10-Q 1 d10q.txt STANDARD COMMERCIAL 10-Q DATED JUNE 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2001 Commission file number 1-9875 [LOGO] STANDARD COMMERCIAL CORPORATION Incorporated under the laws of I.R.S. Employer North Carolina Identification No. 13-1337610 2201 Miller Road, Wilson, North Carolina 27893 Telephone Number 252-291-5507 Former name, former address and former fiscal year, if changed since last report - Not applicable On August 2, 2001 the registrant had outstanding 13,265,005 shares of Common Stock ($.20 par value). Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) had been subject to such filing requirements for the past 90 days. YES X NO -------- -------- PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS STANDARD COMMERCIAL CORPORATION CONSOLIDATED BALANCE SHEET (In thousands, except share data)
June 30 March 31 ------------------ --------- 2001 2000 2001 -------- -------- -------- (unaudited) ASSETS Cash.................................................................. $ 37,378 $ 29,245 $ 38,560 Receivables........................................................... 194,146 201,214 217,153 Inventories........................................................... 278,372 377,427 252,032 Prepaid expenses...................................................... 3,493 7,092 1,778 Marketable securities................................................. 517 988 540 -------- -------- -------- Current assets...................................................... 513,906 615,966 510,063 Property, plant and equipment......................................... 133,507 146,634 135,166 Investment in affiliates.............................................. 10,098 16,078 9,978 Other assets.......................................................... 40,975 47,270 37,723 -------- -------- -------- Total assets........................................................ $698,486 $825,948 $692,930 ======== ======== ======== LIABILITIES Short-term borrowings................................................. $168,824 $270,886 $151,602 Current portion of long-term debt..................................... 9,601 10,150 9,311 Accounts payable...................................................... 130,088 131,552 140,913 Taxes accrued......................................................... 6,017 9,784 9,213 -------- -------- -------- Current liabilities................................................. 314,530 422,372 311,039 Long-term debt........................................................ 135,270 129,506 134,752 Convertible subordinated debentures................................... 51,652 69,000 51,652 Retirement and other benefits......................................... 19,865 21,300 19,942 Deferred taxes........................................................ 5,827 6,029 5,298 -------- -------- -------- Total liabilities................................................... 527,144 648,207 522,683 -------- -------- -------- MINORITY INTERESTS.................................................... 60 27,402 54 -------- -------- -------- SHAREHOLDERS' EQUITY Preferred stock, $1.65 par value; authorized shares 1,000,000 Issued none Common stock, $0.20 par value; authorized shares 100,000,000 Issued 15,880,322 (June 00 - 15,622,256; Mar 01 - 15,875,611)........ 3,188 3,124 3,175 Additional paid-in capital............................................ 105,271 103,038 104,198 Unearned restricted stock plan compensation........................... (2,600) (1,447) (1,799) Treasury shares, 2,617,707 (June 00 - 2,617,707; Mar 01 - 2,617,707).. (4,250) (4,250) (4,250) Retained earnings..................................................... 120,302 98,215 117,248 Accumulated other comprehensive income................................ (50,629) (48,341) (48,379) -------- -------- -------- Total shareholders' equity.......................................... 171,282 150,339 170,193 -------- -------- -------- Total liabilities and equity........................................ $698,486 $825,948 $692,930 ======== ======== ========
The accompanying notes are an integral part of these financial statements. -2- STANDARD COMMERCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (In thousands, except per share data; unaudited) Three months ended June 30 ------- 2001 2000 -------- -------- Sales - tobacco......................................... $170,280 $138,731 - nontobacco...................................... 50,898 61,153 -------- -------- Total sales............................................ 221,178 199,884 Cost of sales - Materials, services and supplies................... 188,787 167,867 - Interest........................................... 5,490 6,041 -------- -------- Gross profit....................................... 26,901 25,976 Selling, general and administrative expenses............ 19,021 19,550 Other interest expense.................................. 1,912 1,844 Other income (expense) - net............................ 1,191 287 -------- -------- Income before taxes................................ 7,159 4,869 Income taxes............................................ 3,456 2,624 -------- -------- Income after taxes................................. 3,703 2,245 Minority interests...................................... - (668) Equity in earnings of affiliates........................ 14 111 -------- -------- Net income......................................... 3,717 1,688 Retained earnings at beginning of period................ 117,248 97,177 Common stock dividends.................................. (663) (650) -------- -------- Retained earnings at end of period...................... $120,302 $ 98,215 ======== ======== Earnings per common share Basic and diluted - net................................ $0.28 $0.13 - average shares outstanding......... 13,261 12,999 Dividend declared per common share...................... $0.05 $0.05 The accompanying notes are an integral part of these financial statements. -3- STANDARD COMMERCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands; unaudited)
Three months ended June 30 ------- 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income........................................................ $ 3,717 $ 1,688 Depreciation and amortization.................................... 5,213 5,451 Minority interests............................................... - 668 Deferred income taxes............................................ 560 (491) Undistributed earnings of affiliates net of dividends received... (14) (74) Loss/(gain) on disposition of property, plant and equipment...... (130) 6 Other............................................................ (1,221) 88 -------------------- 8,125 7,336 Net changes in working capital other than cash Receivables...................................................... 16,268 21,223 Inventories...................................................... (28,076) (37,859) Current payables................................................. (13,638) 1,537 -------------------- CASH USED FOR OPERATING ACTIVITIES................................ (17,321) (7,763) -------------------- CASH FLOWS FROM INVESTING ACTIVITIES Property, plant and equipment - additions......................... (3,658) (4,976) - dispositions...................... 208 73 Business acquisitions............................................. - (3) -------------------- CASH USED FOR INVESTING ACTIVITIES................................ (3,450) (4,906) -------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term borrowings............................... 17,222 8,827 Proceeds from long-term borrowings................................ 4,136 2,138 Repayment of long-term borrowings................................. (2,854) (7,456) Other............................................................. 1,085 56 -------------------- CASH PROVIDED BY FINANCING ACTIVITIES............................. 19,589 3,565 -------------------- Decrease in cash for period....................................... (1,182) (9,104) Cash at beginning of period....................................... 38,560 38,349 -------------------- CASH AT END OF PERIOD............................................. $ 37,378 $ 29,245 ==================== Cash payments for - interest...................................... $ 3,566 $ 5,722 - income taxes.................................. $ 5,352 $ 3,126
The accompanying notes are an integral part of these financial statements. -4- STANDARD COMMERCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The interim statements presented herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. The interim period financial statements have been prepared by the Company without audit and contain all of the adjustments which are, in the opinion of the management, necessary for a fair statement of the results of operations. All such adjustments are of normal, recurring nature and there were no material changes in accounting policies during the period ended June 30, 2001. Because of the nature of the Company's businesses, fluctuations in results for interim periods are not necessarily indicative of business trends or results to be expected for other interim periods or a full year. 2. INVENTORIES June 30 March 31 ------- -------- (In thousands) 2001 2000 2001 ---- ---- ---- Tobacco $216,496 $317,161 $183,021 Nontobacco 61,876 60,266 69,011 -------- -------- -------- Total $278,372 $377,427 $252,032 ======== ======== ======== 3. COMPREHENSIVE INCOME The components of comprehensive income were as follows: June 30 ------- 2001 2000 ---- ---- (In thousands) Net income $ 3,717 $ 1,688 Other comprehensive income: Translation adjustment (2,200) 13 Cumulative effect of change in accounting for derivative financial instruments (2,067) 0 Decrease in derivative financial instruments 2,017 0 -------- -------- Total comprehensive income $ 1,467 $ 1,701 ======== ======== 4. EARNINGS PER SHARE Earnings per share has been presented in conformity with Statement of Financial Accounting Standards No.128. In computing the diluted per-share amounts, the incremental shares from assumed conversion of 7 1/4% Convertible Subordinated Debentures and the exercise of outstanding stock options were not included because they would be antidilutive. 5. SEGMENT INFORMATION The Company is engaged in purchasing, processing and selling leaf tobacco and wool. Its activities other than these are minimal. Segment revenue and net income were as follows: June 30 ------- 2001 2000 ---- ---- (In thousands) Sales Tobacco $170,280 $138,731 Nontobacco 50,898 61,153 -------- -------- $221,178 $199,884 -------- -------- Net income Tobacco $ 3,599 $ 1,363 Nontobacco 118 325 -------- -------- $ 3,717 $ 1,688 -------- -------- -5- STANDARD COMMERCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued 6. DERIVATIVE FINANCIAL INSTRUMENTS On April 1, 2001 the Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establish new accounting and disclosure requirements for most derivative instruments and hedge transactions involving derivatives. SFAS No. 133 also requires formal documentation procedures for hedging relationships and effectiveness testing when hedge accounting is to be applied. In accordance with the transition provisions of SFAS No. 133, in the quarter ended June 30, 2001 the Company recorded a cumulative effect loss adjustment of $2,067, net of applicable taxes, in other comprehensive income to recognize the fair value of all derivatives designated as cash flow hedging instruments. The Company's derivative usage is principally foreign currency forwards. These contracts typically have maturities of less than one year. As a matter of policy, the Company does not use derivative instruments unless there is an underlying exposure. The Company's foreign currency forwards have been designated and qualify as cash flow hedges under the criteria of SFAS No. 133. SFAS No. 133 requires that changes in fair value of derivatives that qualify as cash flow hedges be recognized in other comprehensive income, while the ineffective portion of change in derivatives in fair value be recognized immediately in earnings. The fair value of the Company's foreign currency forward contracts at June 30, 2001 was not material. 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 requires that upon adoption, amortization of goodwill cease and instead, the carrying value of goodwill be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed Of". SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. The Company will be required to adopt SFAS No. 142 on April 1, 2002 and is in the process of evaluating the impact of this pronouncement. 8. SENIOR NOTES The 8 7/8 % Senior Notes due 2005 were issued by Standard Commercial Tobacco Co., Inc. (the "Issuer"), a wholly owned subsidiary of the Company. The Company and Standard Wool, Inc., a wholly owned subsidiary of the Company (the "Guarantors"), jointly and severally, guarantee on a senior basis, the full and prompt performance of the issuer's obligations under the terms of the indenture. Management has determined that full financial statements of the Guarantors would not be material to investors and such financial statements are not provided. The following supplemental combining financial statements present information regarding the issuer and the Guarantors. -6- STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING BALANCE SHEET June 30, 2001 (In thousands.)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total --------------------------------------------------------------------------------- Assets Cash $ 12,000 $ 12 $ 48 $ 25,318 $ - 37,378 Receivables 15,870 17 7 178,252 - 194,146 Intercompany receivables 157,879 2,619 36 18,519 (179,053) - Inventories 62,658 - - 215,714 - 278,372 Prepaid expenses 285 - 1 3,207 - 3,493 Marketable securities - 1 - 516 - 517 --------------------------------------------------------------------------------- Current assets 248,692 2,649 92 441,526 (179,053) 513,906 Property, plant and equipment 20,207 - 12 113,288 - 133,507 Investment in subsidiaries 93,383 206,874 28,517 149,260 (478,034) - Investment in affiliates - - - 10,098 - 10,098 Other noncurrent assets 295 9,730 - 30,950 - 40,975 --------------------------------------------------------------------------------- Total assets $362,577 $219,253 $28,621 $745,122 ($657,087) $698,486 ================================================================================= Liabilities Short-term borrowings $ 542 $ - $ - $ 168,282 $ - $ 168,824 Current portion of long-term debt - - - 9,601 - 9,601 Accounts payable 15,056 2,145 7 112,880 - 130,088 Intercompany accounts payable 28,998 627 1,551 147,877 (179,053) - Taxes accrued 17,675 (7,854) - (3,804) - 6,017 --------------------------------------------------------------------------------- Current liabilities 62,271 (5,082) 1,558 434,836 (179,053) 314,530 Long-term debt 115,000 - - 20,270 - 135,270 Convertible subordinated debentures - 51,652 - - - 51,652 Retirement and other benefits 9,532 848 - 9,485 - 19,865 Deferred taxes (1,302) (1,619) - 8,748 - 5,827 --------------------------------------------------------------------------------- Total liabilities 185,501 45,799 1,558 473,339 (179,053) 527,144 Minority interests - - - 60 - 60 Shareholders' equity Common stock 993 3,188 32,404 155,220 (188,617) 3,188 Additional paid-in capital 130,860 105,271 - 60,564 (191,424) 105,271 Unearned restricted stock plan compensation (751) (428) (14) (1,407) - (2,600) Treasury stock at cost - (4,250) - - - (4,250) Retained earnings 69,434 120,302 8,439 107,975 (185,848) 120,302 Accumulated other comprehensive income (23,460) (50,629) (13,766) (50,629) 87,855 (50,629) --------------------------------------------------------------------------------- Total shareholders' equity 177,076 173,454 27,063 271,723 (478,034) 171,282 --------------------------------------------------------------------------------- Total liabilities and equity $362,577 $219,253 $28,621 $745,122 ($657,087) $698,486 =================================================================================
-7- STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS Three months ended June 30, 2001 (In thousands.)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total ---------------------------------------------------------------------------------- Sales $ 47,651 $ - $ 45 $ 238,648 $ (65,166) $221,178 Cost of sales: Materials services and supplies 39,446 - - 214,507 (65,166) 188,787 Interest 1,564 - - 3,926 - 5,490 ---------------------------------------------------------------------------------- Gross profit 6,641 - 45 20,215 - 26,901 Selling, general & administrative expenses 2,658 1,431 51 14,881 - 19,021 Other interest expense 1,886 1,005 - (979) - 1,912 Other income (expense) net 2,281 389 - (1,479) - 1,191 ---------------------------------------------------------------------------------- Income (loss) before taxes 4,378 (2,047) (6) 4,834 - 7,159 Income taxes 1,489 (700) - 2,667 - 3,456 ---------------------------------------------------------------------------------- Income (loss) after taxes 2,889 (1,347) (6) 2,167 - 3,703 Minority interests - - - - - - Equity in earnings of affiliates - - - 14 - 14 Equity in earnings of subsidiaries 2,057 5,064 124 - (7,245) - ---------------------------------------------------------------------------------- Net income 4,946 3,717 118 2,181 (7,245) 3,717 Retained earnings at beginning of period 64,488 117,248 8,321 105,794 (178,603) 117,248 Common stock dividends - (663) - - - (663) ---------------------------------------------------------------------------------- Retained earnings at end of period $ 69,434 $120,302 $ 8,439 $ 107,975 (185,848) $120,302 ==================================================================================
-8- STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS Three months ended June 30, 2001 (In thousands.)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------------------------------------------------------------------------------- Cash provided by (used in) operating activities $ 11,717 $ 45 $ 4 (29,087) $ - $(17,321) Cash flows from investing activities Property, plant and equipment - additions (1,237) - - (2,421) - (3,658) - disposals - - - 208 - 208 Business (acquisitions) dispositions - - - - - - -------------------------------------------------------------------------------- Cash provided by (used in) investing activities (1,237) - - (2,213) (3,450) Cash flows from financing activities: Proceeds from long-term borrowings - - - 4,136 - 4,136 Repayment of long-term borrowings - - - (2,854) - (2,854) Net change in short-term borrowings (114) (33) - 17,369 - 17,222 Other 1,086 - - (1) - 1,085 -------------------------------------------------------------------------------- Cash provided by (used in) financing activities 972 (33) - 18,650 - 19,589 Increase (decrease) in cash for year 11,452 12 4 (12,650) - (1,182) Cash at beginning of year 548 - 44 37,968 - 38,560 -------------------------------------------------------------------------------- Cash at end of year $ 12,000 $ 12 $ 48 $ 25,318 - $ 37,378 ================================================================================ Interest $ 37 $ - $ - $ 3,529 $ 3,566 Income taxes 280 1,870 - 3,202 5,352
-9- STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING BALANCE SHEET June 30, 2000 (In thousands.)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Assets Cash $ 8,677 $ - $ 39 $ 20,529 $ - $ 29,245 Receivables 16,077 1,532 27 183,578 - 201,214 Intercompany receivables 95,877 18,996 64 27,681 (142,618) - Inventories 117,526 - - 259,901 - 377,427 Prepaids and other 148 350 1 6,593 - 7,092 Marketable securities - 1 - 987 - 988 --------------------------------------------------------------------------------------- Current assets 238,305 20,879 131 499,269 (142,618) 615,966 Property, plant and equipment 21,729 - 20 124,885 - 146,634 Investment in subsidiaries 88,693 185,060 31,918 149,755 (455,426) - Investment in affiliates - - - 16,078 - 16,078 Other noncurrent assets 1,158 9,567 - 36,545 - 47,270 --------------------------------------------------------------------------------------- Total assets $349,885 $215,506 $32,069 $826,532 ($598,044) $825,948 ======================================================================================= Liabilities Short-term borrowings $ - $ 23 $ - $ 270,863 $ - $ 270,886 Current portion of long-term debt - - - 10,150 - 10,150 Accounts payable 9,961 2,388 - 119,203 - 131,552 Intercompany accounts payable 45,524 56 1,560 95,478 (142,618) - Taxes accrued 14,178 (6,883) - 2,489 - 9,784 --------------------------------------------------------------------------------------- Current liabilities 69,663 (4,416) 1,560 498,183 (142,618) 422,372 Long-term debt 115,000 - - 14,506 - 129,506 Convertible subordinated debentures - 69,000 - - - 69,000 Retirement and other benefits 9,122 713 - 11,465 - 21,300 Deferred taxes (933) (1,557) - 8,519 - 6,029 --------------------------------------------------------------------------------------- Total liabilities 192,852 63,740 1,560 532,673 (142,618) 648,207 Minority interests - - - 27,402 - 27,402 Shareholders' equity Common stock 993 3,124 32,404 155,217 (188,614) 3,124 Additional paid-in capital 130,860 103,038 - 60,512 (191,372) 103,038 Unearned restricted stock plan compensation (502) (20) (6) (919) - (1,447) Treasury stock at cost - (4,250) - - - (4,250) Retained earnings 47,386 98,215 6,385 99,988 (153,759) 98,215 Accumulated other comprehensive income (21,704) (48,341) (8,274) (48,341) 78,319 (48,341) --------------------------------------------------------------------------------------- Total shareholders' equity 157,033 151,766 30,509 266,457 (455,426) 150,339 --------------------------------------------------------------------------------------- Total liabilities and equity $349,885 $215,506 $32,069 $826,532 ($598,044) $825,948 =======================================================================================
-10- STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS Three months ended June 30, 2000 (In thousands.)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Sales $ 43,493 $ - $ 40 $ 208,752 $(52,401) $199,884 Cost of sales: Materials services and supplies 34,281 - - 185,987 (52,401) 167,867 Interest 851 - - 5,190 - 6,041 -------------------------------------------------------------------------------------- Gross profit 8,361 - 40 17,575 - 25,976 Selling, general & administrative expenses 2,524 848 50 16,128 - 19,550 Other interest expense 200 1,319 - 325 - 1,844 Other income (expense) net 205 (11) - 93 - 287 -------------------------------------------------------------------------------------- Income (loss) before taxes 5,842 (2,178) (10) 1,215 - 4,869 Income taxes 1,987 (740) - 1,377 - 2,624 --------------------------------------------------------------------------------------- Income (loss) after taxes 3,855 (1,438) (10) (162) - 2,245 Minority interests - - - (668) - (668) Equity in earnings of affiliates - - - 111 - 111 Equity in earnings of subsidiaries (1,180) 3,126 461 - (2,407) - -------------------------------------------------------------------------------------- Net income 2,675 1,688 451 (719) (2,407) 1,688 Retained earnings at beginning of period 44,711 97,177 5,934 100,707 (151,352) 97,177 Common stock dividends - (650) - - - (650) -------------------------------------------------------------------------------------- Retained earnings at end of period $ 47,386 $ 98,215 $ 6,385 $ 99,988 $(153,759) $ 98,215 ======================================================================================
-11- STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS Three months ended June 30, 2000 (In thousands.)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total ----------------------------------------------------------------------------------------- Cash provided by (used in) operating activities $ 21,214 $ (143) $ (3) $ (28,831) $ - $ (7,763) Cash flows from investing activities Property, plant and equipment - additions (253) - - (4,723) - (4,976) - disposals - - - 73 - 73 Business (acquisitions) dispositions - - - (3) - (3) --------------------------------------------------------------------------------------- Cash provided by (used in) investing activities (253) - - (4,653) (4,906) Cash flows from financing activities: Proceeds from long-term borrowings - - - 2,138 - 2,138 Repayment of long-term borrowings (2,940) - - (4,516) - (7,456) Net change in short-term borrowings (10,212) 23 - 19,016 - 8,827 Dividends received ( paid) - - - - - - Other 56 - - - - 56 --------------------------------------------------------------------------------------- Cash provided by (used in) financing activities (13,096) 23 - 16,638 - 3,565 Increase (decrease) in cash for year 7,865 (120) (3) (16,846) - (9,104) Cash at beginning of year 812 120 42 37,375 - 38,349 --------------------------------------------------------------------------------------- Cash at end of year $ 8,677 $ - $ 39 $ 20,529 $ - $ 29,245 ======================================================================================= Interest $ 278 $ - $ - $ 5,444 $ 5,722 Income taxes $ 480 $ 572 $ - $ 2,074 $ 3,126
-12- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Sales for the quarter ended June 30, 2001 were $221.2 million, an increase of 10.7% from a year earlier. Sales of $170.3 million for the tobacco division were up 22.7% from the corresponding period in 2000. Volumes were 32.5% higher than last year due primarily to increases from Africa, Far East, Europe, CIS and South America. In South America the volume increase was mainly from Brazil, where our second processing line is now fully operational. In year 2000 the volumes and sales were affected by delayed crops in Brazil and Malawi and a delay in tobacco delivery to the auction floors during the early part of the season in Zimbabwe. Average sales prices were the same as the prior year's first quarter. Wool sales of $50.9 million were 16.8% lower and the volume decreased by 8.8%. This was largely due to lower demand in Europe where the spinners reacted to high wool prices and drought in Western Australia. Gross profit for the quarter of $26.9 million improved 3.6% from the 2000 quarter due primarily to favorable market conditions in the tobacco segment. The wool division gross profits were lower than the corresponding prior year period. Gross margins were lower in the current quarter because the prior year period had higher tobacco processing income where the margins are higher and better margins in the wool segment from the firming of wool markets. Selling, general and administrative expenses decreased due to cost saving programs in both divisions. Prior year period selling general and administrative expenses included our Greek subsidiary company, which was traded for the remaining 49% interest in our Turkish operation during fiscal 2001. Other income in the current period included insurance recoveries of $0.5 million, gain on disposition of assets of $0.1 million and interest income of $0.6 million versus a small loss on disposition of assets and interest income of $0.4 million in the prior year quarter. The effective tax rate was 48.3% in the current quarter versus 53.9% in the June 2000 quarter. This was mainly due to differences in tax rates and tax credits not utilizable in certain areas where losses are incurred. There is no income attributable to minority shareholders in the current quarter because of the swap of the Greek and Turkish operations. Net income was $3.7 million, or $0.28 per share on a basic and diluted basis with 13.3 million average shares outstanding, versus $1.7 million, or $0.13 per share on 13.0 million shares outstanding for the June 2000 quarter. Liquidity and Capital Resources Working capital at June 30, 2001 was $199.4 million, compared to $193.6 million a year earlier. Most of the increase was due to the higher net income in tobacco business. Capital expenditures during the 2001 quarter of $3.7 million consisted of routine expenditures of $3.0 million and $0.7 million in the tobacco and wool divisions, respectively. Cash used in operating activities during the first quarter totaled $17.3 million mainly due to increases in inventories and payables since March 31, 2001, which is to a certain extent offset by reduction in receivables. The Company continues to closely monitor its inventory levels, which fluctuate, depending on seasonal factors and timing of deliveries to customers. On June 7, 2001, the Company's major tobacco subsidiaries amended their global revolving bank credit facility. The amount of the facility was decreased from $250.0 million to $230.0 million. The maturity date was extended to July 31, 2002 to July 31, 2003. Financial covenants and other terms and conditions are essentially unchanged. Borrowings under the facility continue to be guaranteed by the Company and are secured by substantially all of the assets of the borrowers. Debt agreements to which the Company and its subsidiaries are parties contain financial covenants, that could restrict payment of cash dividends. Under its most restrictive covenant, the Company had approximately $10.0 million of retained earnings available for distribution as dividends at June 30, 2001. -13- Forward-Looking Statements Statements in this report that are not purely statements of historical fact may be deemed to be forward-looking. Readers are cautioned that any such forward- looking statements are based upon management's current knowledge and assumptions, and actual results could be affected in a material way by many factors, including ones over which the Company has little or no control, e.g. unforeseen changes in shipping schedules; the balance between supply and demand; and market, economic, political and weather conditions. More information regarding these factors is contained in the Company's other SEC filings, copies of which are available upon request from the Company. The Company assumes no obligation to update any of these forward-looking statements. -14- PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. The following exhibits are filed as a part of this report: 4 (i) Sixth Supplemental Agreement dated June 7, 2001 between the Company and certain subsidiaries and Deutsche Bank A.G. et al. 11 Computation of Earnings per Common Share. b. The Company filed one current report on Form 8-K during the quarter, on April 9, 2001 to report an announcement regarding its earnings estimates. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 8, 2001 STANDARD COMMERCIAL CORPORATION (Registrant) By /s/ Robert E Harrison ---------------------- Robert E Harrison President, Chief Executive Officer By /s/ Robert A Sheets -------------------------- Robert A Sheets Vice President and Chief Financial Officer -15