SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-8689
DIXON TICONDEROGA COMPANY
Incorporated pursuant to the Laws of Delaware State
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Internal Revenue Service-- Employer Identification No. 23-0973760
195 International Parkway, Heathrow, FL 32746
(407) 829-9000
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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 (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $1 par value,
outstanding on December 31, 2000, was 3,168,047.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
December 31, 2000 and September 30, 2000 3-4
Consolidated Statements of Operations --
For The Three Months Ended December 31, 2000
and 1999 5
Consolidated Statements of Comprehensive Loss
For The Three Months Ended December 31, 2000
and 1999 6
Consolidated Statements of Cash Flows --
For The Three Months Ended December 31, 2000
and 1999 7-8
Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17-18
Signatures 19
PART I - FINANCIAL INFORMATION
------------------------------
Item 1.
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DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2000 2000
--------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 468,969 $ 448,452
Receivables, less allowance for
doubtful accounts of $1,461,403 at
December 31, 2000 and $1,418,908
at September 30, 2000 24,726,547 30,881,626
Inventories 36,015,288 36,215,931
Other current assets 4,477,252 4,171,064
-------------- --------------
Total current assets 65,688,056 71,717,073
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 10,715,676 10,145,872
Machinery and equipment 16,147,136 16,054,327
Furniture and fixtures 1,628,820 1,654,404
-------------- --------------
28,491,632 27,854,603
Less accumulated depreciation (17,991,183) (17,572,320)
-------------- --------------
10,500,449 10,282,283
-------------- --------------
OTHER ASSETS 4,842,961 4,718,379
-------------- --------------
$ 81,031,466 $ 86,717,735
============== ==============
December 31, September 30,
2000 2000
--------------- --------------
CURRENT LIABILITIES:
Notes payable $ 3,402,424 $ 3,574,929
Current maturities of long-term debt 7,135,198 7,135,198
Accounts payable 7,217,763 8,068,133
Accrued liabilities 7,603,943 10,056,935
--------------- --------------
Total current liabilities 25,359,328 28,835,195
--------------- --------------
LONG-TERM DEBT 29,838,628 30,210,410
--------------- --------------
DEFERRED INCOME TAXES AND OTHER 464,495 177,248
--------------- --------------
MINORITY INTEREST 528,868 552,215
--------------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par $1,
authorized 100,000 shares, none
issued -- --
Common stock, par $1, authorized
8,000,000 shares; issued
3,710,309 shares at December 31,
2000 and September 30, 2000 3,710,309 3,710,309
Capital in excess of par value 3,700,272 3,700,272
Retained earnings 24,837,290 26,147,547
Accumulated comprehensive income (loss) (3,885,840) (3,093,577)
--------------- --------------
28,362,031 30,464,551
Less - treasury stock, at cost
(542,262 shares in December 31,
2000 and September 30, 2000) (3,521,884) (3,521,884)
--------------- --------------
24,840,147 26,942,667
--------------- --------------
$ 81,031,466 $ 86,717,735
=============== ==============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
------------ ------------
REVENUES $19,796,996 $19,625,145
------------ ------------
COST AND EXPENSES:
Cost of goods sold 13,931,188 13,735,871
Selling and administrative expenses 6,797,268 7,247,378
------------ ------------
20,728,456 20,983,249
------------ ------------
OPERATING LOSS (931,460) (1,358,104)
INTEREST EXPENSE 1,119,009 933,037
------------ ------------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (2,050,469) (2,291,141)
INCOME TAX BENEFIT (728,201) (776,183)
------------ ------------
(1,322,268) (1,514,958)
MINORITY INTEREST (12,011) (15,264)
------------ ------------
NET LOSS $(1,310,257) $(1,499,694)
============ ============
LOSS PER COMMON SHARE:
BASIC $ (.41) $ (.45)
============ ============
DILUTED $ (.41) $ (.45)
============ ============
SHARES OUTSTANDING:
BASIC 3,168,047 3,317,123
============ ============
DILUTED 3,168,047 3,317,123
============ ============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
------------ ------------
NET LOSS $(1,310,257) $(1,499,694)
OTHER COMPREHENSIVE LOSS:
Cumulative effect adjustment to recognize
fair value of cash flow hedges (54,205) --
Current period adjustment to recognize
fair value of cash flow hedges (157,715) --
Foreign currency translation adjustments (580,343) (304,674)
------------ ------------
COMPREHENSIVE LOSS $(2,102,520) $(1,804,368)
============ ============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,310,257) $(1,499,694)
Adjustment to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 628,689 646,892
Deferred taxes -- 89,608
Provision for doubtful accounts receivable 111,828 53,518
Loss attributable to foreign
currency exchange 57,760 69,282
Loss attributable to minority interest (12,011) (15,264)
Changes in assets and liabilities:
Receivables 5,601,811 5,803,096
Inventories (54,790) 437,842
Other current assets (314,919) (1,154,023)
Accounts payable and accrued liabilities (3,207,098) (4,120,189)
Other assets (109,591) (61,065)
------------- ------------
Net cash provided by (used in)
operations 1,391,422 250,003
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment, net (853,037) (108,184)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (principal
reductions of) notes payable (101,455) 447,261
Net proceeds from (principal
reductions of) long-term debt (441,088) 943,136
Purchase of treasury stock -- (1,795,380)
Exercise of stock options -- 168,844
Other non-current liabilities 64,719 (25,459)
------------- ------------
Net cash provided by (used in)
financing activities (477,824) (261,598)
------------- ------------
Effect of exchange rate changes on cash (40,044) (101,519)
------------- ------------
Net increase (decrease) in cash and
cash equivalents 20,517 (221,298)
Cash and cash equivalents, beginning
of period 448,452 935,413
------------- ------------
Cash and cash equivalents, end of period $ 468,969 $ 714,115
============= ============
Supplemental Disclosures:
Cash paid during the period:
Interest $ 1,548,489 $ 366,115
Income taxes 717,777 910,826
The accompanying notes to consolidated financial statements are
an integral part of these statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, all adjustments (solely of a normal
recurring nature) necessary to present fairly the financial position of
Dixon Ticonderoga Company and subsidiaries as of December 31, 2000, and
the results of their operations and cash flows for the three months ended
December 31, 2000 and 1999, have been included. The results of operations
for such interim periods are not necessarily indicative of the results for
the entire year.
2. Inventories:
Since amounts for inventories under the LIFO method are based on annual
determinations of quantities and costs as of the end of the fiscal year,
the inventories at December 31, 2000 (for which the LIFO method of
accounting are used) are based on certain estimates relating to quantities
and costs as of year end.
Inventories consist of (in thousands):
December 31, September 30,
2000 2000
------------ -------------
Raw materials $13,005 $12,839
Work in process 4,017 3,656
Finished goods 18,993 19,721
------------ -------------
$36,015 $36,216
============ =============
3. Effect of certain new accounting pronouncements:
On October 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No.133, "Accounting for Derivative Instruments and
Hedging Activities". The Company now records the fair value of interest
rate swaps designated as cash flow hedges in other liabilities with the
offset to the other comprehensive income (loss) component of shareholders'
equity. At adoption, the Company recorded its interest rate swaps
designated as cash flow hedges with a fair value of $86,314 in other
liabilities. Other comprehensive loss was increased $54,205 (net of tax
benefit of $32,109) as a cumulative effect adjustment for an accounting
change. During the period ended December 31, 2000, the Company also
recognized an adjustment to the fair value of these cash flow hedges of
$251,139 in other liabilities. Other comprehensive loss was increased
$157,715 (net of tax benefit of $93,424) during this period.
The Company utilizes interest rate swap agreements to provide an exchange
of interest payments computed on notional amounts that will offset any
undesirable change in cash flows or fair value resulting from market rate
changes on designated hedged bank borrowings. The Company limits the
credit risks of the interest rate agreements by initiating the
transactions with counterparties with significant financial positions,
such as major financial institutions.
SFAS No. 133 requires companies to recognize all of its derivative
instruments as either assets or liabilities in the balance sheet at fair
value. The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on
the type of hedging relationship. For those derivative instruments that
are designated and qualify as hedging instruments, a company must
designate the hedging instrument, based upon the exposure being hedged, as
either a fair value hedge, cash flow hedge or a hedge of a net investment
in a foreign operation. For derivative instruments that are designated and
qualify as a cash flow hedge (such as the Company's interest rate swap
agreements), the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income (loss)
and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present
value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of change. For derivative instruments
not designated as hedging instruments, the gain or loss is recognized in
current earnings during the period of change.
The Company has entered into interest rate swap agreements that
effectively convert a portion of its floating-rate debt to a fixed-rate
basis, thus reducing the impact of interest-rate changes on future
interest expense. The fair values of interest rate instruments are
estimated by obtaining quotes from brokers and are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and other
relevant factors.
4. ACCOUNTING FOR INCOME TAXES:
The difference between income taxes calculated at the U.S. statutory
federal income tax rate and the provision in the accompanying Consolidated
Financial Statements is primarily due to varying effective foreign tax
rates, state income taxes and other permanent items.
5. Contingencies:
The Company, in the normal course of business, is a party in certain
litigation. In April 1996, a decision was rendered by the Superior Court
of New Jersey in Hudson County finding the Company responsible for $1.94
million plus prejudgment interest. All company appeals were denied and in
1998 the Company paid $3.6 million to satisfy this claim in full,
including all accrued interest. The Company continued to pursue other
responsible parties for indemnification and/or contribution to the payment
of this claim (including its insurance carriers) and a legal malpractice
action against its former attorney. In fiscal 2000 the Company reached
settlements with its insurers and all amounts recovered were reflected in
fiscal 2000 financial statements. In 1999, the malpractice suit was
dismissed and the Company has appealed the decision.
The Company has evaluated the merits of other litigation and believes
their outcome will not have a further material effect on the Company's
future results of operations or financial position.
6. RESTRUCTURING AND RELATED COSTS:
In fiscal 2000, the Company provided approximately $1,435,000 of
impairment and restructuring related costs in connection with Phase 2 of
its restructuring and Cost Reduction Program, which includes further
consolidation of certain U.S. manufacturing processes, the consolidation
of its Mexico operations into a new facility and additional personnel
reductions in manufacturing, sales, marketing and corporate activities. An
additional 170 employees (principally plant workers) are affected by the
second phase of the program. The carrying amount of additional property
held for disposal under Phase 2 of the program is $1.1 million. Management
expects to dispose of this additional property by June 2001.
The Phase 2 restructuring and impairment related charges and subsequent
utilization through December 31, 2000 are summarized below (in thousands):
2000
Restructuring Utilized through Balance at
and Related December 31, December 31,
Charges 2000 2000
------------- --------------- -------------
Employee severance and
related costs $ 967,000 $ (244,000) $ 723,000
Losses from the impairment,
sale or abandonment of
property and equipment 468,000 (174,000) 294,000
------------- --------------- -------------
$ 1,435,000 $ (418,000) $ 1,017,000
============= =============== ==============
7. STOCK REPURCHASE PROGRAM:
In March 1999, the Company's Board of Directors approved a Stock
Repurchase Program, authorizing the acquisition of up to $3 million in
Dixon Ticonderoga Company stock. In the quarter ended December 31, 1999,
the Company repurchased 225,000 shares at a cost of approximately $1.8
million.
8. LINE OF BUSINESS REPORTING:
The Company has adopted FASB Statement No. 131 "Disclosure About Segments
of an Enterprise and Related Information". This statement requires the
Company to report information about its operating segments under the
"management approach". The management approach is based on the manner in
which management reports segment information within the Company for making
operating decisions and assessments.
The Company has two principal business segments - its Consumer Group and
Industrial Group. The following information sets forth certain data
pertaining to each line of business as of December 31, 2000 and 1999, and
for the quarters then ended (in thousands):
Consumer Industrial Total
Group Group Company
------------ ------------ ------------
Net revenues:
-------------
Three months ended:
December 31, 2000 $ 17,242 $ 2,555 $ 19,797
December 31, 1999 $ 16,351 $ 3,274 $ 19,625
Loss before interest, taxes
---------------------------
and minority interest:
----------------------
Three months ended:
December 31, 2000 $ (76) $ (235) $ (311)
December 31, 1999 $ (575) $ (159) $ (734)
A reconciliation of loss before interest, taxes and minority interest to
net loss follows (in thousands):
Three Months Ended December 31, 2000
---------------------------------------------
Consumer Industrial Total
Group Group Corporate Company
---------- ---------- ---------- ---------
Loss before interest, taxes
and minority interest $ (76) $ (235) $ (620) $ (931)
Interest expense (847) (112) (160) (1,119)
Income tax benefit 335 121 272 728
Minority interest 12 - - 12
---------- ---------- ---------- ---------
Net loss $ (576) $ (226) $ (508) $(1,310)
========== ========== ========== =========
Three Months Ended December 31, 1999
---------------------------------------------
Consumer Industrial Total
Group Group Corporate Company
---------- ---------- ---------- ---------
Loss before interest, taxes
and minority interest $ (575) $ (159) $ (624) $(1,358)
Interest expense (652) (98) (183) (933)
Income tax benefit 454 78 244 776
Minority interest 15 - - 15
---------- ---------- ---------- ---------
Net loss $ (758) $ (179) $ (563) $(1,500)
========== ========== ========== =========
Certain corporate expenses have been allocated based upon respective
segment sales. Interest expense (where not specifically identified) has
been allocated based upon identifiable assets by segment. Income taxes are
determined based upon the respective effective tax rates.
9. SUBSEQUENT EVENT:
In January 2001, the Company closed on the sale of certain idle real
estate in Burnet County, Texas. Under the terms of the contract for
purchase and sale, the buyer also assumed certain related obligations
previously retained by the Company under its 1999 sale of its graphite and
lubricants business. The Company expects to report a net pre-tax gain from
the sale of approximately $1 million.
Item 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUES for the quarter ended December 31, 2000, increased $172,000 from
the prior year. The changes by segment are as follows:
Increase % Increase (Decrease)
(Decrease) -------------------------------
(in thousands) Total Volume Price/Mix
---------------------------------------------------
U.S. Consumer $ (642) (5) (3) (2)
Foreign Consumer 1,533 40 25 15
Industrial (719) (22) (23) 1
U.S. Consumer revenue decreased as certain educational wholesalers
deferred shipments until 2001 and on lower sales in the promotional products
market. Foreign Consumer revenues increased principally in Mexico as large
retailers and wholesalers increased orders significantly over the prior year
period, while accepting certain market price increases. Industrial revenue
decreased due to continued weakness in the industries served by the Refractories
division.
While the Company has operations in Canada, Mexico and the U.K.,
historically only the operating results in Mexico have been materially impacted
by currency fluctuations. There has been a significant devaluation of the
Mexican peso at least once in each of the last three decades, the last one being
in August, 1998. In the short term after such a devaluation, consumer confidence
has been shaken, leading to an immediate reduction in revenues in the months
following the devaluation. Then, after the immediate shock, and as the peso
stabilizes, revenues tend to grow. Selling prices tend to rise over the long
term to offset any inflationary increases in costs. The peso, as well as any
currency value, depends on many factors including international trade, investor
confidence, and government policy, to name a few. These factors are impossible
for the Company to predict, and thus, an estimate of potential effect on results
of operations for the future cannot be made. This currency risk in Mexico is
presently managed through occasional foreign currency hedges, local currency
financing and by export sales denominated in U.S. dollars.
OPERATING LOSS decreased $427,000 from the prior year. U.S. Consumer
operating income increased $246,000 despite lower gross profit on decreased
revenues. Selling and administrative costs decreased due to prior cost reduction
efforts, lower sales incentives and distribution efficiencies. These factors
contributed to lower relative selling and administrative costs (34.3% of sales
compared with 36.9% of sales in the prior year period). Foreign Consumer
operating loss decreased $253,000, primarily in Mexico, due to the
aforementioned increases in revenues. Industrial operating loss increased
$76,000 on lower revenues and higher energy costs.
INTEREST EXPENSE increased $186,000 from last year due to higher overall
borrowing rates.
INCOME TAX benefit decreased $48,000 from last year due to lower pre-tax
losses.
MINORITY INTEREST represents approximately 3% of the net results from
operations of the Company's Mexico subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash flows from operating activities improved $1,141,000 in
the first quarter of fiscal 2001, despite $1.3 million in net losses. The
Company continued strict inventory management efforts initiated in fiscal 2000.
Improved accounts payable management in the current year period also contributed
to increased operating cash flows.
The Company's investing activities included approximately $853,000 in
purchases of property and equipment in the current period and $108,000 in the
prior year. This is a higher level of purchases as compared with recent years,
due to the Company's expansion of its Mexico manufacturing and consolidation
into its new 300,000 square-foot facility. Generally, all major capital projects
are discretionary in nature and thus no material purchase commitments exist.
Capital expenditures will continue to be funded from operations and existing
financing or new leasing arrangements.
The Company's primary financing arrangements are with a consortium of
lenders, providing a total of up to $42.5 million in financing through September
2004. The underlying loan and security agreements, as amended, include a
revolving line of credit facility in the amount of $35 million which bears
interest at either the prime rate plus 0.75%, or the prevailing LIBOR rate plus
2.25%. Borrowings under the revolving credit facility are based upon eligible
accounts receivable and inventories of the Company's U.S. and Canada operations,
as defined. The Company has previously executed an interest rate swap agreement
that effectively fixes the rate of interest on $8 million of the revolver debt
at 8.98% through August 2005. The loan and security agreements also include a
term loan in the initial amount of $7.5 million. The term loan is payable in
monthly installments of $125,000, plus interest, through September 2004. The
loan bears interest based upon the same prevailing rate described above in
connection with the revolving credit facility. The Company has previously
executed an interest rate swap agreement that effectively fixes the rate of
interest on approximately $700,000 of the term loan at 8.5% through May 2001.
These financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and trademarks)
and a pledge of the capital stock of the Company's subsidiaries. The loan and
security agreement contains provisions pertaining to the maintenance of certain
financial ratios and annual capital expenditure levels, as well as restrictions
as to payment of cash dividends. The Company is presently in compliance with all
such provisions, as amended. As of December 31, 2000, the Company had
approximately $22 million of unused lines of credit available under the
revolving credit facility. In addition, the Company's Mexico subsidiary has $14
million in bank lines of credit ($10 million unused as of December 31, 2000)
which bear interest at a rate based upon either a floating U.S. bank rate or the
rate of certain Mexican government securities.
The Company also has outstanding $16.5 million of Senior Subordinated
Notes valued at their face amount, due 2003. The notes bear interest at 13.5%
through June 2002 and 12.25% through maturity in 2003. The Company has issued to
noteholders warrants to purchase 300,000 shares of Company stock at $4.28 per
share. The note agreement, as amended, contains provisions that limit the
payment of dividends and require the maintenance of certain financial covenants
and ratios. The Company is presently in compliance with all such provisions, as
amended.
The subordinated and senior debt have been classified, in accordance with
their terms and management's expectations as to Company performance, as
long-term in the accompanying consolidated financial statements. However, the
Company cannot assure that it will be in compliance with all covenant provisions
of its debt agreements in all future quarters and cannot assure that it will
receive waivers or amendments of any such provisions should that occur.
The Company entered into the aforementioned interest rate swap agreement to
balance and manage overall interest rate exposure. The swaps are not presently
expected to have a material effect on total interest expense over the term of
the underlying agreements. (Also see Note 3 to Consolidated Financial
Statements.)
In March 1999, the Company's Board of Directors approved a Stock
Repurchase Program authorizing the acquisition of up to $3 million in Dixon
Ticonderoga Company stock. The Company repurchased 225,000 shares at a cost of
$1.8 million in the quarter ended December 31, 1999. These repurchases were
financed through the aforementioned and previous U.S. revolving line of credit
facilities.
The existing sources of financing and cash expected to be generated from
future operations and / or asset sales would, in management's opinion, be
sufficient to fulfill all current and anticipated requirements of the Company's
ongoing business and to meet all of it obligations. However, if future covenant
violations occur with respect to its current financing arrangements, the Company
may need to pursue other sources of financing to satisfy certain obligations
before their due date.
FORWARD-LOOKING STATEMENTS
--------------------------
The statements in this Quarterly Report on Form 10-Q that are not purely
historical are "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding, among other things, the effects of the devaluation of the
Mexican peso; the Company's ability to meet its loan covenants in the future and
its current and anticipated obligations; the effects of interest rate swap
agreements; management's expectation for savings from the restructuring and cost
reduction program; the Company's ability to increase sales in its core
businesses; its expectations as to the effect of new accounting pronouncements;
and its expectations with regards to legal proceedings and environmental
matters. Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those expressed or implied by such forward-looking statements.
Such risks include (but are not limited to) manufacturing inefficiencies as a
result of inventory management efforts, difficulties encountered with the
consolidation and cost reduction program, increased competition, U.S. and
foreign economic factors, environmental risks, foreign currency exchange risk
and interest rate fluctuation risk, among others.
Item 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As discussed elsewhere in this Form 10-Q, the Company is exposed to the
following principal market risks (i.e. risks of loss arising from adverse
changes in market rates): foreign exchange rates and interest rates on debt.
The Company's exposure to foreign currency exchange rate risk in its
international operations is principally limited to Mexico and, to a lesser
degree, Canada. Approximately 33% of the Company's fiscal 2000 net revenues were
derived in Mexico and Canada, combined (exclusive of intercompany activities).
Foreign exchange transaction gains and losses arise from monetary assets and
liabilities denominated in currencies other than the business unit's functional
local currency. It is estimated that a 10% change in both the Mexican peso and
Canadian dollar would impact reported operating profit by $500,000. This
quantitative measure has inherent limitations because it does not take into
account the changes in customer purchasing patterns or any adjustment to the
Company's financing or operating strategies in response to such a change in
rates. Moreover, this measure does not take into account the possibility that
these currency rates can move in opposite directions, such that gains from one
may offset losses from another.
In addition, the Company's cash flows and earnings are subject to changes
in interest rates. As of December 31, 2000, approximately 46% of total short and
long-term debt is fixed, at rates between 8% and 13.5%. The balance of the
Company debt is variable, principally based upon the prevailing U.S. bank prime
rate or LIBOR rate. Certain interest rate swaps, which expire in 2001 and 2005,
fix the rate of interest on $8.7 million of this debt at approximately 9%. A
change in the average prevailing interest rates of the remaining debt of 1%
would not have a material effect upon the Company's results of operations or
cash flows. This quantitative measure does not take into account the possibility
that the prevailing rates (U.S. bank prime and LIBOR) can move in opposite
directions and that the Company has, in most cases, the option to elect either
as the determining interest rate factor.
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
------- ---------------------------------
The following exhibits are required to be filed as part of this
Quarterly Report on Form 10-Q:
(2) a. Share Purchase Agreement by and among Dixon Ticonderoga
de Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de
C.V., and Guillermo Almazan Cueto with respect to the
capital stock of Vinci de Mexico, S.A. de C.V., (English
translation). 4
(2) b. Asset Purchase Agreement dated February 9, 1999, by and
between Dixon Ticonderoga Company, as Seller and Asbury
Carbons, Inc., as Buyer. 6
(3) (i) Restated Certificate of Incorporation 2
(3) (ii) Amended and Restated Bylaws 1
(4) a. Specimen Certificate of Company Common Stock 2
(4) b. Amended and Restated Stock Option Plan 3
(10) a. First Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First
Union Commercial Corporation, First National Bank of
Boston and National Bank of Canada 1
(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and
Warrant Purchase Agreement 1
(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement 1
(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a
division of Dixon Ticonderoga Company 1
(10) e. Equipment Option and Purchase Agreement between
Carborundum Corporation and New Castle Refractories
Company, a division of Dixon Ticonderoga Company 1
(10) f. Product Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a
division of Dixon Ticonderoga Company 1
(10) g. Second Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First
Union Commercial Corporation, First National Bank of
Boston and National Bank of Canada 5
(10) h. Third Modification of Amended and Restated Revolving
Credit Loan and Security Agreement, Amendment to Loan
Documents and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada
and LaSalle Bank. 7
(10) i. First Modification of Amended and Restated Term Loan
Agreement and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada
and LaSalle Bank. 7
(10) j. Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
2003, Note and Warrant Purchase Agreement.7
(10) k. Fourth Modification of Amended and Restated Revolving
Credit Loan and Security Agreement. 8
(10) l. Second Modification of Amended and Restated Term Loan
Agreement. 8
(10) m. Amendment No. 2 to Note and Warrant Purchase Agreement. 8
1Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, file number 0-2655, filed in Washington, D.C.
2Incorporated by reference to the Company's quarterly report on Form 10-Q for
the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C.
3Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.
4Incorporated by reference to the Company's current report on Form 8-K dated
December 12, 1997, filed in Washington D.C.
5Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998, file number 0-2655, filed in Washington, D.C.
6Incorporated by reference to the Company's current report on Form 8-K dated
March 2, 1999, filed in Washington D.C.
7Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2655 filed in Washington, D.C.
8Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2000, file number 1-8689, filed in Washington, D.C.
(b) Reports on Form 8-K:
None.
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIXON TICONDEROGA COMPANY
Dated: February 14, 2001
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board and
Co-Chief Executive Officer
Dated: February 14, 2001
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance
Chief Financial Officer
Dated: February 14, 2001
---------------------------------
By: /s/ John Adornetto
---------------------------------
John Adornetto
Vice President/Corporate Controller
and Chief Accounting Officer