10-Q 1 d10q.txt STANDARD COMMERCIAL 10-Q DATED 12/31/2001 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 December 31, 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 On February 1, 2002 the registrant had outstanding 13,365,025 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)
December 31 March 31 ---------------------------- 2001 2000 2001 ---- ---- ---- (unaudited) ASSETS Cash ..................................................................... $ 59,293 $ 50,362 $ 38,560 Receivables .............................................................. 215,881 234,126 217,153 Inventories .............................................................. 222,551 305,334 252,032 Prepaid expenses ......................................................... 5,642 4,557 1,778 Marketable securities .................................................... 537 570 540 ----------------------------------------- Current assets ...................................................... 503,904 594,949 510,063 Property, plant and equipment ............................................ 136,876 145,253 135,166 Investment in affiliates ................................................. 10,189 15,707 9,978 Other assets ............................................................. 40,353 45,617 37,723 ----------------------------------------- Total assets ........................................................ $691,322 $801,526 $692,930 ========================================= LIABILITIES Short-term borrowings .................................................... $137,019 $244,606 $151,602 Current portion of long-term debt ........................................ 11,278 9,158 9,311 Accounts payable ......................................................... 134,929 133,011 140,913 Taxes accrued ............................................................ 8,561 10,401 9,213 ----------------------------------------- Current liabilities ................................................. 291,787 397,176 311,039 Long-term debt ........................................................... 130,451 128,502 134,752 Convertible subordinated debentures ...................................... 51,316 60,814 51,652 Retirement and other benefits ............................................ 20,234 20,856 19,942 Deferred taxes ........................................................... 5,705 6,143 5,298 ----------------------------------------- Total liabilities ................................................... 499,493 613,491 522,683 ----------------------------------------- MINORITY INTERESTS ....................................................... 54 28,256 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 15,981,719 (Dec. 00 - 15,857,405; Mar. 01 - 15,875,611) ........ 3,196 3,161 3,175 Additional paid-in capital ............................................... 106,003 103,797 104,198 Unearned restricted stock plan compensation .............................. (2,244) (1,768) (1,799) Treasury shares, 2,617,707 ............................................... (4,250) (4,250) (4,250) Accumulated other comprehensive income (48,949) (50,846) (48,379) Retained earnings ........................................................ 138,019 109,685 117,248 ------------------------------------------ Total shareholders' equity .......................................... 191,775 159,779 170,193 ------------------------------------------ Total liabilities and equity ........................................ $691,322 $801,526 $692,930 ==============================--==========
The accompanying notes are an integral part of these financial statements. STANDARD COMMERCIAL CORPORATION CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (In thousands, except per share information; unaudited)
Third quarter ended Nine months ended December 31 December 31 -------------------------- ------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Sales - tobacco ................................................... $ 196,044 $ 317,945 $ 569,323 $ 664,855 - nontobacco ................................................ 46,737 62,863 140,176 168,501 --------- --------- --------- --------- Total sales .................................................. 242,781 380,808 709,499 833,356 Cost of sales - materials, services and supplies ................. 205,917 335,799 592,437 717,469 - interest ......................................... 4,672 7,524 15,450 24,312 --------- --------- --------- --------- Gross profit ................................................. 32,192 37,485 101,612 91,575 Selling, general and administrative expenses ...................... 22,062 21,614 58,257 59,896 Other interest expense ............................................ 1,877 2,889 6,506 6,540 Other income (expense) - net ...................................... 150 545 2,212 1,226 --------- --------- --------- --------- Income before taxes .......................................... 8,403 13,527 39,061 26,365 Income taxes ...................................................... (2,442) (6,675) (16,386) (12,255) --------- --------- --------- --------- Income after taxes ........................................... 5,961 6,852 22,675 14,110 Minority interests ................................................ 0 (1,139) 0 (1,783) Equity in earnings of affiliates .................................. (20) (6) 100 85 --------- --------- --------- --------- Income before extraordinary (loss)/gain ...................... 5,941 5,707 22,775 12,412 Extraordinary gain/(loss) due to buyback of Senior notes/ Convertible subordinated debentures, net of income tax of $6 for the quarter and $3 for the nine months (Dec 00 $730 for the quarter and $1,059 for the nine months) .............. 11 1,417 (6) 2,056 --------- --------- --------- --------- Net income ................................................... 5,952 7,124 22,769 14,468 Retained earnings at beginning of period .......................... 132,735 103,220 117,248 97,177 Common stock dividends ............................................ (668) (659) (1,998) (1,960) --------- --------- --------- --------- Retained earnings at end of period ................................ $ 138,019 $ 109,685 $ 138,019 $ 109,685 ========= ========= ========= ========= Earnings per common share Basic Income before extraordinary gain ............................. $ 0.44 $ 0.43 $ 1.71 $ 0.95 Extraordinary gain ........................................... $ 0.00 $ 0.11 $ 0.00 $ 0.16 --------- --------- --------- --------- Net income ................................................... $ 0.44 $ 0.54 $ 1.71 $ 1.11 --------- --------- --------- --------- - average shares outstanding ............................. 13,356 13,198 13,310 13,087 Diluted Income before extraordinary gain ............................ $ 0.43 $ 0.42 $ 1.63 $ 0.95 Extraordinary gain .......................................... $ 0.00 $ 0.09 $ 0.00 $ 0.14 --------- --------- --------- --------- Net income .................................................. $ 0.43 $ 0.51 $ 1.63 $ 1.09 --------- --------- --------- --------- - average shares outstanding ............................ 15,180 15,332 15,136 15,355 Dividends paid per common share .................................. $ 0.05 $ 0.05 $ 0.15 $ 0.15
The accompanying notes are an integral part of these financial statements. STANDARD COMMERCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands; unaudited)
Nine months ended December 31 --------------------------------- 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................................ $ 22,769 $ 14,468 Depreciation and amortization .......................................... 14,621 15,392 Minority interests ..................................................... 0 1,783 Deferred income taxes .................................................. 412 (311) Undistributed earnings of affiliates, net of dividends received ........ (82) 10 Loss/(gain) on buyback of senior notes/subordinated debentures ......... 6 (2,056) Gain on disposition of property, plant and equipment ................... (163) (189) Other .................................................................. 333 (788) --------------------------------- .......................................................................... 37,896 28,309 Net changes in working capital other than cash Receivables ............................................................ (2,759) (12,050) Inventories ............................................................ 28,966 31,185 Current payables ....................................................... (6,996) 8,686 -------------------------------- CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 57,107 56,130 --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Property, plant and equipment - additions ................................ (10,823) (12,584) - dispositions ............................. 471 410 Business (acquisitions) dispositions, net ................................. 164 9 -------------------------------- CASH USED FOR INVESTING ACTIVITIES ........................................ (10,188) (12,165) -------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term borrowings ....................................... (14,583) (17,453) Proceeds from long-term borrowings ........................................ 7,432 7,359 Repayment of long-term borrowings ......................................... (15,102) (14,618) Buyback of senior notes/convertible subordinated debentures ............... (2,341) (6,130) Dividends paid ............................................................ (1,998) (1,960) Other ..................................................................... 406 850 -------------------------------- CASH USED FOR FINANCING ACTIVITIES ........................................ (26,186) (31,952) -------------------------------- Increase in cash for period ............................................... 20,733 12,013 Cash at beginning of period ............................................... 38,560 38,349 -------------------------------- CASH AT END OF PERIOD ..................................................... $ 59,293 $ 50,362 ================================ Cash payments for - interest .............................................. $ 17,157 $ 23,386 - income taxes ........................................... $ 20,297 $ 10,788
The accompanying notes are an integral part of these financial statements. STANDARD COMMERCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.BASIS OF PRESENTATION The interim statements presented herein should be read in conjunction with the audited financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K.The interim period financial statements have been prepared by the Company without audit and contain all of the adjustments which are, in the opinion of the management, necessary for a fair statement of the results of operations. All such adjustments are of normal, recurring nature and there were no material changes in accounting policies during the period ended December 31, 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 a full year or any other interim period. 2.INVENTORIES December 31 March 31 -------------------------- -------- (In thousands) 2001 2000 2001 ---- ---- ---- Tobacco $162,670 $238,069 $183,021 Nontobacco 59,881 67,265 69,011 -------- -------- -------- Total $222,551 $305,334 $252,032 -------- -------- -------- 3.COMPREHENSIVE INCOME The components of comprehensive income/(loss) were as follows:
Quarter ended Nine months ended December 31 December 31 ----------- ----------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) Net income $ 5,952 $ 7,124 $ 22,769 $ 14,468 Other comprehensive income: Translation adjustment (1,661) 4,240 (570) (2,492) Cumulative effect of change in accounting for derivative financial instruments 0 0 (2,067) 0 Derivative financial instruments (90) 0 2,218 0 -------- -------- --------- -------- Total comprehensive income $ 4,201 $ 11,364 $ 22,350 $ 11,976 -------- -------- --------- --------
4.SEGMENT INFORMATION The Company is engaged in purchasing, processing and selling leaf tobacco and wool. Its activities other than these are minimal. Segment revenue and net income are as follows:
Quarter ended Nine months ended December 31 December 31 ----------- ----------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands) Sales Tobacco $196,044 $317,945 $ 569,323 $664,855 Nontobacco 46,737 62,863 140,176 168,501 -------- -------- --------- -------- $242,781 $380,808 $ 709,499 $833,356 -------- -------- --------- -------- Net income (loss) Tobacco $ 7,772 $ 6,731 $ 25,249 $ 13,550 Nontobacco (1,820) 393 (2,480) 918 -------- -------- --------- -------- $ 5,952 $ 7,124 $ 22,769 $ 14,468 -------- -------- --------- -------- Extraordinary gain/(loss) included in tobacco net income $ 11 $ 1,417 $ (6) $ 2,056 -------- -------- --------- --------
STANDARD COMMERCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5.EARNINGS PER SHARE Earnings per share has been presented in conformity with Statement of Financial Accounting Standards No.128. The diluted earnings per share include the effect of the convertible subordinated debentures which if converted would have increased the weighted number of shares and net income applicable to common stock. The weighted number of shares were further increased by employee stock options. Employee stock options with exercise prices greater than the average market price of common shares were not included in the computation of diluted earnings per share. 6.CONTINGENCIES The Company's Spanish subsidiary has been notified that the Competition Directorate of the European Commission is conducting an administrative investigation of buying practices within the leaf tobacco industry in Spain. The investigation is in its preliminary stages and our Spanish subsidiary is cooperating fully. While a determination by the Competition Directorate that the industry, including our Spanish subsidiary, has violated the law could give rise to material liabilities, we cannot determine at this point whether the investigation will give rise to such liabilities. 7. DERIVATIVE FINANCIAL INSTRUMENTS On April 1, 2001 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 , "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes 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 nine months ended December 31, 2001 the Company recorded a cumulative effect loss adjustment of $2.1 million, 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 values 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 December 31, 2001 was not material. 8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001 the Financial Accounting Standards Board 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. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company is in the process of evaluating the impact of this pronouncement. STANDARD COMMERCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9.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 those financial statements are not provided. The following supplemental combining financial statements present information regarding the Issuer and the Guarantors. STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING BALANCE SHEET December 31, 2001 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Assets Cash $ 28,204 $ 7 $ 123 $ 30,959 $ - 59,293 Receivables 11,521 14 - 204,346 215,881 Intercompany receivables 144,404 3,494 - 21,591 (169,489) - Inventories 62,326 - - 160,225 - 222,551 Prepaids and other - - 1 5,641 - 5,642 Marketable securities - 1 - 536 - 537 --------------------------------------------------------------------------------------- Current assets 246,455 3,516 124 423,298 (169,489) 503,904 Property, plant and equipment 20,360 - - 116,516 - 136,876 Investment in subsidiaries 118,352 226,814 26,013 149,261 (520,440) - Investment in affiliates - - - 10,189 - 10,189 Other noncurrent assets 2,444 13,680 - 24,229 - 40,353 --------------------------------------------------------------------------------------- Total assets $ 387,611 $ 244,010 $ 26,137 $ 723,493 ($689,929) $691,322 ======================================================================================= Liabilities Short-term borrowings $ 362 $ - $ - $ 136,657 $ - $137,019 Current portion of long-term debt - - - 11,278 - 11,278 Accounts payable 19,425 1,916 - 113,588 - 134,929 Intercompany accounts payable 37,777 1,136 1,624 128,952 (169,489) - Taxes accrued 8,979 (3,226) - 2,808 - 8,561 --------------------------------------------------------------------------------------- Current liabilities 66,543 (174) 1,624 393,283 (169,489) 291,787 Long-term debt 113,000 - - 17,451 - 130,451 Convertible subordinated debentures - 51,316 - - - 51,316 Retirement and other benefits 9,711 900 - 9,623 - 20,234 Deferred taxes (1,302) (1,619) - 8,626 - 5,705 --------------------------------------------------------------------------------------- Total liabilities 187,952 50,423 1,624 428,983 (169,489) 499,493 Minority interests - - - 54 - 54 Shareholders' equity Common stock 993 3,196 32,404 166,211 (199,608) 3,196 Additional paid-in capital 130,860 106,003 - 58,106 (188,966) 106,003 Unearned restricted stock plan compensation (618) (432) - (1,194) - (2,244) Treasury stock at cost - (4,250) - - - (4,250) Retained earnings 90,293 138,019 5,841 120,282 (216,416) 138,019 Accumulated other comprehensive income (21,869) (48,949) (13,732) (48,949) 84,550 (48,949) --------------------------------------------------------------------------------------- Total shareholders' equity 199,659 193,587 24,513 294,456 (520,440) 191,775 --------------------------------------------------------------------------------------- Total liabilities and equity $ 387,611 $ 244,010 $ 26,137 $ 723,493 ($689,929) $691,322 =======================================================================================
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS Third quarter ended December 31, 2001 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total --------- ----------- ----------- ----------- ------------ ----- Sales $ 66,555 $ - $ - $ 248,317 $ (72,091) $ 242,781 Cost of sales: Materials services and supplies 53,672 - - 224,336 (72,091) 205,917 Interest 985 - - 3,687 - 4,672 ---------------------------------------------------------------------------- Gross profit 11,898 - - 20,294 - 32,192 Selling, general & administrative expenses 3,624 1,290 47 17,101 - 22,062 Other interest expense 2,324 1,027 - (1,474) - 1,877 Other income (expense) net 830 2,163 (1) (2,842) - 150 ---------------------------------------------------------------------------- - Income (loss) before taxes 6,780 (154) (48) 1,825 - 8,403 Income taxes 2,307 (52) - 187 - 2,442 ---------------------------------------------------------------------------- - Income (loss) after taxes 4,473 (102) (48) 1,638 - 5,961 Minority interests - - - - - - Equity in earnings of affiliates - - - (20) - (20) Equity in earnings of subsidiaries 3,390 6,043 (1,772) - (7,661) - ---------------------------------------------------------------------------- Income before extraordinary gain/(loss) 7,863 5,941 (1,820) 1,618 (7,661) 5,941 Extraordinary gain due to buyback of senior notes net of income tax charge of $6 - 11 - - - 11 ---------------------------------------------------------------------------- Net income/(loss) 7,863 5,952 (1,820) 1,618 (7,661) 5,952 Retained earnings at beginning of period 82,430 132,735 7,661 118,664 (208,755) 132,735 Common stock dividends - (668) - - - (668) ---------------------------------------------------------------------------- Retained earnings at end of period $ 90,293 $ 138,019 $ 5,841 $ 120,282 ($216,416) $ 138,019 ============================================================================
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS Nine months ended December 31, 2001 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total --------- ----------- ----------- ----------- ------------ ----- Sales $ 176,271 $ - $ 82 $ 762,370 $(229,224) $ 709,499 Cost of sales: Materials services and supplies 145,499 - - 676,162 (229,224) 592,437 Interest 3,386 - - 12,064 - 15,450 ------------------------------------------------------------------------------ Gross profit 27,386 - 82 74,144 - 101,612 Selling, general & administrative expenses 9,926 4,402 147 43,782 - 58,257 Other interest expense 7,035 3,010 - (3,539) - 6,506 Other income (expense) net (2,153) 6,553 (1) (2,187) - 2,212 ------------------------------------------------------------------------------ Income (loss) before taxes 8,272 (859) (66) 31,714 - 39,061 Income taxes (648) (292) - 17,326 - 16,386 ------------------------------------------------------------------------------ Income (loss) after taxes 8,920 (567) (66) 14,388 - 22,675 Minority interests - - - - - - Equity in earnings of affiliates - - - 100 - 100 Equity in earnings of subsidiaries 16,902 23,325 (2,414) - (37,813) - ------------------------------------------------------------------------------ Income before extraordinary gain/(loss) 25,822 22,758 (2,480) 14,488 (37,813) 22,775 Extraordinary gain/(loss) due to buyback of senior notes/convertible subordinated debentures, net of income tax of $3 (17) 11 - - - (6) ------------------------------------------------------------------------------ Net income/(loss) 25,805 22,769 (2,480) 14,488 (37,813) 22,769 Retained earnings at beginning of period 64,488 117,248 8,321 105,794 (178,603) 117,248 Common stock dividends - (1,998) - - - (1,998) ------------------------------------------------------------------------------ Retained earnings at end of period $ 90,293 $ 138,019 $ 5,841 $ 120,282 (216,416) $ 138,019 ==============================================================================
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS Nine months ended December 31, 2001 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Cash provided by operating activities $ 32,525 $ 5,956 $ 79 $ 18,547 $ - $ 57,107 Cash flows from investing activities Property, plant and equipment - additions (2,976) - - (7,847) - (10,823) - disposals 12 - - 459 - 471 Business (acquisitions) dispositions - - - 164 - 164 ------------------------------------------------------------------------------ Cash used in investing activities (2,964) - - (7,224) (10,188) Cash flows from financing activities: Proceeds from long-term borrowings - - - 7,432 - 7,432 Repayment of long-term borrowings - (3,594) - (11,508) - (15,102) Net change in short-term borrowings (294) (33) - (14,256) - (14,583) Buyback of Senior Notes/Debentures (2,017) (324) - - - (2,341) Dividends paid - (1,998) - - - (1,998) Other 406 - - - - 406 ------------------------------------------------------------------------------ Cash used in financing activities (1,905) (5,949) - (18,332) - (26,186) Increase (decrease) in cash for year 27,656 7 79 (7,009) - 20,733 Cash at beginning of year 548 - 44 37,968 - 38,560 ------------------------------------------------------------------------------ Cash at end of year $ 28,204 $ 7 $ 123 $ 30,959 - $ 59,293 ============================================================================== Interest $ 5,152 $ 2,152 $ - $ 9,853 $ 17,157 Income taxes 5,389 4,650 - 10,258 20,297
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING BALANCE SHEET December 31, 2000 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Assets Cash $ 8,097 $ - $ 28 $ 42,237 $ - 50,362 Receivables 39,831 16 16 194,263 - 234,126 Intercompany receivables 136,000 7,519 49 16,655 (160,223) - Inventories 67,277 - - 238,057 - 305,334 Prepaids and other 189 158 1 4,209 - 4,557 Marketable securities - 1 - 569 - 570 ------------------------------------------------------------------------------------------ Current assets 251,394 7,694 94 495,990 (160,223) 594,949 Property, plant and equipment 20,900 - 14 124,339 - 145,253 Investment in subsidiaries 90,263 196,247 29,946 149,866 (466,322) - Investment in affiliates - - - 15,707 - 15,707 Other noncurrent assets 722 9,692 - 35,203 - 45,617 ------------------------------------------------------------------------------------------ Total assets $ 363,279 $ 213,633 $ 30,054 $ 821,105 $ (626,545) $ 801,526 ========================================================================================== Liabilities Short-term borrowings $ - $ 7 $ - $ 244,599 $ - $ 244,606 Current portion of long-term debt - - - 9,158 - 9,158 Accounts payable 18,078 1,750 - 113,183 - 133,011 Intercompany accounts payable 34,042 228 1,548 124,405 (160,223) - Taxes accrued 18,577 (9,718) - 1,542 - 10,401 ------------------------------------------------------------------------------------------ Current liabilities 70,697 (7,733) 1,548 492,887 (160,223) 397,176 Long-term debt 115,000 - - 13,502 - 128,502 Convertible subordinated debentures - 60,814 - - - 60,814 Retirement and other benefits 9,286 773 - 10,797 - 20,856 Deferred taxes (933) (1,557) - 8,633 - 6,143 ------------------------------------------------------------------------------------------ Total liabilities 194,050 52,297 1,548 525,819 (160,223) 613,491 Minority interests - - - 28,256 - 28,256 Shareholders' equity Common stock 993 3,161 32,404 155,178 (188,575) 3,161 Additional paid-in capital 130,860 103,797 - 59,753 (190,613) 103,797 Unearned restricted stock plan compensation (597) (211) (13) (947) - (1,768) Treasury stock at cost - (4,250) - - - (4,250) Retained earnings 60,594 109,685 6,869 103,892 (171,355) 109,685 Accumulated other comprehensive income (22,621) (50,846) (10,754) (50,846) 84,221 (50,846) ------------------------------------------------------------------------------------------ Total shareholders' equity 169,229 161,336 28,506 267,030 (466,322) 159,779 ------------------------------------------------------------------------------------------ Total liabilities and equity $ 363,279 $ 213,633 $ 30,054 $ 821,105 $ (626,545) $ 801,526 ==========================================================================================
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS Third quarter ended December 31, 2000 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Sales $ 195,262 $ - $ 48 $ 257,268 $ (71,770) $ 380,808 Cost of sales: Materials services and supplies 180,127 - - 227,442 (71,770) 335,799 Interest 2,871 - - 4,653 - 7,524 ------------------------------------------------------------------------------------- Gross profit 12,264 - 48 25,173 - 37,485 Selling, general & administrative expenses 3,108 996 68 17,442 - 21,614 Other interest expense 1,102 1,274 - 513 - 2,889 Other income (expense) net 1,538 (74) - (919) - 545 ------------------------------------------------------------------------------------- Income (loss) before taxes 9,592 (2,344) (20) 6,299 - 13,527 Income taxes 3,261 (797) - 4,211 - 6,675 ------------------------------------------------------------------------------------- Income (loss) after taxes 6,331 (1,547) (20) 2,088 - 6,852 Minority interests - - - (1,139) - (1,139) Equity in earnings of affiliates - - - (6) - (6) Equity in earnings of subsidiaries 527 7,254 416 - (8,197) - ------------------------------------------------------------------------------------- Income before extraordinary gain 6,858 5,707 396 943 (8,197) 5,707 Extaordinary gain due to buyback of Convertible subordinated debentures net of income tax charge of $329,000 - 1,417 - - - 1,417 ------------------------------------------------------------------------------------- Net income 6,858 7,124 396 943 (8,197) 7,124 Retained earnings at beginning of period 53,736 103,220 6,473 102,949 (163,158) 103,220 Common stock dividends - (659) - - - (659) ------------------------------------------------------------------------------------- Retained earnings at end of period $ 60,594 $ 109,685 $ 6,869 $ 103,892 $ (171,355) $ 109,685 =====================================================================================
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS Nine months ended December 31, 2000 (In thousands; unaudited)
Standard Commercial Standard Other Tobacco Co. Commercial Standard Subsidiaries Inc. Corporation Wool Inc. (Non- (Issuer) (Guarantor) (Guarantor) Guarantors) Eliminations Total -------- ----------- ----------- ----------- ------------ ----- Sales $ 322,142 $ - $ 134 $ 713,388 $ (202,308) $ 833,356 Cost of sales: Materials services and supplies 284,605 - - 635,172 (202,308) 717,469 Interest 9,626 - - 14,686 - 24,312 ------------------------------------------------------------------------------------- Gross profit 27,911 - 134 63,530 - 91,575 Selling, general & administrative expenses 8,576 2,780 174 48,366 - 59,896 Other interest expense 1,451 3,897 - 1,192 - 6,540 Other income (expense) net 2,820 1 8 (1,603) - 1,226 ------------------------------------------------------------------------------------- Income (loss) before taxes 20,704 (6,676) (32) 12,369 - 26,365 Income taxes 7,039 (2,270) - 7,486 - 12,255 ------------------------------------------------------------------------------------- Income (loss) after taxes 13,665 (4,406) (32) 4,883 - 14,110 Minority interests - - - (1,783) - (1,783) Equity in earnings of affiliates - - - 85 - 85 Equity in earnings of subsidiaries 2,218 16,818 967 - (20,003) - ------------------------------------------------------------------------------------- Income before extraordinary gain 15,883 12,412 935 3,185 (20,003) 12,412 Extaordinary gain due to buyback of Convertible subordinated debentures net of income tax charge of $329,000 - 2,056 - - - 2,056 ------------------------------------------------------------------------------------- Net income 15,883 14,468 935 3,185 (20,003) 14,468 Retained earnings at beginning of period 44,711 97,177 5,934 100,707 (151,352) 97,177 Common stock dividends - (1,960) - - - (1,960) ------------------------------------------------------------------------------------- Retained earnings at end of period $ 60,594 $ 109,685 $ 6,869 $ 103,892 (171,355) $ 109,685 =====================================================================================
STANDARD COMMERCIAL CORPORATION SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS Nine months ended December 31, 2000 (In thousands; unaudited)
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 $ 21,372 $ -- $ (14) $ 34,772 $ -- $ 56,130 Cash flows from investing activities Property, plant and equipment - additions (1,072) -- -- (11,512) -- (12,584) - disposals 1 -- -- 409 -- 410 Business (acquisitions) dispositions -- -- -- 9 -- 9 ------------------------------------------------------------------------------ Cash provided by (used in) investing activities (1,071) -- -- (11,094) (12,165) Cash flows from financing activities: Proceeds from long-term borrowings -- -- -- 7,359 -- 7,359 Repayment of long-term borrowings (2,940) -- -- (11,678) -- (14,618) Net change in short-term borrowings (10,212) 7 -- (7,248) -- (17,453) Buyback of debentures -- (6,130) -- -- -- (6,130) Dividends received /( paid) -- (1,960) -- -- -- (1,960) Other 136 7,963 -- (7,249) -- 850 ------------------------------------------------------------------------------- Cash provided by (used in) financing activities (13,016) (120) -- (18,816) -- (31,952) Increase (decrease) in cash for year 7,285 (120) (14) 4,862 -- 12,013 Cash at beginning of year 812 120 42 37,375 -- 38,349 ------------------------------------------------------------------------------ Cash at end of year $ 8,097 $ -- $ 28 $ 42,237 -- $ 50,362 ============================================================================== Interest $ 5,389 $ 2,486 $ -- $ 15,511 $ 23,386 Income taxes 1,133 1,600 -- 8,055 10,788
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Sales for the quarter and nine months ended December 31, 2001 were $242.8 million and $709.5 million, respectively, versus $380.8 million and $833.4 million for the corresponding periods in the prior year. Tobacco division sales for the quarter and nine months were $196.0 million and $569.3 million, down from $317.9 million and $664.9 million for the same periods a year earlier. Sales for the quarter and nine months were lower than last year due to the continuing result of changes in purchasing practices in the U.S. market related to the trend to direct contracting by the cigarette manufacturers. Comparisons to prior years of this year's unit volume and sales revenue for the U.S. operations will not be meaningful as a result of this change. Unit volumes increased in Africa, Asia and Europe, which offset the volume shift to the second quarter of the current fiscal year due to the addition of the second processing line in Brazil. Unit volumes for these markets increased 19% for the nine months of the current fiscal year and average selling prices during the current nine months were 6% lower than corresponding period in fiscal 2001. Nontobacco sales of $46.7 million and $140.2 million for the current quarter and nine months, respectively, were down 26% and 17% from the same periods a year earlier. The reduction was mainly due to weak textile industry demand resulting from the drop-off in the demand for textile goods as the consumers continue to react to global economic uncertainty. Gross profit for the quarter and nine months was $32.1 million and $101.6 million, versus $37.5 million and $91.6 million for the corresponding periods in fiscal 2001. Tobacco margins for the quarter and nine months were higher than the corresponding prior year periods due to sales mix. Wool margins were considerably lower than prior year mainly due to weak textile industry demand. Last fiscal year the Company terminated its operations in Tanzania and exited that market which resulted in a reduction in tobacco division gross margin and a reduction in after tax income of $5.5 million. Selling general and administrative expenses were in line with the prior year for the quarter and nine months. The increase in other income (expense)-net for the nine months period was mainly due to insurance recoveries of $0.9 million. The Company's debt purchase program, lower inventories and lower rates on short-term borrowings contributed to reducing total interest expense by $3.9 million and $8.9 million for the quarter and nine months. The effective tax rate for the current quarter and nine months has decreased to 29% and 42% from 49% and 46% in the corresponding prior year periods. This was due to differences in tax rates and relief available in areas where profits are earned and losses are incurred. Basic income before extraordinary items for the quarter was $5.9 million, or $0.44 per share, versus $5.7 million, or $0.43 per share, for the corresponding prior year quarter. For the nine months period, the basic income before extraordinary items was $22.8 million, or $1.71 per share, versus $12.4 million, or $0.95 per share, in the prior year period. The prior year periods net income included extraordinary gains of $0.11 and $0.16 per share for the quarter and nine months for basic and $0.09 and $0.14 for diluted, due to buyback of convertible subordinated debentures. The diluted earnings before extraordinary items per share for the current quarter and nine months were $0.43 and $1.63 versus $0.42 and $0.95 for the prior year periods. STANDARD COMMERCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Liquidity and Capital Resources Working capital at December 31, 2001 was $212.1 million, compared to $197.8 million a year earlier. Long-term debt and convertible subordinated debentures at December 31, 2001 were $5.4 million lower than a year ago. Most of the working capital increase was due to contributions from operating activities. During the current nine months the Company bought back $2.0 million of its senior notes and $0.3 million of its convertible subordinated debentures using internally generated working capital. The Company intends to make additional purchases of long-term debts as and when its liquidity and market conditions permit. Capital expenditures of $10.8 million during the current nine months consisted of $9.0 million routine expenditures in the tobacco division and $1.8 million in the wool division. The Company continues to closely monitor its inventory levels, which are down from $305.3 million a year ago to $222.6 million at December 31, 2001. On June 7, 2001 the Company's major tobacco subsidiaries amended their global revolving bank credit facility. The facility was decreased from $250.0 million to $230.0 million and the maturity date was extended to July 31, 2003 from July 31, 2002. Financial covenants and other terms and conditions are essentially unchanged. Borrowings under the facility continue to be guaranteed by the Company and are secured by substantially all of the assets of the borrowers. In addition, the Company has other local short-term credit facilities for its wool division and other tobacco subsidiaries who are not in the global revolving credit facility of the Company's major tobacco subsidiaries. Debt agreements to which the Company and its subsidiaries are parties contain financial covenants that could restrict the payment of cash dividends. Under its most restrictive covenant, the Company had approximately $17.8 million of retained earnings available for distribution as dividends at December 31, 2001. 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. Forward-Looking Statements Statements in this report that are not purely statements of historical fact may be deemed to be forward-looking. Readers are cautioned that any such forward-looking statements are based upon management's current knowledge and assumptions, and actual results could be affected in a material way by many factors, including ones over which the Company has little or no control, e.g. unforeseen changes in shipping schedules; the balance between supply and demand; and market, economic, political and weather conditions. More information regarding certain of these factors is contained in the Company's other SEC filings, copies of which are available upon request from the Company. The Company assumes no obligation to update any of these forward-looking statements. 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: 11 Computation of Earnings per Common Share. b. The Company filed a Current Report on Form 8-K on October 01, 2001 to report an announcement regarding its intent to buy the Wilson, North Carolina leaf-processing operations of Brown & Williamson Tobacco Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 5, 2002. 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