Standard Commercial (NYSE:STW)
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DIMON Reports Second Quarter 2005 Financial Results; Company
Confirms Fiscal 2005 Guidance and Announces Quarterly Dividend
DANVILLE, Va., Nov. 9 /PRNewswire-FirstCall/ -- DIMON Incorporated (NYSE:DMN)
today announced that net income for the quarter ended September 30, 2004, was
$5.6 million, or $0.12 per basic share, compared to $5.5 million, or $0.12 per
basic share, for the year earlier period. The Company's underlying net income
for the quarter, a non-GAAP measure that excludes market valuation adjustments
for derivative financial instruments, discontinued operations, and
non-recurring items, was $13.7 million, or $0.31 per basic share, compared to
$3.2 million, or $0.07 per basic share, on the same basis last year.
The excluded market valuation adjustments result from interest rate swaps that
must be marked-to-market each quarter, even though they are being held to
maturity. In discussing the Company's forecast and actual operating
performance, DIMON management consistently excludes these market valuation
adjustments because they do not reflect the Company's operating activities, are
non-cash in nature, and will reverse in their entirety (gains and losses will
offset each other) during the remaining term of the associated interest rate
swaps. Management also excludes results from discontinued operations, and
gains and charges resulting from unusual transactions or events that are not
reflective of its underlying operations, and that are not expected to recur.
DIMON's net income for the six months ended September 30, 2004, was $19.0
million, or $0.42 per basic share, compared to $19.5 million, or $0.44 per
basic share, for the year earlier period. Underlying net income for the six
months, which excludes market valuation adjustments for derivative financial
instruments, discontinued operations, and non-recurring items, was $24.3
million, or $0.54 per basic share, compared to underlying net income of $21.5
million, or $0.48 per basic share, on the same basis last year.
Performance Summary
Sales and other operating revenues for the second quarter were $341.1 million,
compared to $214.4 million for the year earlier quarter. As anticipated,
increased shipments from South America that were delayed from the prior quarter
due to freight constraints contributed substantially to the sales gain.
Shipments from North America, Africa, and Asia were also higher in comparison
to the year earlier quarter. Sales and other operating revenues for the six
months ended September 30, 2004 were $625.8 million, compared to $562.6 million
for the year earlier period.
Gross profit as a percentage of sales and other operating revenues for the
second quarter was 16.5% compared to 19.4% for the year earlier quarter,
reflecting the overall mix of products shipped. For the six months ended
September 30, 2004, gross profit was 17.4% of revenues, compared to 19.6% for
the year earlier period.
Selling, general and administrative (SG&A) expenses for the second quarter were
$31.4 million, up $4.4 million or 16.5% in comparison to the year earlier
quarter. The current quarter expense included a $3.3 million accrual for the
previously disclosed fine assessed on the Company by the Directorate General
for Competition of the European Commission. Also, increased legal and
professional expenses for the current quarter were only partially offset by
reduced compensation expense. SG&A expenses for the six months ended September
30, 2004 were $60.3 million, down $3.9 million, or 6.0% in comparison to the
year earlier period. A $6.0 million provision for settlement of the DeLoach
litigation, recognized in the year earlier period, was responsible for the
majority of the reduction.
Interest expense for the second quarter increased by $2.1 million, or 20%, in
comparison to the year earlier quarter, reflecting a combination of additional
borrowing and increased effective interest rates. At September 30, 2004, total
debt net of cash was $628.3 million, up $75.3 million, or 13.6%, in comparison
to September 30, 2003. The increase primarily reflects a larger financing
requirement for inventories committed to customers, but not yet shipped.
DIMON's uncommitted inventories remain at a comfortable level.
Outlook
Brian J. Harker, Chairman and Chief Executive Officer, stated, "As anticipated,
the Company's performance continued to benefit from record-sized South American
crops during the quarter. The shortage of freight availability out of South
America that we experienced in the prior quarter eased somewhat, and we were
able to complete shipment of nearly 70% of the current year Brazilian crop by
the end of September. The Company also enjoyed increased shipments from
several other origins during the quarter. We made further progress with our
restructuring efforts, as we successfully divested our Italian operations
during the quarter, which are now recognized as discontinued operations in our
reported results. Reflecting a generally stable market state, looking forward,
we continue to expect the Company's underlying net income to be toward the
upper end of our previously disclosed guidance of between $0.45 and $0.55 per
basic share for the fiscal year ending March 31, 2005. Our current outlook
excludes estimated restructuring charges of $7 million, any effects from market
valuation adjustments for derivatives, results from discontinued operations,
and other non-recurring items."
The timing and magnitude of fluctuations in the market valuation adjustments
for derivative financial instruments (interest rate swaps) are driven primarily
by often-volatile market expectations for changes in interest rates, and are
inherently unpredictable. Because these adjustments are a component of net
income prepared in accordance with generally accepted accounting principles,
management is unable to provide forward looking earnings guidance on that
basis.
Dividend
DIMON's Board of Directors, at its meeting held November 8, 2004, declared a
quarterly dividend of $0.075 per share. The dividend will be payable December
15, 2004 to shareholders of record on December 1, 2004.
Merger Agreement with Standard Commercial Corporation
On November 8, 2004, DIMON and Standard Commercial Corporation (NYSE:STW)
jointly announced that they have entered into a merger agreement. Under the
terms of the agreement, Standard Commercial common shareholders would receive
three shares of DIMON common stock for each share of Standard Commercial common
stock. Please see the Merger Agreement news release for additional
information.
This press release contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. These statements are based on
current expectations of future events. Such statements include, but are not
limited to, statements about future financial and operating results, plans,
objectives, expectations and intentions and other statements that are not
historical facts. Such statements are based on the current beliefs and
expectations of DIMON's management and are subject to significant risks and
uncertainties. If underlying assumptions prove inaccurate or unknown risks or
uncertainties materialize, actual results may differ materially from current
expectations and projections. The following factors, among others, could cause
actual results to differ from those set forth in the forward-looking
statements: changes in the timing of anticipated shipments, changes in
anticipated geographic product sourcing, political instability in sourcing
locations, currency and interest rate fluctuations, shifts in the global supply
and demand position for tobacco products, and the impact of regulation and
litigation on the DIMON's and Standard Commercial's customers. Additional
factors that could cause DIMON's and Standard Commercial's results to differ
materially from those described in the forward-looking statements can be found
in DIMON's Annual Reports on Form 10-K/A for the fiscal year ended March 31,
2004, and other filings with the Securities and Exchange Commission (the "SEC")
which are available at the SEC's Internet site (http://www.sec.gov/).
In connection with the proposed merger of DIMON and Standard Commercial, the
parties will be filing a joint proxy statement/prospectus and other relevant
documents concerning the merger with the U.S. Securities and Exchange
Commission. Stockholders are urged to read the proxy statement/prospectus
regarding the proposed transaction AND OTHER RELEVANT DOCUMENTS FILED WITH THE
SEC because THEY will contain important information. Interested parties will be
able to obtain a free copy of the proxy statement/prospectus, as well as other
filings containing information about DIMON and Standard Commercial without
charge at the SEC's Internet site (http://www.sec.gov/). Copies of the proxy
statement/prospectus and the filings with the SEC that will be incorporated by
reference in the proxy statement/prospectus can also be obtained, without
charge, by directing a request to DIMON Incorporated, 512 Bridge Street, Post
Office Box 681, Danville, Virginia 23543-0681, Attention: Investor Relations,
(434) 792 7511.
The respective directors and executive officers of DIMON and Standard
Commercial and other persons may be deemed to be "participants" in the
solicitation of proxies in respect of the proposed merger. Information
regarding DIMON's directors and executive officers is available in its proxy
statement filed with the SEC on July 13, 2004. Other information regarding the
participants in the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be contained in the
proxy statement/prospectus and other relevant materials to be filed with the
SEC when they become available.
DIMON Incorporated is the world's second largest dealer of leaf tobacco with
operations in more than 30 countries. For more information on DIMON, visit the
Company's website at http://www.dimon.com/.
Condensed Statement of Consolidated Income
Three Months Six Months
September 30 September 30
(Unaudited - 000's
Except Per Share Data) 2004 2003 2004 2003
Sales and other
operating revenues $341,068 $214,416 $625,796 $562,636
Cost of goods and
services sold 284,961 172,735 516,705 452,396
Gross Profit 56,107 41,681 109,091 110,240
Selling, administrative
and general expenses 31,373 26,928 60,312 64,180
Other income (2,735) - (4,630) -
Restructuring and asset
impairment charges 766 - 1,441 -
Operating income 26,703 14,753 51,968 46,060
Interest expense 12,782 10,643 24,884 23,262
Interest income 995 885 1,921 1,359
Derivative financial
instruments (income) (464) (3,876) (6,595) (1,838)
Income tax expense 5,277 3,081 11,748 8,030
Equity in net income
(loss) of investee
companies 53 (256) 142 264
Minority interests (income) (124) (151) (359) (434)
Income from continuing
operations 10,280 5,685 24,353 18,663
Loss from discontinued
operations, net of tax (4,693) (216) (5,392) (915)
Extraordinary item - Iraqi
receivable recovery, net
of $957 income tax - - - 1,777
Net Income $5,587 $5,469 $18,961 $19,525
Basic Earnings Per Share:
Income from continuing
operations $0.23 $0.13 $0.54 $0.42
Loss from discontinued
operations (0.11) (0.01) (0.12) (0.02)
Extraordinary item -
Iraqi receivable
recovery - - - 0.04
Net income $0.12 $0.12 $0.42 $0.44
Diluted Earnings Per Share
Income from continuing
operations $0.23 $0.13 $0.54 $0.41
Loss from discontinued
operations (0.11) (0.01) (0.12) (0.02)
Extraordinary item -
Iraqi receivable
recovery - - - 0.04
Net income $ 0.12 $ 0.12 $ 0.42 $ 0.43
Average number of shares
outstanding:
Basic 44,873 44,602 44,860 44,570
Diluted 45,349 45,270 45,392 45,192
Cash dividends per share $.075 $.075 $0.15 $0.15
Reconciliation of Net Income Figures Used in Press Release
Three Months Six Months
September 30 September 30
(Unaudited - 000's Except
Per Share Data) 2004 2003 2004 2003
GAAP Net Income $5,587 $5,469 $18,961 $19,525
Discontinued operations 4,693 216 5,392 915
Extraordinary item -
Iraqi receivable recovery - - - (1,777)
GAAP Net Income from
Continuing Operations 10,280 5,685 24,353 18,663
Reconciling items,
net of tax effect:
Market valuation
adjustments for
derivatives (302) (2,519) (4,287) (1,078)
Restructuring charges 498 - 937 -
DGCOMP assessment - Spain 3,250 - 3,250 -
Settlement charge for
DeLoach litigation - - - 3,900
Non-GAAP Underlying Net
Income $13,726 $3,166 $24,253 $21,485
Non-GAAP Underlying Net
Income per Basic Share $0.31 $0.07 $0.54 $0.48
GAAP Net Income per Basic
Share $0.12 $0.12 $0.42 $0.44
Note 1 - Derivative Financial Instruments: Effective July 1, 2000, the
Company adopted Statement of Financial Accounting Standards
Number 133 (FAS133), "Accounting for Derivative Instruments and
Hedging Activities." FAS133 eliminates special hedge accounting
if the interest rate swap instruments do not meet certain
criteria, thus requiring the Company to recognize all changes in
their fair value in its current earnings. For the quarters ended
September 30, 2004 and 2003, the Company recognized non-cash
income of $464 and $3,876, respectively, from the change in the
fair value of swap instruments. For the six months ended
September 30, 2004 and 2003, the Company recognized non-cash
income of $6,595 and $1,838 respectively, from the change in the
fair value of these derivative financial instruments. As a
result of fluctuations in interest rates, and volatility in
market expectations, the fair market value of interest rate swap
instruments can be expected to appreciate or depreciate over
time. The Company plans to continue its practice of economically
hedging various components of its debt portfolio. However, as a
result of FAS133, certain swap instruments have and may continue
to create volatility in reported earnings.
Note 2 - Discontinued Operations: During fiscal 2004, the Company's Board
of Directors approved a plan designed to improve long-term
profitability that included the disposal of its Italian
processing facility. On September 30, 2004, concurrent with the
sale of the Italian processing facility, the Company made a
decision to discontinue Italian operations. Therefore, the
results of operations, other than interest expense related to
subsidiary debt guaranteed by the Company, have been reclassified
and presented as discontinued operations in the financial
statements for all periods presented.
Note 3 - Extraordinary Item: On May 1, 2003, the Company received $2,734
from the United Nations Compensation Commission in connection
with a claim filed by a predecessor company, Monk-Austin,
Incorporated. The claim arose from an uncollected trade
receivable from the Iraqi Tobacco Monopoly, which related to
transactions that occurred prior to Iraq's invasion of Kuwait
in August 1990. The predecessor company charged off the entire
receivable, net of tax, as a $5,202 extraordinary loss during its
fiscal year 1991.
DATASOURCE: DIMON Incorporated
CONTACT: Ritchie L. Bond of DIMON Incorporated, +1-434-791-6952
Web site: http://www.dimon.com/