Page 1 of 18
Page 17 - Exhibit Index
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission file number 0-25734; 1-13684
DIMON INCORPORATED
------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1746567
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
512 Bridge Street, Danville, Virginia 24541
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 792-7511
Not Applicable
--------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) 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 latest practicable date.
Outstanding at
Class of Common Stock November 9, 1998
--------------------- ----------------
NO par value 44,525,004
<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
INDEX
PAGE NO.
--------
<S> <C>
Part I. Financial Information:
Consolidated Balance Sheet - September 30, 1998
and June 30, 1998........................................... 3 - 4
Statement of Consolidated Income - Three Months Ended
September 30, 1998 and 1997................................. 5
Statement of Consolidated Cash Flows - Three
Months Ended September 30, 1998 and 1997.................... 6
Notes to Consolidated Financial Statements.................. 7 - 11
Management's Discussion and Analysis
of Financial Condition and Results of Operations............12 - 15
Part II. Other Information.................................15 - 16
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DIMON Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30
1998 June 30
(Unaudited) 1998
(in thousands) ___________ ___________
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................$ 52,928 $ 18,729
Notes receivable......................... 71,018 5,600
Trade receivables, net of allowances..... 303,869 319,295
Inventories:
Tobacco............................... 798,713 588,143
Other................................. 24,618 24,483
Advances on purchases of tobacco......... 155,600 192,191
Recoverable income taxes................. 1,317 2,748
Prepaid expenses and other assets........ 17,848 24,794
Net assets of discontinued operations.... - 32,907
---------- -----------
Total current assets......... 1,425,911 1,208,890
---------- -----------
Investments and other assets
Equity in net assets of
investee companies.................... 5,811 6,022
Other investments........................ 15,427 9,896
Notes receivable......................... 11,794 9,313
Other.................................... 11,800 13,796
---------- ----------
44,832 39,027
---------- ----------
Intangible assets
Excess of cost over related net
assets of businesses acquired......... 175,022 179,589
Production and supply contracts.......... 25,217 26,442
Pension asset............................ 3,489 3,555
---------- ----------
203,728 209,586
---------- ----------
Property, plant and equipment
Land..................................... 20,462 20,085
Buildings................................ 180,085 174,310
Machinery and equipment.................. 247,962 237,368
Allowances for depreciation.............. (121,678) (113,663)
---------- ----------
326,831 318,100
---------- ----------
Deferred taxes and other deferred charges.... 21,683 21,875
---------- ----------
$2,022,985 $1,797,478
========== ==========
See notes to consolidated financial statements
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30
1998 June 30
(Unaudited) 1998
(in thousands) ___________ ___________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks...................$ 328,775 $ 282,470
Accounts payable:
Trade................................. 83,915 80,994
Officers and employees................ 7,474 7,664
Other................................. 8,704 7,825
Advances from customers.................. 212,603 50,521
Accrued expenses......................... 65,304 57,294
Income taxes............................. 4,177 5,150
Long-term debt current................... 10,120 10,588
---------- ----------
Total current liabilities....... 721,072 502,506
---------- ----------
Long-term debt
Revolving Credit Notes and Other......... 546,452 548,699
Convertible Subordinated Debentures...... 123,328 123,328
Senior Notes............................. 125,000 125,000
---------- ----------
794,780 797,027
---------- ----------
Deferred credits:
Income taxes............................. 35,440 36,723
Compensation and other benefits.......... 40,275 38,812
---------- ----------
75,715 75,535
---------- ----------
Minority interest in subsidiaries............ 480 480
---------- ----------
Commitments and contingencies................ - -
---------- ----------
Stockholders' equity
Preferred Stock--no par value:
Sept. 30 Jun. 30
-------- -------
Authorized shares... 10,000 10,000
Issued shares....... - - - -
Common Stock--no par value:
Sept. 30 Jun. 30
-------- -------
Authorized shares... 125,000 125,000
Issued shares....... 44,525 44,525 182,143 182,143
Retained earnings........................ 250,524 243,816
Equity-currency conversions.............. (364) (2,664)
Additional minimum pension liability..... (1,365) (1,365)
---------- ----------
430,938 421,930
---------- ----------
$2,022,985 $1,797,478
========== ==========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
STATEMENT OF CONSOLIDATED INCOME
Three Months Ended September 30, 1998 and 1997
(Unaudited)
September 30 September 30
(in thousands, except per share amounts) 1998 1997
___________ ____________
<S> <C> <C>
Sales and other operating revenues...........$ 384,165 $ 439,185
Cost of goods and services sold.............. 345,697 356,284
---------- ----------
Gross profit................................. 38,468 82,901
Selling, administrative and
general expenses......................... 29,974 29,720
---------- ----------
Operating Income............................. 8,494 53,181
Interest expense............................. 19,225 22,606
---------- ----------
Income (loss) from continuing operations
before income taxes, equity in
net income of investee companies
and discontinued operations.............. (10,731) 30,575
Income taxes (benefit)....................... (2,146) 10,038
---------- ----------
Income (loss) from continuing operations
before equity in net income (loss) of
investee companies....................... (8,585) 20,537
Equity in net income (loss) of investee
companies, net of income taxes........... (50) 310
---------- ----------
Income (loss) from continuing operations (8,635) 20,847
Discontinued business:
Loss from operations, net of tax
benefits ($761-1998 and $117-1997).... (841) (397)
Gain on disposal, net of $4,288 tax...... 23,753 -
---------- ----------
NET INCOME...................................$ 14,277 $ 20,450
========== ==========
Basic Earnings Per Share
Income (loss) from continuing
operations.............................. $(.19) $.47
Discontinued operations..................... .51 (.01)
---------- ----------
Net Income.................................. $.32 $.46
========== ==========
Diluted Earnings Per Share
Income (loss) from continuing
operations............................. $(.19) $.45
Discontinued operations.................... .51 (.01)
---------- ----------
Net Income................................. $.32 * $.44
========== ==========
Average number of shares outstanding:
Basic.................................... 44,525 44,338
Diluted.................................. 44,544 * 49,088
Cash dividends per share..................... $.17 $.15
========== ==========
See notes to consolidated financial statements
* Assumed conversion of Convertible Debentures at the beginning of the
period has an antidilutive effect on earnings per share.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended September 30, 1998 and 1997
(Unaudited)
September 30 September 30
(in thousands) 1998 1997
___________ ____________
<S> <C> <C>
Operating activities
Net Income...............................$ 14,277 $ 20,450
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization......... 10,599 11,780
Deferred items........................ 154 (459)
Loss (gain) on foreign currency
transactions...................... 1,188 (569)
Gain on disposition of fixed assets... (601) (718)
Change in discontinued operations..... 1,023 -
Gain on disposition of
discontinued operations........... (23,753) -
Undistributed loss (earnings)
of investees...................... 50 (310)
Bad debt expense...................... 202 270
Decrease in accounts receivable....... 9,795 125,598
Increase in inventories and
advances on purchases of tobacco.. (171,737) (231,727)
Decrease in recoverable taxes......... 1,437 1,036
Decrease in prepaid expenses.......... 6,082 1,848
Increase (decrease) in accounts
payable and accrued expenses...... 8,014 (53,193)
Increase in advances from customers... 168,352 116,250
Increase (decrease) in income taxes... (4,960) 46
Other................................. 45 39
---------- ----------
Net cash provided (used) by
operating activities............ 20,167 (9,659)
---------- ----------
Investing activities
Purchase of property and equipment....... (13,167) (6,681)
Proceeds from sale of property
and equipment........................ 1,444 1,981
Payments received (advances) on
notes receivable and receivable
from investees....................... (3,684) 1,683
Payments received (advances) for
other investments and other assets 451 (2,548)
Purchase of remaining interest
in investee........................... - (2,200)
---------- ----------
Net cash used by investing
activities.......................... (14,956) (7,765)
---------- ----------
Financing activities
Net change in short-term borrowings...... 41,759 (8,753)
Proceeds from long-term borrowings....... 22 29
Repayment of long-term borrowings........ (5,667) (7,394)
Proceeds from sale of common stock....... - 1,321
Cash dividends paid to
DIMON Incorporated stockholders...... (7,569) (6,650)
---------- ----------
Net cash provided (used) by
financing activities.................. 28,545 (21,447)
---------- ----------
Effect of exchange rate changes on cash...... 443 (252)
---------- ----------
Increase (decrease) in cash and
cash equivalents......................... 34,199 (39,123)
Increase in cash from consolidation
of investee.............................. - 27
Cash and cash equivalents at
beginning of year........................ 18,729 107,131
---------- ----------
Cash and cash equivalents
at end of period.................$ 52,928 $ 68,035
========== ==========
See Note 5 to consolidated financial statements for a description of a
significant non-cash transaction.
</TABLE>
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<PAGE>
DIMON Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basic earnings per share is computed by dividing earnings by the
weighted average number of shares outstanding during each period. The
diluted earnings per share calculation assumes that all of the
Convertible Subordinated Debentures during the periods presented were
converted into Common Stock at the beginning of the reporting period,
or as of the date of issue, thereby increasing the weighted average
number of shares considered outstanding during each period and
reducing the after-tax interest expense. The weighted average number
of shares outstanding are further increased by common stock
equivalents on employee stock options.
The Company has adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" (FAS 128), and has reflected changes
required for all periods presented in the accompanying unaudited
consolidated financial statements. The following information
reconciles the basic weighted average number of shares outstanding to
diluted shares outstanding and diluted earnings per share:
<TABLE>
<CAPTION>
September 30 September 30
(in thousands, except per share amounts) 1998 1997
___________ ____________
<S> <C> <C>
Basic Earnings
--------------
Income (loss) from continuing operations... $(8,635) $20,847
Discontinued operations.................... 22,912 (397)
-------- --------
Net Income................................. $14,277 $20,450
======== ========
Shares
------
Weighted Average Number of Shares
Outstanding................................ 44,525 44,338
======== ========
Basic Earnings per Share
------------------------
Income (loss) from continuing operations.. $(.19) $.47
Discontinued operations................... .51 (.01)
-------- --------
Net Income................................ $ .32 $.46
======== ========
Diluted Earnings
----------------
Income (loss) from continuing operations.. $ (8,635) $20,847
Add after tax interest expense applicable
to 6 1/4% Convertible Debentures issued
April 1, 1997.......................... - * 1,175
-------- --------
Income (loss) from continuing operations.. (8,635) 22,022
Discontinued operations................... 22,912 (397)
-------- --------
Net Income as Adjusted.................... $14,227 * $21,625
======== ========
Shares
------
Weighted average number of common
shares outstanding.................... 44,525 44,338
Shares applicable to stock options,
net of shares assumed to be purchased
from proceeds at average
market price.......................... 19 463
Assuming conversion of 6 1/4%
Debentures at the beginning of
each period........................ - * 4,287
-------- --------
Average Number of Shares Outstanding...... 44,544 * 49,088
======== ========
Diluted Earnings Per Share
--------------------------
Income (loss) from continuing operations.. $(.19)* $.45
Discontinued operations................... .51 * (.01)
-------- --------
Net Income as Adjusted.................... $ .32 * $.44
======== ========
* Assumed conversion of Convertible Debentures at the beginning of the
period has an antidilutive effect on earnings per share.
</TABLE>
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<PAGE>
DIMON Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Due to the provisions of FAS 128, previously reported shares changed
insignificantly, and there was no change in previously reported
earnings per share.
2. As of July 1, 1998 the Company adopted Statement of Financial
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The
adoption of this statement had no impact on the Company's net income
or Stockholders' equity. SFAS 130 establishes new rules for the
reporting and presentation of comprehensive income and its components.
SFAS 130 requires equity currency conversion adjustments to be
included in other comprehensive income. Amounts in prior year
financial statements have been reclassified to conform to SFAS 130.
<TABLE>
<CAPTION>
The components of comprehensive income were as follows:
(in thousands)
September 30
1998 1997
-------- --------
<S> <C> <C>
Net income..............................$14,277 $20,450
Change in Equity Currency Conversion.... 2,300 (2,904)
-------- --------
Total comprehensive income..............$16,577 $17,546
======== ========
</TABLE>
3. The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included.
4. On April 1, 1995, Dibrell Brothers, Incorporated (Dibrell) and Monk-
Austin, Inc. (Monk-Austin) merged into DIMON. In connection with the
merger, the Company incurred legal, accounting and financial
consultants costs of $8.1 million and commenced various activities to
restructure its worldwide operations. In June 1995, the Company
provided a restructuring reserve of $17.9 million pre-tax related
primarily to eliminating duplicative facilities of tobacco operations
and a reduction in the number of employees. In 1996 a restructuring
provision of $15.4 million was made primarily for additional severance
costs. During the year ended June 30, 1996, the Company severed a
total of 367 employees most of which were involuntarily separated.
The severed employees were primarily in the tobacco division and
worked in various departments throughout the Company. During the year
ended June 30, 1997, additional restructuring charges were accrued in
the amount of $3.9 million, of which $2.9 million relates to
additional severance costs and $1 million relates to a reduction of
capitalized idle plant expense. At June 30, 1998, the remaining cash
outlays associated with employee separations are expected to total
$5.0 million, of which $1.0 million will be expended in 1999.
Remaining amounts relate primarily to the pension plan charge and
other deferred compensation, which will be made as required for
funding appropriate pension and other payments in future years. No
additional restructuring charges are anticipated.
During the three months ended September 30, 1998, the Company paid out
$.353 million, principally for employee separations.
5. On September 30, 1998 the Company finalized the sale of the flower
operations, receiving approximately $66 million as a note. The buyer
assumed $31 million of the debt of Florimex Worldwide. The Company
recorded a gain on the sale of $23.8 million net of $4.3 million tax.
On October 2, 1998, the Company collected the $66 million for payment
of the note.
- 8 -
<PAGE>
DIMON Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. DIMON acquired Intabex, and certain assets of Tabex (Private) Limited,
an affiliate of Intabex, on April 1, 1997, for an initial purchase
price of $264.19 million, consisting of 1.7 million shares of DIMON
common stock, $140 million in ten year, 6.25% subordinated convertible
debentures, convertible at $28.77 a share (the "Convertible
Debentures"), and $86.12 million in cash, as reported on Form 8-K
filed April 16, 1997.
On September 22, 1998, DIMON filed an action in the United States
District Court for the Southern District of New York relating to its
acquisition of Intabex. The purchase agreements for DIMON's
acquisition of Intabex and the Tabex assets provided several purchase
price adjustment mechanisms relating to the pre-acquisition financial
statements of Intabex and the representations, warranties and
covenants of Intabex negotiated by DIMON as part of the acquisition.
The Intabex stock purchase agreement provided for a post-closing
adjustment in the purchase price based upon the net worth of Intabex
as of March 31, 1997, as determined by audited financial statements of
Intabex that were prepared in accordance with certain requirements of
the agreement. In August 1997, the Intabex purchase price was
adjusted pursuant to this mechanism and reduced by $18.6 million to
$245.6 million. The adjustment was effected by the return of $16.7
million principal amount of Convertible Debentures plus certain
interest payments that had been made thereon, and $1.9 million in
cash. The adjustment was reflected in the Company's Form 10-Q for the
quarter ended September 30, 1997. At the time of the post-closing
settlement, one of the former Intabex shareholders, Folium, Inc., also
agreed to guarantee the sales price by DIMON of certain tobacco
inventory that had been acquired as part of the Intabex acquisition.
That guarantee resulted in a further payment to DIMON by Folium, Inc.
of $7.3 million in April 1998. Folium, Inc. is controlled by a
British Virgin Islands trust of which A.C.B. Taberer is a potential
beneficiary. Mr. Taberer is a director of and consultant to DIMON and
the former Chairman of Intabex.
In addition to the post-closing audit and purchase price adjustment
and the inventory payments, the former Intabex shareholders also
agreed to indemnify DIMON, up to $90 million, for misrepresentations
or breaches in Intabex's representations, warranties or covenants,
including representations and warranties as to Intabex's financial
statements for periods prior to April 1, 1997. Convertible Debentures
in the principal amount of $90 million (the "Set-Off Debentures")
were segregated at the time of the acquisition to secure any claims by
DIMON for indemnification. DIMON is entitled, subject to the
fulfillment of certain conditions, to set-off against the Set-Off
Debentures any such claims. The amount of the Set-Off Debentures
declines from $90 million in stages, with $15 million principal amount
of Set-Off Debentures continuing to be subject to set-off after
October 1, 1998, through July 31, 1999, and $10 million continuing to
be subject to set-off from August 1, 1999 through April 1, 2000.
However, the Set-Off Debentures are not released to the extent that
claims are outstanding as of any of those dates. A DIMON subsidiary
in Zimbabwe is entitled to similar indemnification and set-off rights
in connection with the Zimbabwe tobacco assets purchased from Tabex,
subject to a maximum indemnification and set-off of $12 million.
Except for certain claims relating primarily to prior period taxes,
claims for purchase price adjustment or indemnity under the stock
purchase agreement generally were required to be asserted by DIMON by
September 30, 1998.
To allow adequate opportunity for discovery of possible adjustments,
DIMON required that the claims mechanisms under the purchase
agreements operate at least through September 30, 1998, the
anticipated completion of DIMON's second full audit cycle after the
acquisition. In connection with the completion of its analysis of
post-closing adjustments, DIMON has asserted claims for
indemnification for the full amount of the Set-Off Debentures. The
claims reflect DIMON's rights for purchase price adjustment or
indemnification under the stock purchase agreement arising out of,
among other matters, inaccuracies or misrepresentations as to the
carrying values of certain assets or income recorded in the Intabex
financial
- 9 -
<PAGE>
DIMON Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. (Continued)
statements for periods prior to the date of acquisition that were
delivered pursuant to the stock purchase agreement or the
understatement or omission of certain liabilities or expenses recorded
in such financial statements. The acquisition was accounted for using
the purchase method of accounting. As a result, the Intabex financial
statements for periods prior to April 1, 1997, are not included in the
Consolidated Financial Statements of DIMON.
Any recovery pursuant to these claims or upon settlement with the
former Intabex shareholders will be earnings accretive to DIMON. Any
recovery will be applied first against $8.1 million in accounts
receivable DIMON has established with respect to certain of these
claims. Any balance will be recorded as an adjustment to the Intabex
purchase price and a reduction in the carrying value of acquired
assets, including goodwill, reflected on DIMON's consolidated balance
sheet. A corresponding reduction in DIMON's interest expense and in
the number of shares used in calculating fully diluted earnings per
share would result from any reduction in principal amount of Set-Off
Debentures.
Interest is payable on the Convertible Debentures quarterly. The
stock purchase agreement provides that, absent an agreement among the
parties, DIMON must obtain a court order before setting off its claims
under the stock purchase agreement against the Set-Off Debentures.
DIMON has been advised by counsel representing one of the former
Intabex shareholders that the former shareholders have acknowledged
responsibility for $4.8 million of the $8.1 million in claims
reflected as receivables in the June 30, 1998 consolidated financial
statements of DIMON, but have not agreed as to the accrual of interest
and specific allocation of indemnity responsibility among them as to
such claims. As to the balance of DIMON's claims, the former
shareholders have advised DIMON that they do not have sufficient
information currently to evaluate the claims.
While DIMON intends to pursue further the settlement of these claims,
in view of the amount of the claims, the settlement procedures
provided in the stock purchase agreement, and the continuing accrual
of interest on the Set-Off Debentures, DIMON filed suit in the United
States District Court for the Southern District of New York against
the former Intabex shareholders, Mr. Taberer and certain members of
Mr. Taberer's family on September 22, 1998, seeking a court order with
respect to DIMON's claim for set-off against the Set-Off Debentures,
confirmation of DIMON's contractual remedies under the stock purchase
agreement, and related damages as a result of the former Intabex
shareholders' non-compliance with the stock purchase agreement and the
misstatements and omissions with respect to the acquisition of
Intabex. The total of the claims covered by the lawsuit is $110
million.
During the pendency of the litigation, Mr. Taberer will not
participate in the deliberations of DIMON's Board of Directors with
respect to the pending dispute or any other related matters.
The purchase price has been allocated based on estimated fair values
of assets acquired and liabilities assumed at the date of acquisition.
This allocation resulted in an excess of purchase price over net
assets acquired of $167 million, which is being amortized on a
straight-line basis over 40 years.
- 10 -
<PAGE>
DIMON Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. On April 1, 1997, in connection with the Intabex acquisition, DIMON
Incorporated issued $123.3 million of 6 1/4% Convertible Subordinated
Debentures due on March 31, 2007 (the "Debentures"). The Debentures
are convertible into approximately 4.29 million shares of the
Company's Common Stock at a conversion price of $28.77 per share at
any time prior to maturity. The Debentures are subordinated in right
of payment to all existing and future senior indebtedness, as defined,
of the Company, and do not have a cross-default provision. The
Debentures are redeemable at the option of the Company under certain
circumstances on or after April 1, 2000. As discussed in Note 6,
Intabex's former shareholders have indemnified DIMON against certain
liabilities in connection with the acquisition of Intabex. DIMON may
set off any such indemnified liabilities against $90 million of the
Debentures. The amount of Debentures subject to set-off declines in
stages, as discussed in Note 6.
8. On August 29, 1996, the Company received notices from Brazilian tax
authorities of proposed adjustments to income taxes for the calendar
year 1992 based on the Company's recalculation of monetary correction
as allowed under Law 8200. The approximate proposed adjustment claims
additional tax, including penalties and interest, through June 30,
1998, of $21.277 million, before related tax benefits for all assessed
interest. In 1993, the Company received notices from Brazilian tax
authorities of proposed adjustments to the income tax returns of the
Company's entities located in Brazil for the calendar years ending
1988 through 1992. The approximate proposed adjustments claim
additional tax, including penalties and interest through June 30,
1998, of $9.042 million, before related tax benefits for all assessed
interest. During the fiscal year ended June 30, 1998, the Company had
$22.793 million of assessments reversed in its favor. The Company
believes that it has properly reported its income and paid its taxes
in Brazil in accordance with applicable laws and intends to contest
the remaining proposed adjustments vigorously. The Company expects
that the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated balance sheet or results
of operations.
9. The results of operations for the three months ended September 30,
1998 and 1997 are not necessarily indicative of the results to be
expected for the full year and should not be relied on as a basis for
projecting year end results. The Company's operations are seasonal
and quarterly comparisons are of little value. For additional
information regarding accounting principles and other financial data,
see Notes to Consolidated Financial Statements in the Annual Report on
Form 10-K for the fiscal year ended June 30, 1998.
10. Certain prior period amounts have been reclassified to conform to the
current period presentation.
- 11 -
<PAGE>
DIMON Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS:
---------------------
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997:
The Company's sales and other operating revenues from continuing operations
were $384.2 million, a decrease of 12.5% from $439.2 million in 1997,
primarily due to lower average prices and decreased volumes on foreign
grown tobaccos and decreased processing fees and services of foreign and
U.S. grown tobaccos, offset partially by higher average prices of U.S.
grown tobacco. Decreases in sales of foreign grown tobacco were primarily
related to South America and Europe, partially offset by increases in
Africa and the dark tobacco operations. Lower prices of foreign grown
tobaccos accounted for $38 million of the decrease, while decreased volumes
and processing fees and services accounted for decreases of $14.4 million
on foreign grown tobaccos and $8.2 million of U.S. grown tobacco. Higher
prices on U.S. grown tobaccos offset decreases by $5.6 million. Lower
prices of foreign grown tobaccos were due primarily to a decline in
purchase prices of tobacco, product mix and the general over supply of
tobacco. Decreased volumes of U.S. tobacco resulted from decreased orders
from domestic cigarette manufacturers due to uncertainties surrounding
settlement of tobacco legislation and potentially higher excise taxes. The
Company has also been negatively impacted by devaluation of currencies in
certain Asian and eastern European countries which has resulted in delay
or cancellation of some shipments of tobacco. The Company believes that
the risks of further delays in shipments and the realization of lower
average prices could continue in future periods.
The cost of sales and expenses from continuing operations decreased 2.7%
from $386 million in 1997 to $375.7 million in 1998. Operating margin
(operating income) as a percentage of sales decreased from 12.1% in 1997 to
2.2% in 1998. The decrease in margins was primarily due to decreased
volumes in South America and Europe and a $5.6 million charge to provide
for costs incurred in connection with the 1998 tobacco crop in Tanzania.
Interest expense in 1998 decreased $3.4 million, of which approximately
$2.9 million was due to lower borrowings and $0.5 million was due to lower
average rates.
The effective tax rate was 20% for 1998 compared to 32.8% in 1997. The
decrease in rate was due to changes in the distribution of income between
taxing jurisdictions.
- 12 -
<PAGE>
DIMON Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
FINANCIAL CONDITION:
-------------------
The purchasing and processing activities of the Company's tobacco business
are seasonal. The Company's need for capital fluctuates accordingly and,
at any of several seasonal peaks, the Company's outstanding indebtedness
may be significantly greater or lesser than at year end. The Company
historically has needed capital in excess of cash flow from operations to
finance inventory and accounts receivable and, more recently, to finance
acquisitions of foreign tobacco operations. The Company also prefinances
tobacco crops in certain foreign countries by making cash advances to
farmers prior to and during the growing season.
DIMON's working capital decreased from $706.384 million at June 30, 1998 to
$704.839 million at September 30, 1998. The current ratio of 2.4 to 1 at
June 30, 1998 decreased to 2.0 to 1 at September 30, 1998. At September
30, 1998, current assets increased $217.021 million, or 18.0%, and current
liabilities increased $218.566 million, or 43.5%, from June 30, 1998.
Current assets increased primarily due to increases in tobacco inventories,
notes receivable and cash of $210.570 million, $65.418 million and $34.199
million, respectively, offset partially by decreases in advances and net
assets of discontinued operations of $36.591 million and $32.907 million,
respectively. The increase in inventories reflects the seasonal tobacco
operations. The sale of the flower operations accounts for the changes in
notes receivable and net assets of discontinued operations. Current
liabilities increased primarily due to increases in advances from customers
and notes payable to banks of $162.082 million and $46.305 million,
respectively. The Company is focused on the reduction of inventory and
advances on purchases of tobacco to strengthen its balance sheet and
compliance with existing debt covenants as well as improvements in
operating efficiencies and margins. Inventories and advances on purchases
of tobacco have decreased by approximately $126 million compared to the
same period last year. In addition, the level of uncommitted inventories
has decreased. However, uncommitted inventories present continuing
financial risk to the Company.
At September 30, 1998, DIMON had seasonally adjusted lines of credit of
$1,390 million, excluding the long-term credit agreements. These lines
bear interest at annual rates ranging from 5.97% to 14.67%. At September
30, 1998, unused lines of credit amounted to $604 million, net of $112
million of letters of credit and guarantees that reduce lines of credit.
Total maximum outstanding borrowings excluding the long-term credit
agreements during the three months ended September 30, 1998 were $528
million.
To ensure long-term liquidity, DIMON entered into a $500 million Credit
Facility, effective June 27, 1997, with 20 banks which replaced DIMON's
$240 million existing credit facility. The Company had $120 million of
borrowings under these agreements at September 30, 1998. The Company uses
the Credit Facility to classify $380 million of working capital loans to
Revolving Credit Notes. It is the Company's intent to finance at least
$500 million on a long-term basis. The Credit Facility is subject to
certain commitment fees and covenants that, among other things, require
DIMON to maintain minimum working capital and tangible net worth amounts,
require specific liquidity and long-term solvency ratios and restrict
acquisitions. The Credit Facility's initial term expires on June 27, 2000,
and subject to approval by the lenders, may be extended. The rates of
interest are based upon the type of loan requested by the Company. During
the life of the agreement, the interest rate could be the prime rate or the
LIBOR rate adjusted. The primary advance rate is the agent bank's base
lending rate (8.25% at September 30, 1998). The Company pays a commitment
fee of 1/4% per annum on any unused portion of the facility. Decisions
relative to repayments and reborrowings are made based on circumstances
then existing, including management's judgment as to the most effective
utilization of funds.
- 13 -
<PAGE>
DIMON Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
FINANCIAL CONDITION (Continued)
-------------------
The Company believes that its short-term lines of credit, customer
advances, and cash from operations combined with the Senior Notes are
sufficient to fund the Company's purchasing and capital needs for
fiscal 1999. There can be no assurance, however, that other
alternative sources of capital will be available in the future or, if
available, that any such alternative sources will be on favorable terms.
Reliance on available credit presents financial risk to the Company going
forward.
Cash flows provided by operating activities increased $29.826 million from
($9.659 million) to $20.167 million for the three months ended September
30, 1998 over the same period last year, due primarily to increases in
inventories and advances on purchases of tobacco, increases in accounts
payable and accrued expenses and increases in advances from customers
offset by decreases in accounts receivable and net income from continuing
operations. Cash flows used in investing activities increased $7.191
million primarily due to purchases of property, plant and equipment and
advances on notes receivable, offset by advances for other investments and
the purchase of remaining interest of an investee in 1997. Cash flows
provided by financing activities increased $49.992 million primarily due to
the increase in short-term borrowings.
OUTLOOK AND OTHER INFORMATION:
-----------------------------
Although the Company believes that there continue to be certain positive
fundamentals in the tobacco business on a global basis, the Company does
not expect the current currency crisis in east Asia and eastern Europe and
the related effect on purchasing power of customers in those areas to
improve in the near term. The Company also believes that the heightened
prospect of increased retail prices and thus lower expected consumption of
cigarettes in the U.S. continues to impact the purchasing decisions,
relating to both U.S. and foreign leaf tobacco, of certain of the Company's
primary U.S. based customers. In addition, lower production volumes due to
weather patterns in the Brazilian market are expected to mitigate the
Company's opportunity for continued growth in export volumes from that
country. The Company believes that the risks of further delays in
shipments and the realization of lower average prices could continue in
future periods.
The Company has experienced significant operational challenges in Africa
related to the start of activities in Tanzania. Such challenges in
Tanzania include the start up of a new factory in October 1998, an
unreliable infrastructure which hinders efficient distribution and losses
on farmer advances. Given these challenges, the Company believes it is
not likely that there will be a significant improvement in sales or
operating profit in Tanzania for the remainder of the fiscal year.
The Company does not anticipate much improvement in trading conditions or
earnings in the second quarter but expects the Company's cumulative
earnings from continuing operations to be marginally profitable by the end
of the third quarter. The Company expects tobacco volumes and gross profits
to begin to recover in the second half of the current fiscal year. Improved
operating profitability from continuing operations, along with lower debt
levels, is expected to have a positive impact on the third and fourth
quarters. If export volumes and margins in South America return to pre-1998
- 14 -
<PAGE>
DIMON Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
OUTLOOK AND OTHER INFORMATION (Continued)
-----------------------------
levels, earnings in the second half of the year should improve
significantly over the comparable period in fiscal 1998. While the
global economic crisis continues to create a very unpredictable
business environment, management remains optimistic that earnings from
continuing operations in the second half of the year will trend more
towards those reported in fiscal year 1997. In view of the current
uncertainties, management is recommending to the Board of Directors that
the Company's quarterly dividend be reduced from its current rate of $.17
to $.09 per share, effective with the regular December payment.
See "Factors That May Affect Future Results," below, for important
warnings about the forward-looking statements included in this section.
YEAR 2000 ISSUE
---------------
To prepare for the upcoming millenium change, DIMON is continuing its
efforts in assessment, remediation and testing of its critical applications
at all Company sites (See 1998 Annual Report - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year 2000
Issue). The Company feels that its "Vision" project, initiated in 1996, to
upgrade its computer infrastructure and the implementation of a third party
accounting application at an additional international site will result in
all core systems being Y2K compliant.
DIMON's Year 2000 project is presently on schedule with a target date for
corporate readiness set for mid-1999. Each location's preparation includes
development of contingency plans for all critical business processes.
Should any of these processes be impacted as a result of system, equipment,
or business-partner failure, action plans will be in place by January 1,
2000, to address the situation. DIMON has incurred approximately $2.4
million of the $3.5 million estimated for the "Vision" project and has also
incurred approximately $2.5 million of the $3.5 million estimated for other
network and equipment upgrades. The Company does not expect the financial
impact of being Year 2000 compliant to be material to the Company's
consolidated financial position or results of operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS:
--------------------------------------
The foregoing discussion may contain forward-looking statements, generally
identified by phrases such as "the Company expects" or words of similar
effect. Certain important factors that in some cases have affected, and in
the future could affect, the Company's actual results and could cause the
Company's actual results for the remainder of fiscal year 1999 and beyond
to differ materially from those expressed in any forward-looking statements
made by the Company are discussed above under "OUTLOOK AND OTHER
INFORMATION" and in the Company's Annual Report on Form 10-K for the year
ended June 30, 1998, under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Factors that
May Affect Future Results."
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
( a ) Exhibit 27 - Financial Data Schedule
( b ) Reports on Form 8-K - None
- 15 -
<PAGE>
DIMON Incorporated and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
DIMON Incorporated
/s/ Jerry L. Parker
_______________________________
Date: November 13, 1998 Jerry L. Parker
Senior Vice President
- Controller
(Principal Accounting Officer)
- 16 -
<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
EXHIBIT INDEX
-------------------------
Exhibit Page No.
------- --------
<S> <C>
27 Financial Data Schedule.............................. 18
</TABLE>
- 17 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 52,928
<SECURITIES> 0
<RECEIVABLES> 303,869
<ALLOWANCES> 4,375
<INVENTORY> 823,331
<CURRENT-ASSETS> 1,425,911
<PP&E> 448,509
<DEPRECIATION> (121,678)
<TOTAL-ASSETS> 2,022,985
<CURRENT-LIABILITIES> 721,072
<BONDS> 794,780
<COMMON> 182,143
0
0
<OTHER-SE> 248,795
<TOTAL-LIABILITY-AND-EQUITY> 2,022,985
<SALES> 384,165
<TOTAL-REVENUES> 384,165
<CGS> 345,697
<TOTAL-COSTS> 345,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 202
<INTEREST-EXPENSE> 19,225
<INCOME-PRETAX> (10,731)
<INCOME-TAX> (2,146)
<INCOME-CONTINUING> (8,635)
<DISCONTINUED> 22,912
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,277
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
