<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, 1996 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, 1996
- ---------------------------- -----------------------------------------
Common Stock $1 par value 3,293,778
<PAGE> 2
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
December 31, 1996 and September 30, 1996 3-4
Consolidated Statements of Operations --
For The Three Months Ended December 31, 1996 and 1995 5
Consolidated Statements of Cash Flows --
For The Three Months Ended December 31, 1996 and 1995 6-7
Notes to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 5. Other Information 15
Item 6. Exhibits 15
Signatures 16
<PAGE> 3
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
- ------- CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,806,583 $ 2,597,032
Receivables, less allowance for
doubtful accounts of $974,629
at December 31, 1996 and $1,352,411
at September 30, 1996 16,931,007 23,442,889
Inventories 34,217,079 31,460,934
Other current assets 3,433,395 3,044,796
----------- -----------
Total current assets 56,388,064 60,545,651
----------- -----------
PROPERTY, PLANT and EQUIPMENT:
Land and buildings 15,977,066 15,711,724
Machinery and equipment 16,696,434 16,537,994
Furniture and fixtures 905,130 917,222
----------- -----------
33,578,630 33,166,940
Less accumulated depreciation (18,208,528) (17,730,505)
----------- -----------
15,370,102 15,436,435
OTHER ASSETS 2,213,845 1,866,054
----------- -----------
$73,972,011 $77,848,140
=========== ===========
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable $11,829,535 $14,159,143
Current maturities of long-term debt 1,639,583 1,613,773
Accounts payable 5,380,160 5,461,348
Accrued liabilities 9,320,104 10,934,838
----------- -----------
Total current liabilities 28,169,382 32,169,102
----------- -----------
LONG-TERM DEBT 24,769,513 25,119,305
----------- -----------
DEFERRED INCOME TAXES AND OTHER 1,434,968 1,051,171
----------- -----------
MINORITY INTEREST 3,515,351 3,517,006
----------- -----------
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 3,537,211
shares 3,537,211 3,537,211
Capital in excess of par value 2,489,674 2,489,674
Retained earnings 13,740,889 13,526,520
Cumulative translation adjustment (2,792,159) (2,669,031)
----------- -----------
16,975,615 16,884,374
Less - treasury stock, at cost
(243,433 shares) (892,818) (892,818)
----------- -----------
16,082,797 15,991,556
----------- -----------
$73,972,011 $77,848,140
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 5
<TABLE>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
REVENUES $22,307,880 $20,945,721
----------- -----------
COST AND EXPENSES:
Cost of goods sold 14,660,470 14,289,772
Selling and administrative
expenses 6,354,592 5,676,154
----------- -----------
21,015,062 19,965,926
----------- -----------
OPERATING INCOME 1,292,818 979,795
INTEREST EXPENSE ( 799,622) (614,415)
----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 493,196 365,380
INCOME TAXES 125,974 100,647
----------- -----------
367,222 264,733
MINORITY INTEREST 152,845 114,110
----------- -----------
NET INCOME $ 214,377 $ 150,623
=========== ===========
EARNINGS PER
COMMON SHARE $ .07 $ .05
=========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 3,293,778 3,194,153
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 6
<TABLE>
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 214,377 $ 150,623
Adjustment to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 646,973 599,675
Deferred taxes 75,380 85,131
Provision for doubtful accounts receivable 94,292 78,713
Income attributable to currency translation (36,164) (46,089)
Income attributable to minority interest 152,844 114,110
Changes in assets and liabilities:
Receivables 6,276,321 1,641,853
Inventories (2,891,501) (823,300)
Other current assets (428,320) (398,139)
Accounts payable and accrued liabilities (1,699,027) (1,567,732)
Other assets 50,334 (91,051)
----------- -----------
Net cash provided by (used in) operations 2,455,509 (256,206)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment, net (513,073) (1,157,217)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (principal
reductions of) notes payable (2,293,508) 2,181,101
Principal reductions of long-term debt (326,500) (283,637)
Employee stock options -- 26,104
Other non-current liabilities (2,565) (1,809)
----------- -----------
Net cash provided by (used in)
financing activities (2,622,573) 1,921,759
----------- -----------
Effect of exchange rate changes on cash (110,312) (212,274)
----------- -----------
<PAGE>
<PAGE> 7
Net decrease in cash and
cash equivalents (790,449) 296,062
Cash and cash equivalents,
beginning of period 2,597,032 1,513,622
---------- -----------
Cash and cash equivalents,
end of period $1,806,583 $ 1,809,684
========== ===========
Supplemental Disclosures:
Cash paid during the period:
Interest (net of amount capitalized) $1,054,706 $ 429,281
Income taxes 105,758 101,978
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE> 8
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 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 Dixon
Ticonderoga Company and subsidiaries as of December 31, 1996, and the results
of their operations and cash flows for the three months ended December 31,
1996 and 1995, have been included. The results of operations for such
interim periods are not necessarily indicative of the results for the entire
year.
Certain fiscal 1996 balances have been reclassified to conform to current
year presentation.
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, 1996 (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,
1996 1996
------------ -------------
Raw materials $15,282 $12,538
Work in process 4,245 4,268
Finished goods 15,690 14,655
------- -------
$34,217 $31,461
======= =======
3. EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS:
The Company has adopted Financial Accounting Standards Board (FASB) Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of". This statement establishes accounting
standards with respect to the impairment of long-lived assets. No material
impairment of the Company's long-lived assets has been identified.
<PAGE> 9
In 1995, the FASB also issued Statement No. 123, "Accounting for Stock-Based
Compensation." The statement is effective for the Company in fiscal 1997 and
requires that certain specific disclosures regarding the value of stock
option grants made in fiscal 1996 and thereafter be included in its 1997
annual report on Form 10-K. The Company did not adopt the compensation
recognition provision of the Statement, and, accordingly, it is not expected
to affect the future results of operations or financial position of the
Company. The specific disclosures required by this statement have not been
determined 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 consolidated financial statements is
primarily due to foreign and state income taxes and other permanent items.
5. CONTINGENCIES:
The Company, in the normal course of business, is party in certain
litigation. 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 April 1996, a decision was rendered
by the Superior Court of New Jersey in Hudson County finding the Company
responsible for $1.94 million in certain environmental clean-up costs
relating to this matter. Including pre-judgment interest on the damage
award, it is estimated that the Company's exposure will not exceed
approximately $3.3 million. The Company intends 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 attorneys) and has filed an appeal. As a result of the judgment, a
provision of approximately $2 million ($1.44 million, net of tax) was
recorded in fiscal 1996. This amount is in addition to approximately $1.3
million ($800,000, net of tax) provided in prior periods. No anticipated
recoveries from insurance carriers or other third parties have been
considered in these recorded loss provisions.
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.
The Company 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 of approximately $400,000 as of December 31,
1996), the resolution of these matters will not materially affect the
Company's future results of operations or financial position.
6. SUBSEQUENT EVENT:
On February 7, 1997, the Company repurchased 9,900,000 shares (or
approximately 30%) of its subsidiary, Dixon Ticonderoga de Mexico, S.A. de
C.V., from a consortium of Mexican financial institutions. The shares, which
were repurchased for approximately $2.5 million (or 25 cents per share), were
originally issued in 1994, when the Company sold 16,627,760 shares of Dixon
Ticonderoga de Mexico, S.A. de C.V., in an initial public offering on the
Mexico Intermediate Market at a price of approximately 40 cents per share
(U.S. equivalency).
<PAGE> 10
Item 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUES for the quarter ended December 31, 1996, increased $1,362,000 from
the same quarter last year. The changes by segment are as follows:
Increase % Increase (Decrease)
(Decrease) ---------------------
(in thousands) Total Volume Price/Mix
------------ ----- ------ ---------
Consumer U.S. $ 52 -- (1) 1
Consumer Foreign 1,196 50 46 4
Industrial 114 2 3 (1)
Consumer U.S. revenues increased slightly despite a continuing shift in
educational market business to later fiscal quarters. The increased Foreign
Consumer revenue was primarily due to increased volume in Mexico, reflecting
a successful government bid and aggressive efforts in the mass market. The
value of the Mexican peso was relatively stable, thus having only a minimal
effect on revenue in the first quarter.
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 once in each of the last three decades, the last one being in
December 1994. In the short term after such a devaluation, consumer
confidence has been shaken, leading to an intermediate 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. The Company does not employ any currency hedging practices. This
currency risk in Mexico is managed through local currency financing and by
export sales to the U.S. denominated in U.S. dollars.
As of January 1, 1997, Mexico will once again be considered as a highly
inflationary economy for the purpose of applying FASB Statement No. 52
"Foreign Currency Translation." Translation gains or losses will therefore
impact the results of operations going forward, although management does not
presently expect these gains or losses to be material.
<PAGE> 11
Revenues decreased $9,650,000 from the prior quarter as follows:
Increase % Increase (Decrease)
(Decrease) ---------------------
(in thousands) Total Volume Price/Mix
------------ ----- ------ ---------
Consumer U.S. $(6,960) (35) (35) --
Consumer Foreign (2,908) (45) (42) (3)
Industrial 218 4 4 --
U.S. and Foreign Consumer reflects the seasonality of demand for their
products. Historically, this quarter represents approximately 20% of annual
revenues being shipped, while the prior quarter represents 30%. The higher
percentage in the prior quarter represents seasonal school and mass market
sales.
OPERATING INCOME increased $313,000 over the same quarter last year. U.S.
Consumer increased $265,000. Increased manufacturing efficiencies
contributed to lower total cost of goods sold (65.7% of sales as compared
with 68.2% in the prior year quarter). This improvement was partially offset
by higher distribution and promotional costs incurred to service the retail
and mega-store markets, which largely contributed to an increase in total
selling and administrative expenses (28.5% of sales as compared with 27.0%
last year). Foreign operating income also increased $145,000 on higher
revenue. Industrial operating income decreased $60,000 due to somewhat
higher general and administrative expenses.
Operating income decreased $1,427,000 from the prior quarter due primarily to
the aforementioned seasonality that generates higher revenues and related
operating income in the final fiscal quarter.
INTEREST EXPENSE increased $185,000 over the same quarter last year. The
increase was primarily due to new mortgage debt for the Company's corporate
headquarters building and higher effective rates and balances of subordinated
debt. An additional $41,000 relates to the Foreign Consumer segment.
Interest expense decreased $296,000 over the prior quarter primarily due to
lower cyclical borrowing levels.
INCOME TAXES increased $25,000 over the same quarter last year and decreased
$313,000 from the prior quarter principally due to changes in before tax
income.
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. In February 1997, the Company increased its ownership, thus
reducing minority interest to approximately 20%. See Note 6 to Consolidated
Financial Statements.
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition has benefited from its recent operating
success and the completion of major financing initiatives. Cash flows from
operating activities in the first quarter of fiscal 1997 improved by
approximately $2.7 million over the same quarter last year, due principally
to increased receivable collections from strong fourth quarter 1996 revenues.
These cash flows were partially offset by higher inventory levels needed to
service the Company's growing U.S. and Foreign Consumer business.
Investing activities in the same quarter last year included approximately $1
million of costs related to the construction of the Company's new corporate
headquarters. Total capital expenditures in fiscal 1997 are expected to
return to more customary levels (approximately $2.2 million). Such
expenditures approximated $573,000 in the first quarter. In addition, the
Company has financed certain strategic manufacturing equipment (in the amount
of $2.5 million) under a long-term operating lease arrangement. Generally,
all other major capital projects are discretionary in nature and thus no
material purchase commitments exist. Other capital expenditures will
continue to be funded from operations and existing financing arrangements.
In July 1996, the Company entered into new financing arrangements with a
consortium of lenders to provide additional working capital. The new loan
and security agreement provides for a total of $48 million in financing.
This includes a revolving line of credit facility in the amount of $40
million which bears interest at either the prime rate, plus 0.5%, or the
prevailing LIBOR rate plus 2.5%. 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 financing agreement
also includes a term loan in the original amount of $7.75 million. The term
loan bears interest at the same rate, and is payable in varying monthly
installments through 2001. The Company previously executed certain interest
rate "swap" agreements which effectively fix the rate of interest on
approximately $13 million of this debt at 8.75% to 8.87%.
The new 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. These new arrangements
provide up to $10 million in additional financing as compared with the
Company's previous primary lender agreement. At December 31, 1996, the
Company had approximately $28 million of unused lines of credit available
under this new financing arrangement.
In September 1996, the Company also completed the private placement of $16.5
million of new 12% Senior Subordinated Notes, due 2003. The net proceeds
were used to retire early the remaining $7 million of the Company's prior
issue of Senior Subordinated Notes due 1999, and to reduce short-term
borrowings, thus providing additional working capital. This transaction also
reduced the Company's annual debt service obligations by approximately $3.3
million through 1998. The Company executed a reverse interest rate "swap"
agreement which converts $10 million of the notes to a floating rate of
interest (approximately 10.6% at December 31, 1996). In connection with the
private placement, the Company issued to noteholders warrants to purchase
300,000 shares of Company stock at its market value of $7.24 per share. The
note agreement contains provisions which limit the payment of dividends and
requires the maintenance of certain financial covenants and ratios, with
which the Company is presently in compliance.
<PAGE> 13
The Company entered into the aforementioned interest rate "swap" agreements
to balance and manage overall interest rate exposure and minimize overall
cost of borrowings. The "swaps" are not presently expected to have a
material effect on total interest expense over the term of the underlying
agreements.
The new and existing sources of financing 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 and to meet all of its obligations.
<PAGE>
<PAGE> 14
PART II. OTHER INFORMATION
Item 5. Other Information
- ------- -----------------
Information regarding the Company's repurchase of shares in its subsidiary,
Dixon Ticonderoga de Mexico, S.A. de C.V. (See PART I - Item 1., Note 6 to
Consolidated Financial Statements and Item 2., Management's Discussion and
Analysis of Financial Condition and Results of Operations) is incorporated by
reference herein and in lieu of a separate report on Form 8-K.
Item 6. Exhibits
- ------- --------
Note applicable.
<PAGE> 15
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, 1997 By: /s/ Gino N. Pala
----------------------------
Gino N. Pala
Chairman of the Board,
President, Chief Executive
Officer and Director
Dated: February 14, 1997 By: /s/ Richard A. Asta
----------------------------
Richard A. Asta
Executive Vice President of
Finance and Chief Financial
Officer
Dated: February 14, 1997 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-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,806,583
<SECURITIES> 0
<RECEIVABLES> 17,041,657
<ALLOWANCES> 974,629
<INVENTORY> 34,217,079
<CURRENT-ASSETS> 56,388,064
<PP&E> 33,578,630
<DEPRECIATION> 18,208,528
<TOTAL-ASSETS> 73,972,011
<CURRENT-LIABILITIES> 28,169,382
<BONDS> 0
3,537,211
0
<COMMON> 0
<OTHER-SE> 12,545,586
<TOTAL-LIABILITY-AND-EQUITY> 73,972,011
<SALES> 22,307,880
<TOTAL-REVENUES> 22,307,880
<CGS> 14,660,470
<TOTAL-COSTS> 14,660,470
<OTHER-EXPENSES> 6,354,592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 799,622
<INCOME-PRETAX> 493,196
<INCOME-TAX> 125,974
<INCOME-CONTINUING> 214,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,377
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
