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STANDARD COMMERCIAL CORPORATION
Global Supplier of Leaf Tobacco and Wool
Business Description, Strategy and Goals
The return to our shareholders is driven by the earnings and cash flow generated
from two international, service-related businesses: purchasing, value-added
processing and selling leaf tobacco and wool. Standard Commercial, founded in
1910, is headquartered in Wilson, North Carolina and trades on the New York
Stock Exchange under the symbol STW.
Each of our businesses is driven by the following growth philosophy:
Teamwork + Adapting to Change + Superior Customer Service = Growth
The philosophy is driven by a culture which encourages people to see themselves
as business owners of the corporation who are accountable for the results of
their business units and the Company as a whole -- people who work together to
continuously improve the business process and thus the service that the
customer receives.
The Company's goal is to continue to build for the future by establishing a
solid platform for profitable growth. Growth through acquisitions, strategic
alliances, joint ventures and technology developments will be aggressively
pursued to expand the Company's business base and improve asset efficiencies --
all of which should result in better financial returns for shareholders.
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FINANCIAL HIGHLIGHTS
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Standard Commercial Corporation
Forward-Looking Statements
Statements in this Annual Report that are not purely statements of
historical fact may be deemed to be forward-looking. Readers are cautioned that
any such forward-looking statements are based upon management's current
knowledge and assumptions, and actual results could be affected in a material
way by many factors, including ones over which the Company has little or no
control, e.g. unforeseen changes in shipping schedules; the balance between
supply and demand; and market, economic, political and weather conditions. For
more details regarding such factors, see the Company's filings with the
Securities and Exchange Commission. The Company assumes no obligation to update
any of these forward-looking statements.
Financial Highlights
Dollar amounts in thousands except share information
<TABLE>
<CAPTION>
For years ended March 31 2000 1999 1998
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<S> <C> <C> <C>
Sales $1,105,726 $1,102,829 $1,492,797
Net income 10,338 8,415 26,925
Earnings per share
Basic - net $0.80 $0.66 $2.18
Diluted - net $0.80 $0.66 $2.05
Net income as a percentage of sales 0.9% 0.8% 1.8%
At year-end
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Working capital $193,589 $198,783 $219,099
Working capital ratio 1.46:1.00 1.44:1.00 1.50:1.00
Market price per share 3 1/2 4 3/4 15 15/16
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</TABLE>
Contents
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Business Description, Strategy and Goals ................................. IFC
Financial Highlights ..................................................... 1
Letter to Shareholders ................................................... 2
Tobacco Business ......................................................... 4
Wool Business ............................................................ 6
Management's Discussion and Analysis of Results of Operations and
Financial Condition ..................................................... 8
Independent Auditors' Report ............................................. 14
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Company Report on Financial Statements ................................... 14
Consolidated Financial Statements ........................................ 15
Notes to Consolidated Financial Statements ............................... 20
Selected Financial Data .................................................. 35
Quarterly Financial Data ................................................. 36
Corporate Directors and Officers, and Division Management and Principal
Trading Companies ....................................................... 37
Investor Information ..................................................... 40
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LETTER TO SHAREHOLDERS
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Standard Commercial Corporation
Dear Fellow Investors:
I am pleased to report to you that your company remained solidly profitable
in 2000 and in fact grew earnings by 23 percent despite what some might say
were the most difficult trading conditions ever concurrently experienced by
Tobacco and Wool. These results are a testament to your Company's worldwide
management team and to our customers' belief in the products and services we
offer. Without them your Company could not have made the progress it did and I
say thank you to both groups for their help in allowing us to do so. This year
has been another shining example of our credo that:
Teamwork + Adapting to Change + Superior Service = Growth
From a shareholder point of view 2000 was another disappointing year, with
the value of your shares declining 26 percent from a year ago. As we know, the
market has continued to move away from value' investing, including tobacco
stocks, toward high tech. On average, tobacco share prices fell across the
board by some 35 percent as compared to a year ago and only recently have begun
to rally. The uncertainty surrounding the punitive damages phase of the Engles
case in Florida continues to cast a cloud over the industry and is dampening
investor enthusiasm for a return to the sector as a whole. While our share
price has been negatively impacted, we remain confident that our products will
continue to be in demand over the long term and that the market will again
reward us for solid progress.
Operationally, tobacco continues to be in over-supply globally. We had
thought last year at this time that this situation would have eased somewhat
with the improving economic conditions in the Far East and some consumption
increases in Eastern Europe. While there was improvement to some degree, it was
not sufficient to offset the decline in consumption in the United States and
Europe caused by tax increases. Contributing further to a decline in leaf
demand, a number of large mergers have allowed the industry an opportunity for
inventory rationalization. Nevertheless, we continue to view this over-supply
condition as temporary. Strong consumer demand continues in the world market,
despite excessive taxation. This demand, along with stabilized inventories
among the manufacturers, will return our industry to more predictable and
profitable patterns of supply and demand. Globally, we are estimating that
cigarette consumption will start to grow again at around one to two percent per
year. It is difficult to say with precision when this will occur, but we
believe we will start to see it developing in the coming year.
The investments we have made on the tobacco side are performing
satisfactorily. Meridional in Brazil continues to grow its customer base, our
investments in China have us well positioned in the world's largest tobacco
market, our investment in India is in its second full year of operation and
running smoothly and our most recent investment in Russia is exceeding all
expectations. As a result, we believe we are well positioned to supply our
customers with a broad spectrum of leaf to meet their varied requirements for
competitively priced product. Earnings-wise, the tobacco division performed
solidly and, except for an unusually high effective tax rate this year, would
have equaled last year's results.
Our wool division started off this past year in an uncertain market,
primarily due to the lingering effects of the Far Eastern financial crisis and
an oversupply of wool. Market conditions began to improve in the last half of
the year and the wool management team made significant changes to our
operations that contributed to improved results. This remains a tough business
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environment but the hard work and commitment of our people are making a
difference. I am delighted to report to you that for the year as a whole the
division improved from last year's net loss of $5.2 million to a net loss of
only $700 thousand and this positive trend appears to be continuing into the
first quarter of the current year. The net loss of $700 thousand includes a
write-off of $1.3 million for an investment we had made in Tasmania before the
wool markets collapsed in 1999. After adjusting for that write-off, the wool
division would have reported a net profit of $600 thousand for the year, a
solid turn-around and a tremendous effort on the part of the managers in that
division.
Overall, a solid year that reinforces the strategy we have adopted. Our
balance sheet is improved as we continue to focus on reducing inventory levels
and debt to provide a sound foundation as we move into the future.
Going forward, I believe we have the right strategies, a highly skilled and
motivated workforce and a broad array of products and services, which will
continue to be in demand. To ensure that our entire organization focussed on
what we believe it takes to succeed, this past year we re-wrote our mission
statement and, additionally, made three commitments. Our mission statement is,
simply, to be the most respected purchaser and processor of tobacco and wool
products in the world. The three commitments we made were: to our customers, to
be the best supplier; to our employees, to provide ongoing programs to enhance
their skills as the market environment changes and; finally, to you our
shareholders, to provide fair returns that justify your investment in us.
In closing, I am pleased to welcome Mr. Mark W. Kehaya to our Board of
Directors. Mark is the son of our late Chairman Emeritus, Ery W. Kehaya and we
are pleased to continue the long-standing relationship of the founding family
and our Company.
Sincerely,
/s/ R E Harrison
R E Harrison
President and Chief Executive Officer
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TOBACCO BUSINESS
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Standard Commercial Corporation
Tobacco Business
Even though tobacco markets suffered some of the most difficult trading
conditions ever during Fiscal 2000, we were still able to achieve earnings of
$11.0 million and have held our uncommitted inventory within our target range.
These solid profits were produced as a result of a strong worldwide tobacco
management team. The team has successfully managed the fundamentals -- superior
customer service, quality products and services, technological developments,
and inventory and cashflow management.
During Fiscal 2000, the strategic investments we have made continue to pay
off:
. The CRES factory in Russia opened on schedule and on budget in August
1999. The factory is operating at full capacity, utilizing all four
shifts. It is surpassing all performance targets.
. We have begun our worldwide implementation of ISO 9002, a globally
recognized quality system. During FY2000, we successfully implemented ISO
9002 in Spain, Brazil, the United States and our Oriental tobacco
operation in Thailand. This program focuses our entire team on
maintaining and improving processing quality. It also enables us to
continually upgrade our ability to be responsive to our customers' needs
in a cost-effective manner. We are on track for all of our factories to
be ISO 9002 certified in two years.
. We have successfully completed the first year of operation of our
Kyrgyzstan joint venture with Sunel, known as "Stansun". The Kyrgyzstan
tobacco is purchased, processed and shipped to multinational and
independent customers who use this tobacco in Russian-type cigarettes.
The presence of our joint venture operation has been well received by
multi-national manufacturers.
. Investments made in recent years continue to pay off. The investment in
our processing plant in China has us well positioned in the world's
largest tobacco market. Our acquisition of Meridional in Brazil continues
to grow its customer base. In addition, we have successfully completed
the second year of operation of our Indian joint venture operation.
During the year, we continued to experience an over-supply situation in the
leaf markets. This was the result of large crops, customer uncertainty in the
face of increasing taxation in the US and Europe, which resulted in lower
consumption of cigarettes, continued litigation in the US and the merger of
manufacturers resulting in the rationalization of their inventory positions. In
the upcoming year, we expect to continue to absorb an over-supply of certain
types of leaf tobacco. However, we estimate that cigarette consumption will
again start to grow at the rate of 1-2% per year.
Going forward, the tobacco division has established specific action plans to
improve the profitability of each operation. The action plans emphasize
customer service and asset and cashflow management. These action plans should
establish a solid foundation for future earnings and cashflow growth. These
plans can only be achieved through the efforts of our strong management teams
located throughout the world.
The tobacco division believes that one of its core assets is its motivated
and diverse group of employees, representing many different nationalities and
cultures. The broad levels of experiences within this employee group allow the
Division to cover all growing, buying, processing, sales and financial
functions with expertise. In order for them to remain
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successful, we continue to reevaluate their skills and invest in additional
training in new areas.
The company believes that with its established action plans and the strength
of its employees, it is well positioned to fulfill its mission to be the most
respected purchaser and processor of tobacco products in the world.
The Company's role as a leading tobacco dealer is strengthened by its diverse
customer base and broad, balanced sources of supply as shown in the following
charts:
Fiscal 2000 Tobacco Purchases and Sales in Dollars
Purchase by Origin
Central & South America 22%
North America 28%
Europe 19%
Far East 10%
Africa 21%
Sales by Destination
North America 25%
South America 3%
Europe 47%
Far East 17%
Africa & Other 8%
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WOOL BUSINESS
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Standard Commercial Corporation
Wool Business
Fiscal year 2000 has been another challenging year for the Wool Division.
While the poor industry dynamics noted last year continued to negatively impact
trading conditions, particularly during the first half of fiscal year 2000,
conditions have begun to improve. During the latter half of fiscal year 2000,
demand began to improve, first in superfine wool types. Sales of these types
benefited from reduced availability of cashmere and the continuing movement in
fashion trends toward lighter weight fabric. General improvement in demand has
resulted in higher year end prices and substantial reductions of wool
stockpiles in Australia. Coupled with decreasing worldwide wool production,
supply and demand are expected to be better balanced. However, given continued
overcapacity in wool processing, trading conditions remain under pressure.
Highlights
. The Division incurred a loss of $0.7 million compared to a loss of
$5.1 million in the prior year.
. The current year results include the write-off of $1.3 million related to
the investment in a joint venture. In addition, $0.6 million of costs
associated with Divisional rationalization efforts were incurred.
. Sales volumes and gross margin improved over the prior year results,
despite continued heavy pressure on price for wool tops.
. The wool washing operation in Western Australia, of which Standard owns
24.9%, was officially opened in early October 1999 and is performing
well. This venture is the only wool washing operation in Western
Australia and we expect a positive contribution in view of strong demand
for scoured wool types overall.
. The wool washing joint venture in New Zealand has produced better returns
than forecast, notwithstanding ongoing difficult market conditions for
New Zealand wool. An additional partner joined the venture, which results
in increased throughput and improved returns going forward.
. The Wool Division's efforts to obtain ISO 9002 accreditation for all its
wool operations continues to progress. All but one processing operation
have been certified, with the remaining unit scheduled to complete the
accreditation process in fiscal year 2001. Two of the major trading units
have obtained accreditation, while the remaining units have begun the
process.
The Wool Division will continue to focus on its major strategic goal of
improving asset management, earnings stability and increasing cashflow. By
improving financial and trading controls, providing employee training and
development programs and focussing on providing superior customer services with
high levels of quality, we feel that the wool division will remain a solid
contributor to the Company.
External Environment
The Wool Division is working closely together with the International Wool
Textile Organisation in its efforts to find innovative ways to support the
industry's marketing and promotion activities. Ongoing research into new
innovative application fields for wool and improved marketing efforts will open
new opportunities for the Division.
The Australian authorities have set up a privatized company responsible for
the further liquidation of the old stockpile, which has reduced pricing
pressure in the market.
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The improved trading conditions with China, combined with efforts produced
by the Australian growers' funded wool marketing support and the global
industry's innovative efforts, should contribute to stabilizing the wool
markets.
By actively participating in these efforts and by pursuing tight risk
management we will be positioned to benefit from improving market conditions.
The Company's wool purchases are spread among the world's major exporting
areas and, although sales are concentrated in Europe, no single customer
accounted for more than 5% of total sales.
Fiscal 2000 Wool Purchases and Sales in Dollars
Purchase by Origin
Europe 9%
Far East & Others 4%
New Zealand 11%
South Africa 8%
South America 16%
Australia 52%
Sales by Destination
Africa & Others 2%
US 5%
Far East 20%
Europe 73%
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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Standard Commercial Corporation
General
The Company is principally engaged in purchasing, processing, storing,
selling and shipping leaf tobacco. The Company also purchases, processes and
sells various types of wool. For both the tobacco and wool business, the
ability to obtain raw materials at favorable prices is an important element of
profitability, although it is generally more important for wool than for
tobacco because some customers pay the Company to purchase and process tobacco
on a cost-plus basis. Obtaining raw materials at favorable prices must be
coupled with a thorough knowledge of the types and grades of raw materials to
assure the profitability of processing and blending to a customer's
specifications. Processing is capital-intensive and profit depends on the
volume of material processed and the efficiency of the factory operations. Due
to the much larger number of dealers and customers for wool and the far more
numerous trades involved, wool revenue tends to be more susceptible to market
price fluctuations than tobacco.
Historically, the cost of the Company's materials, services and supplies has
exceeded 85% of revenues. In the wool business, freight charges are also a
significant element of the cost of sales. The cost of raw materials, interest
expense and certain processing and freight costs are variable and thus are
related to the level of sales. Most procurement costs (other than raw
materials), certain processing costs, and most selling, general and
administrative expenses ("SG&A") are fixed. The major elements of SG&A are
employee costs, including salaries, and marketing expenses.
Tobacco sales are generally denominated in U.S. dollars whereas wool
purchases and sales are typically denominated in the currency of the source
country and destination country, respectively. The Company regularly monitors
its foreign exchange position and has not experienced material gains or losses
on foreign exchange fluctuations. The Company enters into forward contracts
solely for the purpose of limiting its exposure to short-term changes in
foreign exchange rates.
Assets and liabilities of foreign subsidiaries are translated at period-end
exchange rates. The effects of these translation adjustments are reported in
other comprehensive income/(loss). Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of
the entity involved and translation adjustments in countries with highly
inflationary economies are included in net income.
Global Market Conditions
A variety of external factors affected both the tobacco and wool markets
worldwide during the fiscal year ended March 31, 2000. The combination of
economic difficulties in Asia and Eastern Europe, uncertainty generated by
tobacco settlements and litigation in the U.S. and cigarette industry
consolidations continue to affect our customers' traditional buying patterns.
These disruptions have contributed to over-supply situations and subsequently
lowered prices for both tobacco and wool.
Tobacco Market Conditions. Economic difficulties in Asia and Eastern Europe
have eased in the year but the loss of consumer purchasing power, as currencies
weakened significantly against the US dollar, continues. This leads to lower
consumption of premium brand styles of tobacco and provides for a shift to
lower cost products. The major international suppliers of cigarettes in these
areas have experienced volume declines in most major markets. In turn, they
have taken a conservative approach to inventory management issues and focused
more on the low-cost filler style tobaccos, which results in lower prices for
purchases of leaf tobacco.
In the U.S. market, the late November 1998 settlement between the cigarette
manufacturers and the states for health care claims has resulted in major price
increases, which affect demand. Consumption in the US is estimated to have
declined in calendar 1999 by 6.6%. Until the effects of the settlement and
ongoing litigation
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are fully known, the uncertainty is prompting a conservative approach to
inventory management in this market.
In the latter part of the prior year, several of the largest international
cigarette manufacturers announced mergers that have further added to uncertain
purchasing conditions as the effects of combining different companies are still
being developed.
Wool Market Conditions. The ability of natural wool fibers to compete on
price and quality with synthetics has diminished over the past few years.
Falling prices on synthetic fibers, the potential for substitution at both the
processing and retail levels, and the buildup of raw wool stocks in Australia
contributed to an oversupply of natural wool that remained at the start of the
fiscal year. As a result, prices for wool fell during the first part of the
year. The latter part of the year saw limited recovery as oversupply situations
eased and economic conditions in Asia improved. The high prices for oil
reversed the falling price trend for synthetic fabrics and wool prices began to
recover. Demand for superfine wools has increased and the Chinese market has
reopened with new import quotas.
Business Acquisitions and Dispositions
During the fiscal year ended March 31, 2000, the Company made several
investments in joint ventures and one minor disposition. In Australia, the
Company acquired 24.9% of a new wool scouring facility that is the only one in
Western Australia. In Kyrgyzstan, the Company acquired 50% interest of a
tobacco processing and sales operation. The Company completed construction of a
new CRES (cut-rolled-expanded stem) processing facility in St. Petersburg,
Russia in September. Additionally, we made scheduled payments for the
acquisition of our Brazilian operations, the purchase of 100% of our Spanish
subsidiary and the purchase of a processing entity in Malawi.
The Company was a minority investor in a wool scour in Tasmania that was
closed in May 1999 due to difficult trading conditions for this type of coarse
wool. The investment and an associated receivable were written off.
Results of Operations
Comparison of the Year Ended March 31, 2000 to the Year Ended March 31, 1999
Sales. Sales for the twelve months ended March 31, 2000 were $1,106 million,
a slight increase from a year earlier. Sales of $883 million for the tobacco
division were level with the corresponding period in 1999, as average prices
held steady and volumes decreased less than one percent. Volumes were up from
the prior year in North and South America and the CIS as the new facility in
St. Petersburg came on line in September. Other countries experienced small
volume gains, such as Zimbabwe, Kenya and India.
Nontobacco sales for the twelve months ended March 31, 2000 of $223 million
were marginally up versus 1999. Volume of wool sold improved substantially by
15% but was offset by lower average prices in all markets in the early part of
the year. The division shifted its focus to sales of higher value-added
products in the last half of the year. Prices recovered in the last half of the
year and we believe the trend is favorable going forward. The key Australian
market price indicator closed the year at 682 cents (Australian) versus an
opening position of 524 cents (Australian) and has continued to increase since
year-end.
Gross Profit and Cost of Sales. Gross profit for the twelve-month period of
$110 million was up 19% from the 1999 twelve-month period due primarily to the
mix of business and higher sales of value added wool products.
Selling, General and Administrative Expenses. SG&A expenses were up 10%
primarily due to increased expenses for rationalization activities in both
divisions and provisions for write-offs of certain receivables in Italy,
Tanzania, Tasmania and South America.
Interest Expense and Other Income (Expense), Net. Interest expense was
lower, reflecting the impact of the use of long-term
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
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Standard Commercial Corporation
borrowings for crop purchases in the U.S. Other income (expense), net was lower
primarily because the prior year included gains on sale of the Oxford NC
property, increased rental income from machinery in Oxford and gains on
proceeds of a life insurance policy on the Company's Chairman Emeritus Ery W.
Kehaya.
Income Taxes, Minority Interests and Equity in Earnings of Affiliates.
Income tax charges or credits as a percentage of pretax income can vary due to
differences in tax rates and relief available in areas where profits are earned
or losses are incurred. The effective tax rate was higher than a year earlier
due mainly to losses in the nontobacco segment in areas where tax relief is not
available and high rates in Turkey where the economy is hyper-inflationary.
Earnings attributed to minority interests were lower than a year ago because
of difficult trading conditions in Greece and Turkey. Equity in earnings of
affiliates was down from 1999 due to the write-off of an investment in a wool
facility in Tasmania.
Net Income. Net income was $10.3 million, or $0.80 diluted per share on 15.3
million average shares outstanding, versus $8.4 million, or $0.66 diluted per
share on 15.2 million shares outstanding for the twelve months ended March 31,
1999. The tobacco division earnings were $11.0 million while the loss for the
nontobacco division was $0.7 million.
Comparison of the Year Ended March 31, 1999 to the Year Ended March 31, 1998
Sales. Sales for the twelve months ended March 31, 1999 were $1,103 million,
a decrease of 26.1% from a year earlier. Sales of $882 million for the tobacco
division were down 23.3% from the corresponding period in 1998, largely due to
lower prices and reduced volumes in North and South America. Overall, tobacco
volume was down 3.5% and average selling prices were down 20.6% for the year as
a result of industry conditions and a change in mix as customers focused more
on low-cost-filler style tobaccos. Volumes were up from the prior year in
Africa, Asia and Europe. Volumes in the U.S. were down 28.4% and average
selling prices were down a similar amount mostly as a reflection of disruptions
related to the customers actions in response to the tobacco settlements with
the States.
Nontobacco sales for the twelve months ended March 31, 1999 of $221 million
were down 35.6% primarily as the result of a 20.3% decrease in the volume of
wool sold and lower average prices in all markets. The volume decline was
mostly attributed to the effects of the currency crisis in Asia and the general
oversupply of wool worldwide. Additionally, the prior year included $8 million
of sales from the home building supplies business that was closed at the start
of the current fiscal year.
Gross Profit and Cost of Sales. Gross profit for the twelve-month period of
$92 million was down 24.5% from the 1998 twelve-month period due primarily to
the decrease in sales and increased interest expenses resulting from higher
inventory levels. Additionally, inventory write-offs for start-up business in
Tanzania contributed to the lower gross profit.
Selling, General and Administrative Expenses. SG&A expenses were 3.8% lower
primarily due to reduced expenses from closing down the Oxford, NC tobacco
facility and the home supply business in the early part of the fiscal year as
well as tighter control of other costs and expenses and favorable foreign
exchange.
Interest Expense and Other Income (Expense), Net. Interest expense was lower
reflecting the impact of the use of long-term borrowings for crop purchases in
the U.S. Other income (expense), net was higher due to gains on sale of the
Oxford NC property, increased rental income from machinery in Oxford, gains on
proceeds of a life insurance policy on the Company's Chairman Emeritus Ery W.
Kehaya, and gains on sales of property in Greece.
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Income Taxes, Minority Interests and Equity in Earnings of Affiliates.
Income tax charges or credits as a percentage of pretax income can vary due to
differences in tax rates and relief available in areas where profits are earned
or losses are incurred. The effective tax rate was higher than a year earlier
due mainly to losses in the nontobacco segment in areas where tax relief is not
available. The prior year included a one-time tax benefit recorded in our
French wool subsidiary as a result of a change in legislation.
Earnings attributed to minority interests were lower than a year ago because
of difficult trading conditions in Greece. Equity in earnings of affiliates was
up from 1998 due to seasonal business factors in the Far East.
Net Income. Net income was $8.4 million, or $0.66 diluted per share on 15.2
million average shares outstanding, versus $26.9 million, or $2.05 diluted per
share on 14.7 million shares outstanding for the twelve months ended March 31,
1998. The tobacco division earnings were $13.6 million while the loss for the
nontobacco division was $5.2 million.
Liquidity and Capital Expenditures
Working capital at March 31, 2000 was $193.6 million, down slightly from
$198.8 million at March 31, 1999. The Company continues to closely monitor its
inventories, which fluctuate depending on seasonal factors and business
conditions.
Capital expenditures were $16.3 million and $27.1 million for the fiscal
years ended March 31, 2000 and 1999, respectively. The Company expects capital
expenditures to total approximately $12.9 million for the fiscal year ending
March 31, 2001. Capital expenditures for 2000 related mostly to routine
expenditures in the tobacco and wool divisions, including the expansion of
tobacco warehouse facilities in Brazil and Turkey, the investment in a new CRES
(cut-rolled expanded stem) facility in St. Petersburg Russia, and new machinery
for the French topmaking facility and the South African scouring facility.
For 2000, cash provided by operating activities totaled $43.1 million, down
$3.5 million from the prior year primarily due to reduced inventories, which
was partly offset by an increase of receivables. Cash used for investing
activities of $16.4 million for 2000 included capital expenditures of $16.3
million mostly for tobacco activities of $13.9 million, including $1.4 million
in Brazil, $1.5 million in the United States, $5.5 million in Russia,
$1.9 million in Turkey and $2.4 million for the nontobacco segment net of total
asset dispositions of $3.2 million. Payments for acquisitions of $3.2 million
relate to investments in projects in Western Australia for wool and Kyrgyzstan
for tobacco.
Financing Arrangements. On August 1, 1997, the U.S. tobacco subsidiary of
the Company consummated the sale and issuance of $115.0 million of Senior
Notes. Simultaneously, the Company's major tobacco subsidiaries entered into a
revolving bank facility. The facility provides for borrowings of $200.0 million
for working capital and other general corporate purposes, and the interest rate
on borrowings under the facility is subject to change depending on the
Company's financial performance. The rate is currently LIBOR plus 1.25%. The
borrowings under the facility are guaranteed by the Company and secured by
substantially all of the assets of the borrowing subsidiaries and a pledge of
all of the capital stock of tobacco subsidiaries not otherwise pledged to
secure other obligations.
On May 19, 1999 the Company's major tobacco subsidiaries amended their
global revolving bank credit facility. The amount of the facility was increased
from $200.0 million to $233.0 million. The maturity date was extended from July
31, 2000 to July 31, 2002. Financial covenants and other terms and conditions
are essentially unchanged. In fiscal 2000, this facility was increased to
$250.0 million with the addition of two banks. Terms of the facility were
unchanged.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
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Standard Commercial Corporation
Additionally, local lines are available for the remainder of the tobacco
division of approximately $234.5 million in addition to separate facilities for
the non-tobacco division of $91.3 million.
The Company incurs short-term debt to finance its seasonal working capital
needs, which typically peak in the third quarter, under secured lines of credit
with several banks. At March 31, 2000, under agreements with various banks,
total short-term credit facilities were $575.8 million, compared to $608.9
million at March 31, 1999, with $37.7 million versus $67.0 million in 1999
being utilized for letters of credit and guarantees and $273.1 million
was unused.
Based on the outlook for the business for the next twelve months, management
anticipates that it will be able to service the interest and principal on its
indebtedness, maintain adequate working capital and provide for capital
expenditures out of operating cash flow and available borrowings under its
credit facilities. The Company's future operating performance will be subject
to economic conditions and to financial, political, agricultural and other
factors, many of which are beyond the Company's control.
On November 13, 1991, the Company issued $69.0 million of its 7 1/4%
Convertible Subordinated Debentures due March 31, 2007. The Debentures are
currently convertible into Common Stock at a conversion price (as adjusted for
subsequent stock dividends) of $29.38. The Debentures are subordinated in right
of payment to all senior indebtedness. As of March 31, 1995, the Debentures
became redeemable in whole or in part at our option. Beginning March 31, 2003,
we will be obligated to make annual sinking fund payments sufficient to retire
at least 5% of the principal amount of issued Debentures reduced by earlier
conversions, redemptions and repurchases. Holders of the Debentures have the
right to demand redemption under certain conditions, including a change in
control of the Company, mergers and consolidations and distributions with
respect to our capital stock. We may elect to redeem Debentures under these
circumstances for Common Stock in lieu of cash.
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
$17.4 million of retained earnings available for distribution as dividends at
March 31, 2000.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk primarily related to foreign exchange
and interest rates. These exposures are actively monitored by management. To
manage the volatility relating to these exposures, the Company enters into
derivative financial instruments. The objective is to reduce, where we deem
appropriate, fluctuations in earnings and cash flows associated with changes in
interest rates and foreign currency rates. It is the Company's policy and
practice to use derivative financial instruments only to the extent necessary
to manage exposures.
Because the Company uses currency rate-sensitive instruments to hedge only
existing transactions, any loss in value for those instruments generally would
be offset by increases in the value of those hedged transactions. The Company
does not hold or issue derivative financial instruments for trading or
speculation purposes.
Foreign exchange rates: The Company is exposed to foreign exchange movements
in Europe, Africa, Asia and South America. Consequently, it enters into various
contracts, primarily for the Wool division, which change in value as foreign
exchange rates change to preserve the value of commitments and anticipated
transactions. The Company uses foreign currency contracts to hedge revenue
streams and raw material purchases. As of
--------------------------------------------------------------------------------
12
<PAGE>
--------------------------------------------------------------------------------
March 31, 2000, the Company had short-term forward exchange contracts with US
dollar equivalents of $61.6 million.
Interest rates: The Company manages its exposure to interest rate risk
through the proportion of fixed rate and variable rate debt in its total debt
portfolio. Substantially all of long-term borrowings are denominated in the
U.S. dollar and carry fixed interest rates.
Use of derivative financial instruments has not had a material impact on the
Company's financial position at March 31, 2000 and 1999 or the Company's
results of operations or cash flows for the years ended March 31, 2000, 1999
and 1998.
Tax and Repatriation Matters
The Company and its subsidiaries are subject to income tax laws in each of
the countries in which they do business. The Company makes a comprehensive
review of the income tax requirements of each of its operations, files
appropriate returns and makes appropriate income tax provisions. These are
determined on an individual subsidiary level and at the corporate level on both
an interim and annual basis. The Company provides valuation allowances on
deferred tax assets for its subsidiaries that have a history of losses.
Management cannot assert that there will likely be sufficient profits generated
by these subsidiaries in the near future to offset these losses. We follow
these processes using an appropriate combination of internal staff at both the
subsidiary and corporate levels as well as independent outside advisors in
review of the various tax laws and in compliance reporting for the various
operations.
The undistributed earnings of certain foreign subsidiaries are not subject
to additional foreign income taxes nor considered to be subject to U.S. income
taxes unless remitted as dividends. The Company intends to reinvest such
undistributed earnings indefinitely; accordingly, no provision has been made
for U.S. taxes on those earnings. The Parent regularly reviews the status of
the accumulated earnings of each of its U.S. and foreign subsidiaries as part
of its overall financing plans.
Year 2000 Matters
The Company's plans to address the possible exposures related to the impact
on its computer systems of the Year 2000 was described in the Form 10-Q for the
quarter ended December 31, 1999. Since entering the year 2000 the Company has
not experienced any major disruptions to its business nor is it aware of any
significant Year 2000 related disruptions impacting its customers and
suppliers. The Company will continue to monitor its systems over the next
several months. The Company does not anticipate any significant impacts due to
Year 2000 exposure from its internal systems as well from the activities of its
suppliers and customers. The costs incurred for addressing Year 2000 issues,
which include the cost of installing internally developed manufacturing
software in the European subsidiary, software upgrades from vendors necessary
to be compliant, and the cost of consultants and employees assigned to
implement, were expensed as incurred. Such costs totaled approximately $1.4
million.
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 fixed rates
of exchange of their currencies against the "Euro". In the initial phase, the
national currencies will continue to exist until full conversion in July 2002.
The Company's subsidiaries affected by the conversion have developed procedures
and modified financial reporting to accommodate the new currency. The Euro
conversion did not have a material adverse effect on its financial condition or
results of operation, and no problems were noted during the conversion.
--------------------------------------------------------------------------------
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Directors of and Shareholders of Standard Commercial
Corporation
We have audited the accompanying consolidated balance sheets of Standard
Commercial Corporation as of March 31, 2000 and 1999 and the related
consolidated statements of income and comprehensive income (loss),
shareholders' equity and cash flows for each of the three years in the period
ended March 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 2000 and
1999, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITEEE & TOUCHE
Deloitte & Touche LLP
Raleigh, North Carolina
June 6, 2000
COMPANY REPORT ON FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Standard Commercial is responsible for the preparation of the financial
statements, related financial data and other information in this annual report.
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America and include amounts based on
estimates and judgment where appropriate.
In meeting its responsibility for both the integrity and fairness of these
statements and information, the Company depends on the accounting system and
related internal controls that are designed to provide reasonable assurance
that transactions are authorized and recorded in accordance with established
procedures, that assets are safeguarded and that proper and reliable records
are maintained.
The concept of reasonable assurance is based on the recognition that the cost
of an internal control system should not exceed the related benefits. Because
of inherent limitations in any system of controls, there can be no absolute
assurance that errors or irregularities will not occur. Nevertheless, we
believe that our internal controls provide reasonable assurance as to the
integrity and reliability of our financial records.
As an integral part of the internal control system, Standard maintains a
professional staff of internal auditors who monitor compliance with and assess
the effectiveness of the internal controls and recommend improvements thereto.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets quarterly with Standard's management and internal auditors,
and at least annually with its independent auditors, to review matters relating
to financial reporting, internal controls and the extent and results of the
audit effort. The internal auditors and independent auditors have direct access
to the Audit Committee with or without management present.
The financial statements have been examined by Deloitte & Touche LLP,
independent auditors, who render an independent professional report on the
Company's financial statements. Their appointment was recommended by the Audit
Committee, approved by the Board of Directors and ratified by the shareholders.
Their report on the financial statements is based on auditing procedures which
include reviewing internal control and performing selected tests of
transactions and records as they deem appropriate. These auditing procedures
are designed to provide reasonable assurance that the financial statements are
fairly presented in all material respects.
--------------------------------------------------------------------------------
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
March 31,
------------------
(In thousands, except share data) 2000 1999
<S> <C> <C>
Assets
Cash $ 38,349 $ 43,767
Receivables (Note 2) 227,300 228,910
Inventories (Notes 1 and 3) 340,444 376,922
Prepaid expenses 5,192 5,353
Marketable securities (Note 1) 586 656
------------------
Current assets 611,871 655,608
Property, plant and equipment (Notes 1 and 4) 146,638 155,389
Investment in affiliates (Notes 1 and 5) 16,059 12,782
Other assets (Notes 1, 6 and 10) 46,262 54,618
------------------
Total Assets $820,830 $878,397
------------------
Liabilities
Short-term borrowings (Note 7) $262,059 $280,587
Current portion of long-term debt (Note 9) 14,325 12,646
Accounts payable (Note 8) 132,115 149,433
Taxes accrued (Note 14) 9,783 14,159
------------------
Current liabilities 418,282 456,825
Long-term debt (Note 9) 130,645 144,161
Convertible subordinated debentures (Note 9) 69,000 69,000
Retirement and other benefits (Note 10) 20,536 20,224
Deferred taxes (Notes 1 and 14) 6,518 8,875
Commitments and contingencies (Note 11)
------------------
Total liabilities 644,981 699,085
------------------
Minority Interests (Note 1) 26,772 28,307
------------------
Shareholders' Equity:
Preferred stock, $1.65 par value
Authorized shares - 1,000,000; none issued
Common stock, $0.20 par value
Authorized shares - 100,000,000; issued - 15,605,725 and
15,540,078 at March 31, 2000 and 1999, respectively (Note
12) 3,121 3,108
Additional paid-in capital 102,986 102,680
Unearned restricted stock plan compensation (1,603) (2,177)
Treasury stock at cost, 2,617,707 shares at March 31, 2000
and 1999 (4,250) (4,250)
Accumulated other comprehensive income (48,354) (37,786)
Retained earnings 97,177 89,430
------------------
Total shareholders' equity 149,077 151,005
------------------
Total Liabilities and Shareholders' Equity $820,830 $878,397
------------------
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Years ended March 31,
<S> <C> <C> <C>
----------------------------------
<CAPTION>
(in thousands, except per share data) 2000 1999 1998
Sales $1,105,726 $1,102,829 $1,492,797
Cost of Sales:
- Materials, services and supplies (Note
3) 968,045 984,016 1,347,835
- Interest 27,444 26,368 22,576
----------------------------------
Gross profit 110,237 92,445 122,386
----------------------------------
Selling, general and administrative ex-
penses 83,814 76,437 79,464
Other interest expense 11,049 13,631 15,233
Other income - net (Note 13) 5,068 12,763 9,372
----------------------------------
Income before income taxes 20,442 15,140 37,061
Income taxes (Notes 1 and 14) 10,728 7,345 8,769
----------------------------------
Income after income taxes 9,714 7,795 28,292
Minority interests (Note 1) 409 (464) (2,020)
Equity in earnings of affiliates (Note 5) 215 1,084 653
----------------------------------
Net income 10,338 8,415 26,925
Other comprehensive income (loss):
Translation adjustment (10,568) (6,306) (15,184)
Less reclassifications for translation ad-
justment recognized in net income 460
----------------------------------
Total other comprehensive income (loss) (10,568) (5,846) (15,184)
----------------------------------
Comprehensive Income (Loss) $ (230) $ 2,569 $ 11,741
----------------------------------
Earnings Per Common Share (note 1):
Basic - net $ 0.80 $ 0.66 $ 2.18
- average shares outstanding 12,956 12,842 12,377
Diluted - net $ 0.80 $ 0.66 $ 2.05
- average shares outstanding 15,305 15,191 14,726
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
16
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Years ended March 31,
----------------------------
(in thousands) 2000 1999 1998
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 10,338 $ 8,415 $ 26,925
Depreciation and amortization 21,346 23,308 20,485
Minority interests 409 464 2,020
Deferred income taxes (2,308) 110 (8,141)
Undistributed earnings (losses) of affiliates net
of dividends received (100) (919) (519)
Gain on disposition of property, plant and
equipment (1,297) (4,902) (6,025)
Other 3,365 282 (3,024)
----------------------------
31,753 26,758 31,721
Net changes in working capital other than cash:
Receivables (3,294) 30,117 (18,451)
Inventories 27,483 (12,052) (119,369)
Current payables (12,820) 1,785 28,215
----------------------------
Cash provided by (used for) operating activities 43,122 46,608 (77,884)
----------------------------
Cash flows from investing activities:
Property, plant and equipment - Additions (16,348) (27,070) (19,732)
- Dispositions 3,175 12,615 10,008
Business (acquisitions) dispositions (3,230) (10,738) (7,928)
----------------------------
Cash used for investing activities (16,403) (25,193) (17,652)
----------------------------
Cash flows from financing activities:
Proceeds from long-term borrowings 2,494 1,643 113,053
Repayment of long-term borrowings (13,831) (5,373) (17,186)
Net change in short-term borrowings (18,528) (6,322) (51,569)
Net proceeds of equity offering - - 47,043
Dividends paid, net of tax (2,591) (1,928)
Other 319 216 (2,806)
----------------------------
Cash provided by (used for) financing activities (32,137) (11,764) 88,535
----------------------------
Increase (decrease) in cash for period (5,418) 9,651 (7,001)
Cash, beginning of period 43,767 34,116 41,117
----------------------------
Cash, end of period $ 38,349 $ 43,767 $ 34,116
----------------------------
Cash payments for - Interest $ 40,101 $ 40,243 $ 36,160
Income taxes $ 16,212 $ 12,441 $ 13,331
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Years Ended March 31, 2000, 1999, and 1998
-------------------------------------------
Number of Shares of
Common Stock Common Additional
--------------------- Stock Paid-In
Issued Treasury Par Value Capital
---------- --------- --------- ----------
(In thousands, except share data)
<S> <C> <C> <C> <C>
April 1, 1997 12,126,270 2,591,790 $2,425 $ 50,324
Net income
Other comprehensive income
Stock dividends 149,098 25,917 30 2,487
Dividends reinvested 375 9
RSP shares awarded 113,670 23 1,966
RSP compensation earned
RSP shares forfeited (1,557) (31)
401(k) contribution 14,199 3 233
New issue, May 1997 3,022,500 - 604 46,800
-------------------------------------------
March 31, 1998 15,424,555 2,617,707 3,085 101,788
Net income
Other comprehensive income
Cash dividends, $0.15 per share
Dividends reinvested 5,664 1 35
RSP shares awarded 87,435 18 682
RSP compensation earned
RSP shares forfeited (3,087) (1) (61)
401(k) contribution 25,511 - 5 236
-------------------------------------------
March 31, 1999 15,540,078 2,617,707 3,108 102,680
Net income
Other comprehensive income
Cash dividends, $0.20 per share
Dividends reinvested 14,998 3 59
RSP shares awarded 2,017 0 16
RSP compensation earned
RSP shares forfeited (1,871) 0 (15)
401(k) contribution 50,503 - 10 246
-------------------------------------------
March 31, 2000 15,605,725 2,617,707 $3,121 $102,986
-------------------------------------------
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
18
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
Standard Commercial Corporation
<TABLE>
<CAPTION>
Years Ended March 31, 2000, 1999, and 1998
-----------------------------------------------------------------------------------
Accumulated
Other
Unearned Comprehensive
Restricted Treasury Income Total
Stock Plan Stock (Translation Retained Shareholders'
Compensation At Cost Adjustment) Earnings Equity
------------ -------- ------------- -------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
$ (321) $(3,799) $(16,756) $ 58,089 $ 89,962
26,925 26,925
(15,184) (15,184)
(451) (2,071) (5)
9
(1,989) 0
314 314
(31)
236
- - - - 47,404
-----------------------------------------------------------------------------------
(1,996) (4,250) (31,940) 82,943 149,630
8,415 8,415
(5,846) 0 (5,846)
(1,928) (1,928)
36
(700) 0
519 519
(62)
- - - - 241
-----------------------------------------------------------------------------------
(2,177) (4,250) (37,786) 89,430 151,005
10,338 10,338
(10,568) 0 (10,568)
(2,591) (2,591)
62
16
574 574
(15)
- - - - 256
-----------------------------------------------------------------------------------
$(1,603) $(4,250) $(48,354) $ 97,177 $149,077
-----------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
--------------------------------------------------------------------------------
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998
--------------------------------------------------------------------------------
Standard Commercial Corporation
1. Description of Business and Significant Accounting Policies
Description of Business
The Company is principally engaged in purchasing, processing, storing,
selling and shipping leaf tobacco. The Company also purchases, processes and
sells various types of wool. The Company purchases tobacco and wool primarily
in the United States, Africa, Australia, South America and Asia for sale to
customers in the United States, Europe and Asia.
Significant Accounting Policies
a) Consolidation: The accounts of all subsidiary companies are included in
the consolidated financial statements and all intercompany transactions have
been eliminated. Investments in affiliated companies are accounted for by the
equity method of accounting.
b) Foreign Currency: Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates. The effects of these translation
adjustments are reported as other comprehensive income (loss). Exchange gains
and losses arising from transactions denominated in a currency other than the
functional currency of the entity involved and translation adjustments in
countries with highly inflationary economies are included in net income. Net
amounts included in the income statement relating to foreign currency losses
(in thousands) were $170, $697 and $892 in 2000, 1999 and 1998, respectively.
c) Marketable Securities: Marketable securities are classified as available
for sale and consist of liquid equity securities. The specific identification
method is used to determine gains and losses when securities are sold.
d) Intangible Assets: The Company's policy is to amortize goodwill on a
straight-line basis over its estimated useful life not to exceed 40 years. The
Company assesses recoverability of goodwill based on management's projections
of future cash flows of acquired businesses.
e) Property, Plant and Equipment: The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations over
the estimated useful lives, primarily 3-30 years, of the assets on a straight-
line basis.
f) Inventories: Inventories, which are primarily packed leaf tobacco and
wool, are stated at the lower of specific cost or estimated net realizable
value. Cost of tobacco includes a proportion of interest, buying commission
charges and factory overheads which can be related directly to specific items
of inventory. Cost of wool includes all direct costs except interest. Items are
removed from inventory on an actual cost basis.
g) Revenue Recognition: Sales and revenue are recognized on the passage of
title.
h) Income Taxes: The Company provides deferred income taxes on differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss
carryforwards.
i) Minority Interests: Minority interests represent the interest of third
parties in the net assets of certain subsidiary companies.
j) Computation of Earnings Per Common Share: Diluted earnings per share for
1998 include the effect of the convertible subordinated debentures which if
converted would have increased net income applicable to common stock by
$3,300,000 in 1998. The average shares outstanding would have increased by
2,348,536 shares for 1998, assuming conversion of the above debentures and ESOP
convertible preferred stock that was redeemed in the fourth quarter of 1998
upon termination of the ESOP plan. The convertible subordinated debentures were
not dilutive in 2000 or 1999. Options to purchase 174,864 and 97,664 shares of
common stock at a weighted average exercise price of $7.15 and $8.88 per share
were outstanding during 2000 and 1999, respectively, but were not included in
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
k) Long-Lived Assets: Long-lived assets are reviewed for impairment on a
market-by-market basis whenever events or changes in the circumstances indicate
that the carrying amount of an asset may not be recoverable. If an evaluation
is required, the projected future undiscounted future cash flows attributable
to each market would be compared to the carrying value of the long-lived assets
(including an allocation of goodwill, if appropriate) of that market if a
write-down to fair value is required. The Company also evaluates the remaining
useful lives to determine whether events and circumstances warrant revised
estimates of such lives.
l) Derivative Financial Instruments: The Company routinely enters into
forward foreign currency exchange to manage its exposure against foreign
currency fluctuations on purchases and sales. These contracts are generally for
short durations of six months or less. The Company does not enter into
contracts for trading purposes, and none of these contracts contain multiplier
or leverage features. The Company enters into such contracts only with
financial institutions of good standing and the total credit exposure related
to non-performance by those institutions is not material to the operations of
the Company. Realized and unrealized gains and losses on the Company's foreign
currency contracts that are designated and effective as hedges are deferred and
recognized as a component of the underlying transaction when it occurs.
Realized gains or losses from matured and terminated hedge contracts are
recorded in other assets or liabilities until the underlying hedge transaction
is consummated. Realized and unrealized gains or losses on hedge contracts
relating to transactions that are not subsequently expected to occur are
recognized in results currently. At March 31, 2000 the Company had foreign
exchange contracts outstanding with a notional value of $61.6 million and a
fair value of $62.6 million.
m) Use of Estimates and Assumptions: The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
n) Accounting Pronouncements: During 1999, the Company implemented Statements
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("SFAS
--------------------------------------------------------------------------------
20
<PAGE>
--------------------------------------------------------------------------------
130"), No. 131, Disclosures about Segments of an Enterprise and Related
Information ("SFAS 131") and No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits ("SFAS 132"). SFAS 130 required companies to (a)
classify items of other comprehensive income by their nature in the financial
statements and (b) display the accumulated balance of other comprehensive
income as a separate component of shareholders' equity in the balance sheet.
SFAS 131 established standards for the way that companies report information
about operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports issued to shareholders. It also established standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS 132 standardized the disclosure requirements for pension and
other postretirement benefits and did not address measurement or recognition.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those investments at fair value. This statement is effective for fiscal years
beginning after June 15, 2000. The Company has not analyzed the provisions of
this statement or its effects on the Company.
o) Reclassification: Certain amounts in prior year statements have been
reclassified for conformity with current year presentation, with no effect on
reported results of operations or equity.
2. Receivables
<TABLE>
<CAPTION>
in thousands 2000 1999
----------------------------------------------------
<S> <C> <C>
Trade accounts $151,080 $156,897
Advances to suppliers 38,621 37,104
Affiliated companies 16,126 7,389
Other 28,039 32,523
------------------
233,866 233,913
Allowances for doubtful accounts (6,566) (5,003)
------------------
$227,300 $228,910
------------------
3. Inventories
<CAPTION>
in thousands 2000 1999
----------------------------------------------------
<S> <C> <C>
Tobacco $278,343 $315,506
Nontobacco 62,101 61,416
------------------
$340,444 $376,922
------------------
</TABLE>
Tobacco inventories at March 31, 2000 and 1999 included capitalized interest
of $9.6 million and $7.4 million, respectively. Included in inventory at March
31, 2000 and 1999 were valuation reserves of $12.0 million and $10.7 million,
respectively. Inventory valuation provisions included in cost of sales totaled
approximately $3.7 million, $7.0 million and $2.7 million in 2000, 1999 and
1998, respectively.
4. Property, Plant and Equipment
<TABLE>
<CAPTION>
in thousands 2000 1999
----------------------------------------------
<S> <C> <C>
Land $ 11,584 $ 12,130
Buildings 103,497 98,805
Machinery and equipment 169,568 170,324
Furniture and fixtures 17,145 17,130
Construction in progress 2,381 9,334
--------------------
304,175 307,723
Accumulated depreciation (157,537) (152,334)
--------------------
$ 146,638 $ 155,389
--------------------
</TABLE>
Depreciation expense was $18.5 million, $20.2 million and $17.8 million in
2000, 1999 and 1998, respectively.
5. Affiliated Companies
a) Net investment in affiliated companies are represented by the following:
<TABLE>
<CAPTION>
in thousands 2000 1999
---------------------------------------------------
<S> <C> <C>
Net current assets $ 8,506 $ 8,566
Property, plant and equipment 62,384 36,804
Other long-term liabilities (23,251) (5,813)
Interests of other shareholders (33,285) (26,775)
------------------
Company's interest 14,354 12,782
Goodwill 1,705 -
------------------
Net investments $ 16,059 $ 12,782
------------------
</TABLE>
b) The results of operations of affiliated companies were:
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
----------------------------------------------
<S> <C> <C> <C>
Sales $113,875 $86,347 $108,664
-------------------------
Income before taxes $ 4,161 $ 3,435 $ 4,055
Income taxes 800 1,328 1,675
-------------------------
Net income $ 3,361 $ 2,107 $ 2,380
-------------------------
Company's share $ 215 $ 893 $ 616
Withholding taxes - 191 37
-------------------------
Equity in earnings $ 215 $ 1,084 $ 653
-------------------------
Dividends received $ 115 $ 165 $ 134
-------------------------
</TABLE>
c) Balances with the unconsolidated affiliates are for the procurement of
tobacco inventory as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Purchases of tobacco $21,218 $31,511 $30,087
Receivables from equity investees 20,968 12,011 20,662
Advances on purchases of tobacco 14,733 5,732 8,744
Payables to equity investees 314 340 138
</TABLE>
The Company's significant affiliates and percentage of ownership at March 31,
2000 follow: Adams International Ltd., 49.0% (Thailand), Siam Tobacco Export
Corporation Ltd., 49.0%
--------------------------------------------------------------------------------
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
(Thailand), Tanzania Tobacco Processors, 20% (Tanzania), Transcontinental
Tobacco India Private Ltd. 49.0% (India), Stansun Leaf Tobacco Company Ltd.,
50.0% (Kyrgyzstan), Ferrier Woolscours, 24.9% (New Zealand), Jandakot Wool
Washing Pty. Ltd., 24.9% (Australia), and Independent Wool Dumpers Pty Ltd.,
16.8 % (Australia). Audited financial statements of affiliates are obtained
annually.
6. Other Assets
<TABLE>
<CAPTION>
in thousands 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
Cash surrender value of life insurance policies (face amount
$35,758) $11,650 $11,176
Less policy loans 3,592 3,648
---------------
8,058 7,528
Bank deposits 434 513
Receivables 18,011 21,036
Deferred financing fees 5,516 6,533
Investments 462 1,048
Excess of purchase price of subsidiaries over net assets
acquired - net of accumulated amortization of $8,464 (1999 -
$7,969) 6,503 6,998
Purchase contracts - net of accumulated amortization of $1,858
(1999 - $928) 6,503 7,433
Other 775 3,529
---------------
$46,262 $54,618
---------------
</TABLE>
7. Short-term Borrowings
<TABLE>
<CAPTION>
in thousands 2000 1999
--------------------------------------------------------------------------
<S> <C> <C>
Weighted-average interest on borrowings at end of year 6.9% 6.4%
Weighted-average interest rate on borrowings during the
year(/1/) 6.8% 7.0%
Maximum amount outstanding at any month-end $356,048 $383,307
Average month-end amount outstanding $307,196 $328,256
Amount outstanding at year-end $262.059 $280,587
</TABLE>
(/1/)Computed by dividing short-term interest expense and amortized financing
costs by average short-term debt outstanding.
At March 31, 2000, under agreements with various banks, total short-term
credit facilities for continuing operations of $575.8 million (1999 - $608.9
million) were available to the Company of which $37.7 million (1999 - $67.0
million) was being utilized for letters of credit and guarantees and $273.1
million (1999 - $261.4 million) was unused.
The Company's revolving credit facilities at March 31, 2000 included a master
credit facility for tobacco operations (the "MFA"), in addition to local lines
of approximately $234.5 million. Also, separate facilities totaling $91.3
million are in place for wool operations.
At March 31, 2000 substantially all of the Company's assets were pledged
against current and long-term borrowings.
8. Accounts Payable
<TABLE>
<CAPTION>
in thousands 2000 1999
----------------------------------------------
<S> <C> <C>
Trade accounts $ 96,947 $122,666
Affiliated companies 314 340
Other accruals and payables 34,854 26,427
-----------------
$132,115 $149,433
-----------------
</TABLE>
9. Long-Term Debt
<TABLE>
<CAPTION>
in thousands 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
8.875% Senior Notes due in 2005 $115,000 $115,000
10.4% loan repayable annually through 2000 - 1,634
Floating rate note, at 82% of prime, repayable in 2001
(2000 average 6.7%) 2,940 2,940
Italian prime plus 1/8% payable through 2002 (2000 average
10.6%) 937 1,867
9.82% fixed rate loan repayable annually through 2005 2,246 2,625
Interest free note repayable through 2005 1,107 1,487
5.7% loan repayable through 2002 638 1,246
9.23% loan repayable through 2003 1,196 1,384
6.05% loan repayable annually through 2003 11,991 12,051
2.2% loan repayable annually through 2001 1,500 3,000
Average one year LIBOR rate loan repayable through 2001 1,606 6,964
Other 5,809 6,609
------------------
144,970 156,807
Current portion (14,325) (12,646)
------------------
$130,645 $144,161
------------------
</TABLE>
Long-term debt maturing after one year is as follows: 2002 - $7,091; 2003 -
$6,558; 2004 - $1,309; 2005 - $687 and thereafter - $115,000.
Certain debt agreements to which the Company and its subsidiaries are parties
contain financial covenants (relating to, among other things: minimum net worth
and interest coverage ratios; and limits on capital expenditures, permitted
investments, indebtedness advances and liens) which could restrict the payment
of cash dividends.
Convertible Subordinated Debentures
On November 13, 1991 the Company issued $69.0 million of 7 1/4% Convertible
Subordinated Debentures due March 31, 2007. Adjusted for subsequent stock
dividends, the debentures currently are convertible into shares of common stock
of the Company at a conversion price of $29.38. The debentures are subordinated
in right of payment to all senior indebtedness, as defined, of the Company, and
as of March 31, 1995 became redeemable in whole or in part at the option of the
Company any time. Beginning March 31, 2003 the Company will make annual
payments to a sinking fund which will be sufficient to retire at least 5% of
the principal amount of issued Debentures reduced by earlier conversions,
redemptions and repurchases.
--------------------------------------------------------------------------------
22
<PAGE>
--------------------------------------------------------------------------------
At March 31, 2000, substantially all of the Company's assets were pledged
against current and long-term borrowings.
10. Benefits
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time salaried employees in the United States and a
Supplemental Executive Retirement Plan ("SERP") covering benefits otherwise
limited by Section 401(a)(17) (Compensation Limitation) and Section 415
(Benefits Limitation) of the Internal Revenue Code. Various other pension plans
are sponsored by foreign subsidiaries. The U.S. defined benefit pension plans
and foreign plans which are significant and which are considered to be defined
benefit pension plans are accounted for in accordance with Statement of
Financial Accounting Standards No. 87, Employers' Accounting for Pensions.
Benefits under the Plans are based on employees' years of service and eligible
compensation. The Company's policy is to contribute amounts to the U.S. plans
sufficient to meet or exceed funding requirements of federal benefit and tax
laws.
The Company also provides health care and life insurance benefits for
substantially all of its retired salaried employees in the U.S. These benefits
are accounted for in accordance with Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions ("SFAS 106"), which requires the accrual of the estimated cost of
retiree benefit payments during the years the employee provides services. The
ongoing impact of SFAS 106 as it relates to employees of foreign subsidiaries
is immaterial. The Company expenses the costs of such benefits as incurred.
Plan assets consist primarily of common stocks, pooled equity and fixed
income funds. The pension costs and obligations for non-U.S. plans shown below
also include certain unfunded book-reserve plans.
A summary of the U.S. plans and non-U.S. plans is as follows (in thousands):
<TABLE>
<CAPTION>
US Plans Non-US Plans US Plans
Pension Benefits Pension Benefits Other Benefits
--------------------------------------------------------
in thousands 2000 1999 2000 1999 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit
obligation
Benefit obligation at
beginning of year $ 13,889 $ 10,899 $ 34,996 $ 33,835 $ 8,428 $ 6,524
Service cost 809 751 1,765 1,682 274 244
Interest cost 898 827 2,786 2,516 511 492
Actuarial (gain) loss (2,009) 2,102 918 (1,861) (1,492) 1,430
Actual distributions (208)
Special termination
benefits 752
Benefits paid (2,335) (690) (1,606) (1,176) (355) (262)
--------------------------------------------------------
Benefit obligation at
end of year 11,796 13,889 38,859 34,996 7,366 8,428
--------------------------------------------------------
Change in plan assets
Fair value of plan
assets, beginning of
year 15,368 14,812 34,725 32,774
Actual return on plan
assets 1,480 1,246 9,803 1,874
Employer contribution 1,340 1,253 355 262
Settlement distributions (2,335)
Benefits paid (208) (690) (1,606) (1,176) (355) (262)
--------------------------------------------------------
Fair value of plan
assets at end of year 14,305 15,368 44,262 34,725
--------------------------------------------------------
Funded status 2,509 1,479 5,403 (271) (7,367) (8,428)
Unrecognized net
actuarial loss (3,231) (1,370) (8,247) (3,150) (1,029) 567
Unrecognized transition
obligation (104)
Unrecognized prior
service cost (11) (22) (1,818) (1,913) (556) (695)
--------------------------------------------------------
Prepaid (accrued)
benefit cost $ (837) $ 87 $ (4,662) $ (5,334) $(8,952) $(8,556)
--------------------------------------------------------
</TABLE>
The aggregate projected benefit obligation and aggregate accumulated benefit
obligation for U.S. pension plans with accumulated benefit obligations in
excess of plan assets (in thousands) were $687 and $633 as of March 31, 2000
and $615 and $604 as of March 31, 1999. The aggregate projected benefit
obligation and aggregate accumulated benefit obligation for non-U.S. pension
plans with accumulated benefit obligations in excess of plan assets (in
thousands) were $6,449 and $6,142 as of March 31, 2000 and $6,990 and $6,578 as
of March 31, 1999. All plans with accumulated benefit obligations in excess of
plan assets had no plan assets as of March 31, 2000 and 1999.
--------------------------------------------------------------------------------
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
The components of net periodic benefit costs for the U.S. plans and non-U.S.
plans is as follows (in thousands):
<TABLE>
<CAPTION>
US Plans Non-US Plans US Plans
Pension Benefits Pension Benefits Other Benefits
-------------------------------------------------------------------
in thousands 2000 1999 1998 2000 1999 1998 2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service Cost $ 808 $ 750 $669 $ 1,765 $ 1,682 $ 1,527 $275 $244 $195
Interest Cost 898 827 678 2,786 2,516 2,489 511 492 445
Expected return on plan
assets (1,219) (1,174) (933) (3,442) (3,232) (2,609)
Amortization of prior
service cost (72) (11) (10) 45 (90) (91) (139) (139) (139)
Recognized net actuarial
loss (157) (62) (123) 56 138 103 (19)
-------------------------------------------------------------------
Net periodic benefit
cost $ 415 $ 235 $342 $ 1,031 $ 932 $ 1,454 $750 $597 $482
-------------------------------------------------------------------
</TABLE>
The assumptions used in 2000, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
US Plans Non-US Plans US Plans
Pension Benefits Pension Benefits Other Benefits
-----------------------------------------------------------------------
in thousands 2000 1999 1998 2000 1999 1998 2000 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Assumptions
Discount rate 7.5% 6.5% 7.4% 7.4% to 8.5% 7.4% to 8.5% 7.4% to 8.5% 7.5% 6.5% 7.4%
Expected return on plan
assets 8.0% 8.0% 8.0% 10.0% 10.0% 10.0%
Rate of compensation
increase 5.0% 5.0% 5.0% 5.5% to 7.0% 5.5% to7.0% 5.5% to 7.0% 5.0% 5.0% 5.0%
</TABLE>
For measurement purposes, a 9.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5 percent for 2007 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one percentage-point change in assumed
health care cost trend rates would have the following effects (in thousands):
<TABLE>
<CAPTION>
1 Percentage- 1 Percentage-
in thousands Point Increase Point Decrease
---------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost
components $ 149 $ (130)
Effect on postretirement benefit obligation 1,905 (1,462)
</TABLE>
The Company also sponsors a 401(k) savings incentive plan for most full-time
salaried employees in the U.S. Expenses for this plan were $217,000 in 2000,
$240,000 in 1999 and $236,000 in 1998.
Employee Stock Options
In March 1998, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The agreement, which was ratified by the
Board of Directors on April 14, 1998, provided for the grant of nonqualified
stock options. The aggregate number of shares of Common Stock as to which
grants have been made is 100,000 with a price of $17.00 per share, the fair
market value on the date of the grant. Effective December 14, 1999, the Board
of Directors of the Company agreed to amend the grant and reprice the options
granted to reflect the changes in the market environment and maintain the
incentive feature of the grant. The number of shares granted was revised to
45,144 shares at $8.88 per share. The vesting period was revised to match the
vesting schedule of the options granted to other key employees as addressed
below.
In August 1998, the Company adopted the Standard Commercial Corporation
Nonqualified Stock Option Plan (the "NSOP") under which options to purchase
shares of the Company's stock may be granted to key employees of the Company.
Options vest one-quarter each year beginning on the first anniversary of the
date of grant and become 100% vested on the fourth anniversary of the date of
grant.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans and accordingly, no compensation cost has been recognized. Had
compensation cost for the Plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of SFAS
123, Accounting for Stock-Based Compensation, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
2000 1999
-------------------------------------------
<S> <C> <C>
Net income (in thousands):
As reported $10,338 $8,415
Pro forma $10,327 $8,098
Basic earnings per share:
As reported $ 0.80 $ 0.66
Pro forma $ 0.80 $ 0.63
Diluted earnings per share:
As reported $ 0.80 $ 0.66
Pro forma $ 0.80 $ 0.63
</TABLE>
--------------------------------------------------------------------------------
24
<PAGE>
--------------------------------------------------------------------------------
The estimated weighted average grant-date fair value of options granted for
the years ended March 31 follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------
<S> <C> <C>
Weighted average exercise price $5.00 $8.88
Weighted average fair value of options $1.56 $3.25
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000 and 1999, respectively: dividend yield of
4.7% and 2.3%; expected volatility of 47% and 44%; risk-free interest rates of
approximately 5.81% and 4.75%; and expected lives of 4 years.
A summary of the status of the Company's Plans as of March 31, 2000, and 1999
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
Option Weighted
price per average exercise
Shares share price per share
------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1998 100,000 17.00 17.00
Options granted 52,520 8.88 8.88
Options cancelled (100,000) (17.00) (17.00)
Options issued per repricing 45,144 8.88 8.88
--------
March 31, 1999 (33,000 shares
exercisable) 97,664 8.88 8.88
Options granted 78,000 5.00 5.00
Options cancelled (800) (8.88) (8.88)
--------
Options exercised March 31, 2000 174,864 5.00 -8.88 7.15
--------
</TABLE>
The following table summarizes information about stock options outstanding as
of March 31, 2000:
<TABLE>
<CAPTION>
Weighted
average Weighted
Weighted exercise average
Range of Number of average price of Number of exercise price
exercise outstanding remaining outstanding options of exercisable
prices options life (Years) options exercisable options
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8.88 96,864 5.38 8.88 23,616 8.88
5.00 78,000 6.38 5.00 0
</TABLE>
11. Commitments and Contingencies
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows (in thousands): 2001--
$3,876; 2002--$1,837; 2003--$1,019; 2004--$722; 2005--$417 and thereafter $976.
Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 2000, 1999 and
1998 (in thousands) were $3,954, $3,998 and $3,663, respectively.
The Company operates a processing facility under a service agreement which
guarantees reimbursement of all of the facility's costs including operating
expenses and management fees. This lease is not considered a commitment of the
Company.
The Company has commitments for capital expenditures of approximately $12.9
million, substantially all of which are expected to be incurred in fiscal 2001.
A subsidiary of the Company participated in subsequently discontinued South
African export incentive program under which a Company claim was initially
approved and then subsequently disallowed. The issue is currently before the
Supreme Court of South Africa. The Company believes that an unfavorable
settlement would not have a material impact on liquidity.
The Company's 51.0% owned subsidiary in Greece has been notified by tax
authorities of potential adjustments to its income tax returns filed in prior
years. The Company's share of the total proposed adjustments, including
penalties and interest, is approximately $3.7 million. The Company believes the
tax returns filed were in compliance with the applicable tax code. The proposed
adjustments vary in complexity and amount. While it is not feasible to predict
the precise amount or timing of each proposed adjustment, the Company believes
that the ultimate disposition will not have a material adverse effect on its
consolidated financial position or results of operations.
Other contingencies, consisting of guarantees, pending litigation and other
claims, in the opinion of management, are not considered to be material in
relation to the Company's financial statements as a whole, liquidity or future
results of operations.
Concentration of Credit and Off-Balance Sheet Risks
Financial instruments that potentially subject the Company to a concentration
of credit risks consist principally of cash and trade receivables relating to
customers in the tobacco and wool industries. Cash is deposited with high-
credit-quality financial institutions. Concentration of credit risks related to
receivables is limited because of the diversity of customers and locations.
12. Common Stock
The Company maintains a Performance Improvement Compensation Plan
administered by the Compensation Committee of the Board of Directors as an
incentive for designated employees. In June 1993, the Board adopted a
Restricted Stock Plan ("RSP") as a means of awarding those employees to the
extent that certain performance objectives
--------------------------------------------------------------------------------
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
were met. The shares are issued subject to a four- to seven-year restriction
period.
The Company has a 401(k) savings incentive plan in the United States to which
the employer contributes shares of common stock under a matching program, and a
dividend reinvestment plan.
Treasury stock represents shares in the Company acquired by a foreign
affiliate prior to its becoming a wholly-owned subsidiary.
On January 31, 1998, the Company terminated the Employee Stock Ownership Plan
(the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of
$2,460,287 in cash and the issuance of 14,075 shares of Common Stock. The
remaining 62,875 shares of unallocated ESOP Preferred Stock were canceled.
13. Other Income -- Net
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Other income:
Interest $2,084 $ 2,708 $ 2,720
Gain on asset sales and dispositions 1,888 5,301 6,154
Gain from officers life insurance policies - 2,447
Rents received 274 1,266 370
Other 3,704 4,906 3,406
------------------------
7,950 16,628 12,650
------------------------
Other expense:
Amortization of goodwill (495) (374) (206)
Other (2,387) (3,491) (3,072)
------------------------
(2,882) (3,865) (3,278)
------------------------
$5,068 $12,763 $ 9,372
------------------------
</TABLE>
14. Income Taxes
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
in thousands 2000 1999
-------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 9,666 $ 9,661
Capitalized interest 3,528 2,007
Income recognition in foreign subsidiaries 3,943 7,599
Prepaid pension assets 814 1,093
---------------------
Total deferred tax liabilities 17,951 20,360
---------------------
Deferred tax assets:
NOL carried forward 5,493 9,015
Valuation allowance (5,258) (7,464)
Postretirement benefits other than pensions 3,509 3,367
Uniform capitalization and reserves 1,874 1,448
All other, net 1,586 (454)
---------------------
Total deferred tax assets 7,204 5,912
---------------------
Net deferred tax liabilities $10,747 $14,448
---------------------
</TABLE>
The net deferred tax liabilities include approximately $4,229 and $5,573 of
current liabilities at March 31, 2000 and 1999, respectively.
The Company has provided valuation allowances on deferred tax assets for
certain foreign subsidiaries based on their history of losses. Management
cannot assert that there will likely be sufficient profits generated by these
subsidiaries in the near future to offset these losses. The loss carryforwards
which give rise to the valuation allowances will expire in 2001 and thereafter.
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
--------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,840 $2,191 $4,187
Foreign 9,868 4,555 12,348
State and local 328 489 375
----------------------
13,036 7,235 16,910
----------------------
Deferred:
Federal (205) 42 (40)
Foreign (2,091) 59 (8,104)
State and local (12) 9 3
----------------------
(2,308) 110 (8,141)
----------------------
Income tax provision $10,728 $7,345 $8,769
----------------------
</TABLE>
c) Components of deferred taxes follow:
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax on differences in timing of income recognition in
foreign subsidiaries $(1,428) $(440) $(7,001)
Capitalized interest 718 702 (182)
Depreciation (1,170) 45 (1,204)
Other (428) (197) 246
-----------------------
$(2,308) $ 110 $(8,141)
-----------------------
</TABLE>
d) The provision for income taxes is determined on the basis of the
jurisdiction imposing the tax liability. As some of the income of foreign
companies may also be currently subject to U.S. tax, the U.S. and foreign
income taxes shown do not compare directly with the segregation of pretax
income between domestic and foreign companies that follows:
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
---------------------------------------
<S> <C> <C> <C>
Pretax income:
Domestic $ 7,020 $ 7,829 $ 8,781
Foreign 13,422 7,311 28,280
-----------------------
$20,442 $15,140 $37,061
-----------------------
</TABLE>
--------------------------------------------------------------------------------
26
<PAGE>
--------------------------------------------------------------------------------
e) The following is a reconciliation of the income tax provision to the
expense calculated at the U.S. federal statutory rate:
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
------------------------------------------------------------------------------
<S> <C> <C> <C>
Expense (benefit) at U.S. federal statutory tax rate $ 6,950 $5,148 $12,601
Foreign tax losses for which there is no relief
available 429 418 1,585
U.S. tax on foreign income 350 530 400
Different tax rates in foreign subsidiaries 2,679 964 (207)
Elimination of deferred tax liabilities due to a
change in foreign law (6,864)
Change in valuation allowance (2,206) 413 1,548
Other - net 2,526 (128) (294)
------------------------
$10,728 $7,345 $ 8,769
------------------------
</TABLE>
15. Disclosures of Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments as of March
31, 2000 is provided below in accordance with Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial Instruments.
Certain estimates and judgments were required to develop the fair value
amounts, which are not necessarily indicative of the amounts that would be
realized upon disposition, nor do they indicate the Company's intent or ability
to dispose of such instruments.
Cash and Cash Equivalents: The estimated fair value of cash and cash
equivalents approximates carrying value.
Short-Term and Long-Term Debt: The fair value of the Company's short-term
borrowings, which primarily consists of bank borrowings, approximates its
carrying value. The estimated fair value of long-term debt, including the
current portion, is approximately $135.8 million, compared with a carrying
value of $214.0 million, based on discounted cash flows for fixed-rate
borrowings, with the fair value of floating-rate borrowings considered to
approximate carrying value.
--------------------------------------------------------------------------------
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
16. Segment Information
The Company is engaged primarily in purchasing, processing and selling leaf
tobacco and wool. Its activities other than these are minimal. Geographic
information for sales by country is determined by the location of the customer,
however this information is not necessarily representative of the final
destination of the product. Geographic information for long-lived assets by
country is determined by the physical location of the assets.
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
----------------------------------------------------
<S> <C> <C> <C>
Geographic Areas
Sales:
United States $ 234,415 $ 220,841 $ 360,495
Germany 123,711 104,516 135,670
United Kingdom 89,964 97,336 141,203
Japan 64,905 67,257 72,465
Italy 55,415 53,626 69,444
Turkey 56,715 45,824 52,741
Switzerland 34,168 44,035 83,934
Netherlands 30,439 32,710 41,114
Brazil 13,766 20,550 32,496
CIS 29,477 7,233 18,066
China 34,306 15,935 17,938
Other countries 338,445 392,966 467,231
--------------------------------
$1,105,726 $1,102,829 $1,492,797
--------------------------------
Long-lived Assets:
United States $ 25,348 $ 28,126
Brazil 27,038 28,323
Greece 16,565 19,951
Turkey 14,022 14,205
Malawi 13,406 13,879
United Kingdom 10,352 11,481
CIS 11,622 6,535
Other countries 28,285 32,889
---------------------
$ 146,638 $ 155,389
---------------------
</TABLE>
One tobacco customer accounted for 18.4%, 20.0% and 24.1% of total sales in
2000, 1999 and 1998, respectively. Another tobacco customer accounted for 11.4%
of total sales in 2000 and less than 10% in 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended March 31,
in thousands 2000 1999 1998
--------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Tobacco $ 882,648 $ 881,903 $1,149,780
Nontobacco 223,078 220,926 343,017
----------------------------------
$1,105,726 $1,102,829 $1,492,797
----------------------------------
Interest Income:
Tobacco $ 1,795 $ 2,166 $ 1,744
Nontobacco 289 542 976
----------------------------------
$ 2,084 $ 2,708 $ 2,720
----------------------------------
Interest Expense:
Tobacco $ 33,720 $ 33,821 $ 29,790
Nontobacco 4,773 6,178 8,019
----------------------------------
$ 38,493 $ 39,999 $ 37,809
----------------------------------
Depreciation and Amortization Expense:
Tobacco $ 18,363 $ 19,886 $ 16,571
Nontobacco 2,983 3,422 3,914
----------------------------------
$ 21,346 $ 23,308 $ 20,485
----------------------------------
Equity in Earnings of Affiliates:
Tobacco $ 650 $ 1,084 $ 498
Nontobacco (435) -- 155
----------------------------------
$ 215 $ 1,084 $ 653
----------------------------------
Income Tax Expense:
Tobacco $ 10,534 $ 8,436 $ 10,488
Nontobacco 194 (1,091) (1,719)
----------------------------------
$ 10,728 $ 7,345 $ 8,769
----------------------------------
Net Income:
Tobacco $ 11,059 $ 13,585 $ 21,534
Nontobacco (721) (5,170) 5,391
----------------------------------
$ 10,338 $ 8,415 $ 26,925
----------------------------------
Assets:
Tobacco $ 670,359 $ 728,261
Nontobacco 150,471 150,136
----------------------
$ 820,830 $ 878,397
----------------------
Investment in Affiliates:
Tobacco $ 12,096 $ 10,699
Nontobacco 3,963 2,083
----------------------
$ 16,059 $ 12,782
----------------------
Capital Expenditures:
Tobacco $ 13,943 $ 24,697
Nontobacco 2,405 2,373
----------------------
$ 16,348 $ 27,070
----------------------
</TABLE>
--------------------------------------------------------------------------------
28
<PAGE>
--------------------------------------------------------------------------------
17. Supplemental Guarantor Information
Standard Commercial Corporation (the "Company") and Standard Wool, Inc.
jointly and severally, guarantee on a senior basis to each Holder and the
Trustee, the full and prompt performance of Standard Commercial Tobacco
Company, Inc.'s (the "Issuer") obligations under the Indenture and the $115.0
million 8 7/8% Senior Notes Due 2005 (the "Initial Notes"), the issuance of
which was closed on August 1, 1998, including the payment of the principal of
and interest and additional interest, if any, on the Notes (the Company and
Standard Wool, Inc. being referred to herein as "Guarantors" and the guarantees
being referred to respectively as the "Parent Guarantee" and the "Standard Wool
Guarantee," and together, the "Guarantees"). The Initial Notes was exchanged
for new notes (the "Exchange Notes"; together with the Initial Notes, the
"Notes") in an exchange offer upon the Issuer's Form S-4 Registration Statement
which was completed on December 31, 1998. The form and terms of the Exchange
Notes are the same as the form and terms of the Initial Notes (which they
replace) except that (i) the Exchange Notes registered under the Securities
Act, will not bear legends restricting the transfer thereof, and (ii) the
holders of the Exchange Notes will not be entitled to certain rights under the
related Registration Rights Agreement by virtue of consummation of the exchange
offer. In addition, all of the issued and outstanding capital stock of the
Issuer and Standard Wool, Inc. is pledged by the Company to the Trustee for the
benefit of the Holders of the Notes as security for the Parent Guarantee.
a) Each of the Guarantors has fully and unconditionally guaranteed on a joint
and several basis the performance and punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all of the Issuer's
obligations under the Notes and the related indenture, including its
obligations to pay principal, premium, if any, and interest with respect to the
Notes. The obligation of each Guarantor is limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, can be guaranteed by the relevant Guarantor without resulting in
the obligations of such Guarantor under its Guarantee constituting a fraudulent
conveyance or fraudulent transfer under applicable federal or state law. Each
of the Guarantees is a guarantee of payment and not collection. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in an amount PRO RATA, based on the
assets less liabilities of each Guarantor determined in accordance with
generally accepted accounting principles ("GAAP").
Each Guarantor that makes a payment or distribution shall be entitled to a
contribution from each other Guarantor in an amount PRO RATA, based on the net
assets of each Guarantor, determined in accordance with GAAP. Each Guarantor
may consolidate with or merge into or sell its assets to the Issuer, or with
other Persons upon the terms and conditions set forth in the Indenture. In the
event (A) more than 49% of the Capital Stock of Standard Wool, Inc. is sold by
the Company or (B) more than 49% of the consolidated assets of Standard Wool,
Inc. are sold in compliance with all of the terms of the Indenture, the
Standard Wool Guarantee will be released. Management has determined that
separate, full financial statements of the Guarantors would not be material to
investors and therefore such financial statements are not provided. The
following supplemental combining financial statements present information
regarding the Guarantors and the Issuer.
b) Each of the Guarantors has accounted for their respective subsidiaries on
the equity basis.
c) Certain reclassifications were made to conform all of the financial
information to the financial presentation on a consolidated basis. The
principal eliminating entries eliminate investments in subsidiaries and
intercompany balances.
d) Included in the balance sheets are certain related party balances among
borrower, the guarantors and non-guarantors. Due to the Company's world-wide
operations, related party activity is included in most balance sheet accounts.
--------------------------------------------------------------------------------
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
Supplemental Combining Balance Sheets
Year Ended March 31, 2000
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool, Inc. (Non-
in thousands (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 812 $ 120 $ 42 $ 37,375 $ 38,349
Receivables 27,107 1,522 95 198,576 227,300
Intercompany receivables 135,750 61,379 84 9,857 (207,070)
Inventories 130,589 209,855 340,444
Prepaids and other 158 446 1 4,587 5,192
Marketable securities 1 585 586
---------------------------------------------------------------------------
Current assets 294,416 63,468 222 460,835 (207,070) 611,871
Property, plant and
equipment 22,299 24 124,315 146,638
Investment in
subsidiaries 88,996 181,921 32,349 149,783 (453,049)
Investment in affiliates 16,059 16,059
Other noncurrent assets 4,004 9,468 32,790 46,262
---------------------------------------------------------------------------
Total Assets $409,715 $254,857 $32,595 $783,782 $(660,119) $820,830
---------------------------------------------------------------------------
Liabilities
Short-term borrowings $ 10,212 $ $ $251,847 $ $262,059
Current portion of long-
term debt 2,940 11,385 14,325
Accounts payable 11,824 576 30 119,685 132,115
Intercompany payables 95,556 41,142 1,615 68,757 (207,070)
Taxes accrued 12,670 (5,643) 2,756 9,783
---------------------------------------------------------------------------
Current liabilities 133,202 36,075 1,645 454,430 (207,070) 418,282
---------------------------------------------------------------------------
Long-term debt 115,000 15,645 130,645
Convertible subordinated
debentures 69,000 69,000
Retirement and other
benefits 9,039 682 10,815 20,536
Deferred taxes (933) (1,557) 9,008 6,518
---------------------------------------------------------------------------
Total liabilities 256,308 104,200 1,645 489,898 (207,070) 644,981
---------------------------------------------------------------------------
Minority interests 26,772 26,772
Shareholders' Equity:
Common stock 993 3,121 32,404 155,220 (188,617) 3,121
Additional paid-in
capital 130,860 102,986 60,564 (191,424) 102,986
Unearned restricted
stock plan compensation (549) (23) (6) (1,025) (1,603)
Treasury stock (4,250) (4,250)
Retained earnings 44,711 97,177 5,934 100,707 (151,352) 97,177
Accumulated other
comprehensive income (22,608) (48,354) (7,382) (48,354) 78,344 (48,354)
---------------------------------------------------------------------------
Total shareholders'
equity 153,407 150,657 30,950 267,112 (453,049) 149,077
---------------------------------------------------------------------------
Total Liabilities and
Equity $409,715 $254,857 $32,595 $783,782 $(660,119) $820,830
---------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
30
<PAGE>
--------------------------------------------------------------------------------
SUPPLEMENTAL COMBINING BALANCE SHEETS
<TABLE>
<CAPTION>
Year Ended March 31,
1999
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool, Inc. (Non-
(in thousands) (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $ 863 $ $ 52 $ 42,852 $ $ 43,767
Receivables 25,614 2,169 113 201,014 228,910
Intercompany receivables 132,909 16,401 70 24,190 (173,570)
Inventories 122,889 851 253,182 376,922
Prepaids and other 246 557 6 4,544 5,353
Marketable securities 1 655 656
---------------------------------------------------------------------------
Current assets 282,521 19,128 1,092 526,437 (173,570) 655,608
Property, plant and
equipment 24,360 80 130,949 155,389
Investment in
subsidiaries 82,804 222,980 32,889 149,783 (488,456)
Investment in affiliates 12,782 12,782
Other noncurrent assets 5,675 10,280 38,663 54,618
---------------------------------------------------------------------------
Total Assets $395,360 $252,388 $34,061 $858,614 $(662,026) $878,397
---------------------------------------------------------------------------
Liabilities
Short-term borrowings $ $ 4 $ $280,583 $ $280,587
Current portion of long-
term debt 12,646 12,646
Accounts payable 11,495 732 32 137,174 149,433
Intercompany payables 56,372 32,650 1,852 82,696 (173,570)
Taxes accrued 7,757 (2,274) 8,676 14,159
---------------------------------------------------------------------------
Current liabilities 75,624 31,112 1,884 521,775 (173,570) 456,825
Long-term debt 117,940 26,221 144,161
Convertible subordinated
debentures 69,000 69,000
Retirement and other
benefits 8,556 675 10,993 20,224
Deferred taxes 126 (1,548) 10,297 8,875
---------------------------------------------------------------------------
Total liabilities 202,246 99,239 1,884 569,286 (173,570) 699,085
---------------------------------------------------------------------------
Minority interests 28,307 28,307
Shareholders' Equity:
Common stock 993 3,108 25,404 143,718 (170,115) 3,108
Additional paid-in
capital 130,860 102,680 60,564 (191,424) 102,680
Unearned restricted
stock plan compensation (730) (33) (8) (1,406) (2,177)
Treasury stock at cost (4,250) (4,250)
Retained earnings 81,455 89,430 6,601 95,931 (183,987) 89,430
Accumulated other
comprehensive income (19,464) (37,786) 180 (37,786) 57,070 (37,786)
---------------------------------------------------------------------------
Total shareholders'
equity 193,114 153,149 32,177 261,021 (488,456) 151,005
---------------------------------------------------------------------------
Total Liabilities and
Equity $395,360 $252,388 $34,061 $858,614 $(662,026) $878,397
---------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
Supplemental Combining Statements of Income and Retained Earnings
Year Ended March 31, 2000
<TABLE>
<CAPTION>
Standard Standard Other
Commercial Commercial Standard Subsidiaries
Tobacco Co. Corporation Wool, Inc. (Non-
in thousands Inc. (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
Sales $329,190 $ $1,220 $1,022,415 $(247,099) $1,105,726
Cost of sales:
Materials, services and
supplies 292,254 1,328 921,562 (247,099) 968,045
Interest 5,289 22,155 27,444
------------------------------------------------------------------------------
Gross profit 31,647 (108) 78,698 110,237
Selling, general and
administrative expenses 14,567 2,293 394 66,560 83,814
Other interest expense 3,892 5,227 1,930 11,049
Other income (expense),
net 3,005 165 (187) 2,085 5,068
------------------------------------------------------------------------------
Income (loss) before
income taxes 16,193 (7,355) (689) 12,293 20,442
Income taxes 5,691 (3,104) 8,141 10,728
------------------------------------------------------------------------------
Income (loss) after
income taxes 10,502 (4,251) (689) 4,152 9,714
Minority interests 409 409
Equity in earnings of
affiliates 215 215
Equity in earnings of
subsidiaries 4,754 14,589 22 (19,365)
------------------------------------------------------------------------------
Net income (loss) 15,256 10,338 (667) 4,776 (19,365) 10,338
Retained earnings at
beginning of period 81,455 89,430 6,601 95,931 (183,987) 89,430
Common stock dividends (52,000) (2,591) 52,000 (2,591)
------------------------------------------------------------------------------
Retained earnings at end
of period $ 44,711 $97,177 $5,934 $ 100,707 $(151,352) $ 97,177
------------------------------------------------------------------------------
</TABLE>
Supplemental Combining Statements of Income and Retained Earnings
Year Ended March 31, 1999
<TABLE>
<CAPTION>
Standard Standard Other
Commercial Commercial Standard Subsidiaries
Tobacco Co. Corporation Wool, Inc. (Non-
in thousands Inc. (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
Sales $279,734 $ 3,700 $ 1,614 $1,053,459 $(235,678) $1,102,829
Cost of sales:
Materials, services and
supplies 255,698 1,760 962,236 (235,678) 984,016
Interest 4,155 22,213 26,368
------------------------------------------------------------------------------
Gross profit 19,881 3,700 (146) 69,010 92,445
Selling, general and
administrative expenses 13,988 2,472 514 59,463 76,437
Other interest expense 6,336 5,233 2,062 13,631
Other income (expense),
net 10,555 2,558 (201) (149) 12,763
------------------------------------------------------------------------------
Income (loss) before
income taxes 10,112 (1,447) (861) 7,336 15,140
Income taxes 3,915 (1,692) 5,122 7,345
------------------------------------------------------------------------------
Income (loss) after
income taxes 6,197 245 (861) 2,214 7,795
Minority interests (464) (464)
Equity in earnings of
affiliates 1,084 1,084
Equity in earnings
(losses) of
subsidiaries 6,690 8,170 (3,856) (11,004)
------------------------------------------------------------------------------
Net income (loss) 12,887 8,415 (4,717) 2,834 (11,004) 8,415
Retained earnings at
beginning of period 68,568 82,943 11,318 100,097 (179,983) 82,943
Common stock dividends (1,928) (7,000) 7,000 (1,928)
------------------------------------------------------------------------------
Retained earnings at end
of period $ 81,455 $89,430 $ 6,601 $ 95,931 $(183,987) $ 89,430
------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
32
<PAGE>
--------------------------------------------------------------------------------
Supplemental Combining Statements of Income and Retained Earnings
Year Ended March 31, 1998
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool, Inc. (Non-
in thousands (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
Sales $507,986 $ 8,334 $ 3,665 $1,150,448 $(177,636) $1,492,797
Cost of sales:
Materials, services and
supplies 475,860 3,439 1,046,172 (177,636) 1,347,835
Interest 2,573 20,003 22,576
-----------------------------------------------------------------------------
Gross profit 29,553 8,334 226 84,273 (355,272) 122,386
Selling, general and
administrative expenses 12,312 2,638 314 64,200 79,464
Other interest expense 7,777 5,412 2,044 15,233
Other income (expense),
net (61) 4 (370) 9,799 9,372
-----------------------------------------------------------------------------
Income (loss) before
income taxes 9,403 288 (458) 27,828 37,061
Income taxes 3,344 339 5,086 8,769
-----------------------------------------------------------------------------
Income (loss) after
taxes 6,059 (51) (458) 22,742 28,292
Minority interests (2,020) (2,020)
Equity in earnings of
affiliates 363 290 653
Equity in earnings of
subsidiaries 16,039 26,976 4,973 (47,988)
-----------------------------------------------------------------------------
Net income 22,461 26,925 4,515 21,012 (47,988) 26,925
Retained earnings at
beginning of period 46,107 58,089 6,803 79,085 (131,995) 58,089
Common stock dividends (2,071) (2,071)
-----------------------------------------------------------------------------
Retained earnings at end
of year $ 68,568 $82,943 $11,318 $ 100,097 $(179,983) $ 82,943
-----------------------------------------------------------------------------
</TABLE>
Condensed Supplemental Combining Statements of Cash Flows
Year Ended March 31, 2000
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool, Inc. (Non-
in thousands (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------
Cash provided by
operating activities $(9,241) $2,715 $ 3 $49,645 $ $43,122
Cash flows from
investing activites:
Property, plant and
equipment:
Additions (1,484) (13) (14,851) (16,348)
Disposals 143 3,032 3,175
Business (adquisiitons)
dispositions (3,230) (3,230)
-------------------------------------------------------------------------
Cash provided by (used
in) investing
activities (1,341) (13) (15,049) (16,403)
Cash flows from
financing activities:
Proceeds from long-term
borrowings 2,494 2,494
Repayment of long-term
borrowings (13,831) (13,831)
Net change in short-term
borrowings 10,212 (4) (28,736) (18,528)
Dividends paid, net of
tax (2,591) (2,591)
Other 319 319
-------------------------------------------------------------------------
Cash used for financing
activities 10,531 (2,595) (40,073) (32,137)
Net increase (decrease)
in cash for year (51) 120 (10) (5,477) (5,418)
Cash at beginning of
period 863 52 42,852 43,767
-------------------------------------------------------------------------
Cash at end of period $ 812 $ 120 $42 $37,375 $ $38,349
-------------------------------------------------------------------------
Supplemental
disclosures:
Cash paid during the
year:
Interest $11,452 $5,386 $ $23,263 $ $40,101
Income taxes $ 1,836 $ (274) $ $14,650 $ $16,212
</TABLE>
--------------------------------------------------------------------------------
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
Condensed Supplemental Combining Statements of Cash Flows
Year Ended March 31, 1999
<TABLE>
<CAPTION>
Standard Standard Other
Commercial Commercial Standard Subsidiaries
Tobacco Co. Corporation Wool, Inc. (Non-
in thousands Inc. (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by
operating activities $(11,319) $ 1,866 $(145) $ 56,206 $ $ 46,608
Cash flows from
investing activities:
Property, plant and
equipment:
Additions (6,283) (45) (20,742) (27,070)
Disposals 4,418 8,197 12,615
Business (acquisitions)
dispositions (10,738) (10,738)
----------------------------------------------------------------------------
Cash provided by (used
in) investing
activities (1,865) (45) (23,283) (25,193)
Cash flows from
financing activities:
Proceeds from long-term
borrowings 1,643 1,643
Repayment of long-term
borrowings (5,373) (5,373)
Net change in short-term
borrowings 4 (6,326) (6,322)
Dividends received
(paid) 7,000 (1,928) (7,000) (1,928)
Other 216 216
----------------------------------------------------------------------------
Cash used for financing
activities 7,216 (1,924) (17,056) (11,764)
Net increase (decrease)
in cash for period (5,968) (58) (190) 15,867 9,651
Cash at beginning of
period 6,831 58 242 26,985 34,116
----------------------------------------------------------------------------
Cash at end of period $ 863 $ $ 52 $ 42,852 $ $ 43,767
----------------------------------------------------------------------------
Supplemental
disclosures:
Cash paid during the
year:
Interest $ 10,816 $ 5,282 $ 103 $ 24,042 $ 40,243
Income taxes $ 2,761 $ $ $ 9,680 $ 12,441
</TABLE>
Condensed Supplemental Combining Statements of Cash Flows
Year Ended March 31, 1998
<TABLE>
<CAPTION>
Standard
Commercial Standard Other
Tobacco Co. Commercial Standard Subsidiaries
Inc. Corporation Wool, Inc. (Non-
in thousands (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash provided by
operating activities $(53,388) $(47,312) $144 $22,672 $ $(77,884)
Cash flows from
investing activities:
Property, plant and
equipment:
Additions (3,710) (38) (15,984) (19,732)
Disposals 731 17 9,260 10,008
Business (acquisitions)
dispositions (7,928) (7,928)
--------------------------------------------------------------------------
Cash provided by (used
in) investing
activities (2,979) (21) (14,652) (17,652)
--------------------------------------------------------------------------
Cash flows from
financing activities:
Proceeds from long-term
borrowings 109,846 3,207 113,053
Repayment of long-term
borrowings (8,667) (8,519) (17,186)
Net change in short-term
borrowings (36,277) (15,292) (51,569)
Net proceeds of equity
offering 47,043 47,043
Other (2,806) (2,806)
--------------------------------------------------------------------------
Cash used for financing
activities 62,096 47,043 (20,604) 88,535
Net increase (decrease)
in cash for year 5,729 (269) 123 (12,584) (7,001)
Cash at beginning of
period 1,102 327 119 39,569 41,117
--------------------------------------------------------------------------
Cash at end of period $ 6,831 $ 58 $242 $26,985 $ $ 34,116
--------------------------------------------------------------------------
Supplemental
disclosures:
Cash paid during the
year
Interest $ 7,041 $ 5,505 $311 $23,303 $ $ 36,160
Income taxes $ 1,195 $ 551 $ $11,585 $ $ 13,331
</TABLE>
--------------------------------------------------------------------------------
34
<PAGE>
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------------------------------------------------------------
In thousands, except share data 2000 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,105,726 $1,102,829 $1,492,797 $1,354,270 $1,359,450 $1,213,565
Income taxes 10,728 7,345 8,769 12,782 6,836 16,370
Income (loss) from
continuing operations 10,338 8,415 26,925 16,937 (9,442) (20,494)
Income (loss) from
discontinued operations - - - - 10,050 (10,050)
Net income (loss) 10,338 8,415 26,925 16,937 608 (30,544)
Current assets 611,871 655,608 659,333 571,318 599,601 616,953
Total assets 820,830 878,397 839,473 735,685 782,824 813,489
Current liabilities 418,282 456,825 440,234 451,213 543,803 563,766
Long-term debt 199,645 213,161 197,083 139,252 100,818 101,403
----------------------------------------------------------------------------------------------
Average number of shares
outstanding* 12,956,462 12,842,495 12,377,211 9,639,622 9,621,693 9,603,774
----------------------------------------------------------------------------------------------
Per share
Basic earnings (loss)
from continuing
operations $ 0.80 $ 0.66 $ 2.18 $ 1.72 $ (1.03) $ (2.18)
Basic earnings (loss)
from discontinued
operations - - - - 1.04 (1.05)
Basic net earnings
(loss) 0.80 0.66 2.18 1.72 0.01 (3.23)
Dividends paid 0.20 0.15 - - - -
Book value at year end 11.48 11.69 11.68 9.44 8.44 8.95
Market value at year end 3.50 4.75 15.94 17.88 9.00 13.38
</TABLE>
* Earnings per share and shares outstanding for 1995-1997 have been adjusted
for the effect of subsequent stock dividends.
--------------------------------------------------------------------------------
35
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
--------------------------------------------------------------------------------
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and the variations in the
mix of sales, causes quarterly flucuations in financial results. Quarterly
results, dividends and stock prices for the years ended March 31, 2000 and 1999
follow:
<TABLE>
<CAPTION>
In thousands, except share data June 30 Sep 30 Dec 31 March 31 Year
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 Sales $246,767 $228,478 $277,916 $352,565 $1,105,726
Gross profit 25,490 27,314 25,530 31,903 110,237
Net income 1,262 2,210 2,543 4,323 10,338
Earnings per share - basic $0.10 $0.17 $0.20 $0.33 $0.80
- diluted 0.10 0.17 0.20 0.33 $0.80
Dividends per share 0.05 0.05 0.05 0.05 0.20
Market price per share - high 6.63 6.00 3.94 3.75 6.63
- low 3.88 3.94 2.75 3.13 2.75
1999 Sales $290,408 $209,044 $268,693 $334,684 $1,102,829
Gross profit 24,555 24,656 20,518 22,716 92,445
Net income 2,015 4,018 760 1,622 8,415
Earnings per share - basic $0.16 $0.31 $0.06 $0.13 $0.66
- d iluted 0.16 0.31 0.06 0.13 0.66
Dividends
per
share 0.00 0.05 0.05 0.05 0.15
Market price per share - high 16.00 11.00 8.63 9.25 16.00
- low 10.56 7.44 6.38 3.75 3.75
</TABLE>
Standard's common stock is traded on the New York Stock Exchange under the
symbol STW. Market prices shown above are the high and low prices as reported
by the NYSE. At June 13, 2000 there were 628 shareholders of record.
--------------------------------------------------------------------------------
36
<PAGE>
CORPORATE DIRECTORS AND OFFICERS
--------------------------------------------------------------------------------
Standard Commercial Corporation
Corporate Directors
J Alec G Murray, /1/,/5/ Chairman of the Board of Directors
Marvin W. Coghill, /1/,/4/ Chairman - Tobacco Division
William A. Ziegler, /3/,/4/,/5/ Retired partner, Sullivan & Cromwell, attorneys
William S. Barrack, Jr., /2/,/4/ Retired Senior Vice President - Texaco Inc
Charles H. Mullen, /2/,/3/,/5/ Retired Chairman and Chief Executive Officer -
The American Tobacco Company
Daniel M. Sullivan, /3/,/4/ Founder and retired former Chief Executive
Officer - Frost & Sullivan Inc.
Robert E. Harrison, /1/,/4/,/5/ President, Chief Executive Officer
William S. Sheridan, /2/,/3/ Senior Vice President and Chief Financial Officer,
Sotheby's Holdings, Inc.
B. Clyde Preslar, /2/,/4/ Vice President Finance and Chief Financial Officer,
Lance, Inc.
Mark W. Kehaya, Consultant, Former VP - Tobacco Division
----------
/1/ Denotes member of Executive Committee
/2/ Denotes member of Audit Committee
/3/ Denotes member of Compensation Committee
/4/ Denotes member of Finance Committee
/5/ Denotes member of Nominating Committee
Corporate Officers
Robert E. Harrison, President and Chief Executive Officer
Henry C. Babb, Vice President - Public Affairs, General Counsel and Secretary
Ery W. Kehaya II, Vice President
Michael K. McDaniel, Vice President - Human Resources
Robert A. Sheets, Vice President and Chief Financial Officer
Keith H. Merrick, Vice President and Treasurer
Hampton R. Poole, Jr., Vice President and Controller
Timothy S. Price, Vice President - Business Planning and Development
Krishnamurthy Rangarajan, Vice President and Assistant Secretary
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<PAGE>
CORPORATE DIRECTORS AND OFFICERS
AND DIVISION MANAGEMENT
--------------------------------------------------------------------------------
Tobacco Division Management
Marvin W. Coghill, Chairman
Alfred F. Rehm, President
John H. Saunders, Senior Vice President - Sales
Edward C. Dilda, Vice President - Processing
Robert J. Zonneveld, Vice President - Finance
Simon J. P. Green, Vice President & Regional Manager - Confederation of
Independent States
Ery W. Kehaya II, Vice President & Regional Manager - North America
Robin H. B. Kilner, Vice President & Regional Manager - Africa
Edward A. Majeski, Vice President & Regional Manager - South America
J. Pieter Sikkel, Vice President & Regional Manager - Asia
Constantin J. W. von Esebeck, Vice President & Regional Manager-Europe
Duncan B. Meech, Vice President - Far East & Manager Of UK Office
Tobacco Companies
*Standard Commercial Tobacco Co Inc Wilson, North Carolina
*CRES Tobacco Company Inc, King, North Carolina
*CRES Neva Co, Ltd., St Petersburg, Russia
*Adams International Ltd, Bangkok, Thailand
*Exelka SA, Salonica, Greece
*Siam Tobacco Export Corporation Limited Chiengmai, Thailand
*Trans-Continental Tobacco India Pvt Limited Guntur, India
*Meridional de Tabacos Ltda Santa Cruz do Su, Brazil
*Spierer Freres & Cie SA, Geneva, Switzerland
*Spierer Tutun Ihracat Sanayi Ticaret AS Izmir, Turkey
*Stancom Tobacco Company (Malawi) Limited Lilongwe, Malawi
*Stancom Tobacco (Private) Limited Harare, Zimbabwe
*Standard Commercial Tobacco Co of Canada Ltd, Tillsonburg, Ontario, Canada
*Standard Commercial Tobacco Company (UK) Ltd, Godalming, Surrey, England
*Tobacco Processors Lilongwe Ltd Lilongwe, Malawi
*Transcatab SpA, Caserta, Italy
*Trans-Continental Leaf Tobacco Corporation Vaduz, Liechtenstein
*Werkhof GmbH, Hamburg, Germany
*World Wide Tobacco Espana, Benavente, Spain
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38
<PAGE>
CORPORATE DIRECTORS AND OFFICERS
AND DIVISION MANAGEMENT (CONTINUED)
--------------------------------------------------------------------------------
Standard Commercial Corporation
Wool Division Management
Paul H. Bicque, Managing Director
Ian Kent, Financial Director
Louis Booysen, Director - South Africa
Paul T. Hughes, Director - United Kingdom
Harald Menkens, Director - Germany
Jean-Marie Rabeisen, Director - France
Geoffrey M. Stooke, Director - Australia
Frank Rountree Jr., Director - U.S.
Claudio Ulrich, Director - Argentina
Hugh Ensor, Director - New Zealand
Englebert Dierckx - Specialty Fibers
Wool Companies
*Standard Wool Inc, Columbia, South Carolina
*S H Allen & Sons (Pty) Ltd, Melbourne, Australia
*Standard Wool Argentina SA Buenos Aires, Argentina
*Standard Wool Australia (Pty) Limited Fremantle, Australia
*Standard Wool (Chile) SA, Punta Arenas, Chile
*Standard Wool Deutscheland GmbH Bremen, German
*Standard Wool France SA, Tourcoing, France and Biella, Italy
*Standard Wool South Africa (Pty) Ltd Port Elizabeth, South Africa
*Standard Wool (UK) Limited, Bradford, England
*Tentler & Co BV, Dongen, Netherlands
*Standard Wool New Zealand Ltd, Christchurch, New Zealand
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<PAGE>
Investor Information
Shareholders Trustee for 8 7/8% Senior Notes Due
Inquiries and information Requests 2005
should be directed to: Suntrust Bank
Corporate Secretary 919 East Main Street
Standard Commercial Corporation Richmond, VA 23219
P.O. Box 450 Contact: Kelly Pickerel
Wilson NC 27894-0450 Telephone: 804-782-7323
Contact: Henry C. Babb Fax: 804-782-7855
Telephone: 252-291-5507
Fax: 252-237-0018 Independent Auditors
Deloitte & Touche, LLP
Dividend Policy 150 Fayetteville Street Mall
It is the policy of the Company to P.O. Box 2778
pay cash dividends on its common Raleigh NC 27602
stock as business conditions permit.
2000 Annual Meeting
Dividend Reinvestment Plan August 8, 2000, 12 noon
Shareholders may acquire stock Hardy Alumni Hall
through automatic reinvestment of 400 Atlantic Christian Drive
cash dividends and/or optional cash Wilson, North Carolina
investments without payment of
brokerage commissions or service 10-K Report
fees. A copy of the Company's annual
report to the Securities and
For information about dividend Exchange Commission on Form 10-K is
reinvestment or optional cash available without charge to
investments, write to the Corporate shareholders upon written request to
Secretary or Dividend Disbursing the Corporate Secretary.
Agent.
Standard Commercial Corporation
Common Stock Transfer Agent and Mailing address
Registrar, and Dividend Disbursing P.O. Box 450
Agent Wilson NC 27894-0450
Listed: NYSESymbol: STW
Street address
First Union National Bank 2201 Miller Road
Shareholders Services Wilson NC 27893
Corporate Trust Group Telephone: 252-291-5507
1525 West W.T. Harris, Blvd. Fax: 252-237-0018
Charlotte NC 28262-1153 or Telex: 802840 (STANCOM WISN)
Contact: Joan K. Kaprinski
Telephone: 704-590-7388 or Website:
1-800-829-8432 www.sccgroup.com
Fax: 704-590-7598
E-mail
Trustee for Convertible [email protected]
Subordinated Debentures
Listed: NYSESymbol: STW H
First Union National Bank
Corporate Trust Bond Administration
230 S. Tryon Street, 9th Floor
Charlotte NC 28288-1179
Contact: Shannon S. Schwartz
Telephone: 704-374-2075
Fax: 704-383-7316
