<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza, 450 Fifth Street, N.W.
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1995 COMMISSION FILE NO. O-2655
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DIXON TICONDEROGA COMPANY
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-0973760
- --------------------------------- ---------------------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.
195 International Parkway, Heathrow, FL 32746
- ---------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
(407) 829-9000
Registrant's telephone number, including area code: ----------------------
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Outstanding as of December 31, 1995
- ---------------------------- ----------------------------------------
Common Stock $1 par value 3,198,320
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DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
INDEX
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Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
December 31, 1995 and September 30, 1995 3-4
Consolidated Statements of Operations --
For The Three Months Ended December 31, 1995 and 1994 5
Consolidated Statements of Cash Flows --
For The Three Months Ended December 31, 1995 and 1994 6-7
Notes to Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II. OTHER INFORMATION - Not applicable
Signatures 13
<PAGE> 3
PART I - FINANCIAL INFORMATION
1 Item 1. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
- ------- CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,809,684 $ 1,513,622
Receivables, less allowance for
doubtful accounts of $438,072
at December 31 1995 and $796,715
at September 30, 1995 16,067,028 18,202,541
Inventories 32,833,380 32,638,385
Assets held for sale 431,400 436,306
Other current assets 2,636,900 2,254,101
----------- -----------
Total current assets 53,778,392 55,044,955
----------- -----------
PROPERTY, PLANT and EQUIPMENT:
Land and buildings 14,421,377 12,908,945
Machinery and equipment 16,166,245 16,986,408
Furniture and fixtures 832,008 902,043
----------- -----------
31,419,630 30,797,396
Less accumulated depreciation (17,362,132) (17,229,617)
----------- -----------
14,057,498 13,567,779
OTHER ASSETS 1,564,560 1,545,110
----------- -----------
$69,400,450 $70,157,844
=========== ===========
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $20,017,808 $17,877,665
Current maturities of long-term debt 4,587,016 4,587,016
Accounts payable 4,567,780 5,280,884
Accrued liabilities 7,456,450 8,388,309
----------- -----------
Total current liabilities 36,629,054 36,133,874
----------- -----------
LONG-TERM DEBT 14,267,306 14,540,884
----------- -----------
OTHER NONCURRENT LIABILITIES 7,658 21,815
----------- -----------
DEFERRED INCOME TAXES 1,051,241 1,155,473
----------- -----------
MINORITY INTEREST 2,657,878 3,073,375
----------- -----------
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 3,453,466
shares as of December 31, 1995 and
3,448,466 as of September 30, 1995 3,453,466 3,448,466
Capital in excess of par value 2,187,429 2,166,329
Retained earnings 12,791,387 12,640,762
Cumulative translation adjustment (2,709,189) (2,087,354)
----------- -----------
15,723,093 16,168,203
Less - treasury stock, at cost
(255,147 shares) (935,780) (935,780)
----------- -----------
14,787,313 15,232,423
----------- -----------
$69,400,450 $70,157,844
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>5
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1995 1994
-------- --------
<S> <C> <C>
REVENUES $20,945,721 $21,392,751
----------- -----------
COST AND EXPENSES:
Cost of goods sold 14,289,772 14,443,760
Selling and administrative
expenses 5,676,154 5,575,746
----------- -----------
19,965,926 20,019,506
----------- -----------
OPERATING INCOME 979,795 1,373,245
INTEREST EXPENSE 614,415 756,080
----------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST 365,380 617,165
INCOME TAXES 100,647 237,927
----------- -----------
264,733 379,238
MINORITY INTEREST 114,110 57,782
----------- -----------
INCOME FROM CONTINUING
OPERATIONS 150,623 321,456
DISCONTINUED OPERATIONS --- (19,501)
----------- -----------
NET INCOME $ 150,623 $ 301,955
=========== ===========
EARNINGS PER COMMON SHARE:
Continuing operations $ .05 $ .10
Discontinued operations --- .00
----------- -----------
Net income $ .05 $ .10
=========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,194,153 3,164,820
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 6
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 150,623 $ 321,456
Net loss from discontinued operations --- (19,501)
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 599,675 655,380
Deferred taxes 85,131 (157,335)
Income attributable to currency translation (46,089) ---
Income attributable to minority interest 114,110 57,782
Changes in assets and liabilities:
Receivables, net 1,720,566 3,310,229
Inventories (823,300) (1,064,076)
Other current assets (398,139) (175,247)
Accounts payable and accrued liabilities (1,567,732) (1,261,100)
Condominiums --- (10,877)
Other assets (91,051) (204,193)
----------- -----------
Net cash provided by (used in) operations (256,206) 1,452,518
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment, net (1,157,217) (193,872)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (principal reductions
of) notes payable 2,181,101 (501,946)
Principal reductions of long-term debt (283,637) (268,835)
Exercise of stock options 26,104 47,938
Other non-current liabilities (1,809) (24,218)
----------- -----------
Net cash provided by (used in)
financing activities 1,921,759 (747,061)
----------- -----------
Effect of exchange rate changes on cash (212,274) (391,528)
----------- -----------
<PAGE> 7
Net increase in cash and
cash equivalents 296,062 120,057
Cash and cash equivalents,
beginning of period 1,513,622 1,822,764
----------- -----------
Cash and cash equivalents,
end of period $1,809,684 $ 1,942,821
=========== ===========
Supplemental Disclosures:
Cash paid during the period:
Interest (net of amount capitalized) $ 429,281 $ 430,464
Income taxes 101,978 955,667
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 8
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by the Registrant, 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
Registrant 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 Registrant's latest annual report on Form 10-
K. In the opinion of the Registrant, all adjustments (solely of a normal
recurring nature) necessary to present fairly the financial position of the
Dixon Ticonderoga Company and subsidiaries as of December 31, 1995 and the
results of their operations and cash flows for the three months ended
December 31, 1995 and 1994, 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, 1995 (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,
1995 1995
------------ -------------
Raw materials $14,631 $12,450
Work in process 4,958 4,462
Finished goods 13,244 15,726
------- -------
$32,833 $32,638
======= =======
3. EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board (FASB) issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This statement, which must be adopted no later
than fiscal 1997, establishes accounting standards with respect to the
impairment of long-lived assets. Its adoption is not expected to
materially affect the future results of operations or financial position of
the Company.
<PAGE> 9
In 1995, the FASB also issued Statement No. 123, "Accounting for Stock-Based
Compensation." The statement (effective for the Company in fiscal 1997) would
provide certain specific disclosures regarding the value of stock option grants
made in fiscal 1996 and thereafter. The Company does not expect to adopt the
compensation recognition provision of the Statement, and, accordingly, it is
not expected to materially affect the future results of operations or financial
position of the Company. The specific disclosures required by the statement
have not been calculated at this time.
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 condensed consolidated
financial statements is primarily due to foreign income taxes and other
permanent items.
5. CONTINGENCIES:
The Company, in the normal conduct of its business, is a party in certain
litigation. In addition, ongoing litigation includes a claim under New
Jersey's Environmental Clean-Up Responsibility Act (ECRA) by a 1984
purchaser of industrial property from the Company. In 1995, the Company
provided approximately $1.5 million for settlement and related legal costs
associated with three separate lawsuits, including the aforementioned ECRA
claim. The Company has evaluated the merits of these cases and other
litigation and believes their outcome will not have a further material
effect on the Company's future results of operations or financial position.
The Registrant is aware of several environmental matters related to certain
facilities purchased or to be sold. The Registrant assesses the extent of
these matters on an ongoing basis. In the opinion of management (after
taking into account accruals), the resolution of these matters will not
materially affect the Company's future results of operations or financial
position.
In connection with the sale of a discontinued business in a previous year,
the Company guaranteed a loan to the buyer. The loan balance is
approximately $340,000 as of December 31, 1995. In the opinion of
management, the guarantee will not ultimately have any material effect on
the Company's future results of operations or financial position.
6. DISCONTINUED OPERATIONS:
In September 1995, the Company disposed of its real estate operations, and
accordingly, the prior year operating results of the real estate segment have
been restated as discontinued operations. Revenues from discontinued
operations were not material.
<PAGE> 10
Item 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES for the quarter ended December 31, 1995, decreased $447,000 from
the same quarter last year. The changes by segment are as follows:
% Increase (Decrease)
Increase ---------------------
(Decrease) Total Volume Price/Mix
---------- ----- ------ ---------
Consumer U.S. $(435,000) (3) (2) (1)
Consumer Foreign 10,000 - 4 (4)
Graphite & Lubricants 119,000 4 6 (2)
Refractory (141,000) (5) (8) 3
Consumer U.S. revenues decreased due to an expected deferral of certain
educational market business to later quarters. Revenue in Mexico decreased
$671,000 (or 68%) due to the decline in the local currency's value compared
to the U.S. dollar. The major devaluation in the Mexican peso took place
in late December 1994, therefore having minimal effect on Mexico revenues
in the first fiscal quarter of 1995. This comparative decrease in the
value of the Mexican peso was partially offset by peso price increases.
Revenues decreased $5,409,000 from the prior quarter ended September 30,
1995, as follows:
% Increase (Decrease)
Increase ---------------------
(Decrease) Total Volume Price/Mix
---------- ----- ------ ---------
Consumer U.S. $(1,828,000) (13) (11) (2)
Consumer Foreign (3,431,000) (59) (43) (16)
Graphite & Lubricants 174,000 6 7 (1)
Refractory (324,000) (10) (12) 2
The decreases in Foreign and U.S. Consumer reflect the seasonality of the
demand for their products. The prior quarter historically results in a
higher percentage of annual revenues (approximately 29% as compared to 21%
this quarter) due to seasonal school and mass market orders.
OPERATING INCOME decreased $393,000 from the same period last year,
principally due to the revenue decreases described above.
Operating income decreased $1,973,000 from the prior quarter due primarily
to the aforementioned seasonality that historically generates higher
revenues and related operating income in the final fiscal quarter.
<PAGE> 11
INTEREST EXPENSE decreased $142,000 from the same period last year,
primarily due to lower borrowings in Mexico. Interest expense decreased
$449,000 from the prior quarter due to lower cyclical borrowing levels.
INCOME TAXES decreased $137,000 from the same period last year, due to the
decrease in before tax income and lower effective foreign tax rates.
Income taxes increased $228,000 over the prior quarter which included a
lower effective foreign tax rate due to a permanent Meixco tax adjustment.
MINORITY INTEREST represents 49.9% of the net income of the consolidated
subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. in each period
presented.
DISCONTINUED OPERATIONS in the prior-year quarter represents the Company's
real estate segment that was disposed of in September 1995. The loss of
$20,000 is net of a tax benefit of $10,000.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company has improved significantly over the
past two years, principally due to its recent operating success and the
completion of major financing initiatives. Cash flows from operating
activities in the first quarter of fiscal 1996 were approximately $1.7
million lower than the prior year due to strong accounts receivable
practices that accelerated collection into the prior quarter ended
September 1995. Inventory levels only increased slightly during the
period.
Investing activities included approximately $1 million in additional costs
related to the construction of the Company's new corporate headquarters.
Through December 1995, the Company had incurred approximately $2.6 million
towards the completion of this facility. The total estimated cost of the
project is $3.4 million with construction costs to be financed ultimately
through a separate fixed-rate permanent mortgage arrangement. On an
interim basis, these costs have been financed through a construction loan,
included in notes payable in the accompanying financial statements. The
Company also intends to finance certain strategic manufacturing equipment
(in the amount of $2.8 million) under a long-term lease arrangement
commencing in late 1996. Generally, all other major capital projects are
discretionary in nature and thus no material purchase commitments exist.
Other capital expenditures will include customary projects, and will
continue to be funded from operations and existing financing arrangements.
The Company completed major financing activities during the past two years.
In 1994, the Company successfully completed primary financing arrangements
(in the initial amount of $35 million) with a new bank lender, to refinance
certain short-term obligations and provide additional working capital. An
additional seasonal $5 million in the working capital line of credit was
added in 1995. Also in 1995, the interest rate under these facilities was
reduced. The arrangements (as amended) provide up to $15 million in
additional financing as compared with the Company's agreement with its
previous lender, and permits the Company to meet all current debt
obligations. Moreover, the related revolving credit facility provides,
under certain circumstances, for the payment of additional subordinated
debt obligations (discussed below). The agreement also provides for the
maintenance of certain financial covenants and ratios, with which the
Company
<PAGE> 12
is presently in compliance, except as to the ratio of operating cash flow
to fixed charges (as defined) and capital expenditure activities, for which
the Company has received a waiver of compliance. At December 31, 1995, the
Company had approximately $7 million of unused lines of credit available
under this financing arrangement.
The Company also has $10.3 million of Senior Subordinated Notes remaining
outstanding with several insurance companies. The note agreement, as
amended, provides for the payment of approximately $3.3 million annually,
through August 1998, with the balance due August 1999. This agreement also
provides for the maintenance of certain financial covenants and ratios,
with which the Company is presently in compliance. The revolving credit
agreements described above provided for the August 1994 and 1995
subordinated note payments and a credit line reserve for the 1996 payment.
The Company intends to satisfy future subordinated note payments from funds
provided by operations and/or an infusion of new equity or debt.
The new and existing sources of financing, financing strategies discussed
above and cash expected to be generated from future operations will, in
management's opinion, be sufficient to fulfill all current and anticipated
requirements of the Company's ongoing business.
<PAGE> 13
PART II. OTHER INFORMATION
Not applicable.
SIGNATURES
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, 1996 By: /s/ Gino N. Pala
--------------------------
Gino N. Pala
Chairman of the Board,
President, Chief Executive
Officer and Director
Dated: February 14, 1996 By: /s/ Richard A. Asta
--------------------------
Richard A. Asta
Executive Vice President of
Finance and Chief Financial
Officer
Dated: February 14, 1996 By: /s/ John Adornetto
--------------------------
John Adornetto
Vice President/Corporate
Controller and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statement of Operations, and the
Consolidated Statement of Cash Flows, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,809,684
<SECURITIES> 0
<RECEIVABLES> 16,505,100
<ALLOWANCES> 438,072
<INVENTORY> 32,833,380
<CURRENT-ASSETS> 53,778,392
<PP&E> 31,419,630
<DEPRECIATION> 17,362,132
<TOTAL-ASSETS> 69,400,450
<CURRENT-LIABILITIES> 36,629,054
<BONDS> 0
<COMMON> 3,453,466
0
0
<OTHER-SE> 11,333,847
<TOTAL-LIABILITY-AND-EQUITY> 69,400,450
<SALES> 20,945,721
<TOTAL-REVENUES> 20,945,721
<CGS> 14,289,772
<TOTAL-COSTS> 14,289,772
<OTHER-EXPENSES> 5,676,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 614,415
<INCOME-PRETAX> 365,380
<INCOME-TAX> 100,647
<INCOME-CONTINUING> 150,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,623
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
