SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 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
On November 1, 1999 the registrant had outstanding 12,957,261 shares of Common
Stock ($.20 par value).
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) had been subject to such filing requirements for
the past 90 days.
YES X NO
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30 March 31
-----------------------------------------
1999 1998 1999
---- ---- ----
(unaudited)
<S> <C>
ASSETS
Cash................................................................... $ 37,277 $ 38,586 $ 43,767
Receivables............................................................ 223,890 229,528 228,910
Inventories............................................................ 385,741 438,867 376,922
Prepaid expenses....................................................... 7,577 8,745 5,353
Marketable securities.................................................. 640 726 656
-----------------------------------------
Current assets.................................................... 655,125 716,452 655,608
Property, plant and equipment.......................................... 154,301 109,600 155,389
Investment in affiliates............................................... 15,983 16,505 12,782
Other assets........................................................... 51,712 61,810 54,618
-----------------------------------------
Total assets...................................................... $877,121 $904,367 $878,397
=========================================
LIABILITIES
Short-term borrowings.................................................. $351,919 $362,996 $280,587
Current portion of long-term debt...................................... 12,931 4,682 12,646
Accounts payable....................................................... 92,045 113,105 149,433
Taxes accrued.......................................................... 9,045 17,959 14,159
-----------------------------------------
Current liabilities............................................... 465,940 498,742 456,825
Long-term debt......................................................... 134,400 125,508 144,161
Convertible subordinated debentures.................................... 69,000 69,000 69,000
Retirement and other benefits.......................................... 20,751 20,198 20,224
Deferred taxes......................................................... 7,817 2,698 8,875
-----------------------------------------
Total liabilities................................................. 697,908 716,146 699,085
-----------------------------------------
MINORITY INTERESTS..................................................... 27,757 30,302 28,307
-----------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $1.65 par value; authorized shares 1,000,000
Issued none
Common stock, $0.20 par value; authorized shares 100,000,000
Issued 15,570,240 (Sept. 98 - 15,436,402; Mar 99 - 15,540,078)...... 3,114 3,087 3,108
Additional paid-in capital............................................. 102,834 101,922 102,680
Unearned restricted stock plan compensation............................ (1,890) (1,819) (2,177)
Treasury shares, 2,617,707............................................. (4,250) (4,250) (4,250)
Retained earnings...................................................... 91,585 88,335 89,430
Accumulated other comprehensive income................................. (39,937) (29,356) (37,786)
-----------------------------------------
Total shareholders' equity........................................ 151,456 157,919 151,005
-----------------------------------------
Total liabilities and equity...................................... $877,121 $904,367 $878,397
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands, except per share information; unaudited)
<TABLE>
<CAPTION>
Second quarter ended Six months ended
September 30 September 30
----------------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C>
Sales - tobacco............................................. $ 182,423 $ 166,234 $ 378,676 $392,491
- nontobacco.......................................... 46,055 42,810 96,569 106,961
-------- -------- -------- --------
TOTAL SALES............................................. 228,478 209,044 475,245 499,452
Cost of sales - materials, services and supplies............ 196,090 180,548 411,937 441,188
- interest.................................... 5,074 3,840 10,504 9,053
-------- -------- -------- --------
GROSS PROFIT............................................ 27,314 24,656 52,804 49,211
Selling, general and administrative expenses................. 21,299 17,849 39,936 35,846
Other interest expense....................................... 2,877 4,574 7,508 8,891
Other income (expense) - net................................. 623 3,666 1,439 6,306
-------- -------- -------- --------
INCOME BEFORE TAXES..................................... 3,761 5,899 6,799 10,780
Income taxes................................................. (2,340) (1,171) (4,244) (3,381)
-------- -------- --------- --------
INCOME AFTER TAXES...................................... 1,421 4,728 2,555 7,399
Minority interests........................................... 588 (1,146) 237 (1,895)
Equity in earnings of affiliates............................. 201 436 680 529
-------- -------- -------- --------
NET INCOME.............................................. 2,210 4,018 3,472 6,033
Retained earnings at beginning of period..................... 90,045 84,958 89,430 82,943
Common stock dividends....................................... (670) (641) (1,317) (641)
--------- --------- --------- --------
RETAINED EARNINGS AT END OF PERIOD........................... $ 91,585 $ 88,335 $ 91,585 $ 88,335
======== ======== ======== ========
Earnings per common share
Basic - net............................................... $ 0.17 $ 0.31 $ 0.27 $ 0.47
- average shares outstanding........................ 12,947 12,816 12,940 12,813
Diluted - net............................................... $ 0.17 $ 0.31 $ 0.27 $ 0.47
- average shares outstanding........................ 15,296 15,164 15,289 15,161
DIVIDENDS PAID PER COMMON SHARE $ 0.05 $ 0.05 $ 0.10 $ 0.05
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands; unaudited)
<TABLE>
<CAPTION>
Six months ended
September 30
--------------------------------
1999 1998
---- ----
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................................... $ 3,472 $ 6,033
Depreciation and amortization................................................ 11,082 9,366
Minority interests........................................................... (237) 1,895
Deferred income taxes........................................................ (966) (400)
Undistributed earnings of affiliates net of dividends received............... (680) (529)
Gain on disposition of property, plant and equipment......................... (242) (3,692)
Other........................................................................ 2,459 (1,526)
---------------------------------
14,888 11,147
Net changes in working capital other than cash
Receivables.................................................................. 1,713 19,870
Inventories.................................................................. (10,138) (85,390)
Current payables............................................................. (62,098) (28,787)
---------------------------------
CASH USED FOR OPERATING ACTIVITIES.............................................. (55,635) (83,160)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment - additions...................................... (10,607) (6,289)
- dispositions................................... 1,439 9,432
Business (acquisitions) dispositions............................................ (2,501) (6,778)
---------------------------------
Cash used for investing activities.............................................. (11,669) (3,635)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings............................................. 71,332 95,197
Proceeds from long-term borrowings.............................................. 1,172 106
Repayment of long-term borrowings............................................... (10,534) (3,534)
Dividends paid.................................................................. (1,316) (641)
Other........................................................................... 160 137
--------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES........................................... 60,814 91,265
--------------------------------
Increase (decrease) in cash for period.......................................... (6,490) 4,470
Cash at beginning of period..................................................... 43,767 34,116
--------------------------------
CASH AT END OF PERIOD........................................................... $ 37,277 $38,586
================================
Cash payments for - interest........................................... $ 18,970 $15,651
- income taxes....................................... $ 5,628 $ 6,016
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
The interim statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
latest Annual Report on Form 10-K. The interim period financial statements
have been prepared by the Company without audit and contain all of the
adjustments which are, in the opinion of the management, necessary for a fair
statement of the results of operations. All such adjustments are of normal,
recurring nature and there were no material changes in accounting policies
during the period ended September 30, 1999. Because of the nature of the
Company's businesses, fluctuations in results for interim periods are not
necessarily indicative of business trends or results to be expected for a full
year.
2.INVENTORIES
<TABLE>
<CAPTION>
September 30 March 31
-------------------------- --------
(In thousands) 1999 1998 1999
---- ---- ----
<S> <C>
Tobacco $329,883 $373,277 $315,506
Nontobacco 55,858 65,590 61,416
------ -------- --------
Total $385,741 $438,867 $376,922
======= ======== ========
</TABLE>
3.COMPREHENSIVE INCOME
The statement on comprehensive income requires that an enterprise (a) classify
items of other comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet.
The components of comprehensive income were as follows:
<TABLE>
<CAPTION>
Quarter ended Six months ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C>
(In thousands)
Net income $2,210 $4,018 $3,472 $6,033
Other comprehensive income:
Translation adjustment (868) 3,080 (2,151) 2,583
----- ----- ------ -----
Total comprehensive income $1,342 $7,098 $1,321 $8,616
------ ------ ------ ------
</TABLE>
4.EARNINGS PER SHARE
Earnings per share has been presented in conformity with Statement of
Financial Accounting Standards No.128. In computing the diluted per-share
amounts for the second quarter and six months ended September 30, 1999, the
incremental shares from assumed conversion of 7 1/4% Convertible Subordinated
Debentures are not included because the calculations include adjustments which
are antidilutive. Options to purchase shares of common stock were outstanding
during the six months ended September 30, 1999 but were not included in the
computation of diluted earnings per share because the exercise price was
greater than the average market price of common shares.
5
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.SEGMENT INFORMATION
The company is engaged in purchasing, processing and selling leaf tobacco and
wool. Its activities other than these are minimal. Segment revenue and net
income are as follows:
<TABLE>
<CAPTION>
Quarter ended Six months ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C>
(In thousands)
Sales
Tobacco $182,423 $166,234 $378,676 $392,491
Nontobacco 46,055 42,810 96,569 106,961
------ ------- -------- --------
$228,478 $209,044 $475,245 $499,452
-------- -------- -------- --------
Net income (loss)
Tobacco $ 3,657 $ 5,381 $ 5,497 $ 7,914
Nontobacco (1,447) (1,363) (2,025) (1,881)
------- ------- -------- --------
$ 2,210 $ 4,018 $ 3,472 $ 6,033
-------- -------- -------- --------
</TABLE>
6.SENIOR NOTES
The 8 7/8% Senior Notes due 2005 were issued by Standard Commercial Tobacco
Co., Inc. (the "Issuer"), a wholly owned subsidiary of the Company. The
Company and Standard Wool, Inc., a wholly owned subsidiary of the Company (the
"Guarantors"), jointly and severally, guarantee, on a senior basis, the full
and prompt performance of the Issuer's obligations under the terms of the
indenture. Management has determined that full financial statements of the
Guarantors would not be material to investors and such financial statements
are not provided. The following supplemental combining financial statements
present information regarding the Issuer and the Guarantors.
6
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE SHEET
September 30, 1999 (In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- --------- ---------- ---------- ------------ -----
<S> <C>
Assets
Cash $ 3,044 $ - $ 45 $ 34,188 $ - $ 37,277
Receivables 32,001 2,029 213 189,647 - 223,890
Intercompany receivables 138,320 16,477 31 23,160 (177,988) 0
Inventories 121,376 0 507 263,858 - 385,741
Prepaids and other 1,009 429 14 6,125 - 7,577
Marketable securities - 1 - 639 - 640
----------------------------------------------------------------------------------
Current assets 295,750 18,936 810 517,617 (177,988) 655,125
Property, plant and equipment 23,336 - 80 130,885 - 154,301
Investment in subsidiaries 93,037 226,988 35,223 166,766 (522,014) 0
Investment in affiliates - - - 15,983 - 15,983
Other noncurrent assets 5,203 9,966 - 36,543 - 51,712
----------------------------------------------------------------------------------
Total assets $ 417,326 $ 255,890 $ 36,113 $ 867,794 $ (700,002) $ 877,121
==================================================================================
Liabilities
Short-term borrowings $ 9,373 $ 173 $ - $ 342,373 $ - $ 351,919
Current portion of long-term debt - - - 12,931 - 12,931
Accounts payable 15,820 466 20 75,739 - 92,045
Intercompany payables 62,133 39,114 1,821 74,920 (177,988) 0
Taxes accrued 7,519 (5,368) (81) 6,975 - 9,045
----------------------------------------------------------------------------------
Current liabilities 94,845 34,385 1,760 512,938 (177,988) 465,940
Long-term debt 117,940 - - 16,460 - 134,400
Convertible subordinated debentures - 69,000 - - - 69,000
Retirement and other benefits 8,745 735 - 11,271 - 20,751
Deferred taxes 125 (1,548) - 9,240 - 7,817
----------------------------------------------------------------------------------
Total liabilities 221,655 102,572 1,760 549,909 (177,988) 697,908
Minority interests - - - 27,757 - 27,757
----------------------------------------------------------------------------------
Shareholders' equity
Common stock 993 3,114 32,404 164,389 (197,786) 3,114
Additional paid-in capital 130,860 102,834 - 64,839 (195,699) 102,834
Unearned restricted stock
plan compensation (639) (28) (8) (1,215) - (1,890)
Treasury stock at cost - (4,250) - - - (4,250)
Retained earnings 82,639 91,585 4,576 102,052 (189,267) 91,585
Accumulated other comprehensive income (18,182) (39,937) (2,619) (39,937) 60,738 (39,937)
----------------------------------------------------------------------------------
Total shareholders' equity 195,671 153,318 34,353 290,128 (522,014) 151,456
----------------------------------------------------------------------------------
Total liabilities and equity $ 417,326 $ 255,890 $ 36,113 $ 867,794 $ (700,002) $ 877,121
==================================================================================
</TABLE>
7
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Second quarter ended September 30, 1999.
(In thousands; unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other Wool
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- --------- ---------- ------------ -----
<S> <C>
Sales $ 42,221 $ - $ 283 $240,905 $ (54,931) $228,478
Cost of sales:
Materials services and supplies 37,075 - 264 213,682 (54,931) 196,090
Interest 360 - - 4,714 5,074
----------------------------------------------------------------------------------------
Gross profit 4,786 - 19 22,509 27,314
Selling, general &
administrative expenses 3,318 924 84 16,973 21,299
Other interest expense 1,058 1,314 - 505 2,877
Other income (expense)- net (48) (112) (47) 830 623
----------------------------------------------------------------------------------------
Income (loss) before taxes 362 (2,350) (112) 5,861 3,761
Income taxes 123 (799) (38) 3,054 2,340
----------------------------------------------------------------------------------------
Income (loss) after taxes 239 (1,551) (74) 2,807 1,421
Minority interests - - - 588 588
Equity in earnings of affiliates - - - 201 201
Equity in earnings of subsidiaries 4,987 3,761 (1,391) - (7,357) -
----------------------------------------------------------------------------------------
Net income 5,226 2,210 (1,465) 3,596 (7,357) 2,210
Retained earnings at beginning
of period 77,413 90,045 6,041 98,456 (181,910) 90,045
Common stock dividends - (670) - - (670)
----------------------------------------------------------------------------------------
Retained earnings at end of period $ 82,639 $ 91,585 $ 4,576 $102,052 $(189,267) $ 91,585
========================================================================================
</TABLE>
8
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Six months ended September 30, 1999
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ---------- --------- ---------- ------------ -----
<S> <C>
Sales $ 66,789 $ - $ 585 $517,594 $(109,723) $475,245
Cost of sales:
Materials services and supplies 57,800 - 554 463,306 (109,723) 411,937
Interest 360 - - 10,144 - 10,504
----------------------------------------------------------------------------------------
Gross profit 8,629 - 31 44,144 - 52,804
Selling, general &
administrative expenses 6,064 1,456 178 32,238 - 39,936
Other interest expense 3,877 2,627 - 1,004 - 7,508
Other income (expense)- net 1,609 11 (92) (89) - 1,439
----------------------------------------------------------------------------------------
Income (loss) before taxes 297 (4,072) (239) 10,813 - 6,799
Income taxes 101 (1,385) (81) 5,609 - 4,244
----------------------------------------------------------------------------------------
Income (loss) after taxes 196 (2,687) (158) 5,204 - 2,555
Minority interests - - - 237 - 237
Equity in earnings of affiliates - - - 680 - 680
Equity in earnings of subsidiaries 7,988 6,159 (1,867) - (12,280) -
----------------------------------------------------------------------------------------
Net income 8,184 3,472 (2,025) 6,121 (12,280) 3,472
Retained earnings at beginning
of period 81,455 89,430 6,601 95,931 (183,987) 89,430
Common stock dividends (7,000) (1,317) - - 7,000 (1,317)
----------------------------------------------------------------------------------------
Retained earnings at end of period $ 82,639 $ 91,585 $ 4,576 $102,052 $(189,267) $ 91,585
========================================================================================
</TABLE>
9
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
Six months ended September 30, 1999
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
---------- ----------- ----------- ----------- ------------ -----
<S> <C>
Cash provided by (used in)
operating activities $ (6,650) $ - $ 2 $ (48,987) $ - $(55,635)
Cash flows from investing activities
Property, plant and equipment
- additions (703) - (9) (9,895) - (10,607)
- disposals 91 - - 1,348 - 1,439
Business (acquisitions) dispositions - - - (2,501) - (2,501)
----------------------------------------------------------------------------------
Cash provided by (used in)
investing activities (612) - (9) (11,048) - (11,669)
----------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 9,373 174 - 61,785 - 71,332
Proceeds from long-term borrowings - - - 1,172 - 1,172
Repayment of long-term borrowings - - - (10,534) - (10,534)
Dividends paid - (1,316) - - - (1,316)
Other 70 1,142 - (1,052) - 160
----------------------------------------------------------------------------------
Cash provided by (used in)
financing activities 9,443 - - 51,371 - 60,814
----------------------------------------------------------------------------------
Increase (decrease) in cash for year 2,181 - (7) (8,664) - (6,490)
Cash at beginning of year 863 - 52 42,852 - 43,767
----------------------------------------------------------------------------------
Cash at end of year $ 3,044 $ - $ 45 $ 34,188 $ - $ 37,277
==================================================================================
Cash payments for - Interest $ 5,537 $ 2,501 $ - $ 10,932 $ - $ 18,970
- Income taxes 340 1,710 - 3,578 - 5,628
</TABLE>
10
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE SHEET
September 30, 1998
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------ -----
<S> <C>
Assets
Cash $ 9,472 $ 19 $ 72 $ 29,023 $ - $ 38,586
Receivables 42,150 560 308 186,510 - 229,528
Intercompany receivables 139,763 16,747 22 12,787 (169,319) -
Inventories 92,641 - 1,263 344,963 - 438,867
Prepaids and other 970 81 43 7,651 - 8,745
Marketable securities - 1 - 725 - 726
---------------------------------------------------------------------------------------
Current assets 284,996 17,408 1,708 581,659 (169,319) 716,452
Property, plant and equipment 21,471 - 71 88,058 - 109,600
Investment in subsidiaries 73,538 229,297 38,478 166,766 (508,079) -
Investment in affiliates 3,527 - - 12,978 - 16,505
Other noncurrent assets 6,454 13,223 - 42,133 - 61,810
---------------------------------------------------------------------------------------
Total assets $389,986 $259,928 $40,257 $891,594 ($677,398) $904,367
=======================================================================================
Liabilities
Short-term borrowings $ 15,100 $ - $ - $347,896 $ - $362,996
Current portion of long-term debt - - - 4,682 - 4,682
Accounts payable 20,212 2,911 37 89,945 - 113,105
Intercompany payables 29,422 32,120 1,851 105,926 (169,319) -
Taxes accrued 5,583 (2,176) (88) 14,640 - 17,959
---------------------------------------------------------------------------------------
Current liabilities 70,317 32,855 1,800 563,089 (169,319) 498,742
Long-term debt 117,940 - - 7,568 - 125,508
Convertible subordinated debentures - 69,000 - - - 69,000
Retirement and other benefits 8,291 675 - 11,232 - 20,198
Deferred taxes 221 (2,316) - 4,793 - 2,698
---------------------------------------------------------------------------------------
Total liabilities 196,769 100,214 1,800 586,682 (169,319) 716,146
---------------------------------------------------------------------------------------
Minority interests - - - 30,302 - 30,302
---------------------------------------------------------------------------------------
Shareholders' equity
Common stock 993 3,087 25,404 136,305 (162,702) 3,087
Additional paid-in capital 130,860 101,923 - 64,838 (195,699) 101,922
Unearned restricted stock
plan compensation (627) (25) (8) (1,159) - (1,819)
Treasury stock at cost - (4,250) - - - (4,250)
Retained earnings 76,383 88,335 9,558 107,064 (193,005) 88,335
Accumulated other comprehensive income (14,392) (29,356) 3,503 (32,438) 43,327 (29,356)
---------------------------------------------------------------------------------------
Total shareholders' equity 193,217 159,714 38,457 274,610 (508,079) 157,919
---------------------------------------------------------------------------------------
Total liabilities and equity $389,986 $259,928 $40,257 $891,594 ($677,398) $904,367
=======================================================================================
</TABLE>
11
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Second quarter ended September 30, 1998.
(In thousands; unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other Wool
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
---------- ----------- ----------- ----------- ------------ -----
<S> <C>
Sales $ 30,577 $ - $ 364 $217,143 $ (39,040) $209,044
Cost of sales:
Materials services and supplies 27,349 - 350 191,889 (39,040) 180,548
Interest (44) - - 3,884 3,840
---------------------------------------------------------------------------------------
Gross profit 3,272 - 14 21,370 24,656
Selling, general &
administrative expenses 3,735 738 105 13,271 17,849
Other interest expense 2,777 1,307 (2) 492 4,574
Other income (expense)- net (260) 3,827 (47) 146 3,666
---------------------------------------------------------------------------------------
Income (loss) before taxes (3,500) 1,782 (136) 7,753 5,899
Income taxes (1,327) 606 (46) 1,938 1,171
---------------------------------------------------------------------------------------
Income (loss) after taxes (2,173) 1,176 (90) 5,815 4,728
Minority interests - - - (1,146) (1,146)
Equity in earnings of affiliates - - - 436 436
Equity in earnings of subsidiaries 6,251 2,842 (1,146) - (7,947) -
---------------------------------------------------------------------------------------
Net income 4,078 4,018 (1,236) 5,105 (7,947) 4,018
Retained earnings at beginning
of period 72,305 84,958 10,794 101,959 (185,058) 84,958
Common stock dividends - (641) - - (641)
---------------------------------------------------------------------------------------
Retained earnings at end of period $ 76,383 $ 88,335 $ 9,558 $107,064 (193,005) $ 88,335
=======================================================================================
</TABLE>
12
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Six months ended September 30, 1998
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------ -----
<S> <C>
Sales $ 59,911 $ - $ 955 $512,726 $(74,140) $499,452
Cost of sales:
Materials services and supplies 53,221 - 904 461,203 (74,140) 441,188
Interest 58 - - 8,995 - 9,053
---------------------------------------------------------------------------------------
Gross profit 6,632 - 51 42,528 - 49,211
Selling, general &
administrative expenses 6,691 1,380 206 27,569 - 35,846
Other interest expense 5,567 2,614 - 710 - 8,891
Other income (expense)- net 4,295 3,961 (103) (1,847) - 6,306
---------------------------------------------------------------------------------------
Income (loss) before taxes (1,331) (33) (258) 12,402 - 10,780
Income taxes (589) (11) (88) 4,069 - 3,381
---------------------------------------------------------------------------------------
Income (loss) after taxes (742) (22) (170) 8,333 - 7,399
Minority interests - - - (1,895) - (1,895)
Equity in earnings of affiliates - - - 529 - 529
Equity in earnings of subsidiaries 8,557 6,055 (1,590) - (13,022) -
---------------------------------------------------------------------------------------
Net income 7,815 6,033 (1,760) 6,967 (13,022) 6,033
Retained earnings at beginning
of period 68,568 82,943 11,318 100,097 (179,983) 82,943
Common stock dividends - (641) - - - (641)
---------------------------------------------------------------------------------------
Retained earnings at end of period $ 76,383 $ 88,335 $ 9,558 $107,064 $(193,005) $ 88,335
=======================================================================================
</TABLE>
13
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
Six months ended September 30, 1998
(In thousands.)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
---------- ----------- ----------- ----------- ------------ -----
<S> <C>
Cash provided by (used in)
operating activities $ (15,260) $ 465 $ (145) $(68,220) $ - $(83,160)
---------------------------------------------------------------------------------------
Cash flows from investing activities
Property, plant and equipment
- additions (1,645) - (25) (4,619) - (6,289)
- disposals 4,614 - - 4,818 - 9,432
Business (acquisitions) dispositions - - - (6,778) - (6,778)
---------------------------------------------------------------------------------------
Cash provided by (used in)
investing activities 2,969 - (25) (6,579) - (3,635)
---------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in short-term borrowings 15,100 - - 80,097 - 95,197
Proceeds from long-term borrowings - - - 106 - 106
Repayment of long-term borrowings (168) - - (3,366) - (3,534)
Dividends paid - (641) - - - (641)
Other - 137 - - - 137
---------------------------------------------------------------------------------------
Cash provided by (used in)
financing activities 14,932 (504) - 76,837 - 91,265
---------------------------------------------------------------------------------------
Increase (decrease) in cash for year 2,641 (39) (170) 2,038 - 4,470
Cash at beginning of year 6,831 58 242 26,985 - 34,116
---------------------------------------------------------------------------------------
Cash at end of year $ 9,472 $ 19 $ 72 $ 29,023 $ - $ 38,586
=======================================================================================
Cash paymentsfor - Interest $ 4,962 $ 5 $ - $ 10,684 $ - $ 15,651
- Income taxes 336 2,053 - 3,627 - 6,016
</TABLE>
14
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales for the quarter ended September 30, 1999 were $228.5 million, an
increase of 9.3% from a year earlier. Sales for the six months period were
$475.2 million, a decrease of 4.8% from same period a year earlier. Most of
the changes were due to sales mix in the wool segment and lower prices in the
tobacco segment. Tobacco division sales of $182.4 million and $378.7 million
for the current quarter and six months respectively, were up 9.7% for the
quarter and 3.5% down for the six months from the corresponding period in
1998. Overall, for the quarter, tobacco volume was up 1.0% due to increases in
Europe, Africa and South America, and average prices worldwide were marginally
higher. For the six months volume was 1.0% lower than the prior year despite a
small increase during the quarter. Lower prices and volume resulted in the
lower sales. Nontobacco sales of $46.1 million and $96.6 million for the
current quarter and six months respectively, were up 7.6% and down 9.7% from
the same periods a year earlier. Improvement during the quarter was primarily
due to a positive trend in demand for scoured and carbonized wool. During the
quarter the volume of wool sold increased by 30%.
Gross profit for the quarter and six months of $27.3 million and $52.8 million
improved 10.7% and 7.3% from the corresponding periods in 1998 due primarily
to sales mix. Selling general and administrative expenses increased due to
inflationary factors, and the write-off of an export credit note arrangement
with a Brazilian bank that filed for bankruptcy. Other income for the quarter
and six months was lower as the prior year periods included gains on
disposition of assets of $1.8 million and $3.7 million, respectively.
The effective tax rate increased from 19.9% and 31.4% in the 1998 second
quarter and six months to 62.2% and 62.4% in the 1999 corresponding periods.
This was due to differences in tax rates and credits not utilizable in certain
areas where losses are incurred. For the periods ended September 30, 1999,
losses were incurred in the wool segment where tax relief was not available.
Net income was $2.2 million or $0.17 per share on a basic and diluted basis,
versus $4.0 million, or $0.31 per share for the quarter. For the six months
period, net income was $3.5 million, or $0.27 per share on a basic and diluted
basis, versus $6.0 million, or $0.47 per share. Basic and diluted earnings are
the same for all periods because the calculation of diluted earnings per share
includes adjustments that are antidilutive.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1999 was $189.2 million, compared to $217.7
million a year earlier. Most of the decrease was due to the use of working
capital for business acquisitions and additions to property, plant and
equipment. Capital expenditures during 1999 of $10.6 million consisted of
$10.0 million in the tobacco division that included investments in our St.
Petersburg, Russia factory and routine capital expenditures and $0.6 million
in the wool division. During the same period the wool division invested $2.5
million in an Australian wool washing operation. Cash used in operating
activities totaled $55.6 million mainly due to an increase in inventories and
a decrease in payables. The Company continues to closely monitor its inventory
levels, which are down from $438.8 million a year ago to $385.7 million at
September 30, 1999.
During the first quarter of fiscal 1999 the Company's major tobacco
subsidiaries successfully completed the amendment of their global revolving
bank credit facility. The facility was increased from $200.0 million to $223.0
million and the maturity date was extended to July 31, 2002. Financial
covenants and other terms and conditions are essentially unchanged. Borrowings
under the facility continue to be guaranteed by the Company and are secured by
substantially all of the assets of the borrowers. Certain debt agreements to
which the Company and its subsidiaries are parties contain financial covenants
that could restrict the payment of cash dividends. Under its most restrictive
covenant, the Company had approximately $15.2 million of retained earnings
available for distribution as dividends at September 30, 1999.
15
<PAGE>
STANDARD COMMERCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Based on the outlook for the tobacco and wool divisions, management
anticipates that it will be able to service the interest and principal on its
indebtedness, maintain adequate working capital and provide for capital
expenditures out of operating cash flow.
YEAR 2000 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 and devices may fail or malfunction if not
remedied or replaced. The actual effects and magnitude of these potential
problems are difficult to quantify. 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 information needs. New systems were developed
internally to accommodate dates as proper date types rather than encoded string
variables or limited serial numeric dates. A steering committee representing all
functional areas of the company was formed in 1997. The committee is charged
with developing a plan to ensure readiness, advising group companies of issues,
monitoring progress and compliance, and allocating resources for solutions. The
plan adopted consists of two main areas of focus.
(1). Internal issues.
This area includes the effect 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 is to identify technology at each
location, evaluate the exposure of such technology to Y2K problems, test the
technology for problems and select the means to resolve the identified problems.
The company has completed the internal plan. A comprehensive file for each
location has been developed and individual site follow-up visits to each
location by members of the steering committee were completed during September
1999. Testing and detailed reviews by a dedicated full time information
resources technician at major sites were completed and his recommendations are
being followed up. The move to internally developed core systems alleviated the
major issues associated with Y2K. In locations were the Company uses externally
provided software, or PLC technology in equipment, testing has been completed
and vendor surveys have been performed. The one major potential problem
identified was in a European subsidiary manufacturing facility. The Company has
replaced the systems in that location with internally developed software.
Contingency plans are currently being developed to sustain operations and
continue to provide a high level of customer service.
(2). External issues.
The Company has communicated with and continues to communicate with its
suppliers, customers, financial institutions 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 readiness of utilities, transportation facilities, financial service
providers and government operated services that could interrupt business unit
operations. There can be no assurance that all these business partners will be
fully compliant or the problems they may encounter will have no adverse effect
on Company operations.
The Company currently estimates that the total cost 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 cost of consultants and employees
assigned to implement the plan. These amounts do not include estimated costs to
implement any contingency plans that are currently being developed. The costs
associated with Y2K issues are expensed as incurred and are funded with cash
flow from operations. As of September 30, 1999 the Company had expensed $1.25
million. The Company does not expect the total costs of addressing these issues
to be material to its consolidated financial position or results of operations.
16
<PAGE>
While there can be no absolute assurance that the Company can identify and
address all potential issues arising from Y2K issues, the management believes
that the Company is taking adequate action and will be able to continue
providing quality products and services to our customers.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not purely statements of historical fact
may be deemed to be forward-looking. Readers are cautioned that any such
forward-looking statements are based upon management's current knowledge and
assumptions, and actual results could be affected in a material way by many
factors, including ones over which the Company has little or no control, e.g.
unforeseen changes in shipping schedules; the balance between supply and
demand; and market, economic, political and weather conditions. More
information regarding certain of these factors is contained in the Company's
other SEC filings, copies of which are available upon request from the
Company. The Company assumes no obligation to update any of these
forward-looking statements.
17
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. An annual meeting of shareholders was held on August 10, 1999.
b. Three persons nominated by management were elected as directors
for terms expiring in 2002, as follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Marvin W. Coghill 8,832,549 1,284,647
Robert E. Harrison 8,833,900 1,283,296
William A. Ziegler 8,833,355 1,283,841
In addition the following other directors remained in office after the
meeting: J. Alec G. Murray; Daniel M. Sullivan; B. Clyde Preslar;
William S. Barrack, Jr.; Charles H. Mullen; and William S. Sheridan.
c. The appointment of Deloitte & Touche LLP as the company's
independent auditors for fiscal 2000 was approved by a vote of
10,849,727 shares in favor, 8,451 shares against and 19,019
shares abstaining.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following exhibits are filed as a part of this report:
11 Computation of Earnings per Common Share.
27 Financial Data Schedule
b. The Company did not file any reports on Form 8-K during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1999
STANDARD COMMERCIAL CORPORATION
(Registrant)
By /s/ Robert E Harrison
------------------------------------
Robert E Harrison
President, Chief Executive Officer
By /s/ Robert A Sheets
------------------------------------
Robert A Sheets
Vice President and Chief Financial
Officer
18
STANDARD COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Second quarter ended Six months ended
September 30 September 30
---------------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C>
BASIC EARNINGS PER SHARE
Net income applicable to common stock......................... $ 2,210 $ 4,018 $ 3,472 $ 6,033
====== ====== ====== ======
Basic average shares outstanding.............................. 12,947,026 12,815,865 12,940,178 12,812,853
Basic earnings per common share - net........................ $ 0.17 $ 0.31 $ 0.27 $ 0.47
DILUTED EARNINGS PER SHARE
Net income applicable to common stock........................ $ 2,210 $ 4,018 $ 3,472 $ 6,033
Add - after-tax interest expense on 7 1/4% convertible
subordinated debentures at November 1................ 825 825 1,650 1,650
------- ------- ------- -----
Net income applicable to common stock......................... $ 3,035 $ 4,843 $ 5,122 $ 7,683
===== ====== ====== =====
Basic average shares outstanding.............................. 12,947,026 12,815,865 12,940,178 12,812,853
Increase in shares outstanding assuming
- conversion of 7 1/4% convertible subordinated
debentures at November 13, 1991...................... 2,348,536 2,348,536 2,348,536 2,348,536
Diluted average shares outstanding............................ 15,295,562 15,164,401 15,288,714 15,161,389
Diluted earnings per common share - net....................... $ 0.19* $ 0.32* $ 0.34* $ 0.51*
</TABLE>
Calculation of diluted earnings per share includes adjustments, which are
antidilutive. Therefore, basic and diluted are shown as the same on the face of
the income statement.
19
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 37,277
<SECURITIES> 640
<RECEIVABLES> 223,890<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 385,741
<CURRENT-ASSETS> 655,125
<PP&E> 154,301<F1>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 877,121
<CURRENT-LIABILITIES> 465,940
<BONDS> 203,400
0
0
<COMMON> 3,114
<OTHER-SE> 148,342
<TOTAL-LIABILITY-AND-EQUITY> 877,121
<SALES> 475,245
<TOTAL-REVENUES> 475,245
<CGS> 422,441
<TOTAL-COSTS> 422,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,799
<INCOME-TAX> 4,244
<INCOME-CONTINUING> 3,472
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,472
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
<FN>
<F1>SHOWN NET IN FINANCIAL STATEMENTS
<F2>NOT SHOWN SEPARATELY UNDER MATERIALITY GUIDELINES
</FN>
</TABLE>
