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 DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-9875
[STANDARD LOGO]
STANDARD COMMERCIAL CORPORATION
Incorporated under the laws of I.R.S. Employer
North Carolina Identification No. 13-1337610
2201 MILLER ROAD, WILSON, NORTH CAROLINA 27893
Telephone Number 252-291-5507
Former name, former address and former fiscal year, if changed since last report
- - Not applicable
On February 1, 1999 the registrant had outstanding 12,830,174 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)
December 31 March 31
1998 1997 1998
---- ---- ----
(unaudited)
ASSETS
Cash............................................ $ 38,345 $ 76,646 $ 34,116
Receivables..................................... 185,238 248,661 254,469
Inventories..................................... 473,152 417,509 361,418
Prepaid expenses................................ 5,050 6,325 8,674
Marketable securities........................... 762 722 656
-----------------------------
Current assets............................... 702,547 749,863 659,333
Property, plant and equipment................... 111,251 113,079 113,572
Investment in affiliates........................ 17,413 15,502 12,647
Other assets.................................... 57,658 46,502 53,921
-----------------------------
Total assets................................. $888,869 $924,946 $839,473
=============================
LIABILITIES
Short-term borrowings........................... $353,013 $375,961 $267,799
Current portion of long-term debt............... 4,050 4,362 4,987
Accounts payable................................ 110,943 122,891 144,585
Taxes accrued................................... 15,668 23,685 22,863
-----------------------------
Current liabilities.......................... 483,674 526,899 440,234
Long-term debt.................................. 125,262 126,752 128,083
Convertible subordinated debentures............. 69,000 69,000 69,000
Retirement and other benefits................... 20,244 19,552 19,479
Deferred taxes.................................. 2,474 4,884 2,776
-----------------------------
Total liabilities............................ 700,654 747,087 659,572
-----------------------------
MINORITY INTERESTS.............................. 29,621 30,858 30,271
-----------------------------
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 15,436,402 (Dec. 97 - 15,420,796;
Mar 98 - 15,424,555).......................... 3,089 3,084 3,085
Additional paid-in capital...................... 101,989 102,166 101,788
Unearned restricted stock plan compensation..... (1,719) (1,876) (1,996)
Treasury shares, 2,617,707...................... (4,250) (4,250) (4,250)
Retained earnings............................... 88,454 71,758 82,943
Cumulative translation adjustments.............. (28,969) (23,881) (31,940)
-----------------------------
Total shareholders' equity................... 158,594 147,001 149,630
-----------------------------
Total liabilities and equity................. $888,869 $924,946 $839,473
=============================
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands, except per share information; unaudited)
<TABLE>
<CAPTION>
Third quarter ended Nine months ended
December 31 December 31
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales - tobacco ................................ $215,123 $286,230 $607,614 $706,763
- nontobacco ............................. 53,570 80,770 160,531 247,805
--------- --------- --------- ---------
Total sales ................................. 268,693 367,000 768,145 954,568
Cost of sales - materials, services and supplies 242,336 327,645 683,524 854,962
- interest ....................... 5,839 4,749 14,892 17,429
--------- --------- --------- ---------
Gross profit ................................ 20,518 34,606 69,729 82,177
Selling, general and administrative expenses ... 18,167 18,776 54,013 53,955
Other interest expense ......................... 4,362 4,672 13,253 10,843
Other income (expense) - net ................... 2,571 746 8,877 5,218
--------- --------- --------- ---------
Income before taxes ......................... 560 11,904 11,340 22,597
Income taxes ................................... (637) (3,360) (4,018) (5,962)
--------- --------- --------- ---------
Income/(loss) after taxes ................... (77) 8,544 7,322 16,635
Minority interests ............................. 792 (112) (1,103) (1,621)
Equity in earnings of affiliates ............... 45 176 574 726
--------- --------- --------- ---------
Net income .................................. 760 8,608 6,793 15,740
Retained earnings at beginning of period ....... 88,335 63,150 82,943 58,089
Common stock dividends ......................... (641) -- (1,282) (2,071)
--------- --------- --------- ---------
Retained earnings at end of period ............. $ 88,454 $ 71,758 $ 88,454 $ 71,758
========= ========= ========= =========
Earnings per common share
Basic - net ................................... $ 0.06 $ 0.67 $ 0.53 $ 1.29
- average shares outstanding ............ 12,824 12,802 12,816 12,234
Diluted - net .................................. $ 0.06 $ 0.62 $ 0.53 $ 1.25
- average shares outstanding ........... 15,173 15,151 15,165 14,583
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands; unaudited)
Nine months ended
December 31
1998 1997
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $6,793 $15,740
Depreciation and amortization....................... 13,593 15,412
Minority interests.................................. 1,103 1,621
Deferred income taxes............................... (693) (525)
Undistributed earnings of affiliates net of
dividends received............................... (574) (726)
Gain on disposition of property, plant and equipment (3,614) (3,806)
Other............................................... 3,024 (1,715)
------------------------
19,632 26,001
Net changes in working capital other than cash
Receivables......................................... 67,081 (3,795)
Inventories......................................... (120,061) (174,348)
Current payables.................................... (32,760) 5,875
-----------------------
CASH USED FOR OPERATING ACTIVITIES.................... (66,108) (146,267)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment - additions............. (11,992) (12,278)
- dispositions.......... 9,982 5,984
Business (acquisitions) dispositions.................. (7,387) (6,328)
------------------------
Cash used for investing activities.................... (9,397) (12,622)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings................... 85,214 56,593
Proceeds from long-term borrowings.................... 535 110,387
Repayment of long-term borrowings..................... (4,938) (16,716)
Net proceeds of equity offering....................... -- 47,043
Dividends paid........................................ (1,282) --
Other................................................. 205 (2,889)
------------------------
CASH PROVIDED BY FINANCING ACTIVITIES................ 79,734 194,418
-----------------------
Increase in cash for period........................... 4,229 35,529
Cash at beginning of period........................... 34,116 41,117
-----------------------
CASH AT END OF PERIOD................................. $ 38,345 $76,646
=======================
Cash payments for - interest.................... $24,859 $18,798
- income taxes................ $10,663 $7,763
The accompanying notes are an integral part of these financial statements.
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.BASIS OF PRESENTATION
The interim statements presented herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's latest
Annual Report on Form 10-K. 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
December 31, 1998. Because of the nature of the Company's businesses,
fluctuations in results for interim periods are not necessarily indicative of
business trends or results to be expected for a full year.
2.INVENTORIES
December 31 March 31
(In thousands) 1998 1997 1998
---- ---- ----
Tobacco $402,909 $330,160 $284,822
Nontobacco 70,243 87,349 76,596
------ ------ ------
Total $473,152 $417,509 $361,418
======== ======== ========
3.COMPREHENSIVE INCOME
Effective June 1998, the Company adopted Statement of Financial Accounting
Standards No.130, Reporting comprehensive income ("SFAS 130"). This statement
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet . Reclassification
of financial statements for earlier periods provided for comparative purposes
is required.
The components of comprehensive income were as follows:
Quarter ended Nine months ended
December 31 December 31
----------- -----------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
Net income $760 $8,608 $6,793 $15,740
Other comprehensive income:
Translation adjustment 387 (3,432) 2,971 (7,125)
--- ------- ----- -------
Total comprehensive income $1,147 $5,176 $9,764 $8,615
------ ------ ------ ------
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
third quarter and nine months ended December 31, 1998, 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 nine
months ended December 31, 1998 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.SENIOR NOTES
On August 1, 1997 the Company completed a $115 million Rule 144A private
placement of 8 7/8% Senior Notes Due 2005. The Senior Notes were subsequently
registered with the Securities and Exchange Commission and an exchange offer
was completed on December 31, 1997. The proceeds were used to repay
indebtedness under existing bank credit facilities and certain long-term debt.
Consequently $115 million short-term borrowings were classified as long-term
debt at June 30, 1997.
The notes were issued by Standard Commercial Tobacco Co., Inc. (the "Issuer"), a
wholly owned subsidiary of the Company. The Company and Standard Wool, Inc., a
wholly-owned subsidiary of the Company (the "Guarantors"), jointly and
severally, guarantee, on a senior basis, the full and prompt performance of the
Issuer's obligations under the terms of the indenture. Management has
determined that full financial statements of the Guarantors would not be
material to investors and such financial statements are not provided. The
following supplemental combining financial statements present information
regarding the Issuer and the Guarantors.
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE SHEET
December 31, 1998
(In thousands; Unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
----------- ----------- ---------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 8,368 $ 124 $ 216 $ 29,637 $ -- $ 38,345
Receivables 14,373 2,136 246 168,483 -- 185,238
Intercompany receivables 107,375 16,826 64 23,329 (147,594) --
Inventories 139,987 -- 929 332,236 -- 473,152
Prepaids and other 947 -- 17 4,086 -- 5,050
Marketable securities -- 1 -- 761 -- 762
---------------------------------------------------------------------------
Current assets 271,050 19,087 1,472 558,532 (147,594) 702,547
Property, plant and equipment 23,508 -- 73 87,670 -- 111,251
Investment in subsidiaries 77,189 230,214 37,391 169,548 (514,342) --
Investment in affiliates -- -- -- 17,413 -- 17,413
Other noncurrent assets 6,152 9,382 -- 42,124 -- 57,658
---------------------------------------------------------------------------
Total assets $ 377,899 $ 258,683 $ 38,936 $ 875,287 ($661,936) $ 888,869
===========================================================================
Liabilities
Short-term borrowings 12,025 -- -- 340,988 -- 353,013
Current portion of long-term debt -- -- -- 4,050 -- 4,050
Accounts payable 17,404 1,860 42 91,637 -- 110,943
Intercompany payables 19,817 32,056 1,765 93,956 (147,594) --
Taxes accrued 6,734 (2,912) (140) 11,986 -- 15,668
---------------------------------------------------------------------------
Current liabilities 55,980 31,004 1,667 542,617 (147,594) 483,674
Long-term debt 117,940 -- -- 7,322 -- 125,262
Convertible subordinated debentures -- 69,000 -- -- -- 69,000
Retirement and other benefits 8,397 705 -- 11,142 -- 20,244
Deferred taxes 221 (2,316) -- 4,569 -- 2,474
---------------------------------------------------------------------------
Total liabilities 182,538 98,393 1,667 565,650 (147,594) 700,654
---------------------------------------------------------------------------
Minority interests -- -- -- 29,621 -- 29,621
---------------------------------------------------------------------------
Shareholders' equity
Common stock 993 3,089 25,404 139,530 (165,927) 3,089
Additional paid-in capital 130,860 101,989 -- 64,839 (195,699) 101,989
Unearned restricted stock plan compensation (595) (23) (8) (1,093) -- (1,719)
Treasury stock at cost -- (4,250) -- -- -- (4,250)
Retained earnings 78,619 88,454 7,854 105,709 (192,182) 88,454
Cumulative translation adjustments (14,516) (28,969) 4,019 (28,969) 39,466 (28,969)
---------------------------------------------------------------------------
Total shareholders' equity 195,361 160,290 37,269 280,016 (514,342) 158,594
---------------------------------------------------------------------------
Total liabilities and equity $ 377,899 $ 258,683 $ 38,936 $ 875,287 ($661,936) $ 888,869
===========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND
RETAINED EARNINGS
Quarter ended December 31, 1998.
(In thousands; unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other Wool
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
----------- ----------- ---------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Sales $ 104,824 $ -- $ 494 $ 210,695 $ (47,320) $ 268,693
Cost of sales:
Materials services and supplies 98,011 -- 458 191,187 (47,320) 242,336
Interest -- -- -- 5,839 5,839
--------------------------------------------------------------------------
Gross profit 6,813 -- 36 13,669 20,518
Selling, general & administrative expenses 3,241 569 135 14,222 18,167
Other interest expense 2,738 1,306 -- 318 4,362
Other income (expense)- net 2,385 1,367 (54) (1,127) 2,571
--------------------------------------------------------------------------
Income (loss) before taxes 3,219 (508) (153) (1,998) 560
Income taxes 1,231 (736) (52) 194 637
--------------------------------------------------------------------------
Income (loss) after taxes 1,988 228 (101) (2,192) (77)
Minority interests -- -- -- 792 792
Equity in earnings of affiliates -- -- -- 45 45
Equity in earnings of subsidiaries 248 532 (1,603) -- 823 --
--------------------------------------------------------------------------
Net income 2,236 760 (1,704) (1,355) 823 760
Retained earnings at beginning
of period 76,383 88,335 9,558 107,064 (193,005) 88,335
Common stock dividends -- (641) -- -- (641)
--------------------------------------------------------------------------
Retained earnings at end of period 78,619 88,454 7,854 105,709 (192,182) 88,454
==========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND
RETAINED EARNINGS
Nine months ended December 31, 1998
(In thousands; Unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
----------- ----------- ---------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Sales $ 164,735 $ -- $ 1,449 $ 723,421 $(121,460) $ 768,145
Cost of sales:
Materials services and supplies 151,232 -- 1,362 652,390 (121,460) 683,524
Interest 58 -- -- 14,834 -- 14,892
---------------------------------------------------------------------------
Gross profit 13,445 -- 87 56,197 -- 69,729
Selling, general & administrative expenses 9,932 1,949 341 41,791 -- 54,013
Other interest expense 8,305 3,920 -- 1,028 -- 13,253
Other income (expense)- net 6,680 5,328 (157) (2,974) -- 8,877
---------------------------------------------------------------------------
Income (loss) before taxes 1,888 (541) (411) 10,404 -- 11,340
Income taxes 642 (747) (140) 4,263 -- 4,018
---------------------------------------------------------------------------
Income (loss) after taxes 1,246 206 (271) 6,141 -- 7,322
Minority interests -- -- -- (1,103) -- (1,103)
Equity in earnings of affiliates -- -- -- 574 -- 574
Equity in earnings of subsidiaries 8,805 6,587 (3,193) -- (12,199) --
---------------------------------------------------------------------------
Net income 10,051 6,793 (3,464) 5,612 (12,199) 6,793
Retained earnings at beginning
of period 68,568 82,943 11,318 100,097 (179,983) 82,943
Common stock dividends -- (1,282) -- -- -- (1,282)
---------------------------------------------------------------------------
Retained earnings at end of period $ 78,619 $ 88,454 $ 7,854 $ 105,709 $(192,182) $ 88,454
===========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
Nine months ended December 31, 1998
(In thousands.Unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
----------- ----------- ---------- ----------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities $(10,238) $ 1,143 $ 5 $(57,018) $ -- $(66,108)
--------- -------- --------- --------- ------- --------
Cash flows from investing activities
Property, plant and equipment
- additions (4,497) -- (31) (7,464) -- (11,992)
- disposals 4,415 -- -- 5,567 -- 9,982
Business (acquisitions) dispositions -- -- -- (7,387) -- (7,387)
--------- -------- --------- --------- ------- --------
Cash provided by (used in)
investing activities (82) -- (31) (9,284) -- (9,397)
--------- -------- --------- --------- ------- --------
Cash flows from financing activities:
Net change in short-term borrowings 12,025 -- -- 73,189 -- 85,214
Proceeds from long-term borrowings -- -- -- 535 -- 535
Repayment of long-term borrowings (168) -- -- (4,770) -- (4,938)
Dividends paid -- (1,282) -- -- -- (1,282)
Other -- 205 -- -- -- 205
--------- -------- --------- --------- ------- --------
Cash provided by (used in)
financing activities 11,857 (1,077) -- 68,954 -- 79,734
--------- -------- --------- --------- ------- --------
Increase (decrease) in cash for year 1,537 66 (26) 2,652 -- 4,229
Cash at beginning of year 6,831 58 242 26,985 -- 34,116
--------- -------- --------- --------- ------- --------
Cash at end of year $ 8,368 $ 124 $ 216 $ 29,637 $ -- $ 38,345
========= ======== ========= ========= ======= ========
Cash payments for - Interest $ 5,564 $ 2,506 $ -- $ 16,789 $ -- $ 24,859
- Income taxes 336 2,053 -- 8,274 -- 10,663
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING BALANCE
SHEET
December 31, 1997
(In thousands.Unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 40,097 $ 21 $ 98 $ 36,430 $ - $ 76,646
Receivables 19,929 3,864 610 224,258 - 248,661
Intercompany receivables 133,142 19,727 6 97,158 (250,033) -
Inventories 86,592 - 1,596 329,321 - 417,509
Prepaids and other 346 96 8 5,875 - 6,325
Marketable securities - 1 - 721 - 722
-----------------------------------------------------------------------
Current assets 280,106 23,709 2,318 693,763 (250,033) 749,863
Property, plant and
equipment 22,309 - 55 90,715 - 113,079
Investment in
subsidiaries 81,460 217,551 38,777 98,896 (436,684) -
Investment in affiliates - - - 15,502 - 15,502
Other noncurrent assets 7,225 13,811 - 25,466 - 46,502
-----------------------------------------------------------------------
Total assets $391,100 $ 255,071 $41,150 $924,342 ($686,717) $924,946
=======================================================================
Liabilities
Short-term borrowings $ 35,000 $ - $ - $340,961 $ - $375,961
Current portion of
long-term debt 336 - - 4,026 - 4,362
Accounts payable 19,093 1,694 154 101,950 - 122,891
Intercompany payables 21,816 34,946 4,680 188,591 (250,033) -
Taxes accrued 5,430 - - 18,255 - 23,685
-----------------------------------------------------------------------
Current liabilities 81,675 36,640 4,834 653,783 (250,033) 526,899
Long-term debt 120,655 - - 6,097 - 126,752
Convertible subordinated
debentures - 69,000 - - - 69,000
Retirement and other
benefits 8,082 585 - 10,885 - 19,552
Deferred taxes 83 - - 4,801 - 4,884
-----------------------------------------------------------------------
Total liabilities 210,495 106,225 4,834 675,566 (250,033) 747,087
-----------------------------------------------------------------------
Minority interests - - - 30,858 - 30,858
-----------------------------------------------------------------------
Shareholders' equity
Common stock 993 3,084 22,604 66,749 (90,346) 3,084
Additional paid-in
capital 132,513 102,166 - 69,010 (201,523) 102,166
Unearned restricted stock
plan compensation (724) (31) - (1,121) - (1,876)
Treasury stock at cost - (4,250) - - - (4,250)
Retained earnings 47,823 71,758 8,362 96,284 (152,469) 71,758
Cumulative translation
adjustments - (23,881) 5,350 (13,004) 7,654 (23,881)
-----------------------------------------------------------------------
Total shareholders'
equity 180,605 148,846 36,316 217,918 (436,684) 147,001
-----------------------------------------------------------------------
Total liabilities
and equity $391,100 $255,071 $41,150 $924,342 ($686,717) $924,946
=======================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Quarter ended December 31, 1997.
(In thousands; unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales $110,428 $ - $ 789 $ 298,608 $ (42,825) $367,000
Cost of sales:
Materials services and
supplies 101,717 - 722 268,031 (42,825) 327,645
Interest (84) - - 4,833 4,749
------------------------------------------------------------------------
Gross profit 8,795 - 67 25,744 34,606
Selling, general &
administrative expenses 3,829 507 69 14,371 18,776
Other interest expense 2,939 1,358 - 375 4,672
Other income (expense)-
net 2,641 49 (122) (1,822) 746
------------------------------------------------------------------------
Income (loss) before
taxes 4,668 (1,816) (124) 9,176 11,904
Income taxes 1,706 (618) - 2,272 3,360
------------------------------------------------------------------------
Income (loss) after
taxes 2,962 (1,198) (124) 6,904 8,544
Minority interests - - - (112) (112)
Equity in earnings of
affiliates - - - 176 176
Equity in earnings of
subsidiaries - 9,806 446 - (10,252) -
------------------------------------------------------------------------
Net income 2,962 8,608 322 6,968 (10,252) 8,608
Retained earnings at
beginning of period 44,861 63,150 8,040 89,316 (142,217) 63,150
Common stock dividends - - - - -
------------------------------------------------------------------------
Retained earnings at
end of period $ 47,823 $ 71,758 $ 8,362 $ 96,284 $(152,469) $ 71,758
========================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
Nine months ended December 31, 1997
(In thousands.Unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 239,258 $ - $ 2,977 $831,875 $(119,542) $954,568
Cost of sales:
Materials services and
supplies 221,189 - 2,769 750,546 (119,542) 854,962
Interest 2,040 - - 15,389 - 17,429
-----------------------------------------------------------------------
Gross profit 16,029 - 208 65,940 - 82,177
Selling, general &
administrative expenses 9,131 1,790 205 42,829 - 53,955
Other interest expense 5,442 4,103 - 1,298 - 10,843
Other income (expense)-
net 3,717 1,494 (275) 282 - 5,218
-----------------------------------------------------------------------
Income (loss) before
taxes 5,173 (4,399) (272) 22,095 - 22,597
Income taxes 1,877 (1,496) - 5,581 - 5,962
-----------------------------------------------------------------------
Income (loss) after
taxes 3,296 (2,903) (272) 16,514 - 16,635
Minority interests - - - (1,621) - (1,621)
Equity in earnings of
affiliates - - - 726 - 726
Equity in earnings of
subsidiaries - 18,643 1,831 - (20,474) -
-----------------------------------------------------------------------
Net income 3,296 15,740 1,559 15,619 (20,474) 15,740
Retained earnings at
beginning of period 44,527 58,089 6,803 80,665 (131,995) 58,089
Common stock dividends - (2,071) - - - (2,071)
-----------------------------------------------------------------------
Retained earnings at
end of period $ 47,823 $71,758 $ 8,362 $ 96,284 $(152,469) $ 71,758
=======================================================================
</TABLE>
<PAGE>
STANDARD COMMERCIAL CORPORATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
Nine months ended December 31, 1997
(In thousands.Unaudited)
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool Inc. (Non-
(Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
-------- ----------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by
(used in)
operating activities $(57,193) $ (46,665) $ 12 $ (42,421) $ - $(146,267)
-----------------------------------------------------------------------
Cash flows from
investing activities
Property, plant and
equipment
- additions (2,680) - (33) (9,565) - (12,278)
- disposals 15 - - 5,969 - 5,984
Business (acquisitions)
dispositions - - - (6,328) - (6,328)
-----------------------------------------------------------------------
Cash provided by
(used in)
investing activities (2,665) - (33) (9,924) - (12,622)
-----------------------------------------------------------------------
Cash flows from
financing activities:
Net change in short-term
borrowings (1,277) - - 57,870 - 56,593
Proceeds from long-term
borrowings 109,028 - - 1,359 - 110,387
Repayment of long-term
borrowings (8,898) - - (7,818) - (16,716)
Net proceeds of equity
offering - 47,043 - - - 47,043
Dividends paid - - - - - -
Other - (684) - (2,205) - (2,889)
-----------------------------------------------------------------------
Cash provided by
(used in)
financing activities 98,853 46,359 - 49,206 - 194,418
-----------------------------------------------------------------------
Increase (decrease) in
cash for year 38,995 (306) (21) (3,139) - 35,529
Cash at beginning of year 1,102 327 119 39,569 - 41,117
-----------------------------------------------------------------------
Cash at end of year $ 40,097 $ 21 $ 98 $ 36,430 $ - $ 76,646
=======================================================================
Cash payments
for - Interest $ 1,651 $ 2,585 $ - $ 14,562 $ - $ 18,798
- Income taxes - 1,006 - 6,757 - 7,763
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Sales for the quarter ended December 31, 1998 were $268.7 million, a decrease
of 26.8% from a year earlier. Sales for the nine months period were $768.1
million, a decrease of 19.5% from same period a year earlier. Most of the
change was due to continuing difficulties in the wool segment and lower prices
in the tobacco segment. Sales of $215.1 million and $607.6 million for the
quarter and nine months, respectively, for the tobacco division were down 24.8%
and 14.0% from the corresponding period in 1997. Overall, for the quarter,
tobacco volume was down 21.0% due to decreases in Europe, the Far East and
South America, and average prices worldwide were lower. For the nine months
volume was 2.3% higher than the prior year despite softness during the quarter.
Lower prices offset the volume gain to result in the lower sales. Nontobacco
sales of $53.6 million and $160.5 million for the quarter and nine months,
respectively, were down 33.7% and 35.2% primarily as the result of depressed
market conditions as the industry continues to deal with the impact of the
Asian economic problems and supply/price dynamics.
The tobacco sales and price trends combined with the depressed market conditions
in the wool segment resulted in lower gross margins for the quarter against the
prior year period. Gross margin for the nine months improved from the 1997
period due primarily to a reduction in interest expense resulting from the
application of the proceeds of the senior notes issue to reduce short-term
borrowings. The increase in other interest expense for the nine months is
primarily due to the senior notes issue mentioned previously and the other
income was higher due to the gains on sales of fixed assets and gains realized
from the proceeds of life insurance policies.
The effect of the sales declines in the wool segment and lower average tobacco
prices combined to lower income before taxes for the quarter and nine months.
The variation in income tax charges or credits as a percentage of pretax income
is due to differences in tax rates worldwide and relief available in areas
where profits are earned or losses are incurred. For the periods ended December
31, 1998, the Company incurred losses in the wool segment in areas where tax
relief was not available.
Net income was $0.8 million, or $0.06 per share on a diluted basis, versus $8.6
million, or $0.62 per share for the quarter. For the nine months period, net
income was $6.8 million, or $0.53 per share on a diluted basis, versus $15.7
million, or $1.25 per share on a diluted basis. The increase in shares
outstanding was primarily attributable to the Company's 3.0 million share
public offering during the June 1997 quarter.
Liquidity and Capital Resources
Working capital at December 31, 1998 was $218.9 million, compared to $223.0
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 1998 of $12.0 million consisted
primarily of routine expenditures of $10.0 million in the tobacco division and
$2.0 million in the wool division. During the same period the Company increased
its holding in its Spanish operations from 66.33% to 100% and also invested an
additional amount in its Indian and Tanzanian operations. Cash used in
operating activities totaled $66.1 million mainly due to increase in
inventories and a decrease in payables. The Company continues to closely
monitor its inventory levels which fluctuate depending on seasonal factors and
business conditions.
During the first quarter of fiscal 1998 the Company completed a secondary issue
of 3,022,500 shares, from which the Company received $47 million. Certain debt
agreements to which the Company and its subsidiaries are parties contain
financial covenants which could restrict the payment of cash dividends. Under
its most restrictive covenant, the Company had approximately $14.7 million of
retained earnings available for distribution as dividends at December 31, 1998.
On August 1, 1997 the Company completed a $115 million Rule 144A private
placement of 8 7/8% Senior Notes Due 2005. The Senior Notes were subsequently
registered with the Securities and Exchange Commission and an exchange offer
was completed on December 31, 1997. The proceeds were used to repay
indebtedness under existing bank credit facilities and certain long-term debt.
.
<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 Issues
Background
The approach of the year 2000 has heightened concern over potential problems
with data systems and devices that may not be able to process dates properly
after 1999. Affected systems and devices may fail or malfunction if not remedied
or replaced. The Company actually began addressing internal year 2000 issues in
the early 1990's. From 1991 to 1994 the Company began to move away from
mainframe based systems and became an early adopter of PC, LAN and client-server
solutions to meet information needs. The Company internally developed new
manufacturing and inventory applications using tools that accommodate dates as
proper date types rather than encoded string variables or limited serial numeric
dates. The internally developed applications and year 2000 compliant financial
systems were installed in many group companies in the mid-1990's. The Company
formed a steering committee in 1997 to assess the Company's year 2000 readiness
and to develop a plan to ensure readiness. The steering committee, which
includes representatives from all functional areas of the Company, meets monthly
to monitor progress on the plan, advise group companies on issues and allocate
resources for solutions. The plan adopted consists of two main areas of focus.
Year 2000 Plan
1. Internal year 2000 issues
Internal year 2000 issues include the effects of date changes on the Company's
technology, including hardware, software and equipment containing other embedded
systems such as programmable logic controllers ("PLC"). The steering committee's
plan for assessing internal year 2000 readiness consists of identifying
technology at each location, evaluating the exposure of such technology to year
2000 problems, testing the technology for problems and resolving any problems
noted. The critical technology identified includes manufacturing, inventory and
financial systems. The Company has made substantial progress on the internal
plan. Most group companies have already developed comprehensive inventories of
technology and evaluated their exposure. In locations where the Company uses
externally provided software or PLC technology in equipment, testing is being
done and vendor surveys have been conducted. Members of the steering committee
and a full-time information resources technician are visiting locations to
assess the completeness of the listings and assist in evaluating readiness. The
Company expects the identification, evaluation and testing phases of the plan to
be fully completed by June 1999. As noted above, the use of the Company's
internally developed manufacturing and inventory applications has alleviated the
major issues associated with year 2000 at most locations. Only one location, a
European subsidiary manufacturing facility, had pervasive year 2000 issues. The
Company is in the process of replacing the systems in that location with
internally developed software and expects to complete the project by March 1999.
Although there can be no absolute assurance that the year 2000 plan will be able
to identify all potential problem areas, the Company is presently on schedule
and believes that the internal phase of the plan will be completed by July 1999.
Contingency plans are currently being developed to sustain operations and
continue to provide a high level of customer service.
<PAGE>
2. External year 2000 issues
The Company's plan for addressing external year 2000 issues consists primarily
of communicating with its suppliers, financial institutions, customers and other
business partners to determine the extent of their year 2000 readiness.
Responses are being catalogued and follow-up communications are ongoing as
necessary. The Company expects to complete the process of assessing the
readiness of its significant third parties by June 30, 1999. Certain significant
customers and suppliers are located in foreign countries where the awareness of
year 2000 problems and remediation efforts may be behind that of the United
States. Additionally, the Company is subject to operational risks relating to
the readiness of utilities, transportation facilities, financial service
providers and government operated services that could interrupt business unit
operations. The Company cannot predict the outcome of other companies'
remediation efforts.
Costs
The Company currently plans to complete its year 2000 plan by June 30, 1999. The
total remaining cost of completing the plan is estimated at $0.7 million, which
includes the cost of installing internally developed manufacturing software in
the European subsidiary, any software upgrades from vendors necessary to be
compliant and the cost of consultants and employees assigned to implement the
plan. These amounts do not include estimated costs to implement contingency
plans that are being developed. The costs associated with year 2000 issues are
expensed as incurred and are funded with cash flow from operations. As of
December 31, 1998 the Company has incurred and expensed approximately $0.5
related to the identification, evaluation and testing phases of the plan. The
Company does not expect the total costs of addressing these issues to be
material to its consolidated financial position or results of operations.
Risk Assessment
At this time, the Company believes its most reasonably likely worst case
scenario is that processing and shipping at key locations may be disrupted due
to year 2000 issues of utilities, transportation providers and government
operated services in foreign countries. Such issues could impair the Company's
ability to process and deliver products. There can be no absolute assurance that
such a scenario would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Contingency Plans
Contingency plans are being developed so that the Company's operational and data
systems can be expected to function on January 1, 2000 and beyond. The
contingency plans will be structured to address primarily the risk that third
parties' year 2000 issues will disrupt operations. The Company expects to
complete its contingency plans by June 30, 1999.
Conversion to the Euro Currency
On January 1, 1999, eleven of the European Union countries began the conversion
from their national currencies to the "Euro" by agreeing to 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 are developing procedures
and modifying financial reporting to accommodate the new currency. The Company
anticipates that the Euro conversion will not have a material adverse effect on
its financial condition or results of operation.
Forward-Looking Statements
Statements in this report that are not purely statements of historical fact may
be deemed to be forward-looking. Readers are cautioned that any such
forward-looking statements are based upon management's current knowledge and
assumptions, and actual results could be affected in a material way by many
factors, including ones over which the Company has little or no control, e.g.
unforeseen changes in shipping schedules; the balance between supply and
demand; and market, economic, political and weather conditions. More
information regarding certain of these factors is contained in the Company's
other SEC filings, copies of which are available upon request from the Company.
The Company assumes no obligation to update any of these forward-looking
statements.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
Item 2. Changes in Securities - Not applicable
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not
applicable
Item 5. OTHER INFORMATION - Not applicable
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: February 10, 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
<PAGE>
STANDARD COMMERCIAL CORPORATIONCOMPUTATION OF EARNINGS PER COMMON SHARE
EXHIBIT 11
(In thousands, except share information; unaudited)
<TABLE>
<CAPTION>
Third quarter ended Nine months ended
December 31 December 31
1998 1997 1998 1997
----- ----- ---- -----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income applicable to common stock ....................... $ 760 $ 8,608 $ 6,793 $ 15,740
=========== =========== =========== ===========
Basic average shares outstanding ............................ 12,824,281 12,802,375 12,816,663 12,234,431
Basic earnings per common share - net ...................... $ 0.06 $ 0.67 $ 0.53 $ 1.29
DILUTED EARNINGS PER SHARE
Net income applicable to common stock ...................... $ 760 $ 8,608 $ 6,793 $ 15,740
Add -- after-tax interest expense on 7 1/4% convertible
subordinated debentures at November 1 825 825 2,475 2,475
----------- ----------- ----------- -----------
Net income applicable to common stock ....................... $ 1,585 $ 9,433 $ 9,268 $ 18,215
=========== =========== =========== -----------
Basic average shares outstanding ............................ 12,824,281 12,802,375 12,816,663 12,234,431
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 .......................... 15,172,817 15,150,911 15,165,199 14,582,967
Diluted earnings per common share - net ..................... $ 0.10 $ 0.62 $ 0.61 $ 1.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND RETAINED
EARNINGS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> MAR-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 38,345
<SECURITIES> 762
<RECEIVABLES> 185,238 <F1>
<ALLOWANCES> 0 <F2>
<INVENTORY> 473,152
<CURRENT-ASSETS> 702,547
<PP&E> 111,251 <F1>
<DEPRECIATION> 0 <F2>
<TOTAL-ASSETS> 888,869
<CURRENT-LIABILITIES> 483,674
<BONDS> 194,262
0
0
<COMMON> 3,089
<OTHER-SE> 155,505
<TOTAL-LIABILITY-AND-EQUITY> 888,869
<SALES> 768,145
<TOTAL-REVENUES> 768,145
<CGS> 698,416
<TOTAL-COSTS> 698,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,340
<INCOME-TAX> 4,018
<INCOME-CONTINUING> 6,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,793
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<FN>
<F1> SHOWN NET IN FINANCIAL STATEMENTS.
<F2> NOT SHOWN SEPARATELY UNDER MATERIALITY GUIDELINES.
</FN>
</TABLE>
