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, 1999
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:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
COMMON STOCK, $0.20 PAR VALUE NEW YORK STOCK EXCHANGE
7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 NEW YORK STOCK EXCHAnGE
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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 10, 1999 THERE WERE 12,933,652 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 10, 1999 WAS APPROXIMATELY: $82,450,000.
PORTIONS OF THE REGISTRANT'S (1) ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED MARCH 31, 1999 AND (2) PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON AUGUST 10, 1999 ARE INCORPORATED BY REFERENCE INTO
PARTS 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, 1998. 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.
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.
<PAGE>
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 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.
In November 1998 the major U.S. cigarette manufacturers reached
agreement and settled lawsuits with 46 states concerning reimbursement for
expenditures related to smoking related health costs. Key provisions of the
settlement are as follows:
a. Payments of $206 billion over 25 years from the cigarette manufacturers to
the state's based on each states medicaid population. (Medicaid expenses to
treat residents have been the basis for many of the claims against the cigarette
manufacturers.)
b. Marketing and advertising restrictions, including bans on cartoon characters,
point-of-sale advertising, billboards, bus and taxi placards and sponsorships of
sporting events by brand names.
c. Disband the Tobacco Institute, the Council for Tobacco Research and the
Council for Indoor Air Research.
d. Elimination of vending machine sales and requirements that all tobacco
products be behind a counter.
e. Payments of $1.7 billion for educational efforts about the dangers of smoking
and discouraging youth smoking.
It is not possible to predict the extent to which these 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.
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
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.
<PAGE>
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 and ship tobacco,
and, in a growing number of emerging markets, provide agronomy expertise and
financing for growing leaf tobacco. Currently, 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 (TMA), the American-blend cigarette consumption (excluding
China) has increased from 1.74 trillion units in calendar 1990 to 1.98 trillion
units in calendar 1998, an increase of 13.6%. The TMA estimates that worldwide
American-blend tobacco consumption (excluding China) will increase an additional
5.2% to more than 2.02 trillion units by the year 2002. 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 44.2% in 1990 to 52.2% in 1998, and is projected to reach 53.4%
by the year 2002. 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 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. Currently, 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 volumes as a result of this
industry consolidation as the multinational cigarette manufacturers diversify
their sourcing partners of quality leaf tobacco.
Global Market Conditions During fiscal 1999, economic difficulties in
Asia and Eastern Europe have resulted in loss of consumer purchasing power as
currencies weakened significantly against the U.S. dollar. This leads to lower
consumption of premium brand styles of tobacco and a shift to lower cost
products. The major international suppliers of cigarettes in these areas have
experienced volume declines in most major markets. In turn, they have taken a
conservative approach to inventory management issues and focused more on the
low-cost-filler style tobaccos which result in lower prices for purchases of
leaf tobacco.
In the U.S. market, the late November 1998 settlement between the cigarette
manufacturers and the states for health care claims has resulted in major price
increases which could affect demand. This issue is impacting U.S. domestic
purchase programs as well. Until the effects of the settlement related issues
are known, the uncertainty is prompting a conservative approach to inventory
management in this market as well.
<PAGE>
In the latter part of the fiscal year, several of the largest international
cigarette manufactures announced mergers that have further added to uncertain
purchasing conditions as the effects of combining different companies will have
to be analyzed.
Tobacco Operations
The Company has developed an 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 to the Company. During fiscal 1999, the maximum aggregate
amount of such advances by the Company was $52.1 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.
<PAGE>
The Company processes its tobacco in three wholly-owned plants in the
United States and 13 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.
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 1999, the Company's five largest customers
accounted for approximately 46.6% of total sales (58.3% of tobacco sales). In
fiscal years 1999, 1998 and 1997, one customer accounted for 20.0%, 24.1% and
24.1% 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, 1999, the Company had tobacco inventory of $315.5
million compared to $284.8 million at March 31, 1998. 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 three
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, trusts established by the Company,
acquired Meridional de Tobaccos Ltda., the fourth largest leaf tobacco processor
in Brazil. The ownership of this operation 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 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 facilities
in Lilongwe. 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 holds 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 three government-owned tobacco processing facilities in China. In
fiscal 1999, 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 which began operations in the current fiscal year.
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 1999, the Company derived approximately 20.0% 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.
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.
<PAGE>
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. Wool International,
an organization created by the Australian government, was responsible for the
reduction of the stockpile. Sales of the stockpile were frozen in October 1998.
This operation was recently privatized and the newly created company, Woolstock,
is expected to resume sales of the stockpile, which on March 31, 1999 totaled
111,000 metric tons, in mid 1999.
Global Wool Market Conditions
The ability of natural wool fibers to compete on price and quality
with synthetics has been diminished over the past few years. Falling prices on
synthetic fibers, the potential for substitution at both the processing and
retail levels and the buildup of raw stocks in Australia have contributed to an
oversupply of natural wool. As a result, prices for wool fell substantially
during the year. Demand for Australian wool (the worlds largest growing origin)
by the major markets in Asia fell for the second consecutive year. The economic
problems in Asia caused further downward pressures on prices and disrupted the
European markets for processed wool products as low cost goods from Asia filled
the traditional supply channels to the fashion industry in Europe
Worldwide wool production during the Company's 1999 fiscal year was
below demand for the fifth consecutive year. Production by the five major wool
exporting countries has declined by 17.0% over the past five years. As a
consequence of severely depressed market conditions, recently shorn wool has
been kept on the farm and this additional stockpile is estimated at 89,000
metric tons. Build up of finished wool products in the textile pipeline as a
result of lower demand has added to the slow recovery of the industry.
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 four countries, including
scouring mills in 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 closed its wholly owned scouring facility in New Zealand and acquired a
24.9% interest in an existing facility. The Company has also acquired a 35.7%
interest in a topmaking facility in Tasmania. The Tasmanian operation is facing
severe financial difficulties and a feasibility study is underway to decide
whether to continue this operation or cease activities. 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 South Africa, France and the United
Kingdom, and at its jointly owned facilities in Australia, New Zealand and
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.
<PAGE>
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.
Selling. The Company currently derives approximately 70% 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 1999, processed wool
(i.e., scoured and tops) accounted for approximately 69% of the Company's wool
revenues, followed by greasy wool (21%), specialty fibers and lanolin (10%).
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 1999. 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, 1999 and 1998, the Company had
outstanding orders for wool of approximately $79.0 million and $87.0 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
In early fiscal year 1999, the Company closed and liquidated a small
noncore activity: Stancom Home Center, which operated a wholesale/retail
building materials and home supply center located in Wilson, North Carolina.
Revenues and earnings of this business were not material.
EMPLOYEES
At March 31, 1999, the Company had a total of approximately 2,804
full-time employees (including approximately 513 in the United States) and
approximately 1,233 full-time employees in affiliated companies. As of that
date, of the Company's full-time employees, approximately 2,231 were in the
tobacco business and approximately 573 were in the wool business. The tobacco
business typically employs an additional 5,200 to 5,800 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, 2002. 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> <C>
UNITED STATES
Wilson, NC Factory/storage 1,008,000
King, NC Factory 134,600
Springfield, KY Factory/storage 392,000
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
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*
Brazil
Santa Cruz do Sul Factory/storage 790,910
India
Guntur Factory/storage 252,500
</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> <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
Winchester Factory/storage 85,000
SOUTH AFRICA
Port Elizabeth Factory/storage 70,000*
Tasmania
Launceston Factory/storage 98,000
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, 1999.
<PAGE>
Executive Officers and Certain Key Employees of the Company at June 10, 1999
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Robert E. Harrison 45 President and Chief Executive Officer
Marvin W. Coghill 65 Chairman - Tobacco Division
Alfred F. Rehm 50 President - Tobacco Division
Paul H. Bicque 55 Managing Director - Wool Division
Henry C. Babb 54 Vice President - Public Affairs, General Counsel
and Secretary
Ery W. Kehaya, II 47 Vice President, and Tobacco Division
Regional Manager - North America
Michael K. McDaniel 49 Vice President-Human Resources
Robert A. Sheets 44 Vice President and Chief Financial Officer
Keith H. Merrick 44 Vice President and Treasurer
Hampton R. Poole, Jr. 47 Vice President and Controller
Timothy S. Price 40 Vice President - Business Planning
and Development
Krishnamurthy Rangarajan 56 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 10, 1999 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 31 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 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.
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.
<PAGE>
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 10, 1999 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
ITEM 7A - QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by Items 5, 6, 7 and 7A is contained in
the Company's 1999 Annual Report to Shareholders as detailed below and
incorporated herein by reference and made a part hereof.
<TABLE>
<CAPTION>
Item Caption in Annual Report Page No.
---- ------------------------ --------
<S> <C> <C>
5 Quarterly Financial Data (Unaudited) 33
6 Selected Financial Data 33
7 and 7A Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-13
</TABLE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The data appearing on pages 17 through 36 of the Company's 1999
Annual Report to Shareholders, and the Independent Auditors' Report on page 16,
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 10, 1999 and is incorporated herein by reference, except
for the material under the heading "Compensation Committee Report" and
"Performance Graph." The information concerning executive officers who are not
directors 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, 1999.
(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.
(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.
<PAGE>
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.
4) Agreement dated as of December 1997
between the Company and Henry C. Babb
5) Agreement dated as of August 1998
between the Company and Paul H. Bicque
11. Computation of Earnings per Common Share.
13. The Company's Annual Report to Shareholders for
the year ended March 31, 1999 which, except for
information expressly incorporated by reference
into Items 5, 6, 7, 7A 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
-----------------------------------
Robert E Harrison, President and
Chief Executive Officer
June 10, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on June 10, 1999 by the following persons on behalf of the
Registrant in the capacities indicated.
/s/ Robert E Harrison President, and Director
- ------------------------- (Principal Executive Officer)
Robert E Harrison
/s/ Robert A Sheets Vice President and Chief Financial Officer
- ------------------------- (Principal Financial and Accounting Officer)
Robert A Sheets
/s/ J Alec G Murray Chairman of the Board of Directors
- -------------------------
J Alec G Murray
/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
/s/ B Clyde Preslar Director
- -------------------------
B Clyde Preslar
<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, 1999 and 1998, and for each of the three years in
the period ended March 31, 1999, and have issued our report thereon dated June
10, 1999; such consolidated financial statements and report are included in your
1999 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, 1999
<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> <C> <C> <C> <C>
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.................................. $8,935,552 $4,056,774 $ - $ 3,088,907 $ 9,505,087
==================================================================================
Year ended March 31, 1999
Deducted from asset accounts
Allowance for doubtful accounts........... $ 4,535,160 $891,348 $ - $ 423,240 $ 5,003,268
Inventory................................. 4,969,927 7,038,223 - 1,324,561 10,683,589
---------------------------------------------------------------------------------------
Total.................................. $ 9,505,087 $7,929,571 $ - $1,747,801 $ 15,686,857
=======================================================================================
</TABLE>
EXHIBIT 10.4
THIS AGREEMENT, made effective 1st day of January, 1998, by and between
HENRY C. BABB, JR. (hereinafter "Executive"), and STANDARD COMMERCIAL
CORPORATION, a North Carolina corporation with principal offices in Wilson,
North Carolina (hereinafter "Company").
RECITALS:
WHEREAS, Company is primarily engaged in the business of purchasing,
processing and selling tobacco and wool at wholesale internationally and within
the United States of America, and
WHEREAS, the Company and the Executive desire to provide for
Executive's continued employment with Company as an executive, and
WHEREAS, Company is willing to employ the Executive and the Executive
is willing to accept such employment upon the terms and conditions set forth
herein.
NOW THEREFORE, the parties hereby agree as follows:
Section One - Employment of Executive/Duties
A. The Company hereby employs the Executive and the Executive agrees to
be employed by the Company in the capacity of Vice President, Secretary &
General Counsel, subject to the terms and conditions set forth herein. The
Executive will report to the President and CEO.
B. The Executive shall be responsible for keeping the corporate records
and provide legal counsel to the CEO and Board. The Executive is responsible for
all legal matters of the Corporation and will be responsible for co-ordinating
the work of the corporation's external counsel. This position is responsible for
keeping the official records of the corporation, including the minutes of all
board meetings and is responsible for maintaining all compliance, SEC and other
regulatory filings.
C. The Executive shall devote his time, skill, attention and best
efforts to the business of the Company. Such time of the Executive shall be
devoted as shall be reasonably required to promote and protect the best interest
of the Company. The Executive may serve as a director of or consultant to other
corporations only to the extent that such duties are known to and approved by
the CEO. The Executive shall not be restricted in making personal investments
unless they are prohibited under this Agreement or otherwise or they may detract
from the time and attention devoted to the business of the Company.
D. The Executive shall perform his employment duties at the principal
executive offices of the Company which are presently located in Wilson, North
Carolina.
<PAGE>
The Executive shall not be required to relocate his residence during the term of
this Agreement. The Executive agrees that he will be required from time to time
to travel on behalf of Company to meet with customers, attorneys, accountants or
conduct such other business activity necessary to the conduct of the Company's
business or that of its affiliates and subsidiaries.
Section Two - Compensation
A. The Company shall pay Executive an Annual Base Salary at the rate of
two hundred twenty five thousand no/100ths Dollars ($225,000.00) per year,
payable in equal monthly installments unless the Company sets a different
periodic basis for payment of salaries, less deductions authorized by law. The
Company shall review the Executive's salary annually.
B. Executive shall be entitled to participate in the fringe benefit
program which the Company may establish and modify from time to time for the
benefit of all its executive and management employees, including, but not
limited to, health insurance, disability insurance, qualified stock option
plans, non-qualified stock option plans, qualified retirement plans,
non-qualified retirement plans, life insurance plans and executive incentive
compensation plans, provided that benefits shall not be duplicated for any
specific benefit afforded Executive under the terms of this Agreement.
Section Three - Vacation and Sick Leave
A. During the term of his employment hereunder, the Executive shall be
entitled to and receive as an additional benefit annual vacation leave of four
(4) weeks per year, during which time his compensation shall be paid in full.
Such vacation shall be taken by the Executive at such times as may be reasonably
mutually agreed upon by the Executive and the Company. Earned vacations not
taken in a calendar year may be accrued and carried forward to the following
calendar year, or for such longer period, if any, as shall be consistent with
the vacation policy of the Company for its executive officers. Any unused
vacation leave existing at the time the Executive ceases to be employed by the
Company shall be paid to him in cash at his then current Annual Base Salary.
B. The Executive shall also be eligible for, and receive as an
additional benefit, annual sick leave in accordance with the then existing rules
and regulations adopted and modified by the Company from time to time for its
executive officers.
Section Four - Restrictive Covenants and Confidentiality of Customer Lists and
Trade Secrets
A. The Executive agrees that during the term of his employment and
permanently following termination of such employment for any reason whatsoever,
he will not disclose to any person, firm, association, partnership, entity or
corporation, other than
<PAGE>
in discharge of his duties hereunder or pursuant to order of court, any
governmental agency of the body, or at request of Company, any information the
disclosure of which is adverse to the business of the Company, including such
information related to: (1) the business operations or internal structure of
Company; (2) the customers of Company; (3) the financial condition of Company;
and (4) other information including but not limited to trade secrets, technical
data, sales figures and forecast, marketing analysis and studies, customer and
price lists, including any and all of the foregoing confidential information of
any affiliates or subsidiaries of Company. All papers and records of every kind,
including all memoranda, lists, tapes, notes, sketches, designs, plans, data and
other documents, whether made by Executive or not, relating to the business and
affairs of the Company, its successors, affiliates and subsidiaries or to any
business or field of investigation of Company which shall at any time come into
possession or control of the Executive, shall be surrendered to the Company, at
the Company's expense, upon written request received while either Executive is
in the employ of the Company or after such employment shall have ceased.
Section Five - Change of Control
Should there be a change in control of the Company either through a
sale of its stock or through a sale of its assets and the acquirer of control
does not offer the Executive employment acceptable to him, the Company shall pay
to the Executive a sum equal to two (2) years' salary based on Executive's then
Annual Base Salary. In addition, the Executive shall also be entitled to receive
at such time in one lump sum such portion of his Annual Base Salary earned prior
to date of such termination but then unpaid.
Section Six - Termination
A. The Company may at any time terminate this Agreement for cause. For
this purpose "cause" is defined to mean that Executive has (i) been guilty of
serious neglect or misconduct in carrying out his responsibilities and
obligations hereunder; or (ii) failed or refused faithfully and diligently to
perform the customary duties of his employment or failed to adhere to the
provisions of this Agreement; or (iii) failed or refused to comply with
reasonable policies, rules and regulations established from time to time by the
Company's Board of Directors, any duly authorised committee thereof or the CEO,
or (iv) has violated the provisions of Section 4 hereof.
B. The Company may at any time on thirty (30) days written advance
notice terminate this Agreement other than for cause, in which event the Company
shall for the two (2) years immediately following such termination continue to
pay to the Executive the equivalent, less deductions authorised by law, of his
Annual Base Salary at the time of such termination and shall continue to provide
the Executive at its cost with health and life insurance coverage equivalent to
that in effect for the Executive at the time of such termination. In addition,
the Executive shall also be paid in one lump sum such portion of his Annual Base
Salary earned prior to such to the date of such termination but then unpaid.
<PAGE>
Section Seven - Miscellaneous
A. The Company shall indemnify Executive in his capacity as an
executive officer of the Company consistent with and subject to the terms and
conditions relating to indemnification contained in the Articles of
Incorporation and Bylaws of the Company. This indemnity obligation shall survive
the termination of this Agreement.
B. The Employment Agreement shall not be assignable by Executive nor
shall the duties under it be delegable by Executive, and shall inure to the
benefit of and be binding upon any corporate or other successors of the Company
which shall acquire, directly or indirectly, by merger, consolidation or
purchase or otherwise, all or substantially all of the assets of the Company,
and shall otherwise be binding upon the parties hereto, and their respective
heirs, executors, administrators, successors or assigns.
C. This Employment Agreement supersedes and cancels all prior
agreements and understandings between the parties and constitutes the entire
agreement between the parties.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have signed this Agreement as of the date first above written.
____________________________________
Henry C. Babb, Jr.
STANDARD COMMERCIAL CORPORATION
By:_________________________________
President & CEO
EXHIBIT 10.5
AGREEMENT
THIS AGREEMENT is made and entered into effective the 21st day of August, 1998,
by and between PAUL H. BICQUE (the "Executive"), and STANDARD COMMERCIAL TOBACCO
SERVICES (U.K.), LTD., an English corporation (the "Company"); and STANDARD
COMMERCIAL CORPORATION, a North Carolina (USA) corporation, in the limited
capacity as Guarantor (the "Guarantor").
W I T N E S S E T H:
WHEREAS, the Company is a subsidiary of Guarantor, and as such is a member of
the Standard group of companies (the "Standard Group"); and
WHEREAS, the Company, INTER ALIA, provides management and administrative support
services to the Wool Division of the Standard Group (the "Wool Division"),
including without limitation the employment of the Wool Division's managing
director; and
WHEREAS, the Company and Executive desire to provide for Executive's continued
employment with the Company as an Executive; and
WHEREAS, the Company is willing to employ Executive and Executive is willing to
accept such employment upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises and premises herein
expressed, and other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties, intending to be legally bound,
hereby agree as follows:
1. Employment of Executive; Duties.
a. Company hereby employs the Executive and the Executive agrees to be
employed by the Company in the capacity of Managing Director of the Wool
Division, subject to the terms and conditions herein set forth. The Executive
will report directly to the President and CEO of Guarantor.
b. The Executive shall devote his full time, skill, attention, and best
efforts to the business of the Company. Such time of the Executive shall be
devoted as reasonably required to promote and protect the best interests of the
Company. The Executive may serve as a director or consultant to other
corporations only to the extent that such duties are known to and approved by
Guarantor's CEO. The Executive shall not be restricted in making personal
investments unless prohibited under this Agreement or unless such pursuits
detract from the time and attention devoted by the Executive to the business of
the Company.
2. Compensation.
a. The Company shall pay Executive such salary as shall be determined
and set from time to time by the Company's management.
b. Executive shall be entitled to participate in any fringe benefit
program that the Company may establish and modify from time to time for the
benefit of all its executive and management employees, including without
limitation, health insurance, disability insurance, qualified stock option
plans, non-qualified stock option plans, qualified retirement plans,
non-qualified retirement plans, life insurance plans, and executive incentive
compensation plans, provided that benefits shall not be duplicated for any
specific benefit afforded Executive under the terms of this Agreement.
<PAGE>
3. Vacation and Sick Leave.
a. During the term of his employment hereunder, Executive shall be
entitled to receive as an additional benefit annual vacation leave of four (4)
weeks per year, during which time his compensation shall be paid in full.
Vacation leave shall be taken by the Executive at such times as may be
reasonably mutually agreed upon by the Executive and the Company. Earned
vacations not taken in a calendar year may be accrued and carried forward to the
following calendar year, or for such longer period, if any, as shall be
consistent with the vacation policy of the Company for its executive officers.
Any unused vacation time existing at the time Executive ceases to be employed by
the Company shall be paid to him in cash at his then-current Annual Base Salary.
b. Executive shall also be eligible for, and shall receive as an
additional benefit, annual sick leave in accordance with the then-existing rules
and regulations adopted and modified by the Company from time to time for its
executive officers.
4. Restrictive Covenants; Confidentiality of Customer List and Trade
Secrets.
Executive agrees that during the term of his employment and permanently
following the termination of such employment for whatever reason, he will not
disclose, directly or indirectly, to any person, firm, association, partnership,
corporation, or other business entity, other than in discharge of his duties
hereunder or pursuant to order of any court, governmental agency, or at the
request of the Company, any information, the disclosure of which is or would be
adverse to the business of the Company, its affiliates, subsidiaries, and/or
Guarantor, including without limitation, information relating to:
(1) Business operations or internal corporate structure of
the Company, its affiliates, subsidiaries, and Guarantor;
(2) Customers of the Company, its affiliates, subsidiaries,
and Guarantor;
(3) Financial condition of the Company, its affiliates,
subsidiaries, and Guarantor; and
(4) Any other information of a confidential or proprietary
nature, including without limitation, trade secrets, technical data, sales
figures and forecasts, marketing analyses and studies, and customer and price
lists of the Company, its affiliates, subsidiaries, and Guarantor. All papers
and records of every kind and description, including all memoranda, lists,
tapes, notes, sketches, designs, plans, data, and other documents, whether or
not made by Executive, relating to the business and affairs of the Company, its
successors, affiliates, subsidiaries, and Guarantor, which shall at any time
come into possession or control of the Executive, shall be surrendered to the
Company, at the Company's expense, upon the Company's written request.
5. Change in Control.
In the event at any time during the continuation of this Agreement
there is a change in control of the Wool Division, whether by way of spin-off,
sale of all or substantially all of the stock and/or assets of the companies
constituting the Wool Division, or otherwise (a "Change in Control"), which
includes an offer of employment to Executive from the resulting (i.e.,
non-Standard Group) entity that constitutes the same or a substantially similar
position as Executive's employment with the Company
<PAGE>
(a "Similar Job Offer"), the parties agree that the Company shall pay
to Executive within thirty (30) days following the completion of the Change in
Control a lump sum severance benefit equal to one-half (1/2) of Executive's
then-annual base salary (i.e., six (6) months' salary).
In the event at any time during the continuation of this Agreement
there is a Change in Control which does not include a Similar Job Offer, the
parties agree that the Company shall retain Executive as an at-will employee,
terminable at any time, at the same level of salary and benefits as immediately
prior to the Change in Control, so as to allow the parties to evaluate whether
any long term opportunities exist for Executive with the Company. In the event
Executive's employment is terminated by the Company without cause during the one
(1) year period following the closing of the Change in Control, the parties
agree that the Company shall pay to Executive within thirty (30) days following
the termination of Executive's employment with the Company a lump sum severance
benefit equal to two (2) times Executive's then-annual base salary (i.e.,
twenty-four (24) months' salary).
The parties expressly agree that any payment made by the Company to or
on behalf of Executive pursuant to this Section shall be in lieu of any and all
other sums, severance and/or redundancy benefits to which Employee may be
entitled contractually or under applicable law, and that such payment shall be
and constitute Employee's sole and exclusive remedy following the termination of
Employee's employment subsequent to a Change in Control.
6. Guaranty.
Guarantor joins in the execution of this Agreement for the express
purpose of guaranteeing, absolutely and unconditionally, the obligations of the
Company to the Executive hereunder, which guaranty shall be deemed to be a
guaranty of payment and not of collection.
7. Miscellaneous.
a. This Agreement shall be governed by and construed in accordance with
the laws of England.
b. This Agreement is in addition to and not in lieu of the terms and
conditions of that certain letter agreement by and between the Company and
Executive dated February 7, 1996, a copy of which is attached hereto and
incorporated herein by reference (the "Letter Agreement"), provided, however,
that Paragraph 10 thereof is hereby amended to provide four (4) months' notice
or pay in lieu instead of three (3) months' as stated therein. Notwithstanding
anything to the contrary herein set forth, with respect to events arising out of
or relating to a Change in Control, the parties agree that the terms of this
Agreement shall be controlling and shall supersede the Letter Agreement in all
respects. Any amendments to this Agreement must be in writing and signed by the
Company, the Executive, and Guarantor.
c. The Company shall indemnify Executive in his capacity as an
executive officer of the Company consistent with and subject to the terms and
conditions relating to indemnification contained in the Company's Articles of
Association and Bylaws. This indemnity obligation shall survive the termination
of this Agreement.
d. This Agreement shall not be assignable by Executive, nor shall
Executive's duties hereunder be delegable by Executive. This Agreement shall
inure to the benefit of, and be binding upon any successor-in-interest to the
Company.
e. If any provision or any portion of any provision of this Agreement
or the application of any such provision or any portion thereof to any person or
circumstance shall be held to be invalid or
<PAGE>
unenforceable, the remaining portion of such provision and the
remaining provisions of this Agreement, or the application of such provision or
portion of such provision as is held invalid or unenforceable to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
f. All section titles or captions contained in this Agreement are for
convenience only, and shall not be deemed to be a part of the context, nor
affect the interpretation of this Agreement.
g. Failure by the Company to insist upon strict compliance with any of
the terms, conditions and covenants of this Agreement shall not be deemed to be
a waiver of such terms, conditions and covenants, nor shall any express written
waiver or relinquishment of any right or power hereunder at any one or more
times be deemed to be a waiver or relinquishment of such right or power at any
other time or times.
h. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, all of which shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement as of the day and year first above written.
______________________________________
Paul H. Bicque
STANDARD COMMERCIAL TOBACCO SERVICES (U.K.), LTD.
By:_____________________________________
President
STANDARD COMMERCIAL CORPORATION,
Guarantor
By: _____________________________________
President
EXHIBIT 11
STANDARD COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except share information; unaudited)
Twelve months ended March 31
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations....................................... $8,415 $26,925 $16,937
Less - ESOP preferred stock dividends net of tax........................ - - 347
------------------------------------------------------
Net earnings applicable to common stock................................. $8,415 $26,925 $ 16,590
------------------------------------------------------
Basic average shares outstanding........................................ 12,842,495 12,377,211 9,6639,622
======================================================
Earnings per common share
- net............................................................... $0.66 $2.18 $1.72
=====================================================
DILUTED EARNINGS PER COMMON SHARE*
Income from continuing operations
applicable to common stock........................................... $8,415 $26,925 $16,590
Add - after-tax interest expense on 7 1/4%
convertible subordinated debentures......................... - 3,300 3,300
Net earnings applicable to common stock................................. $8,415 $30,225 $19,890
======================================================
Primary average shares outstanding...................................... 12,842,495 12,377,211 9,639,622
Increase in shares outstanding assuming
- conversion of 7 1/4% convertible subordinated
debentures at November 13, 1991................................. - 2,348,536 2,279,708
- conversion of ESOP convertible
preferred stock at July 1, 1993................................. - - 198,640
------------------------------------------------------
Diluted average shares outstanding...................................... 12,842,495 14,725,747 12,117,970
======================================================
Earnings (loss) per common share
- from continuing operations........................................ $0.66 $2.05 $1.64
- from discontinued operations...................................... - - -
------------------------------------------------------
- net............................................................... $0.66 $2.05 $1.64
======================================================
</TABLE>
* Options issued in Fiscal 1999 and the convertible subordinated debentures are
anti-dilutive for fiscal year1999 and as such are not included in the
computation of diluted earnings per share.
Exhibit 13
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
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.
FINANCIAL HIGHLIGHTS
DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE INFORMATION
<TABLE>
<CAPTION>
For years ended March 31 1999 1998 1997*
- ------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Sales $1,102,829 $1,492,797 $1,354,270
Net income 8,415 26,925 16,937
Earnings per share
Basic - net $ 0.66 $ 2.18 $ 1.72
Diluted - net $ 0.66 $ 2.05 $ 1.64
Net income as a percentage of sales 0.8% 1.8% 1.3%
*Earnings and shares outstanding have been adjusted for the effect of subsequent stock
dividends.
At year-end
- -------------------------------------
Working capital $ 198,783 $ 219,099 $ 120,105
Working capital ratio 1.44:1.00 1.50:1.00 1.27:1.00
Market price per share 4 3/4 15 15/16 17 7/8
- ------------------------------------- ---------- ---------- ----------
</TABLE>
CONTENTS
<TABLE>
<S> <C>
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
Independent Auditors' Report ....................... 16
Company Report on Financial Statements ............. 16
Consolidated Financial Statements .................. 17
</TABLE>
<TABLE>
<S> <C>
Notes to Consolidated Financial Statements ......... 22
Selected Financial Data ............................ 37
Quarterly Financial Data ........................... 37
Corporate Directors and Officers, and
Division Management and Principal
Trading Companies ............................... 38
Investor Information ............................... IBC
</TABLE>
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1
<PAGE>
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
DEAR FELLOW INVESTOR:
In terms of creating shareholder value, 1999 has once again proved to be a
disappointing year for both the Company and you, our shareholders. In 1998 the
value of your investment fell by 10.9% despite a record 58.9% increase in
profits. This year the value of the stock has dropped by a further 70.2%
percent. All this at a time when we have maintained the strongest balance sheet
in the corporation's history. The book value of the stock at 31st March, 1999
was $11.69 compared with a market price of $4.75 on the same date.
Why then do we have such a depressed price for our stock when the company
has remained profitable and made such solid progress? I am afraid there is no
easy answer to this question.
Firstly, the entire tobacco industry has been under attack from every
direction and is only slowly emerging from the onslaught. We are not in the
direct firing line but we are affected if our customers change their purchasing
intentions as a result. Although recent court victories have helped, the stock
market remains nervous about the eventual outcome for the industry and as long
as this uncertainty remains, tobacco stocks will remain depressed relative to
the market indices. This is especially true when compared to the soaring
multiples associated with high-technology and large cap stocks. Often our stock
price is more influenced by these factors, than by our own performance.
Secondly, the normal buying patterns of our traditional tobacco customers
have been disrupted this past year, which adversely affected our original
profit expectations. The concurrence of the Asian and East European economic
crises and the sudden drop in disposable incomes, almost overnight impacted
consumer demand in those regions. This caused our customers to work through
their stocks of finished goods and to begin adjusting to the demand for lower
priced products, requiring different styles of tobacco. This fundamental change
in buying patterns takes time to work its way through the system, and only now
are we beginning to see some return to a more normal cycle of leaf purchases -
but only just. At last we are seeing some early signs of recovery in certain
Asian Markets. In Eastern Europe, consumption is picking up again, primarily in
the low price brands which require lower cost tobacco of different styles. This
uncertainty has understandably kept our customers extremely cautious buyers for
the time being.
Thirdly, there is a reduction in the level of U.S. business, and our
competitors in the leaf industry have announced the closing or down sizing of
processing plants. Our policy is to review our processing capacity and
personnel needs on an on-going basis and we had already foreseen that our
facility in Oxford, North Carolina would no longer be needed. Consequently we
closed it during the first half of this past year in a prudent and low key
manner. This should have the effect of making our Wilson plant even more
efficient, by transferring those volumes there. The reduction in demand in the
U.S. is a direct result of the large price increases taken to absorb the
tremendous cost of the tobacco settlement in an attempt to preserve the
industry against the onslaught of legal challenges. How much of an impact it
will have and how long it will last is hard to say at this time. It is safe to
say, however, that many of our global customers depend upon the styles of
tobacco produced in the U.S. to manufacture their brands, and we remain well
positioned to supply them the styles they seek. The majority of the tobacco we
buy and process in the U.S. is destined for offshore use and that requirement
is being affected more by economic circumstances than by politics or legal
initiatives, and these should ease as the various economies recover over time.
Looking forward, we believe in our stated strategies and our recently
announced moves to diversify our sources of supply in a strategic and
cost-effective manner. In last year's letter to you I
- -
2
<PAGE>
- -------------------------------------------------------------------------
described some recent initiatives your company had taken in both our divisions,
most notably India, China, Spain and Tanzania for tobacco and Western Australia
and New Zealand for wool. In tobacco, we deliberately targeted those regions
mentioned, anticipating the need for competitively priced tobacco. I am happy
to report that so far, even with the world wide demand situation as it is,
these plants are up, running and contributing. Although the negative factors
affecting the market are still around, I believe we can be cautiously
optimistic because there are definite signs of improvement. As far as wool is
concerned there are also signs of improvement in the market place. The Western
Australian plant will come on line this fall and the New Zealand joint venture,
despite the depressed trading conditions, has completed its first successful
year of operation. We should begin to see the impact of these moves as wool
trading conditions improve.
Fiscal 1999 was a watershed year that put the changes we have made to the
test. We were able to demonstrate that, despite the difficult market conditions
described, these changes ensured that we remained profitable and that our
strategies are the right ones to position us for the future. The Standard team
has worked effectively and diligently together to protect these achievements,
and it is to those dedicated people working for our company around the world
that I would like to add my personal thanks for the results achieved and for
their dedication. I should also like to thank you, the shareholders, for being
patient. Better times are around the corner.
B. Clyde Preslar joined our board in June 1999. Clyde is the Chief
Financial Officer of Lance Inc. in Charlotte, N.C. He brings to the board a
wealth of experience in finance and investor relations and we welcome him to
our team.
On a personal note, I am sad to report that Henry R. Grunzke who has been
a member of our board since 1987, has passed away suddenly and unexpectedly.
Henry was the Chairman of the International Wool Textile Organization and has
guided that body through crucial and turbulent times. Henry retired from IWTO
and from our Board this June and we extend our sincere condolences to his
family. We shall miss his wise guidance, counsel and knowledge of the wool
industry.
Finally, I would like to pay a special tribute to Ery Kehaya who passed
away in November. Ery was the son of the founder of Standard and was most
recently its Chairman Emeritus. His boundless energy, drive and vision were
responsible for Standard becoming one of the premier leaf tobacco and wool
trading companies in the world. He shall be deeply missed by all who knew him.
Sincerely,
/s/ R E Harrison
R E Harrison
President and Chief Executive Officer
-
3
<PAGE>
TOBACCO BUSINESS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
GENERAL
Fiscal Year 1999 has been a challenging one for the Tobacco Division.
Although our primary goal was to continue our focus on long term growth, many
uncertainties within the tobacco industry in general required us to split our
efforts and concentrate on monitoring the fundamentals -- cash, receivables,
inventories, debt -- in order to adapt to this changing environment.
First, the problems in Asia and Eastern Europe slowed demand for tobacco
products. Second, the Tobacco Settlement with the U.S. State Attorneys General
has disrupted the manufacturers' normal buying patterns. Thirdly, there was an
oversupply of tobacco from various origins resulting from large crops and the
drop in demand. Lastly, there is, this year, a difference in the demand for
tobacco within different price categories. Low value tobaccos are in high
demand as the markets in the Far East and Russia down trade. While the middle
price sector is moving, the top qualities or high value tobaccos have seen a
slowing of demand.
Through stringent cash and inventory management programs, combined with
a focus on customer service, the Division was able to remain profitable and
maintain uncommitted inventory levels within our target range.
FINANCIAL HIGHLIGHTS
o Divisional net income remained profitable at $13.6 million
o Sales decreased by 23.3% reflecting lower worldwide average prices
o Volumes remained stable
o Tobacco Division continued to invest in long-term growth initiatives.
o Free cash flow was $4.9 million, net of capital expenditures and long
term investments
o Uncommitted inventory continues to be within our target range
LONG TERM GROWTH -- EXPANDING TOBACCO PROCESSING CAPABILITIES
Many of the projects initially embarked upon in fiscal 1998 were
completed and have further strengthened Standard's overall processing
capabilities. Construction of a new processing plant in China was completed in
December 1998. This world class facility is capable of processing tobacco for
both domestic and export requirements. Although trading conditions are
difficult, there is a continued strong customer demand for Chinese tobaccos
packed to international specifications.
Also in December 1998, the new leaf tobacco processing factory opened in
India. India has always been an important source of tobacco and this facility
will enable Standard to increase exports and provide better service to
international customers with a reliable supply of Indian tobaccos.
Meridional, our new Brazilian operation, has upgraded the factory to
meet international specifications, and as a result, expanded its traditional
customer base to include all major worldwide manufacturers.
FY 2000 INITIATIVES
In the year ahead, Standard has planned the following initiatives:
o RUSSIAN CRES (CUT ROLLED EXPANDED STEMS) FACTORY
o First leaf dealer to invest in a factory in Russia
o Supplier of a value added service to both our international and
domestic customers
o KYRGYSTAN JOINT VENTURE
o Supply tobacco to CIS customers who use this tobacco in
Russian-type cigarettes
o Strengthen Standard's relationship with a strong local dealer in
Turkey
- --
4
<PAGE>
- -------------------------------------------------------------------------
ISO 9002
Standard has accepted the internationally accredited quality system
known as ISO 9002. This includes written job descriptions and procedures
defining in detail every activity in the company relevant to quality.
Certification under ISO 9002 also requires routine audits from an
outside organization that ensures adherence to these procedures going forward.
We believe that ISO 9002 certification will help us operate more efficiently.
We expect our U.S. and Spanish operations to be certified in the fall of 1999
and plan to roll this out to all of our principle operations in the future.
SUMMARY
The changing tobacco business environment will require that management
remain focussed on monitoring both our overall purchasing programs and our
uncommitted inventory levels while at the same time making the strategic
investments to continue to position the Company for long term growth.
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 1999 Tobacco Purchases and Sales in Dollars
Purchases by Origin Sales by Destination
Far East 14% Far East 16%
North America 27% North America 25%
Europe 19% Europe 49%
Central & South America 20% South America 4%
Africa 20% Africa & Other 6%
-
5
<PAGE>
WOOL BUSINESS
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
GENERAL
Fiscal year 1999 has been a challenge for the Wool Division as well.
Difficult trading conditions related to an oversupply and overcapacity
environment have resulted in the poorest industry dynamics in many years. A
major factor is the continued existence of wool stockpiles in Australia. In
these tough conditions, progress is still possible. While earnings have
suffered from lower prices, the application of the Company philosophy has kept
the focus on the important issues and we will be well positioned as conditions
return to a more normal pattern.
FINANCIAL HIGHLIGHTS
o The Division incurred a loss of $5.1 million, compared to $5.1 million
net income in the prior year.
o Operating profitability was adversely affected by the overcapacity in
wool processing, resulting from a global decline in demand for wool.
The severe reduction in wool market prices as a result of the
ongoing Asian crisis also contributed to heavily reduced margins.
o Tight controls kept inventory levels below the prior year level.
o New supply contracts for specialty fibers were obtained in the U.S.
market.
LONG TERM GROWTH
o As reported last year, Standard has acquired a 24.9% shareholding in a
newly formed Australian wool washing operation. Start up of the
operation is scheduled to occur during the July-August period of the
present year, with the official opening being planned for early
October 1999. State of the art effluent treatment equipment has been
installed, with financial assistance from the Western Australian
government.
o Early in the past fiscal year, a joint venture agreement was concluded
in New Zealand which enabled Standard to close down its wool washing
operation in Christchurch, thereby reducing current investment and
improving liquidity.
Notwithstanding difficult market conditions the throughput in the
new venture has been on target.
These strategic alliances have contributed to the strengthening of
Standard's market position.
OPERATIONS
o As part of its Strategic Plan, the Wool Division undertook to obtain
ISO-9002 accreditation for all its wool operations worldwide.
o The UK, French and Australian subsidiaries completed the process
successfully during the current fiscal year adding to the units
already accredited in past years. The Division is confident of
completing the accreditation in all remaining units by 2001.
o The Wool Division will continue to focus on its major strategic goals:
o Improve Asset and Risk Management.
o Improve Financial Controls
o Effective Communication Systems.
o Customer satisfaction
o Achieve adequate return from its business activities
SUMMARY
Although the present market conditions are being influenced by the time
consuming efforts of the Australian authorities to resolve the stockpile issue
and the economic conditions in the Far East, we have seen a modest improvement
in market demand. Further, the wool industry is not standing still. It
continues to research blending opportunities and new applications for wool
fibers.
The Wool Division is actively participating in industry work groups, and
is focused on developing, analyzing and participating in new
- --
6
<PAGE>
- -------------------------------------------------------------------------
market opportunities. These innovative actions, balanced by increased risk
management, position the Wool Division to benefit as trading conditions
recover.
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 1999 Wool Purchases and Sales
Purchases by Origin Sales by Destination
Far East & Others 5% Far East 21%
Europe 4% Europe 70%
Australia 62% Africa & Others 3%
New Zealand 9% US 6%
South Africa 10%
South America 10%
-
7
<PAGE>
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 in other comprehensive income. 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.
GLOBAL MARKET CONDITIONS
A variety of external factors affected both the tobacco and wool markets
worldwide during the fiscal year ended March 31, 1999. The combination of
economic difficulties in Asia and Eastern Europe, uncertainty generated by
tobacco settlements in the U.S. and cigarette industry consolidations in the
latter half of the fiscal year have disrupted our customer's traditional buying
patterns. These disruptions have contributed to oversupply situations and
subsequently lowered prices for both tobacco and wool.
TOBACCO MARKET CONDITIONS. Economic difficulties in Asia and Eastern
Europe have resulted in loss of consumer purchasing power as currencies
weakened significantly against the US dollar. This leads to lower consumption
of premium brand styles of tobacco and provides for a shift to lower cost
products. The major international suppliers of cigarettes in these areas have
experienced volume declines in most major markets. In turn, they have taken a
conservative approach to inventory management issues and focused more on the
low-cost filler style tobaccos which results in lower prices for purchases of
leaf tobacco.
In the U.S. market, the late November 1998 settlement between the
cigarette manufacturers and the states for health care claims has resulted in
major price increases which affect demand. This issue is impacting U.S.
domestic purchase programs as well. Until the effects of the
- --
8
<PAGE>
- --------------------------------------------------------------------------------
settlement are known, the uncertainty is prompting a conservative approach to
inventory management in this market as well.
In the latter part of the year, several of the largest international
cigarette manufacturers announced mergers that have further added to uncertain
purchasing conditions as the effects of combining different companies will have
to be analyzed.
WOOL MARKET CONDITIONS. The ability of natural wool fibers to compete on
price and quality with synthetics has diminished over the past few years.
Falling prices on synthetic fibers, the potential for substitution at both the
processing and retail levels, and the buildup of raw stocks in Australia have
contributed to an oversupply of natural wool. As a result, prices for wool fell
substantially during the year. Demand for Australian wool (the world's largest
growing origin) by the major markets in Asia fell for the second consecutive
year. The economic problems in Asia caused further downward pressures on prices
and disrupted the European markets for processed wool products as low-cost
goods from Asia filled the traditional supply channels to the fashion industry
in Europe.
BUSINESS ACQUISITIONS AND DISPOSITIONS
During the fiscal year ended March 31, 1999, the Company made several
acquisitions and two minor dispositions. In our Spanish subsidiary, the Company
acquired the 33.3% minority interest, which now gives the Company 100%
ownership of the subsidiary. In Malawi, where the Company previously operated
two minority-owned affiliates, we exchanged the minority shareholdings in one
affiliated company for 100% of the other company. The Company is building a new
CRES (cut-rolled-expanded stem) processing facility in St. Petersburg Russia.
This facilty is expected to start production in July 1999.
Additionally, scheduled payments for the acquisition of our Brazilian
operations have resulted in full consolidation of these operations for the
first time.
The Company closed its building supplies business in Wilson, North
Carolina in the early part of the fiscal year. This has no material effect on
the consolidated financial statements of the Company. Additionally, the wool
scouring operation in New Zealand was closed as the Company entered into a
joint venture to take advantage of cost efficiencies.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED MARCH 31, 1999 TO THE YEAR ENDED MARCH 31, 1998
SALES. Sales for the twelve months ended March 31, 1999 were $1,103
million, a decrease of 26.1% from a year earlier. Sales of $882 million for the
tobacco division were down 23.3% from the corresponding period in 1998, largely
due to lower prices and reduced volumes in North and South America. Overall,
tobacco volume was down 3.5% and average selling prices were down 20.6% for the
year as a result of industry conditions and a change in mix as customers
focused more on low-cost-filler style tobaccos. Volumes were up from the prior
year in Africa, Asia and Europe. Volumes in the U.S. were down 28.4% and
average selling prices were down a similar amount mostly as a reflection of
disruptions related to the customers actions in response to the tobacco
settlements with the States.
Nontobacco sales for the twelve months ended March 31, 1999 of $221
million were down 35.6% primarily as the result of a 20.3% decrease in the
volume of wool sold and lower average prices in all markets. The volume decline
was mostly attributed to the effects of the currency crisis in Asia and the
general oversupply of wool worldwide. Additionally, the prior year included $8
million of sales from the home building supplies business that was closed at
the start of the current fiscal year.
GROSS PROFIT AND COST OF SALES. Gross profit for the twelve-month period
of $92 million was down 24.5% from the 1998 twelve-month period due primarily
to the decrease in sales and increased interest expenses resulting from higher
--
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
inventory levels. Additionally, inventory write-offs for start-up business in
Tanzania contributed to the lower gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were 3.8%
lower primarily due to reduced expenses from closing down the Oxford NC tobacco
facility and the home supply business in the early part of the fiscal year as
well as tighter control of other costs and expenses and favorable foreign
exchange.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE), NET. Interest expense was
lower reflecting the impact of the use of long-term borrowings for crop
purchases in the U.S. Other income (expense), net was higher due to gains on
sale of the Oxford NC property, increased rental income from machinery in
Oxford, gains on proceeds of a life insurance policy on the Company's Chairman
Emiritus Ery W. Kehaya, and gains on sales of property in Greece.
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 higher than a year earlier
due mainly to losses in the nontobacco segment in areas where tax relief is not
available. The prior year included a one-time tax benefit recorded in our
French wool subsidiary as a result of a change in legislation.
Earnings attributed to minority interests were lower than a year ago
because of difficult trading conditions in Greece. Equity in earnings of
affiliates was up from 1998 due to seasonal business factors in the Far East.
NET INCOME. Net income was $8.4 million, or $0.66 diluted per share on
15.2 million average shares outstanding, versus $26.9 million, or $2.05 diluted
per share on 14.7 million shares outstanding for the twelve months ended March
31, 1998. The tobacco division earnings were $13.6 million while the loss for
the nontobacco division was $5.2 million.
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 currency 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 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
- --
10
<PAGE>
- --------------------------------------------------------------------------------
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 effluent discharge requirements of the government.
INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF AFFILIATES.
Although 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 recorded in our French
wool subsidiary as a result of a change in legislation.
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 diluted per share on
14.7 million average shares outstanding, versus $16.9 million, or $1.64 diluted
per share on 11.8 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.
LIQUIDITY AND CAPITAL EXPENDITURES
Working capital at March 31, 1999 was $198.8 million, down from $219.1
million at March 31, 1998. Additionally, increased contributions from operating
activities were 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 $27.1 million, and $19.7 million for the
fiscal years ended March 31, 1999, and 1998, respectively. The Company expects
capital expenditures to total approximately $17.6 million for the fiscal year
ending March 31, 2000. Capital expenditures for 1999 related mostly to routine
expenditures in the tobacco and wool divisions, including the expansion of
tobacco warehouse facilities in the US, Tanzania, Greece and Turkey, the
investment in a new CRES (cut-rolled expanded stem) facilty in St. Petersburg
Russia, and new machinery for the French topmaking facility.
For 1999, cash provided by operating activities totaled $46.6 million,
primarily due to reduced receivables, which was partly offset by an increase of
inventory related to business expansions. Cash employed in investing activities
of $25.2 million for 1999 included capital expenditures of $27.1 million mostly
for tobacco activities of $24.7 million, including $2.2 million in Greece, $6.3
million in the United States, $ 6.6 million in Russia, $3.7 million in Tanzania
and $2.4 million for the nontobacco segment net of total asset dispositions of
$7.7 million. Payments for acquisitions of $10.8 million relate to investments
in new projects in Malawi, Brazil, Spain 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
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 Parent 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 Parent's subsidiaries not
otherwise pledged to secure other obligations.
On May 19, 1999 the Company's major tobacco subsidiaries successfully
completed negotiations to amend their global revolving bank credit facility.
The amount of the facility was increased from $200.0 million to $233.0 million.
The maturity date was extended from July 31, 2000 to July 31, 2002. Financial
covenants and other terms and conditions are
--
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
essentially unchanged. Borrowings under the facility continue to be guaranteed
by the Company and are secured by substantially all of the assets of the
borrowing subsidiaries.
Additionally, local lines are available for the remainder of the tobacco
division of approximately $310.0 million in addition to separate facilities for
the non-tobacco division of $98.9 million.
The Company incurs short-term debt to finance its seasonally adjusted
working capital needs, which typically peak in the third quarter. At March 31,
1999, under agreements with various banks, total short-term credit facilities
were $608.9 million, compared to $607.7 million at March 31, 1998 with $67.0
million versus $60.5 million in 1998 being utilized for letters of credit and
guarantees and $261.4 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 Parent's Common Stock
at a conversion prices (as adjusted for subsequent stock dividends) of $29.38.
The Debentures are subordinated in right of payment to all senior indebtedness,
as defined, of the Parent. As of March 31, 1995, the Debentures became
redeemable in whole or in part at the option of the Parent at any time.
Beginning March 31, 2003, the Parent will be obligated to make annual sinking
fund payments sufficient to retire at least 5% of the principal amount of
issued Debentures reduced by earlier conversions, redemptions, and repurchases.
Holders of the Debentures have the right to demand redemption under certain
conditions, including a change in control of the Parent, certain mergers and
consolidations and certain distributions with respect to the Parent's capital
stock. The Parent may elect to redeem Debentures under these circumstances in
Common Stock in lieu of cash.
As a result of an equity offering in May 1997, which appreciably
broadened the Parent's shareholder base, the Board of Directors voted to
discontinue issuing quarterly stock dividends. The payment of cash dividends
was resumed in August 1998. Certain debt agreements to which the Parent and its
subsidiaries are parties contain financial covenants which could restrict the
payment of cash dividends. Under its most restrictive covenant, the Parent had
approximately $14.9 million of retained earnings available for distribution as
dividends at March 31, 1999.
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.
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily related to foreign
exchange and interest rates. These exposures are actively monitored by
management. To manage the volatility relating to these exposures, the Company
enters into a certain derivative financial instruments. The objective is to
reduce, where it is deemed appropriate, fluctuations in earnings and cash flows
associated with changes
- --
12
<PAGE>
- --------------------------------------------------------------------------------
in interest rates and foreign currency rates. It is the Company's policy and
practice to use derivative financial instruments only to the extent necessary
to manage
Since the Company uses currency rate-sensitive instruments to hedge only
existing transactions, any loss in value for those instruments generally would
be offset by increases in the value of those hedged transactions. The Company
does not hold or issue derivative financial instruments for trading or
speculation purposes.
Foreign exchange rates: The Company is exposed to foreign exchange
movements in Europe, Africa, Asia and South America. Consequently, it enters
into various contracts, primarily for the Wool division, which change in value
as foreign exchange rates change to preserve the value of commitments and
anticipated transactions. The Company uses foreign currency contracts to hedge
revenue streams and raw material purchases. As of March 31, 1999, the Company
had short-term forward exchange contracts with US dollar equivalents of $40.0
million.
Interest rates: The Company manages its exposure to interest rate risk
through the proportion of fixed rate and variable rate debt in its total debt
portfolio. Substantially all long-term borrowings are denominated in the U.S.
dollar and carry fixed interest rates.
Use of the above-mentioned derivative financial instruments has not had
a material impact on the Company's financial position at March 31, 1999 and
1998 or the Company's results of operations or cash flows for the years ended
March 31, 1999, 1998 and 1997.
TAX AND REPATRIATION MATTERS
The Parent and its subsidiaries are subject to income tax laws in each
of the countries in which they do business through wholly owned subsidiaries
and through affiliates. The Company makes a comprehensive review of the income
tax requirements of each of its operations, files appropriate returns and makes
appropriate income tax provisions. These are determined on an individual
subsidiary level and at the corporate level on both an interim and annual
basis. The Parent provides valuation allowances on deferred tax assets for its
subsidiaries that have a history of losses. Management cannot assert that there
will likely be sufficient profits generated by these subsidiaries in the near
future to offset these losses. The change during fiscal 1999 was due to the
utilization of tax loss carryforwards for which no benefit had been recognized
in prior years. The loss carryforwards which give rise to the valuation
allowances will expire in 2001 and thereafter. These processes are followed
using an appropriate combination of internal staff at both the subsidiary and
corporate levels as well as independent outside advisors in review of the
various tax laws and in compliance reporting for the various operations.
The undistributed earnings of certain foreign subsidiaries are not
subject to additional foreign income taxes nor considered to be subject to U.S.
income taxes unless remitted as dividends. The Company intends to reinvest such
undistributed earnings indefinitely; accordingly, no provision has been made
for U.S. taxes on those earnings. The Parent regularly reviews the status of
the accumulated earnings of each of its U.S. and foreign subsidiaries as part
of its overall financing plans.
YEAR 2000 MATTERS
The approach of the year 2000 (Y2K) has heightened the concern over
potential problems with data systems that may or may not be able to process
year dates properly after 1999. Affected systems/devices may fail or
malfunction if not repaired or replaced. The actual effects and magnitude of
this potential problem are difficult to quantify. The Company has given this
issue serious consideration and effort. From 1991 to 1994, the Company began to
move away from mainframe based systems and became early adopters of PC, LAN and
client-server solutions to meet our information needs. New core systems were
developed internally, using tools
--
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
that accommodate dates as proper date types rather than encoded string
variables or limited serial numeric dates. A steering committee was formed in
1997 to build further on these efforts as Y2K concerns have emerged as a public
issue. The committee meets monthly and is charged with developing a plan to
ensure readiness, advising group companies of issues, monitoring progress and
compliance, and allocating resources for solutions. All functional areas of the
Company are represented on the committee. The plan adopted consists of two main
areas of focus.
(1). RESOLUTION OF THE INTERNAL ISSUES ARISING FROM Y2K. This area
includes the effects on the Company's technology, including hardware, software
and equipment containing other embedded systems such as programmable logic
controllers (PLC). The critical systems identified include manufacturing,
inventory and financial systems. The plan includes identification of technology
at each location, evaluating the exposure of such technology to Y2K problems,
testing the technology for problems and selecting the means of resolving any
problems identified.
To date, the Company has made substantial progress on the internal plan.
A comprehensive file for each location has been developed and individual site
follow-up visits by members of the steering committee are scheduled for each
location this fiscal year. Testing and detailed reviews are being conducted by
a dedicated full-time information resources technician at major sites. As
mentioned earlier, the recent move to internally developed core systems has
proven to alleviate the major issues associated with Y2K. In locations where
the Company uses externally provided software, or PLC technology in equipment,
testing is being done and vendor surveys have been performed. Most of these
systems are also relatively recent developed. The one major potential problem
identified was in a European subsidiary manufacturing facility. The Company is
in the process of replacing the systems in that location with our internally
developed software and expects that to be completed this fiscal year.
Although there can be no absolute assurance that the Y2K plan will be
able to identify all potential problem areas, the Company is presently on
schedule and believes that the internal phase of the plan will be completed by
mid 1999. Contingency plans are currently being developed to sustain operations
and continue to provide a high level of customer service.
(2). RESOLUTION OF THE EXTERNAL ISSUES ARISING FROM Y2K. The Company has
communicated with and will continue to communicate with its suppliers,
financial institutions, customers and other business partners to determine the
extent of readiness and compliance with Y2K issues. Responses are being
catalogued and follow-up communications are ongoing as necessary. Certain
significant customers and suppliers are located in foreign countries where the
awareness of Y2K problems and remediation efforts may be behind that of the
United States. Additionally, the Company is subject to operational risks
relating to the readiness of utilities, transportation facilities, financial
service providers and government operated services that could interrupt
business unit operations. There can be no assurance that these business
partners will be fully compliant or that problems they may encounter will have
no adverse effect on company operations.
The company currently estimates that the total costs for addressing Y2K
issues will be $1.4 million, which includes the cost of installing internally
developed manufacturing software in the European subsidiary, any software
upgrades from vendors necessary to be compliant and the costs of consultants
and employees assigned to implement the plan. These amounts do not include
estimated costs to implement any contingency plans that are being developed.
The costs associated with Y2K issues are expensed as incurred and are funded
with cash flow from operations. As of March 31, 1999, the Company has expensed
$1.0 million. The Company does
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14
<PAGE>
- --------------------------------------------------------------------------------
not expect the total costs of addressing these issues to be material to its
consolidated financial position or results of operations.
While there can be no absolute assurance that the Company can identify
and address all potential issues arising from Y2K, it is the opinion of
management that the Company is taking adequate action and will be able to
continue providing quality products and services to our customers.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, eleven of the European Union countries began the
conversion from their national currencies (Euro land currencies) to the "Euro"
by agreeing fixed rates of exchange of their currencies against the "Euro". In
the initial phase, the national currencies will continue to exist until full
conversion in July 2002. The Company's subsidiaries affected by the conversion
have developed procedures and modified financial reporting to accommodate the
new currency. The Company anticipates that the Euro conversion will not have a
material adverse effect on its financial condition or results of operation.
FORWARD-LOOKING STATEMENTS
Statements in this 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.
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15
<PAGE>
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, 1999 and 1998 and the related
consolidated statements of income and comprehensive income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. 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 audits 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 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, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Raleigh, North Carolina
June 10, 1999
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.
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16
<PAGE>
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
<S> <C> <C>
ASSETS
Cash $ 43,767 $ 34,116
Receivables (Note 2) 228,910 254,469
Inventories (Notes 1 and 3) 376,922 361,418
Prepaid expenses 5,353 8,674
Marketable securities (Note 1) 656 656
--------- ---------
Current assets 655,608 659,333
Property, plant and equipment (Notes 1 and 4) 155,389 113,572
Investment in affiliates (Notes 1 and 5) 12,782 12,647
Other assets (Notes 1, 6 and 10) 54,618 53,921
--------- ---------
Total Assets $ 878,397 $ 839,473
--------- ---------
LIABILITIES
Short-term borrowings (Note 7) $ 280,587 $ 267,799
Current portion of long-term debt (Note 9) 12,646 4,987
Accounts payable (Note 8) 149,433 144,585
Taxes accrued (Note 14) 14,159 22,863
--------- ---------
Current liabilities 456,825 440,234
Long-term debt (Note 9) 144,161 128,083
Convertible subordinated debentures (Note 9) 69,000 69,000
Retirement and other benefits (Note 10) 20,224 19,479
Deferred taxes (Notes 1 and 14) 8,875 2,776
Commitments and contingencies (Note 11)
--------- ----------
Total liabilities 699,085 659,572
--------- ---------
MINORITY INTERESTS (Note 1) 28,307 30,271
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $1.65 par value
Authorized shares - 1,000,000; none issued
Common stock, $0.20 par value
Authorized shares 100,000,000; Issued 15,540,078
and 15,424,555 at March 31, 1999 and 1998, respectively 3,108 3,085
Additional paid-in capital 102,680 101,788
Unearned restricted stock plan compensation (2,177) (1,996)
Treasury stock at cost, 2,617,707 shares
At March 31, 1999 and 1998 (4,250) (4,250)
Accumulated other comprehensive income (37,786) (31,940)
Retained earnings 89,430 82,943
Total shareholders' equity 151,005 149,630
--------- ---------
Total Liabilities and Shareholders' Equity $ 878,397 $ 839,473
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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17
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
<S> <C> <C> <C>
Sales $1,102,829 $ 1,492,797 $ 1,354,270
Cost of Sales:
- Materials, services and supplies (Note 3) 984,016 1,347,835 1,217,380
- Interest 26,368 22,576 32,197
---------- ----------- -----------
Gross profit 92,445 122,386 104,693
Selling, general and administrative expenses 76,437 79,464 72,782
Other interest expense 13,631 15,233 9,920
Other income - net (Note 13) 12,763 9,372 10,254
---------- ----------- -----------
Income before income taxes 15,140 37,061 32,245
Income taxes (Notes 1 and 14) 7,345 8,769 12,782
---------- ----------- -----------
Income after income taxes 7,795 28,292 19,463
Minority interests (Note 1) (464) (2,020) (3,938)
Equity in earnings of affiliates (Note 5) 1,084 653 1,412
---------- ----------- -----------
NET INCOME 8,415 26,925 16,937
Other comprehensive income:
Translation adjustment (6,306) (15,184) (7,312)
Less reclassifications for translation
adjustment recognized in net income 460
---------- ----------- -----------
Total other comprehensive income (5,846) (15,184) (7,312)
---------- ----------- -----------
Comprehensive income $ 2,569 $ 11,741 $ 9,625
---------- ----------- -----------
Earnings per common share (Note 1):
Basic - net $ 0.66 $ 2.18 $ 1.72
- average shares outstanding 12,842 12,377 9,640
Diluted - net $ 0.66 $ 2.05 $ 1.64
- average shares outstanding 15,191 14,726 12,118
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- -
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
<S> <C> <C> <C>
(IN THOUSANDS) 1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,415 $ 26,925 $ 16,937
Depreciation and amortization 23,308 20,485 20,866
Minority interests 464 2,020 3,938
Deferred income taxes 110 (8,141) (484)
Undistributed earnings (losses) of affiliates
net of dividends received (919) (519) (1,268)
Gain on disposition of property, plant and equipment (4,902) (6,025) (2,252)
Other 282 (3,024) 2,483
--------- ---------- ---------
26,758 31,721 40,220
Net changes in working capital other than cash:
Receivables 30,117 (18,451) (22,807)
Inventories (12,052) (119,369) (5,475)
Current payables 1,785 28,215 22,721
--------- ---------- ---------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 46,608 (77,884) 34,659
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment - additions (27,070) (19,732) (12,816)
- dispositions 12,615 10,008 5,072
Business (acquisitions) dispositions (10,738) (7,928) 3,304
--------- ---------- ---------
CASH USED FOR INVESTING ACTIVITIES (25,193) (17,652) (4,440)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,643 113,053 10,405
Repayment of long-term borrowings (5,373) (17,186) (21,131)
Net change in short-term borrowings (6,322) (51,569) (54,257)
Net proceeds of equity offering - 47,043 -
Dividends paid, net of tax (1,928) (347)
Purchase and retirement of ESOP Preferred Stock (2,460)
Other 216 (2,806)
--------- ---------- ---------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (11,764) 88,535 (67,790)
--------- ---------- ---------
Increase (decrease) in cash for period 9,651 (7,001) (37,571)
Cash, beginning of period 34,116 41,117 78,688
--------- ---------- ---------
Cash, end of period $ 43,767 $ 34,116 $ 41,117
--------- ---------- ---------
Cash payments for - interest $ 40,243 $ 36,160 $ 42,790
Income taxes $ 12,441 $ 13,331 $ 9,057
</TABLE>
During fiscal 1999 a trust established by the company assumed 100%
ownership of Meridional de Tabacos Ltda. and the remaining 50% of the
previously owned affiliate Tobacco Processors Lilongwe Limited. The assets and
liabilities assumed totaled $81.4 million and $64.2 million respectively. These
acquisitions were settled by cash payments and long-term debts.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-
19
<PAGE>
[GRAPHIC OMITTED]
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1999, 1998 and 1997
------------------------------------------------------------
NUMBER OF SHARES
OF COMMON STOCK COMMON ADDITIONAL
---------------------------- STOCK PAID-IN
ISSUED TREASURY PAR VALUE CAPITAL
-------------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
April 1, 1996 11,624,275 2,490,661 $2,325 $ 43,660
Net income
Other comprehensive income
Stock dividends 471,693 101,129 94 6,226
Dividends reinvested 662 10
RSP compensation earned
RSP shares forfeited (557) (10)
401(k) contribution 16,122 3 196
ESOP preferred stock dividends
net of tax
ESOP conversion 14,075 - 3 242
---------- --------- ------- ---------
March 31, 1997 12,126,270 2,591,790 2,425 50,324
Net income
Other comprehensive income
Stock dividends 149,098 25,917 30 2,487
Dividends reinvested 375 9
RSP shares awarded 113,670 23 1,966
RSP compensation earned
RSP shares forfeited (1,557) (31)
401(k) contribution 14,199 3 233
New issue, May 1997 3,022,500 - 604 46,800
---------- --------- ------- ---------
March 31, 1998 15,424,555 2,617,707 3,085 101,788
Net income
Other comprehensive income
Cash dividends, $0.15 per
share
Dividends reinvested 5,664 1 35
RSP shares awarded 87,435 18 682
RSP compensation earned
RSP shares forfeited (3,087) (1) (61)
401(k) contribution 25,511 - 5 236
---------- --------- -------- ---------
March 31, 1999 15,540,078 2,617,707 $3,108 $ 102,680
---------- --------- -------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -
20
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------
ACCUMULATED
OTHER
UNEARNED COMPREHENSIVE
RESTRICTED TREASURY INCOME TOTAL
STOCK PLAN STOCK (TRANSLATION RETAINED SHAREHOLDERS'
COMPENSATION AT COST ADJUSTMENT) EARNINGS EQUITY
- -------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
(In thousands, except per share data)
$ (435) $ (2,384) $ (9,444) $ 46,450 $ 80,172
16,937 16,937
(7,312) (7,312)
(1,415) (4,951) (46)
10
114 114
(10)
199
(347) (347)
- - - - 245
----- -------- ---------- -------- ---------
(321) (3,799) (16,756) 58,089 89,962
26,925 26,925
(15,184) (15,184)
(451) (2,071) (5)
9
(1,989) 0
314 314
(31)
236
- - - - 47,404
----- -------- ---------- -------- ----------
(1,996) (4,250) (31,940) 82,943 149,630
8,415 8,415
(5,846) 0 (5,846)
(1,928) (1,928)
36
(700) 0
519 519
(62)
- - - - 241
----- -------- ---------- -------- ----------
$ (2,177) $ (4,250) $ (37,786) $ 89,430 $151,005
----- -------- ---------- -------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
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. The Company purchases tobacco and wool primarily
in the United States, Africa, Australia, South America and Asia for sale to
customers in the United States, Europe and Asia.
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 as other comprehensive income. 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. Net
amounts included in the income statement relating to foreign currency losses
(in thousands) were $697, $892 and $920 in 1999, 1998 and 1997, respectively.
c) MARKETABLE SECURITIES: Marketable securities are classified as
available for sale and consist of liquid equity securities. The specific
identification method is used to determine gains and losses when securities are
sold.
d) INTANGIBLE ASSETS: The Company's policy is to amortize goodwill on a
straight-line basis over its estimated useful life not to exceed 40 years. The
Company assesses recoverability of goodwill based on management's projections
of future cash flows of acquired businesses.
e) PROPERTY, PLANT AND EQUIPMENT: The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations over
the estimated useful lives, primarily 3-30 years, of the assets on a
straight-line basis.
f) INVENTORIES: Inventories, which are primarily packed leaf tobacco and
wool, are stated at the lower of specific cost or estimated net realizable
value. Cost of tobacco includes a proportion of interest, buying commission
charges and factory overheads which can be related directly to specific items
of inventory. Cost of wool includes all direct costs except interest. Items are
removed from inventory on an actual cost basis.
g) REVENUE RECOGNITION: Sales and revenue are recognized on the passage of
title.
h) INCOME TAXES: The Company provides deferred income taxes on differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss
carryforwards.
i) MINORITY INTERESTS: Minority interests represent the interest of third
parties in the net assets of certain subsidiary companies.
j) COMPUTATION OF EARNINGS PER COMMON SHARE: Diluted earnings per share
for 1998 and 1997 include the effect of the convertible subordinated debentures
which if converted would have increased net income applicable to common stock
by $3,300,000 in both 1998 and 1997. The average shares outstanding would have
increased by 2,348,536 shares and 2,478,348 shares for the years 1998 and 1997,
respectively, assuming conversion of the above debentures and ESOP convertible
preferred stock that was redeemed in the fourth quarter of 1997 upon
termination of the ESOP plan. The convertible subordinated debentures were not
dilutive in 1999. Options to purchase 97,664 and 100,000 shares of common stock
at a weighted average exercise price of $8.88 and $17.00 per share were
outstanding during 1999 and 1998, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares. The options
were still outstanding at the end of year.
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) DERIVATIVE FINANCIAL INSTRUMENTS: The Company routinely enters into
forward foreign currency contracts to manage its exposure against foreign
currency fluctuations on purchases and sales. These contracts are generally for
short durations of six months or less. The Company does not enter into
contracts for trading purposes, and none of these contracts contain multiplier
or leverage features. The Company enters into such contracts only with
financial institutions of good standing and the total credit exposure related
to non-performance by those institutions is not material to the operations of
the Company. Realized and unrealized gains and losses on the Company's foreign
currency contracts that are designated and effective as hedges are deferred and
recognized as a component of the underlying transaction when it occurs.
Realized gains or losses from matured and terminated hedge contracts are
recorded in other assets or liabilities until the underlying hedge transaction
is consummated. Realized and unrealized gains or losses on hedge contracts
relating to transactions that are not subsequently expected to occur are
recognized in results currently. At March 31, 1999 the Company had foreign
exchange contracts outstanding with a notional value of $40.5 million and a
fair value of $42.7 million.
m) USE OF ESTIMATES AND ASSUMPTIONS: The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
n) ACCOUNTING PRONOUNCEMENTS: During 1999, the Company implemented
Statements of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE
INCOME ("SFAS 130"), No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION ("SFAS 131") and No. 132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
- --
22
<PAGE>
- --------------------------------------------------------------------------------
("SFAS 132"). SFAS 130 required companies to (a) classify items of other
comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income as a separate
component of shareholders' equity in the balance sheet. SFAS 131 established
standards for the way that companies report information about operating
segments in annual financial statements and requires that those companies
report selected information about operating segments in interim financial
reports issued to shareholders. It also established standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS 132 standardized the disclosure requirements for pension and other
postretirement benefits and did not address measurement or recognition. The
Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES ("SFAS 133"). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those investments at fair value. This statement is effective for fiscal years
beginning after June 15, 2000. The Company has not analyzed the provisions of
this statement or its effects on the Company.
o) RECLASSIFICATION: Certain amounts in prior year statements have been
reclassified for conformity with current year presentation, with no effect on
reported results of operations or equity.
2. RECEIVABLES
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- ---------------------------------- ----------- -----------
<S> <C> <C>
Trade accounts $156,897 $160,734
Advances to suppliers 37,104 41,865
Affiliated companies 7,389 20,662
Other 32,523 35,743
-------- --------
233,913 259,004
Allowances for doubtful accounts (5,003) (4,535)
-------- --------
$228,910 $254,469
-------- --------
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- -------------- ----------- -----------
<S> <C> <C>
Tobacco $315,506 $284,822
Nontobacco 61,416 76,596
-------- --------
$376,922 $361,418
-------- --------
</TABLE>
Tobacco inventories at March 31, 1999 and 1998 included capitalized
interest of $7.4 million and $5.0 million, respectively. Included in inventory
at March 31, 1999 and 1998 were valuation reserves of $10.7 million and $5.0
million, respectively. Inventory valuation provisions included in cost of sales
totaled approximately $7.0 million, $2.7 million and $0.9 million in 1999, 1998
and 1997, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- -------------------------- ------------- -------------
<S> <C> <C>
Land $ 12,130 $ 11,954
Buildings 98,805 74,085
Machinery and equipment 170,324 134,264
Furniture and fixtures 17,130 13,357
Construction in progress 9,334 4,399
-------- --------
307,723 238,059
Accumulated depreciation (152,334) (124,487)
-------- --------
$155,389 $113,572
-------- --------
</TABLE>
Depreciation expense was $20.2 million, $17.8 million and $18.1 million in
1999, 1998 and 1997, respectively.
5. AFFILIATED COMPANIES
a) Net investment in affiliated companies are represented by the
following:
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- --------------------------------- ----------- -----------
<S> <C> <C>
Net current assets $ 8,566 $ 3,318
Property, plant and equipment 36,804 42,627
Other long-term liabilities (5,813) (4,386)
Interests of other shareholders (26,775) (28,780)
------- -------
Company's interest 12,782 12,779
Provision for withholding taxes (132)
------- -------
Net investments $12,782 $12,647
------- -------
</TABLE>
b) The results of operations of affiliated companies were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
IN THOUSANDS 1999 1998 1997
- --------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Sales $86,347 $108,664 $119,022
------- -------- --------
Income before taxes $ 3,435 $ 4,055 $ 5,627
Income taxes 1,328 1,675 2,104
------- -------- ---------
Net income $ 2,107 $ 2,380 $ 3,523
------- -------- ---------
Company's share $ 893 $ 616 $ 1,463
Withholding taxes 191 37 (51)
------- -------- ---------
Equity in earnings $ 1,084 $ 653 $ 1,412
------- -------- ---------
Dividends received $ 165 $ 134 $ 148
------- -------- ---------
</TABLE>
c) Balances with the unconsolidated affiliates are for the procurement of
tobacco inventory as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
IN THOUSANDS 1999 1998 1997
- ------------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Purchases of tobacco $31,511 $30,087 $41,952
Receivables from equity
investees 12,011 20,662 9,773
Advances on purchases of
tobacco 5,732 8,744 10,394
Payables to equity investees 340 138 3,449
</TABLE>
The Company's significant affiliates and percentage of ownership at March
31, 1999 follow: Adams International Ltd.,
--
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
49.0% (Thailand), Siam Tobacco Export Corporation Ltd., 49.0% (Thailand),
Tanzania Tobacco Processors, 20% (Tanzania), Transcontinental Tobacco India
Private Ltd. 49.0% (India), Ferrier Woolscours, 24.9% (New Zealand), Tasmanian
Wool Company, 24.9% (Australia), and Independent Wool Dumpers Pty Ltd., 16.8%
(Australia). Audited financial statements of affiliates are obtained annually.
6. OTHER ASSETS
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- ----------------------------------------- ---------- ----------
<S> <C> <C>
Cash surrender value of life insurance
policies (face amount $36,045) $11,176 $14,008
Less policy loans 3,648 4,652
------- -------
7,528 9,356
Bank deposits 513 457
Receivables 21,036 27,511
Deferred financing fees 6,533 8,759
Investments 1,048 1,059
Excess of purchase price of subsidiaries
over net assets acquired - net of
accumulated amortization of $7,969
(1998 - $7,595) 6,998 3,983
Purchase contracts - net of accumulated
amortization of $928 7,433
Other 3,529 2,796
------- -------
$54,618 $53,921
------- -------
</TABLE>
7. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- -------------------------------------- ------------ ------------
<S> <C> <C>
Weighted-average interest on
borrowings at end of year 6.4% 7.5%
Weighted-average interest rate on
borrowings during the year(1) 7.0% 7.5%
Maximum amount outstanding at any
month-end $383,307 $353,666
Average month-end amount outstanding $328,256 $272,867
Amount outstanding at year-end $280,587 $267,799
</TABLE>
(1) Computed by dividing short-term interest expense and amortized financing
costs by average short-term debt outstanding.
At March 31, 1999, under agreements with various banks, total short-term
credit facilities for continuing operations of $608.9 million (1998 - $607.7
million) were available to the Company of which $67.0 million (1998 - $60.5
million) was being utilized for letters of credit and guarantees and $261.4
million (1998 - $283.6 million) was unused.
The Company's revolving credit facilities at March 31, 1999 included a
master credit facility for tobacco operations (the "MFA"), in addition to local
lines of approximately $310.0 million. Also, separate facilities totaling $98.9
million are in place for wool operations.
At March 31, 1999 substantially all of the Company's assets were pledged
against current and long-term borrowings.
8. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- ----------------------------- ----------- -----------
<S> <C> <C>
Trade accounts $122,666 $115,875
Affiliated companies 340 138
Other accruals and payables 26,427 28,572
-------- --------
$149,433 $144,585
-------- --------
</TABLE>
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
IN THOUSANDS 1999 1998
- -------------------------------------------- ----------- -----------
<S> <C> <C>
8.875% Senior Notes due in 2005 $115,000 $115,000
10.4% loan repayable annually through
2000 1,634 3,272
Floating rate note, at 82% of prime,
repayable in 2001 (1999 average
8.25%) 2,940 2,940
Italian prime plus 1/8% payable through
2002 (1999 average 10.6%) 1,867 2,552
9.82% fixed rate loan repayable annually
through 2005 2,625 2,970
Interest free note repayable through
2005 1,487 1,362
5.7% loan repayable through 2002 1,246 1,945
9.23% loan repayable through 2003 1,384 1,498
5.59% loan repayable annually through
2003 12,051 --
2.2% loan repayable annually through
2001 3,000
Average one year LIBOR rate loan
repayable through 2001 6,964
Other 6,609 1,531
-------- --------
156,807 133,070
Current portion (12,646) (4,987)
-------- --------
$144,161 $128,083
-------- --------
</TABLE>
Long-term debt maturing after one year is as follows: 2001 - $14,058;
2002 - $6,728; 2003 - $6,367; 2004 - $1,372 and thereafter - $115,636.
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.
CONVERTIBLE SUBORDINATED DEBENTURES
On November 13, 1991 the Company issued $69.0 million of 7 1/4%
Convertible Subordinated Debentures due March 31, 2007. Adjusted for subsequent
stock dividends, the debentures currently are convertible into shares of common
stock of the Company at a conversion price of $29.38. The debentures are
subordinated in right of payment to all senior indebtedness, as 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
- --
24
<PAGE>
- -------------------------------------------------------------------------
least 5% of the principal amount of issued Debentures reduced by earlier
conversions, redemptions and repurchases.
At March 31, 1999, substantially all of the Company's assets were pledged
against current and long-term borrowings.
10. 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. The U.S. defined benefit pension plans
and foreign plans which are significant and which are considered to be defined
benefit pension plans are accounted for in accordance with Statement of
Financial Accounting Standards No. 87, Employers' Accounting for Pensions.
Benefits under the Plans are based on employees' years of service and eligible
compensation. The Company's policy is to contribute amounts to the U.S. plans
sufficient to meet or exceed funding requirements of federal benefit and tax
laws.
The Company also 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 ("SFAS 106"), which requires the accrual of the estimated cost of
retiree benefit payments during the years the employee provides services. The
ongoing impact of SFAS 106 as it relates to employees of foreign subsidiaries
is immaterial. The Company expenses the costs of such benefits as incurred.
Plan assets consist primarily of common stocks, pooled equity and fixed
income funds. The pension costs and obligations for non-U.S. plans shown below
also include certain unfunded book-reserve plans.
A summary of the U.S. plans and non-U.S. plans is as follows (in
thousands):
<TABLE>
<CAPTION>
US Plans Non-US Plans US Plans
Pension Benefits Pension Benefits Other Benefits
----------------------- --------------------------- -------------------------
IN THOUSANDS 1999 1998 1999 1998 1999 1998
- ------------------------------------------ ---------- ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 10,899 $ 9,988 $ 33,835 $ 32,204 $ 6,524 $ 6,970
Service cost 751 669 1,682 1,527 244 195
Interest cost 827 678 2,516 2,489 492 445
Actuarial (gain) loss 2,102 (140) (1,861) (256) 1,430 (849)
Benefits paid (690) (296) (1,176) (2,129) (262) (237)
-------- -------- -------- -------- -------- --------
Benefit obligation at end of year 13,889 10,899 34,996 33,835 8,428 6,524
-------- -------- -------- -------- -------- --------
Change in plan assets
Fair value of plan assets, beginning of
year 14,812 11,505 32,774 26,150
Actual return on plan assets 1,246 3,334 1,874 7,286
Employer contribution 269 1,253 1,467 262 237
Benefits paid (690) (296) (1,176) (2,129) (262) (237)
-------- -------- -------- -------- -------- --------
Fair value of plan assets at end of year 15,368 14,812 34,725 32,774
-------- -------- -------- -------- -------- --------
Funded status 1,479 3,913 (271) (1,061) (8,428) (6,524)
Unrecognized net actuarial loss (1,370) (3,501) (3,150) (3,305) 567 (783)
Unrecognized prior service cost (22) (33) (1,913) (2,015) (695) (833)
-------- -------- -------- -------- -------- --------
Prepaid (accrued) benefit cost $ 87 $ 379 $ (5,334) $ (6,381) $ (8,556) $ (8,140)
-------- -------- -------- -------- -------- --------
</TABLE>
The aggregate projected benefit obligation and aggregate accumulated
benefit obligation for U.S. pension plans with accumulated benefit obligations
in excess of plan assets (in thousands) were $615 and $604 as of March 31, 1999
and $558 and $526 as of March 31, 1998. The aggregate projected benefit
obligation and aggregate accumulated benefit obligation for non-U.S. pension
plans with accumulated benefit obligations in excess of plan assets (in
thousands) were $6,990 and $6,578 as of March 31, 1999 and $7,792 and $7,338 as
of March 31, 1998. All plans with accumulated benefit obligations in excess of
plan assets had no plan assets as of March 31, 1999 and 1998.
-
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
The components of net periodic benefit costs for the U.S. plans and
non-U.S. plans is as follows (in thousands):
<TABLE>
<CAPTION>
US Plans Non-US Plans
Pension Benefits Pension Benefits
------------------------------- -----------------------------------
IN THOUSANDS 1999 1998 1997 1999 1998 1997
- ------------------------------------ ----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service Cost $ 750 $ 669 $ 498 $ 1,682 $ 1,527 $ 1,367
Interest Cost 827 678 649 2,516 2,489 2,310
Expected return on plan assets (1,174) (933) (832) (3,232) (2,609) (2,348)
Amortization of prior service cost (11) (10) (29) (90) (91) 49
Recognized net actuarial loss (157) (62) 56 138
--------- ------- ------- --------- --------- ---------
Net periodic benefit cost $ 235 $ 342 $ 286 $ 932 $ 1,454 $ 1,378
--------- ------- ------- --------- --------- ---------
<CAPTION>
US Plans
Other Benefits
-----------------------------
IN THOUSANDS 1999 1998 1997
- ------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Service Cost $ 244 $ 195 $ 194
Interest Cost 492 445 494
Expected return on plan assets
Amortization of prior service cost (139) (139)
Recognized net actuarial loss (19) (139)
------- ------- -------
Net periodic benefit cost $ 597 $ 482 $ 549
------- ------- -------
</TABLE>
The assumptions used in 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
US Plans Non-US Plans
Pension Benefits Pension Benefits
--------------------------------- ------------------------------------------------------
IN THOUSANDS 1999 1998 1997 1999 1998 1997
- -------------------------------- --------- --------- --------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Assumptions
Discount rate 6.5% 7.4% 7.4% 7.4% to 8.5% 7.4% to 8.5% 7.4% to 8.5%
Expected return on plan assets 8.0% 8.0% 8.0% 10.0% 10.0% 10.0%
Rate of compensation increase 5.0% 5.0% 5.0% 5.5% to 7.0% 5.5% to 7.0% 5.5% to 7.0%
</TABLE>
For measurement purposes, a 10 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5 percent for 2007 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
<TABLE>
<CAPTION>
1 Percentage- 1 Percentage-
IN THOUSANDS Point Increase Point Decrease
- ------------------------------- ---------------- ---------------
<S> <C> <C>
Effect on total of service and
interest cost components $ 129 $ (117)
Effect on postretirement
benefit obligation 1,712 (1,344)
</TABLE>
The Company also sponsors a 401(k) savings incentive plan for most
full-time salaried employees in the U.S. Expenses for this plan were $240,000
in 1999, $236,000 in 1998 and $196,000 in 1997.
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 with a price of $17.00 per share, the fair
market value on the date of the grant. Effective December 14, 1998, the Board
of Directors of the Company agreed to amend the grant and reprice the options
granted to reflect the changes in the market environment and maintain the
incentive feature of the grant. The number of shares granted was revised to
45,144 shares at $8.88 per share. The vesting period was revised to match the
vesting schedule of the options granted to other key employees as addressed
below.
In August 1998, the Company adopted the Standard Commercial Corporation
Nonqualified Stock Option Plan (the "NSOP") under which options to purchase
shares of the Company's stock may be granted to key employees of the Company.
The aggregate number of shares of Common Stock as to which grants have been
made is 52,520. As of March 31, 1999, there were 52,520 shares of nonqualified
options outstanding at an exercise price of $8.88 per share, which was equal to
the fair market value on the date of issue. Options vest one-quarter each year
beginning on the first anniversary of the date of grant and become 100% vested
on the fourth anniversary of the date of grant.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its plans and accordingly, no compensation cost has been
recognized. Had compensation cost for the Plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Net income (in thousands):
As reported $8,415 $26,925
Pro forma $8,098 $26,337
Basic earnings per share:
As reported $ 0.66 $ 2.18
Pro forma $ 0.63 $ 2.13
Diluted earnings per share:
As reported $ 0.66 $ 2.05
Pro forma $ 0.63 $ 2.01
</TABLE>
- --
26
<PAGE>
- --------------------------------------------------------------------------------
The estimated weighted average grant-date fair value of options granted
for the years ended March 31 follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Weighted average exercise
price $ 8.88 $ 17.00
Weighted average fair value of
options $ 3.25 $ 5.88
</TABLE>
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 1999 and 1998, respectively:
dividend yield of 2.3% and 0.0%; expected volatility of 44% and 68%; risk-free
interest rates of approximately 4.75% and 6.37%; and expected lives of 4 to 5
years. The weighted average contractual life of these options is 6.4 years.
A summary of the status of the Company's Plans as of March 31, 1999, and
1998 and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
Option Weighted
price per average exercise
Shares share price per share
------------- ----------- -----------------
<S> <C> <C> <C>
March 31, 1997
Options granted 100,000 17.00 17.00
Options cancelled
Options exercised
March 31, 1998
(33,000 shares
exercisable) 100,000 17.00 17.00
-------
Options granted 52,520 8.88 8.88
Options cancelled (100,000) (17.00) (17.00)
--------
Options issued per
repricing 45,144 8.88 8.88
--------
March 31, 1999 97,664 8.88 8.88
---------
</TABLE>
The following table summarizes information about stock options outstanding
as of March 31, 1999:
<TABLE>
<CAPTION>
Weighted
average Weighted
Weighted exercise average
Range of Number of average price of Number of exercise price
exercise outstanding remaining outstanding options of exercisable
prices options life (Years) options exercisable options
- ---------- ------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
8.88 97,664 6.38 8.88 0 0
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows (in thousands): 2000 -
$3,764; 2001 - $3,244; 2002 - $897; 2003 - $338; 2004 - $212 and thereafter
$853. Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 1999, 1998
and 1997 (in thousands) were $3,998, $3,663 and $3,049 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
$17.6 million, substantially all of which are expected to be incurred in fiscal
2000.
A subsidiary of the Company participated in 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.
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
penalties and interest, is approximately $3.7 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.
The Company has an agreement with the former Chairman Emeritus, E W
Kehaya, to purchase a portion of his shares, in the event of his death, from
his estate to provide funds to pay administration expenses or any applicable
estate taxes. This agreement expires nine months after his death. Mr. Kehaya
passed away in November 1998. The Company has maintained a life insurance
policy to provide the cash for this purpose. As of June 10, 1999, the
provisions of this agreement have not been exercised. The cash flow impact of
any exercise is not considered material.
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.
--
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
12. COMMON STOCK
The Company maintains a Performance Improvement Compensation Plan
administered by the Compensation Committee of the Board of Directors as an
incentive for designated employees. In June 1993, the Board adopted a
Restricted Stock Plan ("RSP") as a means of awarding those employees to the
extent that certain performance objectives were met. The shares are issued
subject to a four- to 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.
13. OTHER INCOME -- NET
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
(IN THOUSANDS) 1999 1998 1997
- ---------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Other income:
Interest $ 2,708 $ 2,720 $ 4,493
Gain on asset sales and
dispositions 5,301 6,154 4,668
Gain from officers life
insurance policies 2,447
Rents received 1,266 370 610
Other 4,906 3,406 3,520
-------- ------- --------
16,628 12,650 13,291
-------- ------- --------
Other expense:
Amortization of goodwill (374) (206) (132)
Other (3,491) (3,072) (2,905)
-------- ------- --------
(3,865) (3,278) (3,037)
-------- ------- --------
$ 12,763 $ 9,372 $ 10,254
-------- ------- --------
</TABLE>
14. INCOME TAXES
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
<S> <C> <C>
(IN THOUSANDS) 1999 1998
- -------------------------------- ---- ----
Deferred tax liabilities:
Depreciation $ 9,661 $ 6,384
Capitalized interest 2,007 1,305
Income recognition in
foreign subsidiaries 7,599 6,988
Prepaid pension assets 1,093 1,175
-------- --------
Total deferred tax liabilities 20,360 15,852
-------- --------
Deferred tax assets:
NOL carried forward 9,015 8,693
Valuation allowance (7,464) (7,051)
Postretirement benefits
other than pensions 3,367 3,175
Uniform capitalization
and reserves 1,448 1,293
All other, net (454) (1,050)
-------- --------
Total deferred tax assets 5,912 5,060
-------- --------
Net deferred tax liabilities $ 14,448 $ 10,792
-------- --------
</TABLE>
The net deferred tax liabilities include approximately $5,573 and $8,016
of current liabilities at March 31, 1999 and 1998, 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 the utilization of tax loss carryforwards
for which no benefit had been recognized in prior years. The loss carryforwards
which give rise to the valuation allowances will expire in 2001 and thereafter.
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
(IN THOUSANDS) 1999 1998 1997
- ---------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $ 2,191 $ 4,187 $ 445
Foreign 4,555 12,348 12,793
State and local 489 375 28
------- ------- --------
7,235 16,910 13,266
------- ------- --------
Deferred:
Federal 42 (40) 707
Foreign 59 (8,104) (1,194)
State and local 9 3 3
------- ------- --------
110 (8,141) (484)
------- ------- --------
Income tax provision $ 7,345 $ 8,769 $ 12,782
------- ------- --------
</TABLE>
- --
28
<PAGE>
- --------------------------------------------------------------------------------
c) Components of deferred taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
(IN THOUSANDS) 1999 1998 1997
- ----------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
Tax on differences in timing
of income recognition in
foreign subsidiaries $ (440) $ (7,001) $ (353)
Capitalized interest 702 (182) 420
Other (152) (958) (551)
------- -------- -------
$ 110 $ (8,141) $ (484)
------- -------- -------
</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) 1999 1998 1997
- ---------------- ---------- ---------- ----------
<S> <C> <C> <C>
Pretax income:
Domestic $ 7,829 $ 8,781 $ 3,663
Foreign 7,311 28,280 28,582
-------- -------- --------
$ 15,140 $ 37,061 $ 32,245
-------- -------- --------
</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) 1999 1998 1997
- --------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Expense (benefit) at U.S.
federal statutory tax rate $ 5,148 $12,601 $ 11,286
Foreign tax losses for which
there is no relief available 418 1,585 321
U.S. tax on foreign income 530 400 500
Different tax rates in foreign
subsidiaries 964 (207) 680
Elimination of deferred tax
liabilities due to a change in
foreign law -- (6,864) --
Change in valuation
allowance 413 1,548 (1,518)
Other - net (128) (294) 1,513
------- -------- --------
$ 7,345 $ 8,769 $ 12,782
------- -------- --------
</TABLE>
15. DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of
March 31, 1999 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 $174.0 million, compared with a carrying
value of $226.0 million, based on discounted cash flows for fixed-rate
borrowings, with the fair value of floating-rate borrowings considered to
approximate carrying value.
--
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
16. 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 for sales by country is determined by the location of the customer,
however this information is not necessarily representative of the final
destination of the product. Geographic information for long-lived assets by
country is determined by the physical location of the assets.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
(IN THOUSANDS) 1999 1998 1997
- ---------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Geographic Areas
Sales:
United States $ 220,841 $ 360,495 $ 355,698
Germany 104,516 135,670 149,951
United Kingdom 97,336 141,203 138,482
Japan 67,257 72,465 65,145
Italy 53,626 69,444 47,056
Turkey 45,824 52,741 60,942
Switzerland 44,035 83,934 22,976
Netherlands 32,710 41,114 31,439
Brazil 20,550 32,496 5,338
Other countries 416,134 503,235 477,243
----------- ----------- -----------
$ 1,102,829 $ 1,492,797 $ 1,354,270
----------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
Long-lived Assets:
United States $ 28,126 $ 23,250
Brazil 28,323 250
Greece 19,951 18,979
Turkey 14,205 17,336
Malawi 13,879 1,892
United Kingdom 11,481 12,567
Other countries 39,424 39,298
--------- ---------
$ 155,389 $ 113,572
--------- ---------
</TABLE>
One tobacco customer accounted for 20.0%, 24.1% and 24.1% of total sales
in 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
(IN THOUSANDS) 1999 1998 1997
- ---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Sales:
Tobacco $ 881,903 $ 1,149,780 $ 997,449
Nontobacco 220,926 343,017 356,821
----------- ----------- -----------
$ 1,102,829 $ 1,492,797 $ 1,354,270
----------- ----------- -----------
Interest Income:
Tobacco $ 2,166 $ 1,744 $ 2,139
Nontobacco 542 976 2,354
----------- ----------- -----------
$ 2,708 $ 2,720 $ 4,493
----------- ----------- -----------
Interest Expense:
Tobacco $ 33,821 $ 29,790 $ 32,288
Nontobacco 6,178 8,019 9,829
----------- ----------- -----------
$ 39,999 $ 37,809 $ 42,117
----------- ----------- -----------
Depreciation and
Amortization
Expense:
Tobacco $ 19,886 $ 16,571 $ 16,613
Nontobacco 3,422 3,914 4,253
----------- ----------- -----------
$ 23,308 $ 20,485 $ 20,866
----------- ----------- -----------
Equity in Earnings of
Affiliates:
Tobacco $ 1,084 $ 498 $ 1,242
Nontobacco -- 155 170
----------- ----------- -----------
$ 1,084 $ 653 $ 1,412
----------- ----------- -----------
Income Tax Expense:
Tobacco $ 8,436 $ 10,488 $ 11,934
Nontobacco (1,091) (1,719) 848
----------- ----------- -----------
$ 7,345 $ 8,769 $ 12,782
----------- ----------- -----------
Net Income:
Tobacco $ 13,585 $ 21,534 $ 15,707
Nontobacco (5,170) 5,391 1,230
----------- ----------- -----------
$ 8,415 $ 26,925 $ 16,937
----------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
Assets:
Tobacco $728,261 $650,359
Nontobacco 150,136 189,114
-------- --------
$878,397 $839,473
-------- --------
Investment in Affiliates:
Tobacco $ 10,699 $ 11,584
Nontobacco 2,083 1,063
-------- --------
$ 12,782 $ 12,647
-------- --------
Capital Expenditures:
Tobacco $ 24,697 $ 14,769
Nontobacco 2,373 4,963
-------- --------
$ 27,070 $ 19,732
-------- --------
</TABLE>
- --
30
<PAGE>
- --------------------------------------------------------------------------------
17. 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.
--
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
YEAR ENDED MARCH 31, 1999
<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>
ASSETS
Cash $ 863 $ $ 52 $ 42,852 $ $ 43,767
Receivables 25,614 2,169 113 201,014 228,910
Intercompany receivables 132,909 16,401 70 24,190 (173,570)
Inventories 122,889 851 253,182 376,922
Prepaids and other 246 557 6 4,544 5,353
Marketable securities 1 655 656
--------- --------- -------- --------- ----------- -----------
Current assets 282,521 19,128 1,092 526,437 (173,570) 655,608
Property, plant and equipment 24,360 80 130,949 155,389
Investment in subsidiaries 82,804 222,980 32,889 149,783 (488,456)
Investment in affiliates 12,782 12,782
Other noncurrent assets 5,675 10,280 38,663 54,618
--------- --------- -------- --------- ----------- -----------
Total Assets $ 395,360 $ 252,388 $34,061 $ 858,614 $ (662,026) $ 878,397
--------- --------- ---------- --------- ----------- -----------
LIABILITIES
Short-term borrowings $ $ 4 $ $ 280,583 $ $ 280,587
Current portion of long-term debt 12,646 12,646
Accounts payable 11,495 732 32 137,174 149,433
Intercompany payables 56,372 32,650 1,852 82,696 (173,570)
Taxes accrued 7,757 (2,274) 8,676 14,159
--------- ----------- --------- --------- ----------- -----------
Current liabilities 75,624 31,112 1,884 521,775 (173,570) 456,825
Long-term debt 117,940 26,221 144,161
Convertible subordinated debentures 69,000 69,000
Retirement and other benefits 8,556 675 10,993 20,224
Deferred taxes 126 (1,548) 10,297 8,875
--------- ----------- --------- ----------- ----------- -----------
Total liabilities 202,246 99,239 1,884 569,286 (173,570) 699,085
--------- ----------- ---------- ----------- ----------- -----------
MINORITY INTERESTS 28,307 28,307
SHAREHOLDERS' EQUITY:
Common stock 993 3,108 25,404 143,718 (170,115) 3,108
Additional paid-in capital 130,860 102,680 60,564 (191,424) 102,680
Unearned restricted stock plan
compensation (730) (33) (8) (1,406) (2,177)
Treasury stock at cost (4,250) (4,250)
Retained earnings 81,455 89,430 6,601 95,931 (183,987) 89,430
Accumulated other comprehensive
income (19,464) (37,786) 180 (37,786) 57,070 (37,786)
--------- ----------- ----------- ----------- ----------- -----------
Total shareholders' equity 193,114 153,149 32,177 261,021 (488,456) 151,005
--------- ----------- ----------- ----------- ----------- -----------
Total Liabilities and Equity $ 395,360 $ 252,388 $34,061 $ 858,614 $ (662,026) $ 878,397
--------- ----------- ----------- ----------- ----------- -----------
</TABLE>
- -
32
<PAGE>
- -------------------------------------------------------------------------
SUPPLEMENTAL COMBINING BALANCE SHEETS
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>
ASSETS
Cash $ 6,831 $ 58 $ 242 $ 26,985 $ $ 34,116
Receivables 30,358 657 531 222,923 254,469
Intercompany receivables 152,672 17,770 10 20,597 (191,049)
Inventories 64,734 1,329 295,355 361,418
Prepaids and other 202 2 8,470 8,674
Marketable securities 1 655 656
--------- --------- -------- --------- ----------- -----------
Current assets 254,797 18,486 2,114 574,985 (191,049) 659,333
Property, plant and equipment 19,324 55 94,193 113,572
Investment in subsidiaries 73,063 217,857 37,275 163,316 (491,511)
Investment in affiliates 3,527 9,120 12,647
Other noncurrent assets 7,129 13,445 13 33,334 53,921
--------- --------- -------- --------- ----------- -----------
Total Assets $ 357,840 $ 249,788 $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 11,632 574 202 132,177 144,585
Intercompany payables 28,947 30,474 4,632 126,996 (191,049)
Taxes accrued 5,552 (156) 17,467 22,863
--------- --------- -------- ----------- ----------- -----------
Current liabilities 46,131 30,892 4,834 549,426 (191,049) 440,234
--------- --------- -------- ----------- ----------- -----------
Long-term debt 117,940 10,143 128,083
Convertible subordinated debentures 69,000 69,000
Retirement and other benefits 8,140 615 10,724 19,479
Deferred taxes 11 (2,316) 5,081 2,776
--------- --------- ------- ----------- ----------- -----------
Total liabilities 172,222 98,191 4,834 575,374 (191,049) 659,572
--------- --------- -------- ----------- ----------- -----------
MINORITY INTERESTS 30,271 30,271
SHAREHOLDERS' EQUITY:
Common stock 993 3,085 22,604 136,758 (160,355) 3,085
Additional paid-in capital 130,933 101,788 65,654 (196,587) 101,788
Unearned restricted stock plan
compensation (692) (29) (9) (1,266) (1,996)
Treasury stock (4,250) (4,250)
Retained earnings 68,568 82,943 11,318 100,097 (179,983) 82,943
Accumulated other comprehensive
income (14,184) (31,940) 710 (31,940) 45,414 (31,940)
--------- --------- --------- ----------- ----------- -----------
Total shareholders' equity 185,618 151,597 34,623 269,303 (491,511) 149,630
--------- --------- --------- ----------- ----------- -----------
Total Liabilities and Equity $ 357,840 $ 249,788 $39,457 $ 874,948 $ (682,560) $ 839,473
--------- --------- --------- ----------- ----------- -----------
</TABLE>
-
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1999
<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>
Sales $ 279,734 $ 3,700 $ 1,614 $ 1,053,459 $ (235,678) $ 1,102,829
Cost of sales:
Materials, services and supplies 255,698 1,760 962,236 (235,678) 984,016
Interest 4,155 22,213 26,368
--------- ------- -------- ----------- ----------- -----------
Gross profit 19,881 3,700 (146) 69,010 92,445
Selling, general and administrative
expenses 13,988 2,472 514 59,463 76,437
Other interest expense 6,336 5,233 2,062 13,631
Other income (expense), net 10,555 2,558 (201) (149) 12,763
--------- -------- -------- ----------- ----------- -----------
Income (loss) before income taxes 10,112 (1,447) (861) 7,336 15,140
Income taxes 3,915 (1,692) 5,122 7,345
--------- -------- -------- ----------- ----------- -----------
Income (loss) after income taxes 6,197 245 (861) 2,214 7,795
Minority interests (464) (464)
Equity in earnings of affiliates 1,084 1,084
Equity in earnings (losses) of
subsidiaries 6,690 8,170 (3,856) (11,004)
--------- -------- -------- ----------- ----------- -----------
Net income (loss) 12,887 8,415 (4,717) 2,834 (11,004) 8,415
Retained earnings at beginning of
period 68,568 82,943 11,318 100,097 (179,983) 82,943
Common stock dividends (1,928) (7,000) 7,000 (1,928)
--------- -------- --------- ----------- ----------- -----------
Retained earnings at end of period $ 81,455 $ 89,430 $ 6,601 $ 95,931 $ (183,987) $ 89,430
--------- -------- -------- ----------- ----------- -----------
</TABLE>
CONDENSED SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1999
<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 OPERATING ACTIVITIES $ (11,319) $ 1,866 $ (145) $ 56,206 $ $ 46,608
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions (6,283) (45) (20,742) (27,070)
Disposals 4,418 8,197 12,615
Business (acquisitions) dispositions (10,738) (10,738)
---------- --------- -------- --------- ------- ---------
Cash provided by (used in) investing
activities (1,865) (45) (23,283) (25,193)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,643 1,643
Repayment of long-term borrowings (5,373) (5,373)
Net change in short-term borrowings 4 (6,326) (6,322)
Dividends received (paid) 7,000 (1,928) (7,000) (1,928)
Other 216 216
---------- --------- -------- --------- -------- ---------
Cash used for financing activities 7,216 (1,924) (17,056) (11,764)
Net increase (decrease) in cash for
period (5,968) (58) (190) 15,867 9,651
Cash at beginning of period 6,831 58 242 26,985 34,116
---------- -------- ------- --------- --------- ---------
Cash at end of period $ 863 $ $ 52 $ 42,852 $ $ 43,767
---------- -------- ----------- --------- --------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest $ 10,816 $ 5,282 $ 103 $ 24,042 $ 40,243
Income taxes $ 2,761 $ $ $ 9,680 $ 12,441
</TABLE>
- -
34
<PAGE>
- -------------------------------------------------------------------------
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
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>
Sales $ 507,986 $ 8,334 $ 3,665 $ 1,150,448 $ (177,636) $ 1,492,797
Cost of sales:
Materials, services and supplies 475,860 3,439 1,046,172 (177,636) 1,347,835
Interest 2,573 20,003 22,576
--------- -------- --------- ----------- ----------- -----------
Gross profit 29,553 8,334 226 84,273 (355,272) 122,386
Selling, general and administrative
expenses 12,312 2,638 314 64,200 79,464
Other interest expense 7,777 5,412 2,044 15,233
Other income (expense), net (61) 4 (370) 9,799 9,372
--------- -------- -------- ----------- ----------- -----------
Income (loss) before income taxes 9,403 288 (458) 27,828 37,061
Income taxes 3,344 339 5,086 8,769
--------- -------- -------- ----------- ----------- -----------
Income (loss) after taxes 6,059 (51) (458) 22,742 28,292
Minority interests (2,020) (2,020)
Equity in earnings of affiliates 363 290 653
Equity in earnings of subsidiaries 16,039 26,976 4,973 (47,988)
--------- -------- -------- ----------- ----------- -----------
Net income 22,461 26,925 4,515 21,012 (47,988) 26,925
Retained earnings at beginning of
period 46,107 58,089 6,803 79,085 (131,995) 58,089
Common stock dividends (2,071) (2,071)
--------- -------- -------- ----------- ----------- -----------
Retained earnings at end of year $ 68,568 $ 82,943 $ 11,318 $ 100,097 $ (179,983) $ 82,943
--------- -------- -------- ----------- ----------- -----------
</TABLE>
CONDENSED SUPPLEMENTAL STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Standard Standard
Commercial Commercial
Tobacco Co. Corporation
Inc. (Issuer) (Guarantor)
(IN THOUSANDS) --------------- -------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ (53,388) $ (47,312)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions (3,710)
Disposals 731
Business (acquisitions) dispositions
Cash provided by (used in) ---------- -----------
investing activities (2,979)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 109,846
Repayment of long-term borrowings (8,667)
Net change in short-term borrowings (36,277)
Net proceeds of equity offering 47,043
Other (2,806)
---------- -----------
Cash used for financing activities 62,096 47,043
Net increase (decrease) in cash for year 5,729 (269)
Cash at beginning of period 1,102 327
---------- ----------
Cash at end of period $ 6,831 $ 58
---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest $ 7,041 $ 5,505
Income taxes $ 1,195 $ 551
<CAPTION>
Other
Standard Subsidiaries
Wool, Inc. (Non-
(Guarantor) Guarantors) Eliminations Total
(IN THOUSANDS) ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 144 $ 22,672 $ $ (77,884)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions (38) (15,984) (19,732)
Disposals 17 9,260 10,008
Business (acquisitions) dispositions (7,928) (7,928)
----- --------- --------- ----------
Cash provided by (used in)
investing activities (21) (14,652) (17,652)
----- --------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 3,207 113,053
Repayment of long-term borrowings (8,519) (17,186)
Net change in short-term borrowings (15,292) (51,569)
Net proceeds of equity offering 47,043
Other (2,806)
----- --------- -------- ----------
Cash used for financing activities (20,604) 88,535
Net increase (decrease) in cash for year 123 (12,584) (7,001)
Cash at beginning of period 119 39,569 41,117
----- --------- ------- ----------
Cash at end of period $ 242 $ 26,985 $ $ 34,116
----- --------- ------- ------------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest $ 311 $ 23,303 $ $ 36,160
Income taxes $ $ 11,585 $ $ 13,331
</TABLE>
-
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998 AND 1997 (CONTINUED)
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1997
<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>
Sales $ 450,542 $ 9,379 $ 7,958 $ 1,098,684 $ (212,293) $ 1,354,270
Cost of sales:
Materials, services and supplies 419,787 7,438 1,002,448 (212,293) 1,217,380
Interest 3,154 352 28,691 32,197
--------- -------- ------- ----------- ------------ -----------
Gross profit 27,601 9,379 168 67,545 104,693
Selling, general and administrative
expenses 22,273 2,951 768 46,790 72,782
Other interest expense 1,188 5,472 3,260 9,920
Other income (expense), net 255 (491) (10) 10,500 10,254
--------- -------- ------- ----------- ------------ -----------
Income (loss) before income taxes 4,395 465 (610) 27,995 32,245
Income taxes 856 496 11,430 12,782
--------- -------- -------- ----------- ------------ -----------
Income (loss) after income taxes 3,539 (31) (610) 16,565 19,463
Minority interests (3,938) (3,938)
Equity in earnings of affiliates 1,412 1,412
Equity in earnings of subsidiaries 16,968 338 (17,306)
--------- -------- ------- ----------- ----------- -----------
Net income (loss) 3,539 16,937 (272) 14,039 (17,306) 16,937
ESOP preferred stock dividends, net of
tax (347) (347)
Retained earnings at beginning of
period 40,988 46,450 7,075 66,626 (114,689) 46,450
Common stock dividends (4,951) (4,951)
--------- -------- ------- ----------- ----------- -----------
Retained earnings at end of period $ 44,527 $ 58,089 $ 6,803 $ 80,665 $ (131,995) $ 58,089
--------- -------- ------- ----------- ----------- -----------
</TABLE>
CONDENSED SUPPLEMENTAL STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1997
<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 OPERATING ACTIVITIES $ 3,706 $ 10,455 $ 53 $ 20,445 $ $ 34,659
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment:
Additions (3,024) (22) (9,770) (12,816)
Disposals 156 18 4,898 5,072
Business (adquisiitons) dispositions 3,304 3,304
---------- --------- ---- --------- ------- ---------
Cash provided by (used in)
investing activities (2,868) (4) (1,568) (4,440)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 10,000 405 10,405
Repayment of long-term borrowings (1,618) (11,172) (8,341) (21,131)
Net change in short-term borrowings (14,139) (40,118) (54,257)
Dividends paid, net of tax (347) (347)
Purchase and retirement of ESOP
Preferred Stock (2,460) (2,460)
Other
--------- --------- ------ --------- --------- ---------
Cash used for financing activities (5,757) (13,979) (48,054) (67,790)
Net increase (decrease) in cash for year (4,919) (3,524) 49 (29,117) (37,571)
Cash at beginning of period 6,021 3,851 70 68,746 78,688
--------- --------- ------ --------- --------- ---------
Cash at end of period $ 1,102 $ 327 $119 $ 39,629 $ $ 41,117
--------- --------- ------ --------- --------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year:
Interest $ 951 $ 8,105 $ $ 33,734 $ $ 42,790
Income taxes $ 1,365 $ 600 $ $ 7,032 $ $ 9,057
</TABLE>
- -
36
<PAGE>
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
- ----------------------------------------------------------------------------
<S> <C> <C>
IN THOUSANDS, EXCEPT SHARE DATA 1999 1998
- -------------------------------------------- ---- ----
Sales $ 1,102,829 $ 1,492,797
Income taxes 7,345 8,769
Income (loss) from continuing operations 8,415 26,925
Income (loss) from discontinued operations - -
Extraordinary items - -
Cumulative effect of accounting changes - -
Net income (loss) 8,415 26,925
Current assets 655,608 659,333
Total assets 878,397 839,473
Current liabilities 456,825 440,234
Long-term debt 213,161 197,083
- -------------------------------------------- ------------ ------------
Average number of shares outstanding* 12,842,495 12,377,211
- -------------------------------------------- ------------ ------------
Per share*
Basic earnings (loss) from continuing
operations $ 0.66 $ 2.18
Basic earnings (loss) from discontinued
operations - -
Extraordinary items - -
Basic net earnings (loss) 0.66 2.18
Dividends paid 0.15 -
Book value at year end 11.69 11.68
Market price at year end 4.75 15.94
<CAPTION>
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
- ----------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT SHARE DATA 1997 1996 1995 1994
- -------------------------------------------- ---- ---- ---- ----
Sales $ 1,354,270 $1,359,450 $1,213,565 $1,042,014
Income taxes 12,782 6,836 16,370 5,070
Income (loss) from continuing operations 16,937 (9,442) (20,494) (36,498)
Income (loss) from discontinued operations - 10,050 (10,050) 689
Extraordinary items - - - -
Cumulative effect of accounting changes - - - 23
Net income (loss) 16,937 608 (30,544) (35,786)
Current assets 571,318 599,601 616,953 710,464
Total assets 735,685 782,824 813,489 890,771
Current liabilities 451,213 543,803 563,766 639,980
Long-term debt 139,252 100,818 101,403 98,169
- -------------------------------------------- ----------- ---------- ---------- ----------
Average number of shares outstanding* 9,639,622 9,621,693 9,603,774 9,573,837
- -------------------------------------------- ----------- ---------- ---------- ----------
Per share*
Basic earnings (loss) from continuing
operations $ 1.72 $ (1.03) $ (2.18) $ (3.86)
Basic earnings (loss) from discontinued
operations - 1.04 (1.05) 0.07
Extraordinary items - - - -
Basic net earnings (loss) 1.72 0.01 (3.23) (3.79)
Dividends paid - - - 0.46
Book value at year end 9.44 8.44 8.95 10.85
Market price at year end 17.88 9.00 13.38 15.63
</TABLE>
* Earnings per share and shares outstanding for 1994-1997 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, 1999 and 1998 follow:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARE DATA June 30 Sept 30 Dec 31 March 31 Year
- ---------------------------------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1999 Sales $ 290,408 $ 209,044 $ 268,693 $ 334,684 $ 1,102,829
Gross profit 24,555 24,656 20,518 22,716 92,445
Net income 2,015 4,018 760 1,622 8,415
Earnings per share - basic $ 0.16 $ 0.31 $ 0.06 $ 0.13 $ 0.66
- diluted 0.16 0.31 0.06 0.13 0.66
Dividends per share 0.00 0.05 0.05 0.05 0.15
Market price per share - high 16.00 11.00 8.63 9.25 16.00
- low 10.56 7.44 6.38 3.75 3.75
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
</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, 1999 there were 645 shareholders of record.
-
37
<PAGE>
CORPORATE DIRECTORS AND OFFICERS
- -------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
CORPORATE DIRECTORS
J Alec G Murray, 1,5 CHAIRMAN OF THE BOARD OF DIRECTORS
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, CHIEF EXECUTIVE OFFICER
William S. Sheridan, 2,4 SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
SOTHEBY'S HOLDINGS, INC.
B. Clyde Preslar, VICE PRESIDENT FINANCE AND CHIEF FINANCIAL OFFICER, LANCE,
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
- -
38
<PAGE>
CORPORATE DIRECTORS AND OFFICERS
AND DIVISION MANAGEMENT
- --------------------------------------------------------------------------------
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 - ASIA
Constantin J. W. von Esebeck, VICE PRESIDENT & REGIONAL MANAGER - EUROPE
Duncan B. Meech, VICE PRESIDENT - FAR EAST & MANAGER - UK SALES OFFICE
Mark W. Kehaya, VICE PRESIDENT - SPECIAL PROJECTS DEVELOPMENT
TOBACCO COMPANIES
* Standard Commercial Tobacco Co Inc
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
* Trans-Continental Tobacco India Pvt Limited
GUNTUR, INDIA
* Meridional de Tabacos Ltda
SANTA CRUZ DO SU, BRAZIL
* 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
* Transcatab SpA, CASERTA, ITALY
* Trans-Continental Leaf Tobacco Corporation
VADUZ, LIECHTENSTEIN
* Werkhof GmbH, HAMBURG, GERMANY
* World Wide Tobacco Espana, BENAVENTE, SPAIN
--
39
<PAGE>
CORPORATE DIRECTORS AND OFFICERS
AND DIVISION MANAGEMENT (CONTINUED)
- --------------------------------------------------------------------------------
STANDARD COMMERCIAL CORPORATION
WOOL DIVISION MANAGEMENT
Paul H. Bicque, MANAGING DIRECTOR
Ian 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
Frank Rountree Jr., DIRECTOR - U.S.
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
* F Whitley (NZ) Ltd, CHRISTCHURCH, NEW ZEALAND
- --
40
<PAGE>
Standard
Commercial Corporation
Global Supplier of Leaf Tobacco and Wool
Business Description, Strategy and Goals
The return to our shareholders is driven by the earnings and cash flow generated
from two international, service-related businesses: purchasing, value-added
processing and selling leaf tobacco and wool. Standard Commercial, founded in
1910, is headquartered in Wilson, North Carolina and trades on the New York
Stock Exchange under the symbol STW.
Each of our businesses is driven by the following growth philosophy:
Teamwork + Adapting to Change + Superior Customer Service = Growth
The philosophy is driven by a culture which encourages people to see themselves
as business owners of the corporation who are accountable for the results of
their business units and the Company as a whole -- people who work together to
continuously improve the business process and thus the service that the customer
receives.
The Company's goal is to continue to build for the future by establishing a
solid platform for profitable growth. Growth through acquisitions, stategic
alliances, joint ventures and technology developments will be agressively
pursued to expand the Company's business base and improve asset effeciencies
- -all of which should result in better financial returns for shareholders.
Investor Information
Shareholders
Inquiries and information Requests should be
directed to:
Corporate Secretary
Standard Commercial Corporation
P.O. Box 450
Wilson NC 27894-0450
Contact: Henry C. Babb
Telephone: 252-291-5507
Fax: 252-237-0018
Dividend Policy
It is the policy of the Company to pay cash dividends on common stock as
business conditions permit.
Dividend Reinvestment Plan
Shareholders may acquire additional shares of common stock through automatic
reinvestment of cash dividends and/or optional cash investments without payment
of brokerage commissions or service fees.
For information about dividend reinvestment or optional cash investments, write
to the Corporate Secretary or Dividend Disbursing Agent.
Common Stock Transfer Agent and Registrar, and Dividend Disbursing Agent
Listed: NYSE Symbol: STW
First Union National Bank
Shareholders Services Corporate Trust Group
1525 West W.T. Harris, Blvd. 3C3
Charlotte NC 28288-1153 or
Contact: Joan K. Kaprinski
Telephone: 704-590-7388 or
1-800-829-8432
Fax: 704-590-7598
Trustee for Convertible
Subordinated Debentures Due 2007
Listed: NYSE Symbol: STW H
First Union National Bank
Corporate Trust Bond Administration
230 S. Tryon Street, 9th Floor
Charlotte NC 28288-1179
Contact: Shannon S. Schwartz
Telephone: 704-374-2080
Fax: 704-383-7316
<PAGE>
Trustee for 87/8% Senior Notes Due 2005
Crestar Bank
919 East Main Street
Richmond, VA 23219
Contact: Kelly Pickerel
Telephone: 804-782-7323
Fax: 804-782-7855
Independent Auditors
Deloitte & Touche, LLP
150 Fayetteville Street Mall
P.O. Box 2778
Raleigh NC 27602
1999 Annual Meeting
August 10, 1999, 12 noon
Hardy Alumni Hall
400 Atlantic Christian Drive
Wilson, North Carolina
10-K Report
A copy of the Company's annual report to the Securities and Exchange
Commission on Form 10-K is available without charge to shareholders upon written
request to the Corporate Secretary.
Standard Commercial Corporation
Mailing address
P.O. Box 450
Wilson NC 27894-0450
Street address
2201 Miller Road
Wilson NC 27893
Telephone: 252-291-5507
Fax: 252-237-0018
<PAGE>
Standard Commercial Corporation
2201 Miller Rd., Wilson, NC 27893
Telephone 252-291-5507
Fax 252-237-0018
Exhibit 21
STANDARD COMMERCIAL CORPORATION Exhibit 21
SUBSIDIARIES AND AFFILIATES at March 31, 1999
<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
Transcatab SpA Italy
Exportadora de Tobaco de Honduras S.A. de C.V. Honduras
Carolina Trading Corporation North Carolina
CRES Tobacco Company Inc North Carolina
Jas. I. Miller Tobacco Co. Ltd. Jamaica
Standard Commercial Services Inc. North Carolina
Stancom Tanzania (Jersey) Ltd Jersey
Spierer Freres & Cie S.A. Switzerland
Exelka S.A. Greece
Spierer Tutun Ihracat Sanayi Ticaret 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 (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
Adams International Ltd. Thailand
Meridional deTabacos Ltda Brazil
Standard Brazil Ltd Jersey
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
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
Jandakot Wool Scouring Company (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>
Independent Auditors' Consent Exhibit 23
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, 1999 included in this report on Form 10-K of
Standard Commercial Corporation for the year ended March 31, 1999.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> MAR-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 43,767
<SECURITIES> 656
<RECEIVABLES> 228,910<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 376,922
<CURRENT-ASSETS> 655,608
<PP&E> 155,389<F1>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 878,397
<CURRENT-LIABILITIES> 456,825
<BONDS> 213,161
0
0
<COMMON> 3,108
<OTHER-SE> 147,897
<TOTAL-LIABILITY-AND-EQUITY> 878,397
<SALES> 1,102,829
<TOTAL-REVENUES> 1,102,829
<CGS> 1,010,384
<TOTAL-COSTS> 1,010,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,140
<INCOME-TAX> 7,345
<INCOME-CONTINUING> 8,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,415
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.66
<FN>
<F1>Shown net in financial statements
<F2>Not shown separately under materiality guidelines
</FN>
</TABLE>
