Page 1 of 15

Page 13 - 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, 2000

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 1, 2000

NO par value

44,575,004

DIMON Incorporated and Subsidiaries

INDEX

Page No.

Part I. 

Financial Information

Item 1. 

Financial Statements

Consolidated Balance Sheet - September 30, 2000 and

June 30, 2000...........................................................................

3 - 4

Statement of Consolidated Income - Three Months Ended

September 30, 2000 and 1999...............................................................

5

Statement of Consolidated Cash Flows - Three

Months Ended September 30, 2000 and 1999............................................

6

Notes to Consolidated Financial Statements.....................................

7 - 9

Management's Discussion and Analysis

Of Financial Condition and Results of Operations..............................

9 - 11

Part II. 

Other Information

11

-2-

Part I. Financial Information
Item 1. Financial Statements

DIMON Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET

September 30
2000      
(Unaudited) 

June 30   
2000     

(in thousands)

______________________________________

ASSETS

Current assets

   Cash and cash equivalents .....................................................................

$    19,100 

$ 27,249 

   Notes receivable ....................................................................................

4,772 

4,707 

   Trade receivables, net of allowances ....................................................

174,233 

222,754 

   Inventories:

      Tobacco ..............................................................................................

645,046 

383,881 

      Other ..................................................................................................

12,706 

16,351 

   Advances on purchases of tobacco .......................................................

55,753 

63,569 

   Current deferred and recoverable income taxes ..................................

22,969 

21,413 

   Prepaid expenses and other assets .......................................................

13,133 

13,950 

______________________________________

      Total current assets ...........................................................................

947,712 

753,874 

______________________________________

Investments and other assets

   Equity in net assets of investee companies ...........................................

3,069 

3,175 

   Other investments ..................................................................................

5,620 

6,184 

   Notes receivable .....................................................................................

8,686 

10,038 

   Other ......................................................................................................

28,852 

22,689 

______________________________________

46,227 

42,086 

______________________________________

Intangible assets

   Excess of cost over related net assets of

      businesses acquired...........................................................................

163,523 

165,163 

   Production and supply contracts............................................................

11,718 

11,685 

   Pension asset ..........................................................................................

1,456 

1,456 

______________________________________

176,697 

178,304 

______________________________________

Property, plant and equipment

   Land ........................................................................................................

18,713 

18,795 

   Buildings .................................................................................................

177,892 

178,508 

   Machinery and equipment ......................................................................

202,642 

201,238 

   Allowances for depreciation ...................................................................

(125,626)

(121,325)

______________________________________

273,621 

277,216 

______________________________________

Deferred taxes and other deferred charges ................................................

14,783 

15,269 

______________________________________

$1,459,040 

$1,266,749 

==================================

See notes to consolidated financial statements

-3-

DIMON Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET

September 30
2000      
(Unaudited) 

June 30   
2000     

(in thousands)

______________________________________

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

   Notes payable to banks...............................................................

$ 213,695 

$ 198,095 

   Accounts payable:

      Trade..................................................................................

25,487 

53,348 

      Officers and employees..........................................................

5,660 

6,077 

      Other...................................................................................

7,643 

12,129 

   Advances from customers...........................................................

229,222 

18,555 

   Accrued expenses......................................................................

28,204 

21,963 

   Income taxes.............................................................................

4,311 

4,651 

   Long-term debt current...............................................................

2,198 

5,321 

______________________________________

      Total current liabilities..........................................................

516,420 

320,139 

______________________________________

Long-term debt

   Revolving Credit Notes and Other................................................

276,985 

275,856 

   Convertible Subordinated Debentures...........................................

73,328 

73,328 

   Senior Notes.............................................................................

125,000 

125,000 

______________________________________

475,313 

474,184 

______________________________________

Deferred credits:

   Income taxes.............................................................................

13,503 

14,980 

   Compensation and other benefits..................................................

54,528 

53,371 

______________________________________

68,031 

68,351 

______________________________________

Minority interest in subsidiaries.......................................................

568 

571 

______________________________________

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............................

44,575

44,525

182,284 

182,143 

   Retained earnings......................................................................

225,310 

229,625 

   Accumulated other comprehensive income....................................

(8,886)

(8,264)

______________________________________

398,708 

403,504 

______________________________________

$1,459,040 

$1,266,749 

==================================

See notes to consolidated financial statements

-4-

DIMON Incorporated and Subsidiaries
STATEMENT OF CONSOLIDATED INCOME
Three Months Ended September 30, 2000 and 1999
(Unaudited)

(in thousands, except per share amounts)

September 30     
2000           

September 30  
1999        

______________________________________

Sales and other operating revenues...................................................

$198,901 

$229,284 

Cost of goods and services sold.......................................................

162,071 

201,399 

______________________________________

Gross profit..................................................................................

36,830 

27,885 

Selling, administrative and general expenses.....................................

23,854 

24,948 

Restructuring (recovery).................................................................

(238)

- 

______________________________________

Operating income.........................................................................

13,214 

2,937 

Interest expense.............................................................................

14,432 

14,177 

Current charge derivative financial instruments..................................

1,265 

- 

______________________________________

Loss before income taxes and equity

in net loss of investee companies.................................................

(2,483)

(11,240)

Income tax benefit.........................................................................

(571)

(2,585)

______________________________________

Loss before equity in net loss of investee companies..........................

(1,912)

(8,655)

Equity in net loss of investee

companies, net of income taxes...................................................

(70)

(177)

______________________________________

Loss before cumulative effect of accounting changes..........................

(1,982)

(8,832)

Cumulative effect of accounting changes, net of income taxes:

Reporting period of subsidiaries..................................................

284 

- 

Derivative financial instruments..................................................

(387)

- 

______________________________________

NET LOSS...................................................................................

$  (2,085)

$  (8,832)

==================================

Basic Loss Per Share

Loss before effect of cumulative accounting changes......................

$(.05)

$(.20)

Cumulative effect of accounting changes, net of tax.......................

- 

- 

______________________________________

Net Loss......................................................................................

$(.05)

$(.20)

==================================

Diluted Loss Per Share

Loss before effect of cumulative accounting changes......................

$(.05)

*

$(.20)

*

Cumulative effect of accounting changes, net of tax.......................

- 

- 

______________________________________

Net Loss......................................................................................

$(.05)

*

$(.20)

*

=================================

Average number of shares outstanding:

Basic.......................................................................................

44,546 

44,525

Diluted....................................................................................

44,546 

*

44,525

*

=================================

Cash dividends per share...............................................................

$ .05

$.05

=================================

*   Assumed conversion of Convertible Debentures and shares applicable to stock options at the beginning of the

     period has an antidilutive effect on earnings per share.

See notes to consolidated financial statements

-5-

DIMON Incorporated and Subsidiaries
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended September 30, 2000 and 1999
(Unaudited)

September 30
2000      

September 30
1999      

(in thousands)

_______________________________________

Operating activities

   Net Loss...................................................................................

$   (2,085)

$   (8,832)

   Adjustments to reconcile net loss

   to net cash used by operating activities:

      Depreciation and amortization .....................................................

10,367 

9,927 

      Deferred items........................... ..........................................

(1,239)

1,554 

      Loss on foreign currency transactions .........................................

65 

813 

      Changes in operating assets and liabilities ......................................

(19,417)

(10,728)

_______________________________________

      Net cash used by operating activities .............................................

(12,309)

(7,266)

_______________________________________

Investing activities

   Purchase of property and equipment ................................................

(4,397)

(946)

   Proceeds from sale of property and equipment ....................................

497 

1,746 

   Payments received on notes receivable and

      receivable from investees ......................................................

1,282 

184 

   Receipts (payments) for other investments and other assets .................

(7,135)

3,229 

_______________________________________

   Net cash (used) provided by investing activities...... .......................

(9,753)

4,213 

_______________________________________

Financing activities

   Net change in short-term borrowings .............................................

18,701 

9,646 

   Proceeds from long-term borrowings .............................................

7,044 

3,000 

   Repayment of long-term borrowings ..............................................

(10,256)

(6,156)

   Cash dividends paid to DIMON Incorporated stockholders ..................

(2,230)

(2,226)

_______________________________________

   Net cash provided by financing activities .......................................

13,259 

4,264 

_______________________________________

Effect of exchange rate changes on cash .............................................

654 

(795)

_______________________________________

Increase (decrease) in cash and cash equivalents..................................

(8,149)

416 

Cash and cash equivalents at beginning of year...................................

27,249 

21,451 

_______________________________________

   Cash and cash equivalents at end of period .......................................

$ 19,100 

$   21,867 

==================================

See notes to consolidated financial statements

-6-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

1.

2.

3.

The components of comprehensive income were as follows:

Three Months Ended         
September 30              

_________________________________

2000  

1999  

(in thousands)

Net Loss.....................................................................................

$ (2,085)

$(8,832)

Decrease in Equity Currency Conversions.......................................

(616)

(477)

Cumulative Effect of Change in Accounting for

   Derivative Financial Instruments...................................................

100 

- 

Decrease in Derivative Financial Instruments....................................

(106)

- 

_________________________________

Total comprehensive loss..............................................................

$(2,707)

$(9,309)

=============================

4.

In 1995, the Company commenced various activities to restructure its worldwide operations. During fiscal years 1996 and 1997 the Company had additional restructuring charges. The reserve balances at June 30, 2000, of $5,661 relating to employee separations, are included in accrued expenses and deferred compensation and other benefits. Remaining cash outlays at June 30, 2000 are expected to total $3,457, of which approximately $787 will be expended in fiscal year 2001. Remaining amounts of the reserve relate primarily to the pension plan charge and other deferred compensation, which will be reduced as required for funding appropriate pension and other payments in future years.

During the three months ended September 30, 2000, the Company paid out $329, principally for employee separations.

-7-

DIMON Incorporated and Subsidiaries

5.

In fiscal year 1999, the Company closed its processing plant in Kinston, North Carolina, adopted plans to close one of its processing plants in Brazil and to close one of its processing plants in Germany. Additionally, due to substantially smaller tobacco crops anticipated in 1999 and beyond, the Company reduced staffing in Farmville, North Carolina, and substantially downsized its leaf tobacco buying department in the United States. This restructuring resulted in pre-tax charges of $15,812, of which $10,695 was non-cash. There was a reserve balance of $1,080 at June 30, 2000 relating to employee separations, which the company expects to pay out in fiscal year 2001.

During the three months ended September 30, 2000, the Company paid out $649 for employee separations.

6.

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, 2000, of $11,533, before related tax benefits for all assessed interest and future deductions that would arise if the Company failed to prevail on these issues. 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 ended 1988 through 1992. The proposed adjustments claim additional tax, including penalties and interest through June 30, 2000, of approximately $21,000, before related tax benefits for all assessed interest and future deductions that would arise if the Company failed to prevail on these issues. During the fiscal year ended June 30, 2000, the Company had $1,576 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 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.

7.

Effective July 1, 2000, four of the Company's European subsidiaries changed their fiscal year end from March 31 to June 30. More efficient financial reporting routines have allowed the Company to eliminate the traditional fiscal quarter lag associated with the inclusion of these subsidiaries in its consolidated financial statements. For the quarter ended September 30, 2000, income of $284 earned by the affected subsidiaries during the period between April 1, 2000 and June 30, 2000 has been recognized as the cumulative effect of an accounting change. This change in accounting principle increased the net loss before cumulative effect of accounting changes by approximately $867, or $(.02) per share, for the three months ended September 30, 2000. Had the change in fiscal year end for these subsidiaries occurred as of July 1, 1999, the net loss for the quarter ended September 30, 1999 would have increased $764 from $8.8 million to $9.6 million. The net loss per share for both basic and diluted would have increased from $(.20) to $(.22). The Company has two remaining subsidiaries with fiscal year ends of March 31 and May 31.

Derivative Financial Instruments

Effective July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." In accordance with the transition provisions of SFAS 133, the Company recorded a cumulative effect loss adjustment of $100, net of applicable taxes, in other comprehensive income to recognize the fair value of all derivatives designated as cash-flow hedging instruments. Also in accordance with the transition provisions, the Company recorded as the cumulative effect of an accounting change a $387 loss, net of applicable taxes, in the statement of operations, for the unrealized fair market value depreciation of certain interest rate swap instruments not designated as hedges.

-8-

DIMON Incorporated and Subsidiaries

7.

For certain hedging relationships, SFAS 133 eliminates special accounting formerly provided by U.S. GAAP. The Company has traditionally entered into interest rate swap and similar instruments to manage its exposure to movements in interest rates paid on corporate debt. Such instruments are matched with underlying borrowings. SFAS 133 eliminates special hedge accounting if the swap agreements do not meet certain criteria, thus requiring the Company to reflect all changes in their fair value in its current earnings. For the quarter ended September 30, 2000, the Company recognized a non-cash $1.3 million charge from the change in the fair value of these swap instruments. As a result of fluctuations in interest rates and volatility in market expectations, the fair market value of interest rate swap instruments can be expected to appreciate or depreciate over time. The Company plans to continue its practice of economically hedging various components of its debt. However, as a result of SFAS 133, such swap instruments may now create volatility in future reported earnings.

Item 2.

Management's Discussion and Analysis of
Financial Condition and Results of Operations

RESULTS OF OPERATIONS:

Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999:

FINANCIAL CONDITION:

The purchasing and processing activities of the Company's tobacco business are seasonal. The Company's need for working capital fluctuates accordingly and, at any of several seasonal peaks, the Company's outstanding indebtedness may be significantly greater or less than at year end. The Company historically has needed working capital in excess of cash flow from operations to finance inventory and accounts receivable. The Company also prefinances tobacco crops in certain foreign countries by making cash advances to farmers prior to and during the growing season.

-9-

DIMON Incorporated and Subsidiaries

FINANCIAL CONDITION: (Continued)

DIMON's working capital changed from $433.7 million at June 30, 2000 to $431.3 million at September 30, 2000. The current ratio of 2.4 to 1 at June 30, 2000 changed to 1.8 to 1 at September 30, 2000. At September 30, 2000, current assets increased $193.8 million, or 25.7%, and current liabilities increased $196.3 million, or 61.3%, from June 30, 2000. Current assets increased primarily due to increases in tobacco inventories of $261.2 million, offset partially by decreases in accounts receivable of $48.5 million. The increases in tobacco inventory are due to the seasonal fluctuations in tobacco purchases, and the decreases in accounts receivable are due to the Company's continued focus on collection of accounts receivable. Current liabilities increased primarily due to the increases in advances from customers and notes payable to banks of $210.7 million and $15.6 million, respectively, partially offset by decreases in accounts payable trade of $27.9 million. The changes in liabilities are primarily related to seasonal fluctuations in tobacco purchasing. Total inventory and advances on purchases of tobacco decreased $70.8 million at September 30, 2000 compared to September 30, 1999. Reductions in total inventory and advances on purchases of tobacco are due to the Company's continued focus on reducing inventories and advances to strengthen its balance sheet.

At September 30, 2000, DIMON had seasonally adjusted lines of credit of $618.1 million. At September 30, 2000, the Company had borrowed $213.7 million under its $618.1 million lines of credit with a weighted average interest rate of 8.2%. At September 30, 2000, unused lines of credit amounted to $355.1 million. Total maximum outstanding borrowings, excluding the long-term credit agreements, during the three months ended September 30, 2000 were $409.2 million. At September 30, 2000, the Company had $11.3 million of letters of credit outstanding and an additional $38.0 million of letters of credit lines available.

To improve long-term liquidity, DIMON entered into a $250 million New Credit Facility, effective June 27, 2000, with a group of seven banks, which replaced DIMON's $300 million credit facility. The Company had $145 million of borrowings under this agreement at September 30, 2000. The Company used the New Credit Facility to classify $105 million of working capital loans to Revolving Credit Notes at September 30, 2000. It is the Company's intent to finance at least $250 million on a long-term basis. The New 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, including certain borrowing base restrictions, and restrict acquisitions. The Company continuously monitors its compliance with these covenants. The New Credit Facility's initial term expires on June 27, 2002, 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 (9.50% at September 30, 2000). The Company pays a commitment fee of 1% 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 has historically financed its operations through a combination of short-term lines of credit, customer advances, cash from operations and equity and equity-linked securities. At September 30, 2000, the Company had no material capital expenditure commitments. The Company believes that the above sources of funds are sufficient to fund the Company's anticipated needs for fiscal 2001. There can be no assurance, however, that these sources of capital will be available in the future or, if available, that these or alternative sources will be available on favorable terms. Reliance on available credit presents financial risk to the Company going forward.

Cash flows used by operating activities increased $5.0 million from $7.3 million to $12.3 million for the three months ended September 30, 2000 from the same period last year, due primarily to the increases in inventories and advances on purchases of tobacco and the decrease in accounts payable and accrued expenses, offset partially by the increase in advances from customers and the decrease in current deferred and recoverable taxes. Cash flows used by investing activities decreased to $(9.7) million in 2000 from $4.2 million in 1999 primarily due to the increase in payments for other investments and other assets and the increase in purchase of property and equipment. Cash flows provided by financing activities were $9.0 million more in 2000 than in 1999 primarily due to the net change in short-term borrowings, offset partially by decreased proceeds from long-term borrowings and increased repayment of long-term borrowings.

-10-

DIMON Incorporated and Subsidiaries

OUTLOOK AND OTHER INFORMATION:

The Company believes that the global market for tobacco leaf is improving as cigarette sales recover in many areas and the raw material inventories held by its customers continue to trend toward equilibrium with their production forecasts. Zimbabwe is experiencing a period of civil unrest in combination with a deteriorating economy. If the current political situation continues, the Company could experience disruptions and delays associated with its operations there. The Company also continues to monitor the situation in the United States, which includes declining crop sizes and an increasing trend to direct contracting with tobacco farmers. The Company has proactively adjusted its production capacity in the United States to allow efficient asset utilization at the current crop size and believes that it has the ability, if required, to further scale down its capacity without significant restructuring. Reduced quantities of United States grown tobacco can be readily sourced from international origins, although factors such as the timing of shipments may cause increased volatility in earnings and make the comparison of quarterly financial results more difficult. The Company believes that it is well prepared to participate in direct contracting with tobacco farmers in the United States and does not expect any material economic effect from the progressive shift from the auction system to direct contract buying.

See "Factors That May Affect Future Results," below, for important warnings about the forward-looking statements included in this section.

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 2001 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, 2000, under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Affect Future Results."

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company has traditionally entered into interest rate swap and similar instruments to manage its exposure to movements in interest rates paid on corporate debt. Such instruments are matched with underlying borrowings. SFAS 133 eliminates special hedge accounting if the swap agreements do not meet certain criteria, thus requiring the Company to reflect all changes in their fair value in its current earnings. For the quarter ended September 30, 2000, the Company recognized a non-cash $1.3 million charge from the change in the fair value of these swap instruments. At September 30, 2000, the fair value of these instruments was approximately $(1.9) million. As a result of fluctuations in interest rates and volatility in market expectations, the fair market value of interest rate swap instruments can be expected to appreciate or depreciate over time. The Company plans to continue its practice of economically hedging various components of its debt. However, as a result of SFAS 133, such swap instruments may now create volatility in future reported earnings. Also, see Note F of the Notes to Consolidated Financial Statements in the Company's Form 10-K for the year ended June 30, 2000.

PART II. OTHER INFORMATION

Item 6.

Exhibits and Reports on Form 8-K

(a)

Exhibits

18

-

Letter in Reference to Change in Accounting Principles

27

-

Financial Data Schedule

(b)

Reports on Form 8-K

-

None

-11-

DIMON Incorporated and Subsidiaries

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DIMON Incorporated

/s/ Jerry L. Parker

______________________________________________________

Date: November 10, 2000

Jerry L. Parker
Senior Vice President - Controller
(Principal Accounting Officer)

-12-

DIMON Incorporated and Subsidiaries

EXHIBIT INDEX

Exhibits

Page No.

18

Letter in Reference to Change in Accounting Principles...........................

14

27

Financial Data Schedule.................................................................

15

-13-