Page 1 of 19
Page 18 - 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 December 31, 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.
Class of Common Stock February 7, 1999
_____________________ ________________
NO par value 44,525,004
<PAGE>
DIMON Incorporated and Subsidiaries
<TABLE>
<CAPTION>
INDEX
PAGE NO.
________
<S> <C>
Part I. Financial Information:
Consolidated Balance Sheet December 31, 1998
and June 30, 1998........................................... 3 - 4
Statement of Consolidated Income - Three Months
and Six Months Ended December 31, 1998 and 1997............. 5
Statement of Consolidated Cash Flows - Six
Months Ended December 31, 1998 and 1997..................... 6
Notes to Consolidated Financial Statements.................. 7 - 11
Management's Discussion and Analysis
of Financial Condition and Results of Operations............12 - 16
Part II. Other Information................................. 16
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DIMON Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31
1998 June 30
(Unaudited) 1998
(in thousands) ____________ __________
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................ $ 26,655 $ 18,729
Notes receivable......................... 4,835 5,600
Trade receivables, net of allowances..... 295,948 319,295
Inventories:
Tobacco................................ 643,796 588,143
Other................................. 24,052 24,483
Advances on purchases of tobacco......... 138,645 192,191
Recoverable income taxes................. 1,343 2,748
Prepaid expenses and other assets........ 18,764 24,794
Net assets of discontinued operations.... - 32,907
----------- -----------
Total current assets................ 1,154,038 1,208,890
----------- -----------
Investments and other assets
Equity in net assets of investee
companies.............................. 5,732 6,022
Other investments........................ 12,462 9,896
Notes receivable......................... 11,695 9,313
Other.................................... 10,039 13,796
----------- -----------
39,928 39,027
----------- -----------
Intangible assets
Excess of cost over related net
assets of businesses acquired.......... 173,524 179,589
Production and supply contracts.......... 24,062 26,442
Pension asset............................ 3,555 3,555
----------- -----------
201,141 209,586
----------- -----------
Property, plant and equipment
Land..................................... 20,527 20,085
Buildings................................ 183,515 174,310
Machinery and equipment.................. 249,479 237,368
Allowances for depreciation.............. (127,778) (113,663)
----------- -----------
325,743 318,100
----------- -----------
Deferred taxes and other deferred
charges.................................. 27,987 21,875
----------- -----------
$1,748,837 $1,797,478
=========== ===========
See notes to consolidated financial statements
</TABLE>
- -3-
<PAGE>
DIMON Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31
1998 June 30
(Unaudited) 1998
(in thousands) ____________ __________
[S] [C] [C]
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks...................$ 232,611 $ 282,470
Accounts payable:
Trade.................................. 50,207 80,994
Officers and employees................. 6,408 7,664
Other.................................. 9,227 7,825
Advances from customers.................. 135,112 50,521
Accrued expenses......................... 47,780 57,294
Income taxes............................. 1,208 5,150
Long-term debt current................... 10,493 10,588
----------- -----------
Total current liabilities........... 493,046 502,506
----------- -----------
Long-term debt
Revolving Credit Notes and Other......... 516,579 548,699
Convertible Subordinated Debentures...... 123,328 123,328
Senior Notes............................. 125,000 125,000
----------- -----------
764,907 797,027
----------- -----------
Deferred credits:
Income taxes........................... 32,710 36,723
Compensation and other benefits........ 40,398 38,812
----------- -----------
73,108 75,535
----------- -----------
Minority interest in subsidiaries.......... 480 480
----------- -----------
Commitments and contingencies.............. - -
----------- -----------
Stockholders' equity
Preferred Stock--no par value:
Dec. 31 Jun. 30
_______ _______
Authorized shares... 10,000 10,000
Issued shares....... - - - -
Common Stock--no par value:
Dec. 31 Jun. 30
_______ _______
Authorized shares...125,000 125,000
Issued shares....... 44,525 44,525 182,143 182,143
Retained earnings...................... 237,820 243,816
Equity-currency conversions............ (1,302) (2,664)
Additional minimum pension liability... (1,365) (1,365)
----------- ----------
417,296 421,930
----------- ----------
$1,748,837 $1,797,478
=========== ===========
- - 4 -
<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
STATEMENT OF CONSOLIDATED INCOME
Three Months and Six Months Ended December 31, 1998 and 1997
(Unaudited)
1999 1998 1999 1998
Second Second First Six First Six
(in thousands, except per share amounts) Quarter Quarter Months Months
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Sales and other operating revenues..... $595,114 $591,827 $979,279 $1,031,012
Cost of goods and services sold........ 565,226 533,025 910,923 889,309
--------- --------- --------- -----------
Gross profit........................... 29,888 58,802 68,356 141,703
Selling, administrative and
general expenses..................... 29,082 27,263 59,056 56,983
--------- --------- --------- -----------
Operating Income....................... 806 31,539 9,300 84,720
Interest expense....................... 16,160 20,945 35,385 43,551
--------- --------- --------- -----------
Income (loss) from continuing operations
before income taxes, equity in net
income of investee companies and
discontinued operations.............. (15,354) 10,594 (26,085) 41,169
Income taxes (benefit)................. (6,723) 508 (8,869) 10,546
--------- --------- --------- -----------
Income (loss) from continuing operations
before equity in net income (loss)
of investee companies................ (8,631) 10,086 (17,216) 30,623
Equity in net income (loss) of investee
companies, net of income taxes....... (64) 494 (114) 804
--------- --------- --------- -----------
Income (loss) from continuing
operations........................... (8,695) 10,580 (17,330) 31,427
Discontinued business:
Income (loss) from operations, net
of tax benefits.................... - 360 (841) (37)
Gain on disposal, net of
$4,288 tax......................... - - 23,753 -
--------- --------- --------- -----------
NET INCOME (LOSS)...................... $ (8,695) $ 10,940 $ 5,582 $31,390
========= ========= ========= ===========
Basic Earnings Per Share
Income (loss) from continuing
operations......................... $(.20) $.24 $(.38) $.71
Discontinued operations.............. - .01 .51 -
------ ----- ------ -----
Net Income........................... $(.20) $.25 $ .13 $.71
====== ===== ====== =====
Diluted Earnings Per Share
Income (loss) from continuing
operations......................... $(.20) $.24 $(.38) $.69
Discontinued operations.............. - .01 .51 -
------ ----- ------ -----
Net Income.......................... $(.20)* $.25 $.13* $.69
====== ===== ====== =====
Average number of shares outstanding:
Basic................................ 44,525 44,507 44,525 44,422
Diluted.............................. 44,534 49,267 44,547 49,178
Cash dividends per share............... $.09 $.17 $.26 $.32
====== ===== ====== =====
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>
- -5-
<PAGE>
<TABLE>
<CAPTION>
DIMON Incorporated and Subsidiaries
STATEMENT OF CONSOLIDATED CASH FLOWS
Six Months Ended December 31, 1998 and 1997
(Unaudited)
December 31 December 31
1998 1997
(in thousands) ____________ __________
<S> <C> <C>
Operating activities
Net Income............................... $ 5,582 $ 31,390
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.......... 20,952 23,856
Deferred items......................... (8,521) (5,669)
Loss (gain) on foreign currency
transactions ........................ 2,136 (798)
Gain on disposition of fixed assets.... (480) (1,521)
Change in discontinued operations...... 1,023 -
Gain on disposition of
discontinued operations.............. (23,753) -
Undistributed loss (earnings)
of investees......................... 114 (804)
Income applicable to minority interest. - 47
Bad debt expense....................... 221 497
Decrease in accounts receivable........ 16,746 126,994
Decrease (increase) in inventories
and advances on purchases of
tobacco.............................. 2,424 (244,951)
Decrease in recoverable taxes.......... 1,413 640
Decrease in prepaid expenses........... 5,138 2,159
Decrease in accounts payable and
accrued expenses..................... (45,754) (84,049)
Increase in advances from customers.... 90,423 128,867
Decrease in income taxes............... (7,932) (8,717)
Other.................................. 53 796
--------- ---------
Net cash provided (used) by
operating activities............... 59,785 (31,263)
--------- ---------
Investing activities
Purchase of property and equipment....... (21,237) (14,209)
Proceeds from sale of property
and equipment.......................... 2,184 14,308
Proceeds from sale of property and
equipment of Discontinued Operation.... 37,637 -
Advances on notes receivable and
receivable from investees.............. (3,504) (2,868)
Payments received (advances) for
other investments and other assets...... 4,417 (278)
Purchase of remaining interest
in investee............................. - (2,200)
Proceeds from sale of
Discontinued Operation.................. 28,435 -
--------- ---------
Net cash provided (used) by
investing activities................ 47,932 (5,247)
--------- ---------
Financing activities
Net change in short-term borrowings...... (56,726) 32,728
Proceeds from long-term borrowings....... 877 30
Repayment of long-term borrowings........ (33,221) (42,379)
Proceeds from sale of common stock....... - 3,204
Cash dividends paid to
DIMON Incorporated stockholders........ (11,577) (14,216)
--------- ---------
Net cash used by financing activities.... (100,647) (20,633)
--------- ---------
Effect of exchange rate changes on cash.... 856 (970)
--------- ---------
Increase (decrease) in cash and
cash equivalents......................... 7,926 (58,113)
Increase (decrease) 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....................... $ 26,655 $ 49,045
========= =========
</TABLE>
- -6-
<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>
1999 1998 1999 1998
Second Second First Six First Six
(in thousands, except per share amounts) Quarter Quarter Months Months
------- ------- --------- ----------
<S> <C> <C> <C> <C>
Basic Earnings Per Share
------------------------
Income (loss) from continuing operations..... $ (8,695) $10,580 $(17,330) $31,427
------- ------- --------- --------
Discontinued operations...................... - 360 22,912 (37)
Net Income (Loss)............................ $ (8,695) $10,940 $ 5,582 $31,390
======= ======= ========= ========
Shares
------
Weighted Average
Shares Outstanding....................... 44,525 44,507 44,525 44,422
======= ======= ========= ========
Basic Earnings Per Share
------------------------
Income (loss) before discontinued
operations................................. $(.20) $.24 $(.38) $.71
Discontinued operations...................... - .01 .51 -
------ ----- ------ -----
Net Income(Loss)............................. $(.20) $.25 $ .13 $.71
====== ===== ====== =====
Diluted Earnings Per Share
--------------------------
Income (loss) from continuing operations..... $(8,695) $10,580 $(17,330) $31,427
Add after tax interest expense applicable
to 6 1/4% Convertible Debentures issued
April 1, 1997.............................. - * 1,176 - * 2,351
------- ------- --------- --------
Income (loss) before discontinued
operations................................. (8,695) 11,756 (17,330) 33,778
Discontinued operations...................... - 360 22,912 (37)
------- ------- --------- --------
Net Income (Loss) as Adjusted................ $ (8,695) $12,116 $ 5,582 $33,741
======= ======= ========= ========
Shares
------
Weighted average number of
common shares outstanding.................. 44,525 44,507 44,525 44,422
Shares applicable to stock options,
net of shares assumed to be
purchased from proceeds at
average market price....................... 9 473 22 469
Assuming conversion of 6 1/4%
Debentures at beginning of period.......... - * 4,287 - * 4,287
------- ------- --------- --------
Average Diluted Shares Outstanding........... 44,534 49,267 44,547 49,178
======= ======= ========= ========
Diluted Earnings Per Share................... $(.20) $.24 $(.38) $.69
Discontinued operations...................... - .01 .51 -
------ ----- ------ -----
Net Income (Loss) as Adjusted................ $(.20) $.25 $ .13 $.69
====== ===== ====== =====
* Assumed conversion of Convertible Debentures at the beginning of the period has an
antidilutive effect on earnings per share.
</TABLE>
- - 7 -
<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.
The components of comprehensive income were as follows:
<TABLE>
<CAPTION>
Six Months Ended
December 31
--------------------
(in thousands) 1998 1997
------- --------
<S> <C> <C>
Net income............................... $5,582 $31,390
Change in Equity Currency Conversion..... 1,362 (3,915)
------- --------
Total comprehensive income............... $6,944 $27,475
======= ========
</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 for the
elimination of 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.
During the six months ended December 31, 1998, the Company
paid out $.715 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 1/4% 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, 1998.
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 was a
director of and consultant to DIMON and the former Chairman of
Intabex. Mr. Taberer resigned as a director as of January 25,
1999.
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 applied first against
$8.1 million in accounts receivable and $3.4 million in other
investments that 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 legal and professional
expenses, 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.
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.
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, and DIMON may set off any
such indemnified liabilities against $90 million of the
Debentures.
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. Also, due to the devaluation of the Brazilian currency
in January, 1999, the U.S. dollar equivalent of the proposed
assessments may be reduced. 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.
- -10-
<PAGE>
DIMON Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. The results of operations for the three and six months ended
December 31, 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 December 31, 1998 Compared to Three Months
Ended December 31, 1997:
Net sales and other operating revenues from continuing operations
were $595.1 million, an increase of .6% or $3.3 million for the
three months ended December 31, 1998 from $591.8 million for the
same period in 1997. The increase was due to increases in
quantities of U.S. and foreign grown tobacco and higher average
prices of U.S. tobacco, which were offset by lower average prices
of foreign grown tobacco and lower service and processing fees on
U.S. and foreign grown tobaccos. Quantities of both U.S. tobacco
and foreign grown tobacco increased approximately 5%, which
resulted in $19.5 million and $23.1 million increases,
respectively, over quantities sold in the same period last year.
Increased volumes of foreign grown tobacco were primarily of
African origin, partially offset by decreases in South American
tobacco. Prices of U.S. grown tobacco increased, resulting in
increased sales of $5.9 million over last year primarily due to
product mix. Decreases in prices of foreign grown tobacco
reduced net sales and other operating revenues by $25.5 million
primarily due to product mix and the general over supply of
tobacco. The decreased prices in foreign grown tobacco were
primarily due to price decreases of African origin tobaccos.
Other items, primarily service and processing fees on U.S. and
foreign grown tobaccos, decreased $19.7 million primarily due to
less volume being processed for the U.S. Flue Cured Stabilization
program.
The cost of sales and expenses from continuing operations
increased $34.0 million, or 6.1%, from $560.3 million in 1997 to
$594.3 million in 1998. Operating margin (operating income)
decreased 97.4% from $31.5 million in 1997 to $.8 million in 1998
primarily due to the lower prices realized due to the general
over supply of tobacco. Liquidation of old crop tobaccos during
a period of depressed leaf prices worldwide resulted in
significant margin erosion. Smaller crops in both North and
South America resulted in lower profits for both of these
regions.
Interest expense decreased $4.8 million from the same period last
year primarily due to lower borrowings.
The effective tax rate was 43.7% for 1998 compared to 4.8% in
1997. The change in rate was due to changes in the distribution
of income between taxing jurisdictions.
Equity in net income of investees decreased $.6 million in 1998
compared to 1997 primarily due to decreases in income from
investees sold that were located in Africa.
- -12-
<PAGE>
DIMON Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS:
Six Months Ended December 31, 1998 Compared to Six Months Ended
December 31, 1997:
Net sales and other operating revenues from continuing operations
were $ 979.3 million, a decrease of 5.0% or $51.7 million for
the six months ended December 31, 1998 from $1,031.0 million for
the same period in 1997. The decrease is primarily due to lower
prices and quantities of foreign grown tobaccos and lower
processing and service revenues on foreign and U.S. grown
tobaccos, offset partially by increases in prices and quantities
of U.S. grown tobaccos. Decreases in prices of foreign grown
tobacco resulted in a $42.0 million decrease from the same period
last year primarily due to lower prices realized on tobaccos from
Africa and Brazil. Decreased quantities of tobaccos sold from
foreign sources resulted in a decrease of $2.7 million compared
to the same period in the prior year. This decrease in
quantities sold was primarily in Europe, South America and Asia,
partially offset by increases in Africa. Other items, primarily
service and processing fees, resulted in a $15.0 million
decrease from foreign sources and a $19.0 million decrease from
U.S. sources. Higher prices and quantities of U.S. tobacco
partially offset decreases by $12.0 million and $15.0 million,
respectively. Lower prices of foreign grown tobacco were
primarily due to a decline in purchase prices of tobacco and the
general worldwide oversupply of tobacco. Prices and demand for
tobacco continue to be negatively impacted by the uncertainties
of the impact of the tobacco settlement on domestic cigarette
manufacturers as well as declines in purchasing power due to
devaluation of currencies in certain Asian and European
countries.
Cost of sales and expenses for the six months ended December 31,
1998 were $970.0 million, an increase of $23.7 million or 2.5%
over $946.3 million for the same period in 1997. Operating
margin (operating income) as a percentage of sales decreased
89.0% from $84.7 million in 1997 to $9.3 million in 1998
primarily due to lower prices realized due to the general
oversupply of tobacco, as well as a $5.6 million charge to
provide for costs incurred in connection with the 1998 crop in
Tanzania. Liquidation of old crop tobaccos during a period of
depressed leaf prices worldwide resulted in significant margin
erosion. Smaller crops in both North and South America resulted
in lower profits for both of these regions.
Interest expense decreased $8.2 million from the same period in
1997 primarily due to a $7.1 million decrease attributable to
lower borrowings and a $1.1 million decrease due to lower
average rates.
The effective income tax rate increased from 25.6% in 1997 to
34.0% in 1998 primarily due to the distribution of income between
taxing jurisdictions.
Equity in net income of investee companies decreased $.9 million
from 1997 primarily due to decreases in income from investees
sold that were located in Africa.
- -13-
<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 $660.992 million at December 31, 1998. The current
ratio of 2.4 to 1 at June 30, 1998 decreased to 2.3 to 1 at
December 31, 1998. At December 31, 1998, current assets
decreased $54.852 million, or 4.5%, and current liabilities
decreased $9.460 million, or 1.9%, from June 30, 1998. Current
assets decreased primarily due to decreases in advances on
purchases of tobacco, net assets of discontinued operations,
trade receivables and prepaid expenses of $53.546 million,
$32.907 million, $23.347 million and $6.030 million,
respectively, offset partially by increases in tobacco
inventories and cash of $55.653 million and $7.926 million,
respectively. The sale of the flower operations accounts for the
changes in net assets of discontinued operations. The increase
in inventories reflects the seasonal tobacco operations. Current
liabilities decreased primarily due to decreases in notes
payable, accounts payable trade, accrued expenses and income
taxes of $49.859 million, $30.787 million, $9.514 million and
$3.942 million, respectively, offset partially by the increase in
customer advances of $84.591 million. The Company is focused on
the reduction of inventory and advances on purchases of tobacco
to strengthen its balance sheet and improve operating
efficiencies and margins. Tobacco inventories and advances on
purchases of tobacco have decreased by approximately $310 million
compared to the same period last year. In addition, the level of
uncommitted inventories has decreased by over $100 million since
June 30, 1998, despite a continuing difficult trading environment
for the entire leaf industry. Current uncommitted inventories
are at appropriate levels, and while the upcoming South American
crops may create additional inventories in the normal course of
business, the Company expects continued reductions in uncommitted
inventories on a seasonally adjusted basis. However, uncommitted
inventories present continuing financial risk to the Company.
At December 31, 1998, DIMON had seasonally adjusted lines of
credit of $1.190 million, excluding the long-term credit
agreements. These lines bear interest at annual rates ranging
from 5.49% to 16.03%. At December 31, 1998, unused lines of
credit amounted to $569 million, net of $107 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 December 31, 1998 were
$559 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 $200 million of borrowings under these agreements at
December 31, 1998. The Company uses the Credit Facility to
classify $300 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
- -14-
<PAGE>
DIMON Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
FINANCIAL CONDITION (Continued)
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 (7.75% at
December 31, 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.
The Company believes that its lines of credit, customer advances,
and cash from operations 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 $91.048
million from $(31.263) million to $59.785 million for the six
months ended December 31, 1998 over the same period last year,
due primarily to decreases in inventories and advances on
purchases of tobacco, offset partially by increases in accounts
receivable, gain on disposition of discontinued operations and
the decrease in net income. Cash flows provided in investing
activities increased $53.179 million primarily due to the
proceeds from sale of discontinued operations, offset partially
by increased purchases of property and equipment. Cash flows
used by financing activities increased $80.014 million primarily
due to the decrease in the net change in short-term borrowings,
partially offset by reduced repayment of long-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 threats of additional lawsuits in
the U.S. with increased excise taxes resulting in 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. While recent smaller
crops in the United States and South America have mitigated this
situation to a certain extent, the leaf industry has not yet
fully recovered from the imbalance in supply and demand that has
been created by these issues. 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, especially 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.
- -15-
<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)
The Company does not anticipate much improvement in trading
conditions or earnings in the third quarter and expects the
Company's year-to-date earnings from continuing operations to be
marginally profitable by the end of the fiscal year. Improved
operating profitability from continuing operations, along with
lower debt levels, is expected to have a positive impact on the
second half of the year, primarily in the fourth quarter. Also,
if export volumes and margins in South America return to pre-
1998 levels, earnings in the fourth quarter of the year should
improve over the comparable period in fiscal 1998.
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). DIMON's
Year 2000 project is presently on schedule with a target date for
corporate readiness set for mid-1999. Through December 31, 1998,
DIMON has spent $6.1 million of its anticipated $7.0 million Year
2000 project budget. 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.
The Company does not expect the financial impact of becoming 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,"
"believes," "anticipates" 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
- -16-
<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: February 12, 1999 Jerry L. Parker
Senior Vice President -
Controller
(Principal Accounting Officer)
- -17-
<PAGE>
<TABLE>
DIMON Incorporated and Subsidiaries
EXHIBIT INDEX
-------------------------
Exhibit Page No.
------- --------
<S> <C>
27 Financial Data Schedule............................................. 19
</TABLE>
- -18-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,655
<SECURITIES> 0
<RECEIVABLES> 295,948
<ALLOWANCES> 5,178
<INVENTORY> 667,848
<CURRENT-ASSETS> 1,154,038
<PP&E> 453,521
<DEPRECIATION> (127,778)
<TOTAL-ASSETS> 1,748,837
<CURRENT-LIABILITIES> 493,046
<BONDS> 764,907
<COMMON> 182,143
0
0
<OTHER-SE> 235,153
<TOTAL-LIABILITY-AND-EQUITY> 1,748,837
<SALES> 979,279
<TOTAL-REVENUES> 979,279
<CGS> 910,923
<TOTAL-COSTS> 910,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 221
<INTEREST-EXPENSE> 35,385
<INCOME-PRETAX> (26,085)
<INCOME-TAX> (8,869)
<INCOME-CONTINUING> (17,330)
<DISCONTINUED> 22,912
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,582
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
<PAGE>
</TABLE>
