alec G Murray
/s/ Ery W Kehaya Chairman Emeritus and Director
- -------------------------------------------------
Ery W Kehaya
/s/ Marvin W Coghill Director
- -------------------------------------------------
Marvin W Coghill
/s/ William A Ziegler Director
- -------------------------------------------------
William A Ziegler
/s/ Henry R Grunzke Director
- -------------------------------------------------
Henry R Grunzke
/s/ William S Barrack Jr Director
- -------------------------------------------------
William S Barrack Jr
/s/ Charles H Mullen Director
- -------------------------------------------------
Charles H Mullen
/s/ Daniel M Sullivan Director
- -------------------------------------------------
Daniel M Sullivan
/s/ William S Sheridan Director
- -------------------------------------------------
William S Sheridan
</TABLE>
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Standard Commercial Corporation
We have audited the consolidated financial statements of Standard Commercial
Corporation as of March 31, 1998 and 1997, and for each of the three years in
the period ended March 31, 1998, and have issued our report thereon dated June
10, 1998; such consolidated financial statements and report are included in your
1998 Annual Report to Shareholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement schedule of Standard
Commercial Corporation, listed in Item 14. This consolidated financial statement
schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 10, 1998
<PAGE>
STANDARD COMMERCIAL CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Changed to Charged to Deductions Balance at
Beginning Costs and Other End of
Of Period Expenses Accounts See Note A Period
------------- ----------- ---------- ---------- ---------
<S> <C>
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
=========================================================================
Year ended March 31, 1998
Deducted from asset accounts
Allowance for doubtful accounts......... $ 3,600,727 $1,337,765 $ - $ 403,332 $ 4,535,160
Inventory............................... 4,935,825 2,719,009 - 2,684,907 4,969,927
---------------------------------------------------------------------------
Total................................ $ 8,536,552 $4,056,774 $ - $3,088,239 $ 9,505,087
===========================================================================
</TABLE>
EXHIBIT 11
STANDARD COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Twelve months ended March 31
1998 1997 1996
---- ---- ----
<S> <C>
BASIC EARNINGS PER COMMON SHARE
Income (loss) from continuing operations...................... $26,925 $16,937 $(9,442)
Less - ESOP preferred stock dividends net of tax.............. - 347 474
-----------------------------------------------------
Income (loss) from continuing operations
applicable to common stock................................. 26,925 16,590 (9,916)
Income from discontinued operations........................... - - 10,050
Net earnings applicable to common stock....................... $26,925 $16,590 $ 134
-----------------------------------------------------
Basic average shares outstanding.............................. 12,377,211 9,639,622 9,621,693
=====================================================
Earnings (loss) per common share
- from continuing operations............................... $2.18 $1.72 $(1.03)
- from discontinued operations............................. - - 1.04
----------------------------------------------------
- net...................................................... $2.18 $1.72 $0.01
====================================================
DILUTED EARNINGS PER COMMON SHARE*
Income (loss) from continuing operations
applicable to common stock................................. $26,925 $16,590 $(9,916)
Add - after-tax interest expense on 7 1/4%
convertible subordinated debentures................. 3,300 3,300 3,300
Adjusted income (loss) from continuing operations............. 30,225 19,890 (6,616)
Income from discontinued operations........................... - - 10,050
-----------------------------------------------------
Net earnings applicable to common stock....................... $30,225 $19,890 $3,434
=====================================================
Primary average shares outstanding............................ 12,377,211 9,639,622 9,621,693
Increase in shares outstanding assuming
- conversion of 7 1/4% convertible subordinated
debentures at November 13, 1991........................ 2,348,536 2,279,708 2,190,689
- conversion of ESOP convertible
preferred stock at July 1, 1993........................ - 198,640 287,659
-----------------------------------------------------
Diluted average shares outstanding............................ 14,725,747 12,117,970 12,100,041
=====================================================
Earnings (loss) per common share
- from continuing operations............................... $2.05 $1.64 $(0.55)
- from discontinued operations............................. - - 0.83
-----------------------------------------------------
- net...................................................... $2.05 $1.64 $ 0.28
=====================================================
</TABLE>
[LOGO]
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Standard Commercial Corporation
Financial Highlights
Dollar amounts in thousands except per share information
<TABLE>
<CAPTION>
For fiscal years ended March 31 1998 1997* 1996*
- -------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Sales $1,492,797 $1,354,270 $1,359,450
Income (loss) from continuing operations 26,925 16,937 (9,442)
Income (loss) from discontinued operations - - 10,050
Net income 26,925 16,937 608
Earnings (loss) per share
Basic - from continuing operations $ 2.18 $ 1.72 $ (1.03)
- from discontinued operations - - 1.04
- net 2.18 1.72 0.01
Diluted - from continuing operations $ 2.05 $ 1.64 $ (0.55)
- from discontinued operations - - 0.83
- net 2.05 1.64 0.28
Net income as a percentage of sales 1.8 % 1.3 % 0.0 %
</TABLE>
*Earnings per share have been adjusted for the effect of subsequent stock
dividends.
At year-end
- -----------------------------------------------------------------------
Working capital $ 219,099 $ 120,105 $ 55,798
Working capital ratio 1.50:1.00 1.27:1.00 1.10:1.00
Market price per share 15 15/16 17 7/8 9
- -----------------------------------------------------------------------
Contents
Business Description, Strategy and Goals ........... IFC
Financial Highlights ............................... 1
Letter to Shareholders ............................. 2
Tobacco Business ................................... 4
Wool Business ...................................... 6
Management's Discussion and Analysis of
Results of Operations and Financial
Condition ....................................... 8
Consolidated Financial Statements .................. 14
Notes to Consolidated Financial Statements ......... 17
Independent Auditors' Report ....................... 32
Company Report on Financial Statements ............. 32
Selected Financial Data ............................ 33
Quarterly Financial Data ........................... 33
Corporate Directors and Officers ................... 34
Division Management and Principal Trading
Companies ....................................... 35
Investor Information ............................... IBC
<PAGE>
[LOGO]
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------
Standard Commercial Corporation
Dear Fellow Investor:
Fiscal 1998 was a watershed year for your Company; substantial progress
has been made on a number of fronts since I last reported to you. The Company
achieved the best bottom line in its 88-year history; up 60% versus 1997, and
year-over-year growth of 25% in diluted earnings per share on top of three
million more shares outstanding. In addition, the Company reported
year-over-year quarterly earnings growth. We completed a refinancing plan that
reduced leverage and provided your Company with the funds it needed to complete
a number of important acquisitions and investments in both tobacco and wool.
Unfortunately, these positive results have been all but drowned out in the
cacophony of money politics currently being directed at the tobacco industry.
The U.S. settlement talks have taken precedence over performance in the market
place and those persons responsible appear to be determined to drive
shareholder value out of hard-earned corporate results. As a consequence of
this, and despite record results, our share price performance, and hence the
return to you the shareholder has been less than satisfactory this past year.
Standard Commercial has accomplished a number of business-building growth
initiatives and is becoming a stronger and more effective global competitor.
For these results the entire Standard team is to be congratulated; not only for
its perseverance but also for its relentless dedication to our guiding
philosophy:
Teamwork + Adapting to Change + Superior Customer Service = Growth
There was Teamwork, considerable Change and further recognition by our
customers of the Service we provide around the world. All of this has led to
more Growth. Growth in volume and revenues in excess of 10%. Growth which has
enabled your Company to accelerate its expansion plans. In the past year we
have seen the Company enter into its first ever syndicated, global banking
facility; resulting in more competitive interest rates - a far cry from three
years ago. The Company accessed the debt market in the U.S. with a $115 million
Senior Note offering that provided Standard with additional funds to undertake
a series of initiatives designed to position the Company for the future.
Highlighting the recent expansion moves was the acquisition of 100% of
Meridional in Brazil. This will complement our already strong export presence
with Souza Cruz and should enable Standard to improve operating margins in one
of the world's most important tobacco markets. The Standard sign is up, our
people ready and everyone is looking forward to the upcoming season with
enthusiasm.
Moving to India, Standard has formed a joint venture with a
long-established local partner. Our stake in the joint venture is 49%, the
maximum permissible under local laws, and construction of one of the most
modern plants in India is nearly complete. This is an opportunity to improve
our yields and quality for our export customers. It also gives us the
opportunity to participate in the domestic market as our multinational
customers continue to expand into this region.
In Tanzania, we have purchased a minority stake in the only existing leaf
processing facility in that country and are engaged in a joint modernization
program. This stake forges an alliance with a strong partner in a market which
is expected to grow in importance as a source of low-cost tobaccos.
Standard also concluded its third compensation trade agreement to equip a
factory in China; this time in Guizhou the second largest tobacco-growing
province in China. This enables us to maintain our edge and reputation as the
leading dealer in the largest tobacco-producing country in the world.
- -
2
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
The combination of India, Tanzania and China positions us advantageously
in some of the largest low-production-cost markets in the world; a position
that should become increasingly important as our customers continue to look for
ways to reduce their product costs.
Finally, in Spain we have recently purchased the shares held by our former
minority partner. We view this as a strategic opportunity to further strengthen
your Company's position in a country with a strong tobacco tradition that is
making significant strides in improving crop quality.
On the wool side of your Company, we have concluded a joint venture
arrangement in Australia involving the only modern scouring facility currently
available in Western Australia. In Tasmania, Standard has established a joint
venture topmaking operation that includes as partners the local growers of this
high quality wool. Lastly, we have just concluded a joint venture in New
Zealand whereby we will be closing our out-of-date scouring mill and joining
forces with a local partner. With this consolidation we will be achieving
significantly better economies of scale through combined volumes. The
commitment to profitable growth burns brightly in our wool division despite
recent difficult trading conditions caused by the Far East economic situation.
What does all this mean? Simply this; that with nearly 9,000 seasonal and
full-time employees working together worldwide, a strengthened platform for
growth is being forged. Certainly, our competition is as tough as ever and we
will continue to face uncertainties brought on by possible punitive tobacco
legislation and tax increases in the U.S. To face these challenges we must
never lose sight of our strategic objectives and where we want to go. We, the
Standard team, must always be willing to push ourselves that much harder to
achieve an adequate return for you, our shareholders.
On another note, we wish to express our deep appreciation to Tom Evins who
decided to retire at the end of March to spend more time with his family. Tom
came to Standard when his company, W. A. Adams, was acquired in 1992. Tom has
been an outstanding leader as well as a member of our Board of Directors and we
will miss his wise counsel. At the same time we welcome Bill Sheridan who
joined the Board in February. Bill, who is a Senior Vice President and Chief
Financial Officer of Sotheby's, gained wide experience with our Company when he
was a partner at Deloitte & Touche LLP.
Finally, I would like to pay special tribute to our employees throughout
the world; for without them and their total dedication we would not have been
able to achieve these record results.
Sincerely,
/s/ REH
- -------------
R E Harrison
President and Chief Executive Officer
-
3
<PAGE>
[LOGO]
TOBACCO BUSINESS
- -------------------------------------------------------------------------
Standard Commercial Corporation
General
The Tobacco Division is dedicated in its belief that future success
depends on teamwork, adapting to change and offering superior customer service.
These qualities came together in fiscal 1998 to produce the following financial
highlights.
Financial Highlights
o Divisional net income increased by 39.9% to $21.5 million in FY98 from
$15.7 million in FY97.
o Sales grew 15.3%
o Volume grew 10.5%.
o SG&A as a percentage of sales decreased to 5.1% from 5.2% of sales.
o Free cash flow was $ 25.1 million, net of capital expenditures.
o Uncommitted inventory continued to be within our target range of $30
to $60 million.
Building for the Future
The Tobacco Division continues to make progress towards its goal of
long-term growth. As part of this growth strategy, Standard continues to seek
opportunities to expand its operations in both current markets and new markets.
In FY98, Standard embarked on four major growth projects.
Brazil
o The acquisition of 100% of Meridional, the fourth largest leaf dealer
in Brazil, complements our long-standing relationship with Souza
Cruz.
o Our presence in one of the world's largest tobacco markets has been
significantly strengthened.
o We are positioned to better serve our global customers.
China
o A new compensation trade agreement with China (our third) has been
signed.
o This should strengthen our relationship with the CNTEIC as both the
largest independent exporter of tobacco from China and the largest
importer.
o Construction of the new processing plant is in progress and is
expected to be completed later this year.
[GRAPH]
The Company's role as a leading tobacco dealer is strengthened by its
diverse customer base and broad, balanced sources of supply as shown in the
following charts:
Fiscal 1998 Tobacco Purchases and Sales in Dollars
Purchases by Origin Sales By Destination
Africa 14% Africa & Other 4%
Far East 10% Far East 15%
Europe 11% Europe 46%
United States 40% South America 4%
Central & South America 25% United States 31%
- -
4
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
India
o A joint venture was undertaken for the construction of a modern leaf
tobacco processing plant equipped for packing to internationally
recognized quality standards.
o Standard will purchase, process and market tobacco grown in India to
both domestic customers and in world markets, where it has become an
important source of filler tobacco.
Tanzania
o A minority stake has been acquired in the sole existing leaf
processing factory in Tanzania to enable the Company to provide a
more stable and reliable source of supply.
o The facility is being expanded and refurbished to better fulfill the
product requirements of our international customers.
o Tanzania is viewed as an increasingly important source of filler
tobacco by many of our European customers.
The global breadth of these projects demonstrates our strengths in
international markets.
Continued Focus on the Fundamentals
We continue to focus on the fundamentals of our business:
o Asset and Risk Management
o Financial Controls
o Information Systems
Operations throughout the Division have benefited from ongoing efforts
to improve quality and cost controls. The development and implementation of
operating guidelines has streamlined the cost control systems of the division
and are facilitating a better decision making process.
Business Outlook
In the year ahead, the tobacco management team will continue to focus on
making the decisions that will be necessary to provide continued superior
customer service and to strengthen our global position. The management team
remains cautiously optimistic, in light of the current U.S. tobacco settlement
negotiations and shipment delays attributable to the current Asian economics
crisis, that it will meet its established future goals and objectives. The
means to attain these goals include new projects, some of which are already in
the discussion stage and others for which implementation has begun, and the
continued efforts of our long-established operations throughout the world.
After the fiscal year-end, we announced the purchase of our minority
partner's interest in our Spanish leaf subsidiary. This purchase should
strengthen Standard's presence in a country that we believe has a great tobacco
future and a strong economy and is significantly improving crop quality.
The projects we completed in FY 98 should strengthen Standard's sourcing
and processing capabilities, thus allowing us to increase our volumes and
provide a reliable supply of tobacco to our customers while enhancing the
quality of our service.
--
5
<PAGE>
[LOGO]
WOOL BUSINESS
- -------------------------------------------------------------------------
Standard Commercial Corporation
General
In line with corporate strategy, the Wool Division is focused on the
philosophy of teamwork, adapting to change and sustaining a superior service to
its customers worldwide. The Division intends to continue its restructuring in
pursuit of adequate long-term returns.
Financial Highlights
o Divisional net income increased to $5.1 million in FY98 from $1.2
million in FY97.
o Adverse trading conditions due to the Asian economic crisis impacted
operating profitability.
o SG&A expenses decreased by 0.3%.
o Results for FY98 included nonrecurring benefits from changes in French
tax laws and profit on property sales in Australia.
Adapting to Change
The worldwide textile industry is seeking a new balance and has come
under severe pressure since the recent economic crisis in Asia. The wool
trading and first-stage processing segments where the Wool Division is most
active have been impacted by a reduction in short-term demand as a result of a
high influx of processed textile products from Asia into the European markets.
To better position itself for the future the Wool Division has entered
into various strategic alliances.
Western Australia
o Standard has acquired a 24.9% shareholding in a newly formed aqueous
wool washing operation to be built in Western Australia, currently
the only one of its kind in this area.
o This investment should allow us to continue to control the quality of
our processed products while reducing our asset base and complying
with environmental regulations.
o The Wool Division intends to continue to be a market leader in wool
scouring and in the export of wool from Western Australia.
[GRAPH]
The Company's wool purchases are spread among the world's major
exporting areas and, although sales are concentrated in Europe, no single
customer accounted for more than 2% of total sales.
Fiscal 1998 Wool Purchases and Sales
Purchases by Origin Sales by Destination
New Zealand 12% Africa & Others 2%
Australia 56% Europe 68%
Far East & Others 3% US 7%
South Africa 7% Far East 23%
South America 12%
Europe 10%
- -
6
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
Tasmania
o The Wool Division has acquired a one-third interest in the sole
wool combing plant in Tasmania which should broaden our ability to
supply high quality wool tops to spinners.
o Having access to quality wool tops which are made from an origin known
and preferred for the quality characteristics of its wool fibres
will facilitate supplying a niche market in the apparel sector.
New Zealand
o Subsequent to fiscal year-end an agreement was completed to acquire a
24.9% interest in an aqueous wool washing plant in New Zealand,
which will enable us to close our existing scouring mill, thereby
reducing current investment, and thus improving liquidity.
o The new organization should have sufficient capacity for us to grow
our export business, and the combined volumes should generate better
operating efficiencies and enable us to increase profitability.
Entering into these strategic investments should strengthen the global
position of the Wool Division.
Continued Focus on Operating Improvements
All activities and decisions are performed based on established
strategic goals for our wool business:
o Improved Asset and Risk Management.
o Improved Financial Controls.
o Effective Communication Systems.
The various wool companies have benefited from the ongoing development
and implementation of operating guidelines and efforts to improve quality and
control costs. As part of its strategic plan, the Wool Division is undertaking
steps to obtain full ISO-9002 certification for all of its units.
Information systems are being developed in-house to achieve more
effective control of business risks.
Business Outlook
The impact of the economic crisis in Asia, has lead to increased dumping
of excess inventory on the other world markets, and created severe short-term
stress on the general textile industry.
The Australian stockpile is being reduced according to schedule and
positive effects on market prices should become apparent later in fiscal 1999.
At the end of fiscal 1998, the stockpile was 211,000 metric tons compared to
827,000 metric tons in 1991.
We anticipate that market conditions will improve during the second half
of fiscal 1999, and expect the Wool Division to continue to be profitable.
By focusing efforts on superior quality services and improved cost
effectiveness, the Wool Division should continue to be a preferred, worldwide,
reliable supplier to the industry. By strengthening its competitive position,
consistently training its personnel and maintaining its processing operations
at the highest quality standards, the Wool Division should ensure future growth
and profitability.
The Wool Division is one of the world's largest wool trading and
processing groups, handling wools from all major producing areas including
Australia, China, New Zealand, South Africa, South America and Europe and
specialty fibres from Asia.
--
7
<PAGE>
[LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Standard Commercial Corporation
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. In the wool business, freight charges are also
a significant element of the cost of sales. The cost of raw materials, interest
expense and certain processing and freight costs are variable and thus are
related to the level of sales. Most procurement costs (other than raw
materials), certain processing costs, and most selling, general and
administrative expenses ("SG&A") are fixed. The major elements of SG&A are
employee costs, including salaries, and marketing expenses.
Tobacco sales are generally denominated in 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.
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.
Year Ended March 31,
1998 1997 1996
----------- ----------- -----------
Sales 100.0% 100.0% 100.0%
Cost of sales
- Materials, services and supplies 90.2 89.9 90.3
- Interest 1.6 2.4 3.0
------ ------ -----
Gross profit 8.2 7.7 6.7
Selling, general and administrative
expenses 5.4 5.4 5.7
Restructuring charges - - 0.9
Other interest expense 1.1 0.7 0.7
Interest income 0.2 0.4 0.3
Other income (expense), net 0.5 0.4 0.5
------ ------ -----
Income before taxes 2.5 2.4 0.2
Income taxes 0.6 0.9 0.5
Minority interests 0.2 0.3 0.4
Equity in earnings of affiliates 0.1 0.1 0.0
------ ------ -----
Income (loss) from continuing
operations 1.8% 1.3% ( 0.7)%
------ ------ -----
- --
8
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
Comparison of the Year Ended March 31, 1998 to the Year Ended March 31, 1997
Sales. Sales for the twelve months ended March 31, 1998 were $1,493
million, an increase of 10.2% from a year earlier.
Sales of $1,150 million for the tobacco division were up 15.3% from the
corresponding period in 1997, largely due to increased shipments from the Far
East and South America. Overall, tobacco volume was up 10.5% for the year and
average prices were higher as a result of market conditions and the change in
mix.
Nontobacco sales for the twelve months ended March 31, 1998 of $343.0
million were down 3.9% primarily as the result of a decrease in the volume of
wool sold partly offset by improved mix. The wool business continues to
stabilize and the Company continues to focus on the more profitable processing
elements of the business. The volume decline was mostly attributed to the
effects of the economic crisis in Asia which was partly offset by increased
processing revenues from third party customers.
Gross Profit and Cost of Sales. Gross profit for the twelve-month period
of $122.4 million was up 16.9% from the 1997 twelve-month period due primarily
to the increase in sales, increased processing volumes in the U.S. and reduced
interest expenses resulting from the application of $47.0 million of equity
proceeds in the first quarter and the application of the proceeds of a $115.0
million senior notes offering in the second quarter to reduce short-term
borrowings.
Selling, General and Administrative Expenses. SG&A expenses were 9.2%
higher due to increased business activity. Higher personnel-related expenses
and travel costs related to the expansion of business in new markets were
partly offset by tighter control of other costs and expenses and favorable
foreign exchange.
Interest Expense, Interest Income and Other Income (Expense), Net.
Interest expense was higher reflecting the impact of the $115.0 million issue
of long-term debt. Other income (expense), net was lower due to lower interest
income on short-term deposits as the Company continues to focus on efficient
cash management and partly offset by proceeds from a sale of property in
Australia related to relocating our wool scouring facility to comply with
environmental regulations.
Income Taxes, Minority Interests and Equity in Earnings of Affiliates.
Income tax charges or credits as a percentage of pretax income can vary due to
differences in tax rates and relief available in areas where profits are earned
or losses are incurred. The effective tax rate was lower than a year earlier
due mainly to a one-time tax benefit as a result of changes in French tax laws.
Earnings attributed to minority interests were $1.9 million lower than a
year ago because of the timing of shipments. Equity in earnings of affiliates
was down from 1997 due to seasonal business factors in the Far East.
Net Income. Net income was $26.9 million, or $2.05 per share on a
diluted basis on 14.7 million average shares outstanding, versus $16.9 million,
or $1.64 per share on a diluted basis on 12.1 million shares outstanding for
the twelve months ended March 31, 1997, adjusted for subsequent stock
dividends. The increase in shares outstanding was primarily attributable to the
issuance of 3.0 million shares of Common Stock in the equity offering during
the June 1997 quarter.
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
--
9
<PAGE>
[LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
the prior year, which included sales of old crop tobacco. Volume increases in
the United States partially offset declines in other areas.
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
- --
10
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
incentive issue, which is expected to be resolved in fiscal 1999, 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 of $16.9 million increased by $26.3 million from a loss of
$9.4 million in the prior year. Income 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 $1.68 per share,
compared to net income of $0.6 million, or $0.01 per share, for the prior year.
Liquidity and Capital Resources
Working capital at March 31, 1998 was $219.1 million, up from $120.1
million at March 31, 1997. The increase was due to the application of the net
proceeds of the equity ($47.0 million) and the senior debt ($103.1 million)
offerings to reduce short-term borrowings, and increased contributions from
operating activities, partly offset by increases in inventories due to business
expansions. The Company continues to closely monitor its inventories which
fluctuate depending on seasonal factors and business conditions.
Capital expenditures were $19.7 million, and $12.8 million for the
fiscal years ended March 31, 1998, and 1997, respectively. The Company expects
capital expenditures to total approximately $18.0 million for the fiscal year
ending March 31, 1999. Capital expenditures for 1998 related mostly to routine
expenditures in the tobacco ($14.8 million) and wool ($5.0 million) divisions,
including new machinery and equipment in the U.S. ($4.7 million), the expansion
of tobacco warehouse facilities in Greece and Turkey ($3.5 million), and new
machinery ($2.8 million) for the French topmaking facility.
For 1998, cash used in operating activities totaled $77.9 million
primarily due to an increase in tobacco inventory related to business
expansion, partly offset by increased income levels and an increase in
payables. Cash used in investing activities of $17.7 million for 1998 included
capital expenditures of $19.7 million as described above less asset
dispositions of $10.0 million, and payments for acquisitions of
--
11
<PAGE>
[LOGO]
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
$7.9 million relating to investments in new projects in Brazil, Tanzania and
Tasmania.
Financing Arrangements. On August 1, 1997, the U.S. tobacco subsidiary
of the Company consummated the sale and issuance of $115.0 million of Senior
Notes. Simultaneously, the Company's major tobacco subsidiaries entered into a
global syndicated revolving bank facility. The 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% expiring in July 2000. The
borrowings under the facility are guaranteed by the Company and certain of its
tobacco subsidiaries and secured by substantially all of the assets of the
borrowing subsidiaries and a pledge of all of the capital stock of the Company
subsidiaries not otherwise pledged to secure other obligations.
Additionally, as of March 31, 1998, local lines were available for the
remainder of the tobacco division of approximately $304.8 million in addition
to separate facilities for the nontobacco division of $102.9 million.
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. At March 31, 1998, under
agreements with various banks, total short-term credit facilities were $607.7
million, compared to $646.9 million at March 31, 1997, with $60.5 million
versus $71.0 million in 1997 being utilized for letters of credit and
guarantees, and $283.6 million was unused.
Based on the outlook for the business for the next twelve months,
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 Company 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 Company's Common Stock
at a conversion prices (as adjusted for subsequent stock dividends) of $29.38
per share. The Debentures are subordinated in right of payment to all senior
indebtedness, as defined, of the Company. As of March 31, 1995, the Debentures
became redeemable in whole or in part at the option of the Company at any time.
Beginning March 31, 2003, the Company 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 Company, certain mergers and
consolidations and certain distributions with respect to the Company's capital
stock. The Company may elect to redeem Debentures under these circumstances in
Common Stock in lieu of cash.
As a result of an equity offering in May 1998, which appreciably
broadened the Company's shareholder base, the Board of Directors has voted to
discontinue issuing quarterly stock dividends. 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 $43.6 million of retained earnings
available for distribution as dividends at March 31, 1998. At
- --
12
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
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
canceled.
Tax and Repatriation Matters
The Company 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 analyses directed toward the minimization of its income
tax obligations. Appropriate income tax provisions are determined on an
individual subsidiary level and at the corporate level on both an interim and
annual basis. The Company 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 1998 is due to
tax-loss carryforwards for which no benefit has been recognized. 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 Company regularly reviews the status of
the accumulated earnings of each of its U.S. and foreign subsidiaries as part
of its overall financing plans.
Year 2000 Matters
The Company is evaluating potential problems arising from the
compatibility of information systems and the ability to accommodate the year
2000 in software applications. A project team is coordinating the review of
both internal systems and interfaces with third party suppliers/vendors to
evaluate the incremental costs or any potential investment required to ensure
an efficient transition to the new century. Based on the findings to date, and
as most of the systems used by the Company are of recent design and were
specifically programmed with year 2000 issues in mind, management is of the
opinion that any modifications, if necessary, will be completed in fiscal 1999
and will not have a material impact on the consolidated results of the Company.
Forward-Looking Statements
Statements in this Annual 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. For
more details regarding such factors, see the Company's filings with the
Securities and Exchange Commission. The Company assumes no obligation to update
any of these forward-looking statements.
--
13
<PAGE>
[LOGO]
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
March 31,
---------------------------
(In thousands, except share data) 1998 1997
<S> <C> <C>
Assets
Cash $ 34,116 $ 41,117
Receivables (Note 3) 254,469 266,560
Inventories (Notes 1 and 4) 361,418 256,519
Prepaid expenses 8,674 6,285
Marketable securities (Note 1) 656 837
--------- ---------
Current assets 659,333 571,318
Property, plant and equipment (Notes 1 and 5) 113,572 122,013
Investment in affiliates (Notes 1 and 6) 12,647 12,533
Other assets (Notes 1, 7 and 11) 53,921 29,821
--------- ---------
Total assets $ 839,473 $ 735,685
--------- ---------
Liabilities
Short-term borrowings (Note 8) $ 267,799 $ 272,325
Current portion of long-term debt (Note 10) 4,987 8,985
Accounts payable (Note 9) 144,585 141,145
Taxes accrued (Note 16) 22,863 28,758
--------- ---------
Current liabilities 440,234 451,213
Long-term debt (Note 10) 128,083 70,252
Convertible subordinated debentures (Note 10) 69,000 69,000
Retirement and other benefits (Note 11) 19,479 19,127
Deferred taxes (Notes 1 and 16) 2,776 5,819
Commitments and contingencies (Note 12) - -
--------- ---------
Total liabilities 659,572 615,411
--------- ---------
Minority Interests (Note 1) 30,271 30,312
--------- ---------
Shareholders' Equity
Preferred stock, $1.65 par value (Note 13)
Authorized shares 1,000,000; Issued none - -
Common stock, $0.20 par value (Note 13)
Authorized shares 100,000,000; Issued 15,424,555
and 12,126,270 at March 31, 1998 and 1997, respectively 3,085 2,425
Additional paid-in capital (Note 13) 101,788 50,324
Unearned restricted stock plan compensation (Note 13) (1,996) (321)
Treasury stock at cost, 2,617,707 and 2,591,790 shares
At March 31, 1998 and 1997, respectively (Note 13) (4,250) (3,799)
Retained earnings 82,943 58,089
Cumulative translation adjustments (Notes 1 and 14) (31,940) (16,756)
--------- ---------
Total shareholders' equity 149,630 89,962
--------- ---------
Total liabilities and equity $ 839,473 $ 735,685
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -
14
<PAGE>
[LOGO]
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
- -------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------------
(In thousands, except per share data) 1998 1997* 1996*
<S> <C> <C> <C>
Sales $1,492,797 $1,354,270 $1,359,450
Cost of sales
- Materials, services and supplies (Note 4) 1,347,835 1,217,380 1,227,568
- Interest 22,576 32,197 41,369
---------- ---------- ----------
Gross profit 122,386 104,693 90,513
Selling, general and administrative expenses 79,464 72,782 77,608
Restructuring charges (Note 2) - - 12,500
Other interest expense 15,233 9,920 9,559
Other income (expense) - net (Note 15) 9,372 10,254 11,412
---------- ---------- ----------
Income before taxes 37,061 32,245 2,258
Income taxes (Notes 1 and 16) 8,769 12,782 6,836
---------- ---------- ----------
Income (loss) after taxes 28,292 19,463 (4,578)
Minority interests (Note 1) (2,020) (3,938) (4,795)
Equity in earnings (losses) of affiliates (Note 6) 653 1,412 (69)
---------- ---------- ----------
Income (loss) from continuing operations 26,925 16,937 (9,442)
Income from discontinued operations (Note 2) - - 10,050
---------- ---------- ----------
Net income 26,925 16,937 608
ESOP preferred stock dividends net of tax - (347) (474)
---------- ---------- ----------
Net income applicable to common stock 26,925 16,590 134
Retained earnings at beginning of year 58,089 46,450 50,530
Common stock dividends (2,071) (4,951) (4,214)
---------- ---------- ----------
Retained earnings at end of year $ 82,943 $ 58,089 $ 46,450
---------- ---------- ----------
Earnings per common share (Note 1)
Basic - net $ 2.18 $ 1.72 $ 0.01
- average shares outstanding 12,377 9,640 9,622
Diluted - net $ 2.05 $ 1.64 $ 0.28
- average shares outstanding 14,726 12,118 12,100
</TABLE>
* Earnings per share and shares outstanding have been adjusted for the effect
of subsequent stock dividends.
The accompanying notes are an integral part of these financial statements.
-
15
<PAGE>
[LOGO]
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 26,925 $ 16,937 $ 608
Depreciation and amortization 20,485 20,866 24,393
Minority interests 2,020 3,938 4,795
Deferred income taxes (8,141) (484) (968)
Undistributed earnings (losses) of affiliates
net of dividends received (519) (1,268) 166
Gain on disposition of property, plant and equipment (6,025) (2,252) (1,093)
Income from discontinued operations - - (10,050)
Other (3,024) 2,483 (5,244)
---------- --------- ---------
31,721 40,220 12,607
Net changes in working capital other than cash
Receivables (18,451) (22,807) (24,752)
Inventories (119,369) (5,475) 85,901
Current payables 28,215 22,721 (23,909)
---------- --------- ---------
Cash provided by (used in) operating activities (77,884) 34,659 49,847
---------- --------- ---------
Cash flows from investing activities
Property, plant and equipment - additions (19,732) (12,816) (12,211)
- dispositions 10,008 5,072 3,151
Minority interest - - (7,740)
Business (acquisitions) dispositions (7,928) 3,304 440
---------- --------- ---------
Cash used for investing activities (17,652) (4,440) (16,360)
---------- --------- ---------
Cash flows from financing activities
Proceeds from long-term borrowings. 113,053 10,405 9,645
Repayment of long-term borrowings (17,186) (21,131) (14,968)
Net change in short-term borrowings (51,569) (54,257) (5,330)
Net proceeds of equity offering 47,043 - -
Dividends paid, net of tax - (347) (474)
Purchase and retirement of ESOP Preferred Stock - (2,460) -
Other (2,806) - 114
---------- --------- ---------
Cash provided by (used for) for financing activities 88,535 (67,790) (11,103)
---------- --------- ---------
Increase/(decrease) in cash for period (7,001) (37,571) 22,474
Cash at beginning of period 41,117 78,688 56,214
---------- --------- ---------
Cash at end of period $ 34,116 $ 41,117 $ 78,688
---------- --------- ---------
Cash payments for - interest $ 36,160 $ 42,790 $ 44,426
- income taxes $ 13,331 $ 9,057 $ 6,433
</TABLE>
The accompanying notes are an integral part of these financial statements.
- -
16
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Standard Commercial Corporation
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 overhead 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. In December 1997, the Company
adopted Statement of Financial Accounting Standards, (SFAS), 128, Earnings Per
Share. SFAS 128 requires the presentation of both basic and diluted earnings
per share, regardless of materiality, unless per share amounts are equal.
Earnings per share amounts for the prior periods presented have been restated
to conform to the requirements of SFAS 128. Diluted earnings per share include
the effect of the convertible subordinated debentures which if converted would
have increased net income applicable to common stock by $3,300,000 for the
year. The average shares outstanding would have increased by 2,348,536 shares.
Prior years would have the same increase to net income applicable to common
stock and the average shares outstanding would have increased by 2,478,348 and
2,457,831 shares for the years 1997 and 1996, respectively, assuming conversion
of the above debentures and ESOP convertible preferred stock that was redeemed
in the fourth quarter of the last fiscal year upon termination of the ESOP
plan.
k) Long-Lived Assets. 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.
l) 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.
m) Reclassification. Certain amounts in prior year statements have been
reclassified for conformity with current year presentation.
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.
b) Restructuring Charges. In fiscal 1996 and 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 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
--
17
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
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, 1998, 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 1999, substantially all incurred amounts related to the
restructuring had been expended at March 31, 1998. 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.
3. Receivables
March 31,
In thousands 1998 1997
- ---------------------------------- ----------- -----------
Trade accounts $160,734 $180,926
Advances to suppliers 41,865 48,349
Affiliated companies 20,662 9,773
Other 35,743 31,113
-------- --------
259,004 270,161
Allowances for doubtful accounts (4,535) (3,601)
-------- --------
$254,469 $266,560
-------- --------
4. Inventories
March 31,
In thousands 1998 1997
- -------------- ----------- -----------
Tobacco $284,822 $181,349
Nontobacco 76,596 75,170
-------- --------
$361,418 $256,519
-------- --------
Tobacco inventories at March 31, 1998 and 1997 included capitalized
interest totaling $5.0 million and $4.3 million, respectively, and valuation
reserves for tobacco and wool of $5.0 million and $4.9 million, respectively.
Inventory valuation provisions included in cost of sales totaled approximately
$2.7 million, $0.9 million and $1.4 million in 1998, 1997 and 1996,
respectively.
5. Property, Plant and Equipment
March 31,
In thousands 1998 1997
- -------------------------- ------------- -------------
Land $ 11,954 $ 14,063
Buildings 74,085 77,116
Machinery and equipment 134,264 131,124
Furniture and fixtures 13,357 13,157
Construction in progress 4,399 2,322
-------- --------
238,059 237,782
Accumulated depreciation (124,487) (115,769)
-------- --------
$113,572 $122,013
-------- --------
Depreciation expense was $17.8 million, $18.1 million and $18.1 million in
1998, 1997 and 1996, respectively.
6. Affiliated Companies
a) Net investment in affiliated companies are represented by the
following:
March 31,
In thousands 1998 1997
- --------------------------------- ----------- ------------
Net current assets $ 3,318 $ 4,421
Property, plant and equipment 42,627 29,446
Other long-term liabilities (4,386) (132)
Interests of other shareholders (28,780) (21,033)
------- -------
Company's interest 12,779 12,702
Provision for withholding taxes (132) (169)
------- -------
Net investments $12,647 $12,533
------- -------
b) The results of operations of affiliated companies were:
Year ended March 31,
In thousands 1998 1997 1996
- ----------------------------- ----------- ----------- ----------
Sales $108,664 $119,022 $82,527
-------- -------- -------
Income before taxes $ 4,055 $ 5,627 $2,493
Income taxes 1,675 2,104 2,259
-------- -------- -------
Net income $ 2,380 $ 3,523 $ 234
-------- -------- -------
Company's share $ 616 $ 1,463 $ (260)
Withholding taxes 37 (51) 191
-------- -------- -------
Equity in earnings (losses) $ 653 $ 1,412 $ (69)
-------- -------- -------
Dividends received $ 134 $ 148 $ 96
-------- -------- -------
c) Balances with unconsolidated affiliates for the procurement of tobacco
inventory were as follows:
Year ended March 31,
In thousands 1998 1997 1996
- ------------------------------ ---------- ---------- ----------
Purchases of tobacco $30,087 $41,952 $18,932
Receivables from equity
investees 20,662 9,773 17,357
Advances on purchases of
tobacco 8,744 10,394 12,615
Payables to equity investees 138 3,449 18
The Company's significant affiliates and percentage of ownership at March
31, 1998 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.
- --
18
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
7. Other Assets
March 31,
In thousands 1998 1997
- ----------------------------------------- ---------- ----------
Cash surrender value of life insurance
policies (face amount $41,965) $14,008 $12,775
Less: Policy loans 4,652 6,246
------- -------
9,356 6,529
Bank deposits 457 418
Receivables 27,511 14,588
Deferred financing fees 8,759 2,629
Investments 1,059 2
Excess of purchase price of subsidiaries
over net assets acquired - net of
accumulated amortization of $7,595
(1997 - $7,354) 3,983 4,224
Other 2,796 1,431
------- -------
$53,921 $29,821
------- -------
8. Short-term Borrowings
Dollars in thousands 1998 1997
- ---------------------------------------- ------------ ------------
Weighted average interest on borrowings
at end of year 7.5% 8.0%
Weighted average interest rate on
borrowings during the year(1) 7.5% 8.0%
Maximum amount outstanding at any
month-end $353,666 $372,747
Average month-end amount outstanding $272,867 $337,178
Amount outstanding at year-end(2) $267,799 $272,325
(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 were applied
as a reduction of short-term borrowings. The application of the equity proceeds
will preclude the use of working capital to satisfy these obligations.
Consequently, at March 31, 1997 $47.0 million has been reclassified as
long-term debt in accordance with SFAS 6, "Classification of Short-Term
Obligations Expected to be Refinanced". At March 31, 1998, the equity proceeds
of $47.0 million has been reported as an increase in shareholders' equity.
At March 31, 1998, under agreements with various banks, total short-term
credit facilities for continuing operations of $607.7 million (1997 - $646.9
million) were available to the Company of which $60.5 million (1997 - $71.0
million) were being utilized for letters of credit and guarantees and $283.6
million (1997 - $299.0 million) were unused.
The Company's revolving credit facilities at March 31, 1998 included a
$200.0 million master credit facility (the "MFA") for tobacco operations, in
addition to local lines of approximately $304.8 million. Also, separate
facilities totaling $102.9 million are in place for wool operations.
At March 31, 1998 substantially all of the Company's assets were pledged
against current and long-term borrowings.
9. Accounts Payable
March 31,
In thousands 1998 1997
- ----------------------------- ----------- -----------
Trade accounts $115,875 $108,476
Affiliated companies 138 3,449
Other accruals and payables 28,572 29,220
-------- --------
$144,585 $141,145
-------- --------
10. Long-Term Debt
March 31,
In thousands 1998 1997
- ------------------------------------ ----------- -----------
8.875% Senior Notes Due in
2005 $115,000 $ -
6.48% fixed rate loans repayable
annually through 1998 - 3,637
Floating rate loan at prime - 8,667
10.4% loan repayable annually
through 2000 3,272 4,900
Floating rate note, at 82% of
prime, repayable in 2001 (1998
average 8.25%) 2,940 2,940
11.95% loan repayable through
2001 - 2,346
Italian prime + 1/8% payable
through 2002 (1998 average
10.6%) 2,552 3,458
9.82% fixed rate loan repayable
annually through 2005 2,970 3,282
9.25% note repayable through
2005 1,362 1,762
5.7% loan repayable through
2002 1,945 -
9.23% loan repayable through
2003 1,498 -
Other 1,531 1,202
-------- -------
133,070 32,194
Current portion (4,987) (8,985)
Revolving credit facilities (See
Note 8) - 47,043
-------- -------
$128,083 $70,252
-------- -------
As of March 31, 1998 long-term debt maturing after one year was as
follows: 2000 - $3,828; 2001 $5,283; 2002 - $1,186; 2003 - $1,466; and
thereafter - $116,320.
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.
Certain debt agreements to which the Company 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.
--
19
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
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 per share. The debentures
are subordinated in right of payment to all senior indebtedness, as 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, 1998, substantially all of the Company's assets were pledged
against current and long-term borrowings.
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:
Year ended March 31,
In thousands 1998 1997 1996
- ----------------------------------- --------- --------- ---------
Service cost - benefits earned
during the year $669 $498 $433
Interest cost on projected benefit
obligation 678 649 549
Recognized return on plan assets (933) (832) (670)
Net amortization (72) (29) (72)
---- ---- ----
Net pension cost $342 $286 $240
---- ---- ----
The funded status of the U.S. plans, which include a book-reserve SERP, at
March 31 is shown below:
<TABLE>
<CAPTION>
Assets Exceed ABO Exceeds
ABO Assets
----------------------- -----------------------
In thousands 1998 1997 1998 1997
- -------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
- vested $ 7,596 $7,265 $ - $ -
- nonvested benefits 186 44 526 486
-------- ------ ------ -----
Accumulated benefit
obligation 7,782 7,309 526 486
Benefits attributable to
projected salaries 2,559 2,142 32 51
-------- ------ ------ -----
Projected benefit obligation 10,341 9,451 558 537
Plan assets at fair value 14,812 11,505 - -
-------- ------ ------ -----
Assets in excess of (less than)
projected obligation 4,471 2,054 (558) (537)
Unamortized net transition
gain (245) (306) - -
Unrecognized prior service
cost (33) (44) - 44
Unrecognized experience
gain (3,256) (693) (57) (6)
-------- ------ ------ --------
Prepaid (accrued) pension
costs $ 937 $1,011 $ (615) $(499)
-------- ------ ------ -------
</TABLE>
The projected benefit obligation at March 31, 1998, 1997 and 1996 was
determined using an assumed discount rate of 7.375%, 7.375% and 7.25%,
respectively, and assumed future compensation increases of 5.00%, 5.00% and
5.25%, respectively. The assumed long-term rate of return on plan assets was
8.0% at March 31, 1998, 1997 and 1996, respectively. Assets consist of pooled
equity and fixed income funds managed by an independent trustee.
Non-U.S. Plans
A summary of pension costs follows:
Year ended March 31,
In thousands 1998 1997 1996
- ------------------------------- ----------- ----------- -----------
Service cost - benefits earned
during the year 1,527 $ 1,367 $ 1,507
Interest cost on projected
benefit obligation 2,489 2,310 2,646
Recognized return on plan
assets (2,609) (2,348) (2,004)
Net amortization 47 49 222
------ -------- --------
Net pension cost $ 1,454 $ 1,378 $ 2,371
-------- -------- --------
- --
20
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
The funded status of non-U.S. plans, which include book-reserve plans, at March
31 is shown below:
<TABLE>
<CAPTION>
Assets Exceed ABO Exceeds
ABO Assets
----------------------- -------------------------
In thousands 1998 1997 1998 1997
- -------------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
- vested $20,132 $18,455 $ 7,338 $ 7,857
- nonvested benefits 145 120 - -
------- ------- -------- -------
Accumulated benefit
obligation 20,277 18,575 7,338 7,857
Benefits attributable to
projected salaries 5,766 5,255 454 517
------- ------- -------- -------
Projected benefit obligation 26,043 23,830 7,792 8,374
Plan assets at fair value 32,774 26,150 - -
------- ------- -------- -------
Assets in excess of (less than)
projected obligation 6,731 2,320 (7,792) (8,374)
Unamortized net transition
loss 611 679 841 927
Unrecognized prior service
cost (2,015) (2,094) - -
Unrecognized experience
gain (3,874) 566 (54) 56
Additional minimum liability - - (829) (1,031)
------- ------- -------- -------
Prepaid (accrued) pension
costs $ 1,453 $1,471 $(7,834) $(8,422)
------- ------- -------- -------
</TABLE>
The assumptions used in 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- -------------------- -------------------
<S> <C> <C> <C>
Discount rates 7.735% to 8.5% 7.375% to 8.5% 7.75% to 8.5%
Compensation increases 5.50% to 7.0% 5.50% to 7.0% 3.25% to 6.5%
Long-term rates of return
on plan assets 10% 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 $236,333 in 1998, $196,000 in 1997 and $144,000 in 1996.
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.
The components of the net periodic cost of postretirement benefits for
1998, 1997 and 1996 were:
Year ended March 31,
In thousands 1998 1997 1996
- ---------------------- --------- --------- ---------
Service cost $195 $194 $176
Interest cost on
accumulated benefit
obligation 445 494 522
Amortization of plan
amendments (158) (139) (136)
---- ---- ----
Net periodic cost $482 $549 $562
---- ---- ----
The components of the liability included in the consolidated balance sheet
at March 31, 1998 and 1997 of the actuarial present value of benefits for
services rendered to date were:
March 31,
In thousands 1998 1997
- ------------------------------------- ---- ----
Current retirees $ 712 $ 489
Active employees eligible to retire 2,716 2,732
Active employees not eligible to
retire 3,020 3,343
------ ------
Total 6,448 6,564
Unrecognized net gain 859 260
Unrecognized prior service cost 833 972
------ ------
Accumulated postretirement benefit
obligation $8,140 $7,796
------ ------
The accumulated postretirement benefit obligation (APBO) was determined
using a 7.375% weighted-average discount rate. The medical cost trend rate used
in determining the APBO was assumed to be 10.5% in 1998. This rate was assumed
to gradually decline to 5% in 2006, 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 1998 would increase by $109,738 and the APBO as of March 31,
1998 would increase by $824,297. In general, postretirement benefit costs are
insured or paid as claims are incurred.
The ongoing impact of SFAS 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, provided for the grant of nonqualified
stock options. The aggregate number of shares of Common Stock as to which
grants have been made is 100,000. As of March 31, 1998 there were 100,000
shares of nonqualified options outstanding at an exercise price of $17.00 per
share, which was equal to the fair market value on the date of issue. The
options vest one-third each year beginning on the first anniversary of the date
of grant and become 100% vested on the third anniversary of the date of grant.
At March 31, 1998, options currently exercisable totaled 33,333.
--
21
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------
Standard Commercial Corporation
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the nonqualified
stock options. Had compensation cost for the Company's nonqualified stock
options been determined based on the fair value at grant date for awards in
1998 consistent with the provisions of SFAS 123, the Company's net earnings
would have been reduced by $588,000 and earnings per share would have been
reduced to the pro forma amounts indicated below:
Year Ended March 31, 1998
--------------------------
As reported Pro forma
Basic earnings per share $ 2.18 $ 2.13
Diluted earnings per share $ 2.05 $ 2.01
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998: dividend yield of 0.0%;
expected volatility of 68.44%; risk-free interest rate of 6.37% and expected
life of 4 years.
The weighted average remaining contractual life of these options is 6.0
years.
12. Commitments and Contingencies
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows: 1999 - $3,353,980; 2000
- - $2,542,412; 2001 - $387,245; 2002 - $64,650; 2003 - $22,481; and thereafter
$111,855. Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 1998, 1997
and 1996 were $3,663,000, $3,049,100 and $3,811,000, 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.
The Company has commitments for capital expenditures of approximately
$18.0 million, all of which are expected to be incurred in fiscal 1999.
The Company's 51.0% owned subsidiary in Greece has been notified by tax
authorities of potential adjustments to its income tax returns filed in prior
years. The Company's share of the total proposed adjustments, including penalty
and interest, is approximately $3.0 million. The Company believes the tax
returns filed were in compliance with the applicable tax code. The proposed
adjustments vary in complexity and amount. While it is not feasible to predict
the precise amount or timing of each proposed adjustment, the Company believes
that the ultimate disposition will not have a material adverse effect on its
consolidated financial position or 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.
13. Common Stock
<TABLE>
<CAPTION>
Number of Shares Unearned
Of Common Stock Common Additional Restricted Treasury
---------------------------- Stock Paid-In Stock Plan Stock
Dollars in thousands Issued Treasury Par Value Capital Compensation At Cost
- ------------------------- -------------- ----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 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)
New issue, May 1997 3,022,500 604 46,800
401(k) contribution 14,199 3 233
Dividends reinvested 375 - 9
RSP shares awarded 113,670 23 1,966 (1,989)
RSP compensation earned - - - 314
RSP shares forfeited (1,557) - (31)
Stock dividends 149,098 25,917 30 2,487 (451)
---------- --------- ------ -------- --------
March 31, 1998 15,424,555 2,617,707 $3,085 $101,788 $ (1,996) $ (4,250)
---------- --------- ------ -------- -------- --------
</TABLE>
- -
22
<PAGE>
[LOGO]
- --------------------------------------------------------------------------------
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 restricted
shares of the Company's common stock to the extent that certain performance
objectives are met. The shares are 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.
In May, 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 its then-existing
master facilities agreement.
14. Foreign Currency
Changes in the translation adjustment component of shareholders' equity
are shown below:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- -------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Beginning balance April 1 $(16,756) $ (9,444) $(4,319)
Net change in translation of
foreign financial statements (15,184) (7,312) (5,125)
-------- -------- -------
Ending balance March 31 $(31,940) $(16,756) $(9,444)
-------- -------- -------
</TABLE>
Net amounts included in the income statement relating to foreign currency
losses from continuing operations were $892,000, $920,000 and $276,000 in 1998,
1997 and 1996, respectively.
15. Other Income (Expense) - Net
<TABLE>
<CAPTION>
Year ended March 31,
In thousands 1998 1997 1996
- ---------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Other income
Interest $2,720 $ 4,493 $ 4,430
Gain on asset sales and
dispositions 6,154 4,668 4,476
Rents received 370 610 441
Other 3,406 3,520 4,976
------ ------- -------
12,650 13,291 14,323
------ ------- -------
Other expense
Amortization of goodwill (206) (132) (197)
Other (3,072) (2,905) (2,714)
------ ------- -------
(3,278) (3,037) (2,911)
------ ------- -------
$9,372 $10,254 $11,412
------ ------- -------
</TABLE>
16. Income Taxes
a) Significant components of the Company's deferred tax liabilities and
assets were as follows:
<TABLE>
<CAPTION>
March 31,
In thousands 1998 1997
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 6,384 $ 10,528
Capitalized interest 1,305 1,183
Income recognition in foreign
subsidiaries 6,988 14,983
Prepaid pension assets 1,175 1,232
-------- --------
Total deferred tax liabilities 15,852 27,926
-------- --------
Deferred tax assets:
NOL carried forward 8,693 7,138
Valuation allowance (7,051) (5,503)
Postretirement benefits other than
pensions 3,175 3,071
Uniform capitalization and reserves 1,293 143
All other, net (1,050) 1,963
-------- --------
Total deferred tax assets 5,060 6,812
-------- --------
Net deferred tax liabilities $ 10,792 $ 21,114
-------- --------
</TABLE>
The net deferred tax liabilities include approximately $8,016 and $15,295
of current liabilities at March 31, 1998 and 1997, respectively.
The Company 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 1998
is due to tax-loss carryforwards for which no benefit had been recognized. The
loss carryforwards which give rise to the valuation allowances will expire in
2001 and thereafter.
--
23
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
Year ended March 31
In thousands 1998 1997 1996
- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $4,187 $ 445 $ 130
Foreign 12,348 12,793 7,455
State and local 375 28 219
------ ------- ------
16,910 13,266 7,804
------ ------- ------
Deferred
Federal (40) 707 (1,131)
Foreign (8,104) (1,194) 160
State and local 3 3 3
------ ------- ------
(8,141) (484) (968)
------ ------- ------
Income tax provision $8,769 $12,782 $6,836
------ ------- ------
</TABLE>
c) Components of deferred taxes follow:
<TABLE>
<CAPTION>
Year ended March 31
In thousands 1998 1997 1996
- ------------------------------------ ------------ ---------- ------------
<S> <C> <C> <C>
Tax on differences in timing of
income recognition in foreign
subsidiaries $ (7,001) $ (353) $ (2,565)
Utilization of NOL carried forward - - 185
Capitalized interest (182) 420 (248)
Other (958) (551) 1,660
-------- ------ --------
$ (8,141) $ (484) $ (968)
-------- ------ --------
</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
In thousands 1998 1997 1996
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Pretax income
Domestic $ 8,781 $ 3,663 $ 264
Foreign 28,280 28,582 1,994
------- ------- ------
$37,061 $32,245 $2,258
------- ------- ------
</TABLE>
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,
In thousands 1998 1997 1996
- ----------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Expense (benefit) at U.S. federal
statutory tax rate $12,601 $11,286 $ 768
Foreign tax losses for which there
is no relief available 1,585 321 4,359
U.S. tax on foreign income 400 500 200
Different tax rates in foreign
subsidiaries (207) 680 (177)
Elimination of deferred tax
liabilities due to a change in
foreign law (6,864) - -
Change in valuation allowance 1,548 (1,518) 2,350
Other - net (294) 1,513 (664)
------- ------- ------
$8,769 $12,782 $6,836
------- ------- ------
</TABLE>
17. Disclosures of Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments as of
March 31, 1998 is provided below in accordance with Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments. Certain estimates and judgments were required to develop the fair
value amounts, which are not necessarily indicative of the amounts that would
be realized upon disposition, nor do they indicate the Company's intent or
ability to dispose of such instruments.
Cash and cash equivalents: The estimated fair value of cash and cash
equivalents approximates carrying value.
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 $191.5 million, compared with a carrying
value of $198.4 million, based on discounted cash flows for fixed-rate
borrowings, with the fair value of floating-rate borrowings considered to
approximate carrying value.
- --
24
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
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,
In thousands 1998 1997 1996
- ------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Geographic Areas
Sales
United States $ 534,202 $ 466,066 $ 375,842
Europe 814,308 737,346 781,910
Other areas 262,824 273,728 319,428
Intersegment
eliminations (118,537) (122,870) (117,730)
----------- ----------- -----------
$ 1,492,797* $ 1,354,270* $ 1,359,450*
----------- ----------- -----------
Operating income,
net of interest
United States $ 11,536 $ 5,748 $ 3,576
Europe 22,942 26,926 10,616
Other areas 6,369 2,906 (8,609)
Corporate expenses (3,786) (3,335) (3,325)
----------- ----------- -----------
Income before taxes $ 37,061 $ 32,245 $ 2,258
----------- ----------- -----------
Assets
United States $ 148,811 $ 150,555 $ 163,002
Europe 515,750 445,085 469,247
Other areas 152,609 120,683 133,075
Investment in affiliates 12,647 12,533 11,442
Corporate assets 9,656 6,829 6,058
----------- ----------- -----------
$ 839,473 $ 735,685 $ 782,824
----------- ----------- -----------
U.S. Exports
Europe $ 128,609 $ 87,531 $ 103,526
Far East 51,106 42,908 46,726
Other areas 5,318 6,000 5,007
----------- ----------- -----------
$ 185,033 $ 136,439 $ 155,259
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31,
In thousands 1998 1997 1996
- ------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Business Segments
Sales
Tobacco $ 1,149,780 $ 997,449 $ 925,549
Nontobacco 343,017 356,821 433,901
----------- ----------- -----------
$ 1,492,797* $ 1,354,270* $ 1,359,450*
----------- ----------- -----------
Operating income,
net of interest
Tobacco $ 36,029 $ 32,421 $ 28,373
Nontobacco 4,818 3,159 (22,790)
Corporate expenses (3,786) (3,335) (3,325)
----------- ----------- -----------
Income before taxes $ 37,061 $ 32,245 $ 2,258
----------- ----------- -----------
Interest expense included
above
Tobacco $ 29,790 $ 32,288 39,381
Nontobacco 8,019 9,829 11,547
----------- ----------- -----------
$ 37,809 $ 42,117 $ 50,928
----------- ----------- -----------
Depreciation and
amortization expense
Tobacco $ 16,571 $ 16,613 $ 14,615
Nontobacco 3,914 4,253 9,778
----------- ----------- -----------
$ 20,485 $ 20,866 $ 24,393
----------- ----------- -----------
Equity in earnings of
affiliates
Tobacco $ 498 $ 1,242 $ (217)
Nontobacco 155 170 148
----------- ----------- -----------
$ 653 $ 1,412 $ (69)
----------- ----------- -----------
Assets
Tobacco $ 640,703 $ 521,202 $ 532,627
Nontobacco 189,114 207,654 244,139
Corporate assets 9,656 6,829 6,058
----------- ----------- -----------
$ 839,473 $ 735,685 $ 782,824
----------- ----------- -----------
Capital expenditures
Tobacco $ 14,769 $ 10,981 $ 10,398
Nontobacco 4,963 1,835 1,813
----------- ----------- -----------
$ 19,732 $ 12,816 $ 12,211
----------- ----------- -----------
</TABLE>
* One tobacco customer accounted for 24.1%, 24.1% and 17.4% of total sales in
1998, 1997 and 1996, respectively.
-
25
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
19. Supplemental Guarantor Information
Standard Commercial Corporation (the "Company") and Standard Wool, Inc.
jointly and severally, guarantee on a senior basis to each Holder and the
Trustee, the full and prompt performance of Standard Commercial Tobacco
Company, Inc.'s (the "Issuer") obligations under the Indenture and the $115.0
million 8 7/8% Senior Notes Due 2005 (the "Initial Notes"), the issuance of
which was closed on August 1, 1997, including the payment of the principal of
and interest and Additional Interest, if any, on the Notes (the Company and
Standard Wool, Inc. being referred to herein as "Guarantors" and the guarantees
being referred to respectively as the "Parent Guarantee" and the "Standard Wool
Guarantee," and together, the "Guarantees"). The Initial Notes was exchanged
for new notes (the "Exchange Notes"; together with the Initial Notes, the
"Notes") in an exchange offer upon the Issuer's Form S-4 Registration Statement
which was completed on December 31, 1997. The form and terms of the Exchange
Notes are the same as the form and terms of the Initial Notes (which they
replace) except that (i) the Exchange Notes registered under the Securities Act
will not bear legends restricting the transfer thereof, and (ii) the holders of
the Exchange Notes will not be entitled to certain rights under the related
Registration Rights Agreement by virtue of consummation of the exchange offer.
In addition, all of the issued and outstanding capital stock of the Issuer and
Standard Wool, Inc. is pledged by the Company to the Trustee for the benefit of
the Holders of the Notes as security for the Parent Guarantee.
a) Each of the Guarantors has fully and unconditionally guaranteed on a
joint and several basis the performance and punctual payment when due, whether
at stated maturity, by acceleration or otherwise, of all of the Issuer's
obligations under the Notes and the related indenture, including its
obligations to pay principal, premium, if any, and interest with respect to the
Notes. The obligation of each Guarantor is limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, can be guaranteed by the relevant Guarantor without resulting in
the obligations of such Guarantor under its Guarantee constituting a fraudulent
conveyance or fraudulent transfer under applicable federal or state law. Each
of the Guarantees is a guarantee of payment and not collection. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in an amount pro rata, based on the
assets less liabilities of each Guarantor determined in accordance with
generally accepted accounting principles (GAAP).
Each Guarantor that makes a payment or distribution shall be entitled to a
contribution from each other Guarantor in an amount pro rata, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to
the Issuer, or with other Persons upon the terms and conditions set forth in
the Indenture. In the event (A) more than 49% of the Capital Stock of Standard
Wool, Inc. is sold by the Company or (B) more than 49% of the consolidated
assets of Standard Wool, Inc. are sold in compliance with all of the terms of
the Indenture, the Standard Wool Guarantee will be released.
Management has determined that separate, full financial statements of the
Guarantors would not be material to investors and therefore such financial
statements are not provided. The following supplemental combining financial
statements present information regarding the Guarantors and the Issuer.
b) Each of the Guarantors has accounted for their respective subsidiaries
on the equity basis.
c) Certain reclassifications were made to conform all of the financial
information to the financial presentation on a consolidated basis. The
principal eliminating entries eliminate investments in subsidiaries and
intercompany balances.
d) Included in the balance sheets are certain related party balances among
borrower, the guarantors and non-guarantors. Due to the Company's world-wide
operations, related party activity is included in most balance sheet accounts.
- --
26
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
19. Supplemental Guarantor Information (continued)
SUPPLEMENTAL COMBINING BALANCE SHEETS
March 31, 1998
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial
Tobacco Co. Corporation
Inc. (Issuer) (Guarantor)
(In thousands) --------------- -------------
<S> <C> <C>
Assets
Cash $ 6,831 $ 58
Receivables 30,358 657
Intercompany receivables 152,672 17,770
Inventories 64,734 -
Prepaids and other 202 -
Marketable securities - 1
-------- --------
Current assets 254,797 18,486
Property, plant and equipment 19,324 -
Investment in subsidiaries 73,063 217,857
Investment in affiliates 3,527 -
Other noncurrent assets 7,129 13,445
-------- --------
Total assets $357,840 $249,788
-------- --------
Liabilities
Short-term borrowings $ - $ -
Current portion of long-term debt - -
Accounts payable 11,632 574
Intercompany accounts payable 28,947 30,474
Taxes accrued 5,552 (156)
-------- --------
Current liabilities 46,131 30,892
Long-term debt 117,940 -
Convertible subordinated debentures - 69,000
Retirement and other benefits 8,140 615
Deferred taxes 11 (2,316)
-------- --------
Total liabilities 172,222 98,191
Minority interests - -
Shareholders' equity
Common stock 993 3,085
Additional paid-in capital 130,933 101,788
Unearned restricted stock plan compensation (692) (29)
Treasury stock at cost - (4,250)
Retained earnings 68,568 82,943
Cumulative translation adjustments (14,184) (31,940)
-------- --------
Total shareholders' equity 185,618 151,597
-------- --------
Total liabilities and equity $357,840 $249,788
-------- --------
<CAPTION>
Other
Standard Subsidiaries
Wool Inc. (Non-
(Guarantor) Guarantors) Eliminations Total
(In thousands) ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash $ 242 $ 26,985 $ - $ 34,116
Receivables 531 222,923 - 254,469
Intercompany receivables 10 20,597 (191,049) -
Inventories 1,329 295,355 - 361,418
Prepaids and other 2 8,470 - 8,674
Marketable securities - 655 - 656
------- -------- --------- --------
Current assets 2,114 574,985 (191,049) 659,333
Property, plant and equipment 55 94,193 - 113,572
Investment in subsidiaries 37,275 163,316 (491,511) -
Investment in affiliates - 9,120 - 12,647
Other noncurrent assets 13 33,334 - 53,921
------- -------- --------- --------
Total assets $39,457 $874,948 $(682,560) $839,473
------- -------- --------- --------
Liabilities
Short-term borrowings $ - $267,799 $ - $267,799
Current portion of long-term debt - 4,987 - 4,987
Accounts payable 202 132,177 - 144,585
Intercompany accounts payable 4,632 126,996 (191,049) -
Taxes accrued - 17,467 - 22,863
------- -------- --------- --------
Current liabilities 4,834 549,426 (191,049) 440,234
Long-term debt - 10,143 - 128,083
Convertible subordinated debentures - - - 69,000
Retirement and other benefits - 10,724 - 19,479
Deferred taxes - 5,081 - 2,776
------- -------- --------- --------
Total liabilities 4,834 575,374 (191,049) 659,572
Minority interests - 30,271 - 30,271
Shareholders' equity
Common stock 22,604 136,758 (160,355) 3,085
Additional paid-in capital - 65,654 (196,587) 101,788
Unearned restricted stock plan compensation (9) (1,266) - (1,996)
Treasury stock at cost - - - (4,250)
Retained earnings 11,318 100,097 (179,983) 82,943
Cumulative translation adjustments 710 (31,940) 45,414 (31,940)
-------- -------- --------- --------
Total shareholders' equity 34,623 269,303 (491,511) 149,630
-------- -------- --------- --------
Total liabilities and equity $39,457 $874,948 $(682,560) $839,473
-------- -------- --------- --------
</TABLE>
-
27
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------
Standard Commercial Corporation
19. Supplemental Guarantor Information (continued)
SUPPLEMENTAL COMBINING BALANCE SHEETS
March 31, 1997
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial
Tobacco Co. Corporation
Inc. (Issuer) (Guarantor)
(In thousands) --------------- -------------
<S> <C> <C>
Assets
Cash $ 1,102 $ 327
Receivables 35,737 1,648
Intercompany receivables 15,083 16,606
Inventories 74,309 -
Prepaids and other 4,190 155
Marketable securities - -
--------- ---------
Current assets 130,421 18,736
Property, plant and equipment 22,513 -
Investment in subsidiaries 81,460 159,014
Investment in affiliates - -
Other noncurrent assets 1,878 12,897
--------- ---------
Total assets $ 236,272 $ 190,647
--------- ---------
Liabilities
Short-term borrowings $ 36,277 $ -
Current portion of long-term debt 2,312 -
Accounts payable 14,123 982
Intercompany accounts payable 28,757 29,895
Taxes accrued 2,470 -
--------- ---------
Current liabilities 83,939 30,877
Long-term debt 12,576 -
Convertible subordinated debentures - 69,000
Retirement and other benefits 7,797 499
Deferred taxes 1,064 -
--------- ---------
Total liabilities 105,376 100,376
Minority interests - -
Shareholders' equity
Common stock 993 2,425
Additional paid-in capital 85,470 50,324
Unearned restricted stock plan compensation (94) (12)
Treasury stock at cost - (3,799)
Retained earnings 44,527 58,089
Cumulative translation adjustments - (16,756)
--------- ---------
Total shareholders' equity 130,896 90,271
--------- ---------
Total liabilities and equity $236,272 $ 190,647
--------- ---------
<CAPTION>
Other
Standard Subsidiaries
Wool Inc. (Non-
(Guarantor) Guarantors) Eliminations Total
(In thousands) ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash $ 119 $ 39,569 $ - $ 41,117
Receivables 1,258 227,917 - 266,560
Intercompany receivables - 65,693 (97,382) -
Inventories 1,256 180,954 - 256,519
Prepaids and other 5 1,935 - 6,285
Marketable securities - 837 - 837
-------- --------- --------- ---------
Current assets 2,638 516,905 (97,382) 571,318
Property, plant and equipment 35 99,465 - 122,013
Investment in subsidiaries 36,946 120,937 (398,357) -
Investment in affiliates - 12,533 - 12,533
Other noncurrent assets - 15,046 - 29,821
-------- --------- --------- ---------
Total assets $ 39,619 $764,886 $(495,739) $735,685
-------- --------- --------- ---------
Liabilities
Short-term borrowings $ - $ 236,048 $ - $ 272,325
Current portion of long-term debt - 6,673 - 8,985
Accounts payable 127 125,913 - 141,145
Intercompany accounts payable 4,734 33,996 (97,382) -
Taxes accrued - 26,288 - 28,758
-------- --------- --------- ---------
Current liabilities 4,861 428,918 (97,382) 451,213
Long-term debt - 57,676 - 70,252
Convertible subordinated debentures - - - 69,000
Retirement and other benefits - 10,831 - 19,127
Deferred taxes - 4,755 - 5,819
-------- --------- --------- ---------
Total liabilities 4,861 502,180 (97,382) 615,411
Minority interests - 30,312 - 30,312
Shareholders' equity
Common stock 22,604 90,536 (114,133) 2,425
Additional paid-in capital - 78,164 (163,634) 50,324
Unearned restricted stock plan compensation - (215) - (321)
Treasury stock at cost - - - (3,799)
Retained earnings 6,803 80,665 (131,995) 58,089
Cumulative translation adjustments 5,351 (16,756) 11,405 (16,756)
-------- --------- --------- ---------
Total shareholders' equity 34,758 232,394 (398,357) 89,962
-------- --------- --------- ---------
Total liabilities and equity $ 39,619 $764,886 $(495,739) $735,685
-------- --------- --------- ---------
</TABLE>
- -
28
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
19. Supplemental Guarantor Information (continued)
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
Year ended March 31, 1998
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial
Tobacco Co. Corporation
Inc. (Issuer) (Guarantor)
(In thousands) --------------- -------------
<S> <C> <C>
Sales $507,986 $ 8,334
Cost of sales:
Materials services and supplies 475,860 -
Interest 2,573 -
-------- --------
Gross profit 29,553 8,334
Selling, general & administrative expenses 12,312 2,638
Other interest expense 7,777 5,412
Other income (expense) net (61) 4
-------- --------
Income (loss) before taxes 9,403 288
Income taxes 3,344 339
-------- --------
Income (loss) after taxes 6,059 (51)
Minority interests - -
Equity in earnings of affiliates 363 -
Equity in earnings of subsidiaries 16,039 26,976
-------- --------
Net income 22,461 26,925
Retained earnings at beginning of period 46,107 58,089
Common stock dividends - (2,071)
-------- --------
Retained earnings at end of period $ 68,568 $ 82,943
-------- --------
<CAPTION>
Other
Standard Subsidiaries
Wool Inc. (Non-
(Guarantor) Guarantors) Eliminations Total
(In thousands) ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Sales $ 3,665 $1,150,448 $ (177,636) $1,492,797
Cost of sales:
Materials services and supplies 3,439 1,046,172 (177,636) 1,347,835
Interest - 20,003 - 22,576
------- ---------- ----------- ----------
Gross profit 226 84,273 - 122,386
Selling, general & administrative expenses 314 64,200 - 79,464
Other interest expense - 2,044 - 15,233
Other income (expense) net (370) 9,799 9,372
------- ---------- ----------
Income (loss) before taxes (458) 27,828 - 37,061
Income taxes - 5,086 - 8,769
------- ---------- ----------- ----------
Income (loss) after taxes (458) 22,742 - 28,292
Minority interests - (2,020) - (2,020)
Equity in earnings of affiliates - 290 - 653
Equity in earnings of subsidiaries 4,973 - (47,988) -
------- ---------- ----------- ----------
Net income 4,515 21,012 (47,988) 26,925
Retained earnings at beginning of period 6,803 79,085 (131,995) 58,089
Common stock dividends - - - (2,071)
------- ---------- ----------- ----------
Retained earnings at end of period $11,318 $ 100,097 $ (179,983) $ 82,943
------- ---------- ----------- ----------
</TABLE>
CONDENSED SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
Year ended March 31, 1998
<TABLE>
<CAPTION>
Standard Standard Other
Commercial Commercial Standard Subsidiaries
Tobacco Co. Corporation Wool Inc. (Non-
Inc. (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
(In thousands) --------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities $(53,388) $(47,312) $ 144 $22,672 $ - $(77,884)
-------- -------- ----- ------- --------
Cash flows from investing activities
Property, plant and equipment
- additions (3,710) - (38) (15,984) - (19,732)
- dispositions 731 - 17 9,260 - 10,008
Business acquisitions - - - (7,928) - (7,928)
-------- -------- ----- ------- ---- --------
Cash provided by (used for) investing
activities (2,979) - (21) (14,652) - (17,652)
-------- -------- ----- ------- ---- --------
Cash flows from financing activities:
Proceeds from long-term borrowings 109,846 - - 3,207 - 113,053
Repayment of long-term borrowings (8,667) - - (8,519) - (17,186)
Net change in short-term borrowings (36,277) - - (15,292) - (51,569)
Net proceeds of equity offering - 47,043 - - - 47,043
Other (2,806) - - - - (2,806)
-------- -------- ----- ------- ---- --------
Cash provided by (used for) financing
activities 62,096 47,043 - (20,604) - 88,535
-------- -------- ----- ------- ---- --------
Increase (decrease) in cash for period 5,729 (269) 123 (12,584) - (7,001)
Cash at beginning of period 1,102 327 119 39,569 - 41,117
-------- -------- ----- ------- ---- --------
Cash at end of period $ 6,831 $ 58 $ 242 $26,985 $ - $ 34,116
-------- -------- ----- ------- ---- --------
Cash payments - interest $ 7,041 $ 5,505 $ 311 $23,303 - $ 36,160
- income taxes $ 1,195 551 $ - $11,585 - $ 13,331
</TABLE>
-
29
<PAGE>
[LOGO]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------
Standard Commercial Corporation
19. Supplemental Guarantor Information (continued)
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
Year ended March 31, 1997
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial Standard
Tobacco Co. Corporation Wool Inc.
Inc. (Issuer) (Guarantor) (Guarantor)
(In thousands) --------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 450,542 $ 9,379 $ 7,958
Cost of sales:
Materials services and supplies 419,787 - 7,438
Interest 3,154 - 352
--------- -------- -------
Gross profit 27,601 9,379 168
Selling, general & administrative expenses 22,273 2,951 768
Other interest expense 1,188 5,472 -
Other income (expense) net 255 (491) (10)
--------- -------- -------
Income (loss) before taxes 4,395 465 (610)
Income taxes 856 496 -
--------- -------- -------
Income (loss) after taxes 3,539 (31) (610)
Minority interests - - -
Equity in earnings of affiliates - - -
Equity in earnings of subsidiaries - 16,968 338
--------- -------- -------
Net income 3,539 16,937 (272)
ESOP preferred stock dividends, net of tax - (347) -
Retained earnings at beginning of period 40,988 46,450 7,075
Common stock dividends - (4,951) -
--------- -------- -------
Retained earnings at end of period $ 44,527 $ 58,089 $ 6,803
--------- -------- -------
<CAPTION>
Other
Subsidiaries
(Non-
Guarantors) Eliminations Total
(In thousands) --------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 1,098,684 $ (212,293) $ 1,354,270
Cost of sales:
Materials services and supplies 1,002,448 (212,293) 1,217,380
Interest 28,691 -- 32,197
----------- ----------- -----------
Gross profit 67,545 - 104,693
Selling, general & administrative expenses 46,790 - 72,782
Other interest expense 3,260 - 9,920
Other income (expense) net 10,500 - 10,254
----------- ----------- -----------
Income (loss) before taxes 27,995 - 32,245
Income taxes 11,430 - 12,782
----------- ----------- -----------
Income (loss) after taxes 16,565 - 19,463
Minority interests (3,938) - (3,938)
Equity in earnings of affiliates 1,412 - 1,412
Equity in earnings of subsidiaries - (17,306) -
----------- ----------- -----------
Net income 14,039 (17,306) 16,937
ESOP preferred stock dividends, net of tax - - (347)
Retained earnings at beginning of period 66,626 (114,689) 46,450
Common stock dividends - - (4,951)
----------- ----------- -----------
Retained earnings at end of period $ 80,665 (131,995) $ 58,089
----------- ----------- -----------
</TABLE>
CONDENSED SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
Year ended March 31, 1997
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial
Tobacco Co. Corporation
Inc. (Issuer) (Guarantor)
(In thousands) --------------- -------------
<S> <C> <C>
Cash provided by (used in) operating
activities $ 3,706 $10,455
------- -------
Cash flows from investing activities
Property, plant and equipment
- additions (3,024) -
- dispositions 156 -
Business dispositions - -
------- -------
Cash provided by (used in) investing activities (2,868) -
------- -------
Cash flows from financing activities:
Proceeds from long-term borrowings 10,000 -
Repayment of long-term borrowings (1,618) (11,172)
Net change in short-term borrowings (14,139) -
Dividends paid net of tax - (347)
Purchase and retirement of ESOP Preferred Stock - (2,460)
------- -------
Cash provided by (used for) financing
activities (5,757) (13,979)
------- -------
Increase (decrease) in cash for period (4,919) (3,524)
Cash at beginning of period 6,021 3,851
------- -------
Cash at end of period $ 1,102 $ 327
------- -------
Cash payments - interest $ 951 $ 8,105
- income taxes $ 1,365 660
<CAPTION>
Other
Standard Subsidiaries
Wool Inc. (Non-
(Guarantor) Guarantors) Eliminations Total
(In thousands) ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Cash provided by (used in) operating
activities $ 53 $20,445 $ - $34,659
---- ------- -------
Cash flows from investing activities
Property, plant and equipment
- additions (22) (9,770) - (12,816)
- dispositions 18 4,898 - 5,072
Business dispositions - 3,304 - 3,304
---- ------- ---- -------
Cash provided by (used in) investing activities (4) (1,568) - (4,440)
------- ------- ---- -------
Cash flows from financing activities:
Proceeds from long-term borrowings - 405 - 10,405
Repayment of long-term borrowings - (8,341) - (21,131)
Net change in short-term borrowings - (40,118) - (54,257)
Dividends paid net of tax - - - (347)
Purchase and retirement of ESOP Preferred Stock - - - (2,460)
------ ------- ---- -------
Cash provided by (used for) financing
activities - (48,054) - (67,790)
------ ------- ---- -------
Increase (decrease) in cash for period 49 (29,117) - (37,571)
Cash at beginning of period 70 68,746 - 78,688
------ ------- ---- -------
Cash at end of period $119 $39,569 $ - $41,117
------ ------- ---- -------
Cash payments - interest $ - $33,734 - $42,790
- income taxes $ - $ 7,032 - $ 9,057
</TABLE>
- -
30
<PAGE>
[LOGO]
- -------------------------------------------------------------------------
19. Supplemental Guarantor Information (continued)
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
Year ended March 31, 1996
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial Standard
Tobacco Co. Corporation Wool Inc.
Inc. (Issuer) (Guarantor) (Guarantor)
(In thousands) --------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 358,037 $ 6,340 $ 9,324
Cost of sales:
Materials services and supplies 330,813 - 9,087
Interest 3,971 - -
--------- -------- --------
Gross profit 23,253 6,340 237
Selling, general & administrative expenses 18,447 3,151 472
Restructuring charges - -
Other interest expense 648 6,092 -
Other income (expense) net 1,049 1,504 53
--------- -------- --------
Income (loss) before taxes 5,207 (1,399) (182)
Income taxes 1,651 (1,665) -
--------- -------- --------
Income (loss) after taxes 3,556 266 (182)
Minority interests - - -
Equity in earnings of affiliates - - -
Equity in earnings of subsidiaries - 342 (3,072)
--------- -------- --------
Net income 3,556 608 (3,254)
Income from discontinued operations - - -
--------- -------- --------
Net income/(loss) 3,556 608 (3,254)
ESOP preferred stock dividends, net of tax - (474) -
Retained earnings at beginning of period 37,432 50,530 10,329
Common stock dividends - (4,214) -
--------- -------- --------
Retained earnings at end of period $ 40,988 $ 46,450 $ 7,075
--------- -------- --------
<CAPTION>
Other
Subsidiaries
(Non-
Guarantors) Eliminations Total
(In thousands) --------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 1,201,231 $ (215,482) $ 1,359,450
Cost of sales:
Materials services and supplies 1,103,150 (215,482) 1,227,568
Interest 37,398 - 41,369
----------- ----------- -----------
Gross profit 60,683 - 90,513
Selling, general & administrative expenses 55,538 - 77,608
Restructuring charges 12,500 12,500
Other interest expense 2,819 - 9,559
Other income (expense) net 8,806 - 11,412
----------- ----------- -----------
Income (loss) before taxes (1,368) - 2,258
Income taxes 6,850 - 6,836
----------- ----------- -----------
Income (loss) after taxes (8,218) - (4,578)
Minority interests (4,795) - (4,795)
Equity in earnings of affiliates (69) - (69)
Equity in earnings of subsidiaries - 2,730 -
----------- ----------- -----------
Net income (13,082) 2,730 (9,442)
Income from discontinued operations 10,050 - 10,050
----------- ----------- -----------
Net income/(loss) (3,032) - 608
ESOP preferred stock dividends, net of tax - - (474)
Retained earnings at beginning of period 69,658 (117,419) 50,530
Common stock dividends - - (4,214)
----------- ----------- -----------
Retained earnings at end of period $ 66,626 (114,689) $ 46,450
----------- ----------- -----------
</TABLE>
CONDENSED SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
Year ended March 31, 1996
<TABLE>
<CAPTION>
Standard Standard Other
Commercial Commercial Standard Subsidiaries
Tobacco Co. Corporation Wool Inc. (Non-
Inc. (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
(In thousands) --------------- ------------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used in) operating
activities $ (4,953) $ 8,168 $ (31) $46,663 $ - $49,847
-------- -------- ----- ------- -------
Cash flows from investing activities
Property, plant and equipment
- additions (1,120) - (42) (11,049) - (12,211)
- dispositions 87 - 7 3,057 - 3,151
Minority interest - - - (7,740) - (7,740)
Business dispositions - - - 440 - 440
-------- -------- ----- ------- ---- -------
Cash provided by (used for) investing
activities (1,033) - (35) (15,292) - (16,360)
-------- -------- ----- ------- ---- -------
Cash flows from financing activities:
Proceeds from long-term borrowings - 3,662 - 5,983 - 9,645
Repayment of long-term borrowings (257) (7,858) - (6,853) - (14,968)
Net change in short-term borrowings 10,447 - - (15,777) - (5,330)
Dividends paid net of tax - (474) - - - (474)
Other - - - 114 - 114
-------- -------- ----- ------- ---- -------
Cash provided by (used for) financing
activities 10,190 (4,670) - (16,533) - (11,013)
-------- -------- ----- ------- ---- -------
Increase (decrease) in cash for period 4,204 3,498 (66) 14,838 - 22,474
Cash at beginning of period 1,817 353 136 53,908 - 56,214
-------- -------- ----- ------- ---- -------
Cash at end of period $ 6,021 $ 3,851 $ 70 $68,746 $ - $78,688
-------- -------- ----- ------- ---- -------
Cash payments - interest $ 772 $ 2,962 $ - $40,692 - $44,426
- income taxes $ 799 $ 575 $ - $ 5,059 - $ 6,433
</TABLE>
-
31
<PAGE>
[LOGO]
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
Standard Commercial Corporation
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, 1998 and 1997 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, 1998. 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, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 10, 1998
COMPANY REPORT ON FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Standard Commercial is responsible for the preparation of the financial
statements, related financial data and other information in this annual report.
The financial statements are prepared in accordance with generally accepted
accounting principles and include amounts based on estimates and judgment where
appropriate.
In meeting its responsibility for both the integrity and fairness of these
statements and information, the Company depends on the accounting system and
related internal controls that are designed to provide reasonable assurance
that transactions are authorized and recorded in accordance with established
procedures, that assets are safeguarded and that proper and reliable records
are maintained.
The concept of reasonable assurance is based on the recognition that the
cost of an internal control system should not exceed the related benefits.
Because of inherent limitations in any system of controls, there can be no
absolute assurance that errors or irregularities will not occur. Nevertheless,
we believe that our internal controls provide reasonable assurance as to the
integrity and reliability of our financial records.
As an integral part of the internal control system, Standard maintains a
professional staff of internal auditors who monitor compliance with and assess
the effectiveness of the internal controls and recommend improvements thereto.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets quarterly with Standard's management and internal auditors,
and at least annually with its independent auditors, to review matters relating
to financial reporting, internal controls and the extent and results of the
audit effort. The internal auditors and independent auditors have direct access
to the Audit Committee with or without management present.
The financial statements have been examined by Deloitte & Touche, LLP,
independent auditors, who render an independent professional report on the
Company's financial statements. Their appointment was recommended by the Audit
Committee, approved by the Board of Directors and ratified by the shareholders.
Their report on the financial statements is based on auditing procedures which
include reviewing internal control and performing selected tests of
transactions and records as they deem appropriate. These auditing procedures
are designed to provide reasonable assurance that the financial statements are
fairly presented in all material respects.
- --
32
<PAGE>
[LOGO]
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Year ended March 31,
- -------------------------------------------------------------------------------------
<S> <C> <C>
In thousands, except share data 1998 1997
- ----------------------------------------------------- ---- ----
Sales $ 1,492,797 $ 1,354,270
Income taxes 8,769 12,782
Income (loss) from continuing operations 26,925 16,937
Income (loss) from discontinued operations - -
Extraordinary items - -
Cumulative effect of accounting changes - -
Net income (loss) 26,925 16,937
Current assets 659,333 571,318
Total assets 839,473 735,685
Current liabilities 440,234 451,213
Long-term debt 197,083 139,252
- ----------------------------------------------------- ------------ -----------
Average number of shares outstanding* 12,377,211 9,639,622
- ----------------------------------------------------- ------------ -----------
Per share*
Basic earnings (loss) from continuing operations $ 2.18 $ 1.72
Basic earnings (loss) from discontinued operations - -
Extraordinary items - -
Basic net earnings (loss) 2.18 1.72
Dividends paid - -
Book value at year end 11.68 9.44
Market price at year end 15.94 17.88
<CAPTION>
<S> <C> <C> <C> <C>
In thousands, except share data 1996 1995 1994 1993
- ----------------------------------------------------- ---- ---- ---- ----
Sales $1,359,450 $1,213,565 $1,042,014 1,236,084
Income taxes 6,836 16,370 5,070 12,546
Income (loss) from continuing operations (9,442) (20,494) (36,498) 22,250
Income (loss) from discontinued operations 10,050 (10,050) 689 (1,547)
Extraordinary items - - - 503
Cumulative effect of accounting changes - - 23 -
Net income (loss) 608 (30,544) (35,786) 21,176
Current assets 599,601 616,953 710,464 759,802
Total assets 782,824 813,489 890,771 923,367
Current liabilities 543,803 563,766 639,980 592,507
Long-term debt 100,818 101,403 98,169 128,762
- ----------------------------------------------------- ---------- ---------- ---------- ---------
Average number of shares outstanding* 9,621,693 9,603,774 9,573,837 9,468,588
- ----------------------------------------------------- ---------- ---------- ---------- ---------
Per share*
Basic earnings (loss) from continuing operations $ (1.03) $ (2.18) $ (3.86) $ 2.30
Basic earnings (loss) from discontinued operations 1.04 (1.05) 0.07 (0.16)
Extraordinary items - - - 0.06
Basic net earnings (loss) 0.01 (3.23) (3.79) 2.20
Dividends paid - - 0.46 0.50
Book value at year end 8.44 8.95 10.85 16.05
Market price at year end 9.00 13.38 15.63 26.25
</TABLE>
* Earnings per share and shares outstanding for 1993-1997 have been adjusted
for the effect of subsequent stock dividends.
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
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.
Quarterly results, dividends and stock prices for the years ended March
31, 1998 and 1997 follow:
<TABLE>
<CAPTION>
In thousands, except share data June 30 Sept 30 Dec 31 March 31 Year
- ------------------------------------------ ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1998 Sales $ 300,315 $ 287,253 $ 367,000 $ 538,229 $ 1,492,797
Gross profit 19,860 27,711 34,606 40,209 122,386
Net income 1,853 5,281 8,608 11,183 26,925
Earnings per share - basic $ 0.17 0.41 0.67 0.87 2.18
- diluted 0.20 0.40 0.62 0.79 2.05
Dividends per share * - - - -
Market price per share - high 18.38 17.81 18.19 16.38 18.38
- low 16.13 14.25 16.06 15.50 14.25
1997** Sales $ 310,391 $ 249,005 $ 374,130 $ 420,744 $ 1,354,270
Gross profit 21,887 21,972 27,944 32,890 104,693
Net income 1,508 2,911 4,480 8,038 16,937
Earnings per share - basic 0.14 0.29 0.45 0.83 1.72
- diluted 0.18 0.30 0.42 0.74 1.64
Dividends paid per share * * * *
Market price per share - high 12.00 15.00 20.75 21.50 21.50
- low 8.25 11.25 11.75 17.38 8.25
</TABLE>
* Distributed one percent stock dividend.
** Earnings per share have been adjusted for the effect of subsequent stock
dividends.
Standard's common stock is traded on the New York Stock Exchange under the
symbol STW. Market prices shown above are the high and low prices as reported
by the NYSE. At June 15, 1998 there were 649 shareholders of record.
-
33
<PAGE>
[LOGO]
CORPORATE DIRECTORS AND OFFICERS
- -------------------------------------------------------------------------
Standard Commercial Corporation
Corporate Directors
J Alec G Murray, (1,5) Chairman of the Board of Directors
Ery W. Kehaya, Chairman Emeritus
Marvin W. Coghill, (1) Chairman - Tobacco Division
William A. Ziegler, (2,3,4,5) Retired partner, Sullivan & Cromwell, attorneys
Henry R. Grunzke, Consultant; retired Chairman - Wool Division
William S. Barrack, Jr., (2,3,4) Retired Senior Vice President - Texaco Inc.
Charles H. Mullen, (2,3,4,5) Retired Chairman and Chief Executive Officer - The
American Tobacco Company
Daniel M. Sullivan, (2,3,4) Founder and retired former Chief Executive Officer -
Frost & Sullivan Inc.
Robert E. Harrison, (1,4,5) President and Chief Executive Officer
William S. Sheridan, (2,4) Senior Vice President and Chief Financial Officer,
Sotheby's Holdings, Inc.
- ----------
(1) Denotes member of Executive Committee
(2) Denotes member of Audit Committee
(3) Denotes member of Compensation Committee
(4) Denotes member of Finance Committee
(5) Denotes member of Nominating Committee
Corporate Officers
Robert E. Harrison, President and Chief Executive Officer
Henry C. Babb, Vice President - Public Affairs, General Counsel and Secretary
Ery W. Kehaya II, Vice President
Michael K. McDaniel, Vice President - Human Resources
Robert A. Sheets, Vice President and Chief Financial Officer
Keith H. Merrick, Vice President and Treasurer
Hampton R. Poole, Jr., Vice President and Controller
Timothy S. Price, Vice President - Business Planning and Development
Krishnamurthy Rangarajan, Vice President and Assistant Secretary
- -
34
<PAGE>
[LOGO]
DIVISION MANAGEMENT AND
PRINCIPAL TRADING COMPANIES
- --------------------------------------------------------------------------------
Standard Commercial Corporation
Tobacco Division Management
Marvin W. Coghill, Chairman
Alfred F. Rehm, President
John H. Saunders, Senior Vice President - Sales
Edward C. Dilda, Vice President - Processing
Robert J. Zonneveld, Vice President - Finance
Simon J. P. Green, Vice President & Regional Manager Confederation of
Independent States
Ery W. Kehaya II, Vice President & Regional Manager - North America
Robin H. B. Kilner, Vice President & Regional Manager - Africa
Edward A. Majeski, Vice President & Regional Manager - Central & South America
J. Pieter Sikkel, Vice President & Regional Manager - China, India & Thailand
Constantin J. W. von Esebeck, Vice President & Regional Manager - Europe
Duncan B. Meech, Vice President - Far East & Manager - UK Sales Offices
Mark W. Kehaya, Vice President - Special Projects Development
Tobacco Companies
* Standard Commercial Tobacco Co Inc, Wilson, North Carolina
* W A Adams Company, Wilson, North Carolina
* CRES Tobacco Company Inc, King, North Carolina
* Adams International Ltd, Bangkok, Thailand
* Exelka SA, Salonica, Greece
* Siam Tobacco Export Corporation Limited Chiengmai, Thailand
* Spierer Freres & Cie SA, Geneva, Switzerland
* Spierer Tutun Ihracat Sanayi Ticaret AS
Izmir, Turkey
* Stancom Tobacco Company (Malawi) Limited Lilongwe, Malawi
* Stancom Tobacco (Private) Limited
Harare, Zimbabwe
* Standard Commercial Tobacco Co of Canada Ltd, Tillsonburg, Ontario, Canada
* Standard Commercial Tobacco Company (UK) Ltd, Godalming, Surrey, England
* Tobacco Processors Lilongwe Ltd, Lilongwe, Malawi
* Tobacco Processors (Malawi) Ltd, Limbe, Malawi
* Transcatab SpA, Caserta, Italy
* Trans-Continental Leaf Tobacco Corporation
Vaduz, Liechtenstein
* Trans-Continental Tobacco India Pvt Ltd,
Guntur, India
* Werkhof GmbH, Hamburg, Germany
* World Wide Tobacco Espana, Benavente, Spain
--
35
<PAGE>
[LOGO]
DIVISION MANAGEMENT AND
PRINCIPAL TRADING COMPANIES (CONTINUED)
- --------------------------------------------------------------------------------
Standard Commercial Corporation
Wool Division Management
Paul H. Bicqu-, Managing Director
Ian J. Kent, Financial Director
Louis Booysen, Director - South Africa
Paul T. Hughes, Director - United Kingdom
Harald Menkens, Director - Germany
Jean-Marie Rabeisen, Director - France
Geoffrey M. Stooke, Director - Australia
Wool Companies
* Standard Wool Inc, North Oxford, Massachusetts
* S H Allen & Sons (Pty) Ltd, Melbourne, Australia
* Standard Wool Argentina SA
Buenos Aires, Argentina
* Standard Wool Australia (Pty) Limited
Fremantle, Australia
* Standard Wool (Chile) SA, Punta Arenas, Chile
* Standard Wool Deutscheland GmbH
Bremen, German
* Standard Wool France SA, Tourcoing, France and Biella, Italy
* Standard Wool South Africa (Pty) Ltd
Port Elizabeth, South Africa
* Standard Wool (UK) Limited, Bradford, England
* Tentler & Co BV, Dongen, Netherlands
* Standard Wool (NZ) Ltd, Christchurch, New Zealand
- --
36
Exhibit 21
STANDARD COMMERCIAL CORPORATION
SUBSIDIARIES AND AFFILIATES at March 31, 1998
<TABLE>
<CAPTION>
State or Country
Name of Company of Organization
--------------- ----------------
<S> <C>
Standard Commercial Corporation North Carolina
Standard Commercial Tobacco Co. Inc. North Carolina
W. A. Adams Company North Carolina
The Tobacco Trading Corporation Virginia
Adams International Ltd. Thailand
Exportadora de Tobaco de Honduras S.A. de C.V. Honduras
Carolina Home Center Inc. North Carolina
Carolina Trading Corporation North Carolina
CRES Tobacco Company Inc North Carolina
Jas. I. Miller Tobacco Co. Ltd. Jamaica
Standard Commercial Services Inc. North Carolina
Spierer Freres & Cie S.A. Switzerland
Exelka S.A. Greece
Eryka International S.A. Liechtenstein
Spierer Tutun Ihracat Sanayi Ticaret A.S. Turkey
Hermes Tutun Ihracat A.S. Turkey
Standard Commercial Tobacco Company of Canada Ltd. Canada
British Leaf Tobacco Company of Canada Ltd. Canada
Standard Commercial Tobacco Company (UK) Ltd. United Kingdom
Andrew Chalmers (India) Ltd. United Kingdom
N.G. Fleming Ltd. United Kingdom
Saloman Bros. Tobacco Company Ltd. United Kingdom
Leoni & Dent Ltd. United Kingdom
P.L. Leverson Ltd. United Kingdom
Siemssen Threshie (Malawi) Ltd. Malawi
Stancom Tobacco Company (Malawi) Ltd. Malawi
Tobacco Processors (Malawi) Ltd. Malawi
Tobacco Processors (Lilongwe) Ltd. Malawi
Trans-Continental Tobacco India Pvt Ltd India
Standard Commercial Tobacco Co. (Overseas) Ltd. United Kingdom
Stancom Zambia (Pvt) Ltd Zambia
Standard Wool (UK) Ltd. United Kingdom
Jacomb Hoare (Bradford) Ltd. United Kingdom
Thomas Chadwick & Sons Ltd. United Kingdom
Standard Wool Chile S.A. Chile
Standard Commercial Tobacco Services (UK) Ltd. United Kingdom
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION Exhibit 21
SUBSIDIARIES AND AFFILIATES at March 31, 1998
<TABLE>
<CAPTION>
State or Country
Name of Company of Organization
--------------- -----------------
<S> <C>
Standard Commercial Corporation (continued) North Carolina
Standard Commercial Tobacco Co. Inc. (continued) North Carolina
Trans-Continental Leaf Tobacco Corporation Leichtenstein
AOZT Transcontinental Leaf Tobacco Corporation Russia
Eryka Mediterranee S.A.R.L. Greece
Esaltab (Zimbabwe) (Pvt.) Ltd Zimbabwe
Inter-Rural Development Corporation Ltd. Liechtenstein
Trans-Continental Farming Ltd. Canada
Siam Tobacco Export Corporation Ltd. Thailand
Stancom Tobacco (Private) Ltd Zimbabwe
Combined Tobacco Buyers (Private) Ltd Zimbabwe
Tobacco Development Company of Africa (Private) Ltd Zimbabwe
Tobacco Processors (Zimbabwe) (Private) Ltd Zimbabwe
Standard Wool S.A. Panama
Transcatab SpA Italy
Trans-Continental Participacoes e Empreendimentos Ltda. Brazil
Transhellenic Tobacco S.A. Greece
World Wide Tobacco Espana S.A. Spain
Werkhof GmbH Germany
Bela Duty Free Import-Export GmbH Germany
Standard Wool Inc. Delaware
Advhus Gestion Societe Civile France
Standard Wool France S.A. France
Peignage de la Tossee S.A. France
Eusebe Carpentier S.A. France
Standard Wool Deutschland GmbH Germany
Lanimex Trading GmbH Germany
Prolaine Wollhandels GmbH Germany
Standard Wool South Africa (Pty) Ltd South Africa
Standard Wool Australia (Pty.) Ltd. Australia
Hulme Wool Scouring Co. (1938) Pty. Ltd. Australia
Standard Wool Farming Pty. Ltd. Australia
Mascot Wools Pty. Ltd. Australia
S H Allen & Sons (Pty) Ltd. Australia
Stawool Brokers Pty. Ltd. Australia
Independent Wool Dumpers Pty. Ltd. Australia
Standard Wool Holdings S.A. Argentina
Roca SACIF Argentina
Standard Wool Argentina Argentina
Pole Fueguina S.A. Argentina
Tentler & Co. B.V. Netherlands
Standard Wool (NZ) Limited New Zealand
</TABLE>
Exhibit 23
Independent Auditors' Consent
We hereby consent to the incorporation by reference in Registration Statement
No. 33-25499 on Form S-3 and in Registration Statement No. 33-59760 on Form S-8
of our report dated June 10, 1998 included in this report on Form 10-K of
Standard Commercial Corporation for the year ended March 31, 1998.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE 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>
<CIK> 0000093319
<NAME> STANDARD COMMERCIAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 34,116
<SECURITIES> 656
<RECEIVABLES> 254,469 <F1>
<ALLOWANCES> 0 <F2>
<INVENTORY> 361,418
<CURRENT-ASSETS> 659,333
<PP&E> 113,572 <F1>
<DEPRECIATION> 0 <F2>
<TOTAL-ASSETS> 839,473
<CURRENT-LIABILITIES> 440,234
<BONDS> 197,083
0
0
<COMMON> 3,085
<OTHER-SE> 146,545
<TOTAL-LIABILITY-AND-EQUITY> 839,473
<SALES> 1,492,797
<TOTAL-REVENUES> 1,492,797
<CGS> 1,370,411
<TOTAL-COSTS> 1,370,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 0 <F2>
<INCOME-PRETAX> 37,061
<INCOME-TAX> 8,769
<INCOME-CONTINUING> 26,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,925
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.05
<FN>
<F1> SHOWN NET IN FINANCIAL STATEMENTS.
<F2> NOT SHOWN SEPARATELY UNDER MATERIALITY GUIDELINES.
</FN>
</TABLE>
