-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G/bhTnl7mHVWkQtWpP4UyAyunjyhkTRZ8tfodLcgcWmE4TNDxYQ0X1f+kAp8wB/R f7jRRRJpCvIpX9/3D4HYkg== 0000014995-97-000006.txt : 19970222 0000014995-97-000006.hdr.sgml : 19970222 ACCESSION NUMBER: 0000014995-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXON TICONDEROGA CO CENTRAL INDEX KEY: 0000014995 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 230973760 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02655 FILM NUMBER: 97534862 BUSINESS ADDRESS: STREET 1: 195 INTERNATIONAL PKWY CITY: HEATHROW STATE: FL ZIP: 32746-5036 BUSINESS PHONE: 4078759000 MAIL ADDRESS: STREET 1: PO BOX 958413 CITY: HEATHROW STATE: FL ZIP: 32795-8413 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR CORP/DE/ DATE OF NAME CHANGE: 19831002 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR GROUP INC DATE OF NAME CHANGE: 19730619 FORMER COMPANY: FORMER CONFORMED NAME: BRYN MAWR CAMP RESORTS INC DATE OF NAME CHANGE: 19700608 10-Q 1 DEC 31, 1996 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED DECEMBER 31, 1996 COMMISSION FILE NO. O-2655 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DIXON TICONDEROGA COMPANY - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 23-0973760 - --------------------------------- ---------------------------------- (State or other jurisdiction I.R.S. Employer of incorporation or organization) Identification No. 195 International Parkway, Heathrow, FL 32746 - ---------------------------------------------------------------------------- (Address of principal executive offices) Zip Code (407) 829-9000 Registrant's telephone number, including area code: ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class Outstanding as of December 31, 1996 - ---------------------------- ----------------------------------------- Common Stock $1 par value 3,293,778 2 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES ------------------------------------------ INDEX ----- Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Information Consolidated Balance Sheets -- December 31, 1996 and September 30, 1996 3-4 Consolidated Statements of Operations -- For The Three Months Ended December 31, 1996 and 1995 5 Consolidated Statements of Cash Flows -- For The Three Months Ended December 31, 1996 and 1995 6-7 Notes to Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 PART II. OTHER INFORMATION Item 5. Other Information 15 Item 6. Exhibits 15 Signatures 16 3 PART I - FINANCIAL INFORMATION Item 1. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES - ------- CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1996 1996 ------------ ------------- CURRENT ASSETS: Cash and cash equivalents $ 1,806,583 $ 2,597,032 Receivables, less allowance for doubtful accounts of $974,629 at December 31, 1996 and $1,352,411 at September 30, 1996 16,931,007 23,442,889 Inventories 34,217,079 31,460,934 Other current assets 3,433,395 3,044,796 ----------- ----------- Total current assets 56,388,064 60,545,651 ----------- ----------- PROPERTY, PLANT and EQUIPMENT: Land and buildings 15,977,066 15,711,724 Machinery and equipment 16,696,434 16,537,994 Furniture and fixtures 905,130 917,222 ----------- ----------- 33,578,630 33,166,940 Less accumulated depreciation (18,208,528) (17,730,505) ----------- ----------- 15,370,102 15,436,435 OTHER ASSETS 2,213,845 1,866,054 ----------- ----------- $73,972,011 $77,848,140 =========== ===========
4
December 31, September 30, 1996 1996 ------------ ------------- CURRENT LIABILITIES: Notes payable $11,829,535 $14,159,143 Current maturities of long-term debt 1,639,583 1,613,773 Accounts payable 5,380,160 5,461,348 Accrued liabilities 9,320,104 10,934,838 ----------- ----------- Total current liabilities 28,169,382 32,169,102 ----------- ----------- LONG-TERM DEBT 24,769,513 25,119,305 ----------- ----------- DEFERRED INCOME TAXES AND OTHER 1,434,968 1,051,171 ----------- ----------- MINORITY INTEREST 3,515,351 3,517,006 ----------- ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, par $1, authorized 100,000 shares, none issued --- --- Common stock, par $1, authorized 8,000,000 shares; issued 3,537,211 shares 3,537,211 3,537,211 Capital in excess of par value 2,489,674 2,489,674 Retained earnings 13,740,889 13,526,520 Cumulative translation adjustment (2,792,159) (2,669,031) ----------- ----------- 16,975,615 16,884,374 Less - treasury stock, at cost (243,433 shares) (892,818) (892,818) ----------- ----------- 16,082,797 15,991,556 ----------- ----------- $73,972,011 $77,848,140 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 5 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 1995 -------- -------- REVENUES $22,307,880 $20,945,721 ----------- ----------- COST AND EXPENSES: Cost of goods sold 14,660,470 14,289,772 Selling and administrative expenses 6,354,592 5,676,154 ----------- ----------- 21,015,062 19,965,926 ----------- ----------- OPERATING INCOME 1,292,818 979,795 INTEREST EXPENSE ( 799,622) (614,415) ----------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 493,196 365,380 INCOME TAXES 125,974 100,647 ----------- ----------- 367,222 264,733 MINORITY INTEREST 152,845 114,110 ----------- ----------- NET INCOME $ 214,377 $ 150,623 =========== =========== EARNINGS PER COMMON SHARE $ .07 $ .05 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 3,293,778 3,194,153 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 6 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 214,377 $ 150,623 Adjustment to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 646,973 599,675 Deferred taxes 75,380 85,131 Provision for doubtful accounts receivable 94,292 78,713 Income attributable to currency translation (36,164) (46,089) Income attributable to minority interest 152,844 114,110 Changes in assets and liabilities: Receivables 6,276,321 1,641,853 Inventories (2,891,501) (823,300) Other current assets (428,320) (398,139) Accounts payable and accrued liabilities (1,699,027) (1,567,732) Other assets 50,334 (91,051) ----------- ----------- Net cash provided by (used in) operations 2,455,509 (256,206) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of plant and equipment, net (513,073) (1,157,217) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (principal reductions of) notes payable (2,293,508) 2,181,101 Principal reductions of long-term debt (326,500) (283,637) Employee stock options -- 26,104 Other non-current liabilities (2,565) (1,809) ----------- ----------- Net cash provided by (used in) financing activities (2,622,573) 1,921,759 ----------- ----------- Effect of exchange rate changes on cash (110,312) (212,274) ----------- ----------- 7 Net decrease in cash and cash equivalents (790,449) 296,062 Cash and cash equivalents, beginning of period 2,597,032 1,513,622 ---------- ----------- Cash and cash equivalents, end of period $1,806,583 $ 1,809,684 ========== =========== Supplemental Disclosures: Cash paid during the period: Interest (net of amount capitalized) $1,054,706 $ 429,281 Income taxes 105,758 101,978
The accompanying notes to consolidated financial statements are an integral part of these statements. 8 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION: The condensed consolidated financial statements included herein have been prepared by the Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-K. In the opinion of the Registrant, all adjustments (solely of a normal recurring nature) necessary to present fairly the financial position of Dixon Ticonderoga Company and subsidiaries as of December 31, 1996, and the results of their operations and cash flows for the three months ended December 31, 1996 and 1995, have been included. The results of operations for such interim periods are not necessarily indicative of the results for the entire year. Certain fiscal 1996 balances have been reclassified to conform to current year presentation. 2. INVENTORIES: Since amounts for inventories under the LIFO method are based on annual determinations of quantities and costs as of the end of the fiscal year, the inventories at December 31, 1996 (for which the LIFO method of accounting are used) are based on certain estimates relating to quantities and costs as of year end. Inventories consist of (in thousands): December 31, September 30, 1996 1996 ------------ ------------- Raw materials $15,282 $12,538 Work in process 4,245 4,268 Finished goods 15,690 14,655 ------- ------- $34,217 $31,461 ======= ======= 3. EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS: The Company has adopted Financial Accounting Standards Board (FASB) Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of". This statement establishes accounting standards with respect to the impairment of long-lived assets. No material impairment of the Company's long-lived assets has been identified. 9 In 1995, the FASB also issued Statement No. 123, "Accounting for Stock-Based Compensation." The statement is effective for the Company in fiscal 1997 and requires that certain specific disclosures regarding the value of stock option grants made in fiscal 1996 and thereafter be included in its 1997 annual report on Form 10-K. The Company did not adopt the compensation recognition provision of the Statement, and, accordingly, it is not expected to affect the future results of operations or financial position of the Company. The specific disclosures required by this statement have not been determined at this time. 4. ACCOUNTING FOR INCOME TAXES: The difference between income taxes calculated at the U.S. statutory federal income tax rate and the provision in the consolidated financial statements is primarily due to foreign and state income taxes and other permanent items. 5. CONTINGENCIES: The Company, in the normal course of business, is party in certain litigation. Ongoing litigation includes a claim under New Jersey's Environmental Clean-Up Responsibility Act (ECRA) by a 1984 purchaser of industrial property from the Company. In April 1996, a decision was rendered by the Superior Court of New Jersey in Hudson County finding the Company responsible for $1.94 million in certain environmental clean-up costs relating to this matter. Including pre-judgment interest on the damage award, it is estimated that the Company's exposure will not exceed approximately $3.3 million. The Company intends to pursue other responsible parties for indemnification and/or contribution to the payment of this claim (including its insurance carriers and a legal malpractice action against its former attorneys) and has filed an appeal. As a result of the judgment, a provision of approximately $2 million ($1.44 million, net of tax) was recorded in fiscal 1996. This amount is in addition to approximately $1.3 million ($800,000, net of tax) provided in prior periods. No anticipated recoveries from insurance carriers or other third parties have been considered in these recorded loss provisions. The Company has evaluated the merits of other litigation and believes their outcome will not have a further material effect on the Company's future results of operations or financial position. The Company is aware of several environmental matters related to certain facilities purchased or to be sold. The Registrant assesses the extent of these matters on an ongoing basis. In the opinion of management (after taking into account accruals of approximately $400,000 as of December 31, 1996), the resolution of these matters will not materially affect the Company's future results of operations or financial position. 6. SUBSEQUENT EVENT: On February 7, 1997, the Company repurchased 9,900,000 shares (or approximately 30%) of its subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V., from a consortium of Mexican financial institutions. The shares, which were repurchased for approximately $2.5 million (or 25 cents per share), were originally issued in 1994, when the Company sold 16,627,760 shares of Dixon Ticonderoga de Mexico, S.A. de C.V., in an initial public offering on the Mexico Intermediate Market at a price of approximately 40 cents per share (U.S. equivalency). 10 Item 2. - ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUES for the quarter ended December 31, 1996, increased $1,362,000 from the same quarter last year. The changes by segment are as follows: Increase % Increase (Decrease) (Decrease) --------------------- (in thousands) Total Volume Price/Mix ------------ ----- ------ --------- Consumer U.S. $ 52 -- (1) 1 Consumer Foreign 1,196 50 46 4 Industrial 114 2 3 (1) Consumer U.S. revenues increased slightly despite a continuing shift in educational market business to later fiscal quarters. The increased Foreign Consumer revenue was primarily due to increased volume in Mexico, reflecting a successful government bid and aggressive efforts in the mass market. The value of the Mexican peso was relatively stable, thus having only a minimal effect on revenue in the first quarter. While the Company has operations in Canada, Mexico and the U.K., historically only the operating results in Mexico have been materially impacted by currency fluctuations. There has been a significant devaluation of the Mexican peso once in each of the last three decades, the last one being in December 1994. In the short term after such a devaluation, consumer confidence has been shaken, leading to an intermediate reduction in revenues in the months following the devaluation. Then, after the immediate shock, and as the peso stabilizes, revenues tend to grow. Selling prices tend to rise over the long term to offset any inflationary increases in costs. The peso, as well as any currency value, depends on many factors including international trade, investor confidence, and government policy, to name a few. These factors are impossible for the Company to predict, and thus, an estimate of potential effect on results of operations for the future cannot be made. The Company does not employ any currency hedging practices. This currency risk in Mexico is managed through local currency financing and by export sales to the U.S. denominated in U.S. dollars. As of January 1, 1997, Mexico will once again be considered as a highly inflationary economy for the purpose of applying FASB Statement No. 52 "Foreign Currency Translation." Translation gains or losses will therefore impact the results of operations going forward, although management does not presently expect these gains or losses to be material. 11 Revenues decreased $9,650,000 from the prior quarter as follows: Increase % Increase (Decrease) (Decrease) --------------------- (in thousands) Total Volume Price/Mix ------------ ----- ------ --------- Consumer U.S. $(6,960) (35) (35) -- Consumer Foreign (2,908) (45) (42) (3) Industrial 218 4 4 -- U.S. and Foreign Consumer reflects the seasonality of demand for their products. Historically, this quarter represents approximately 20% of annual revenues being shipped, while the prior quarter represents 30%. The higher percentage in the prior quarter represents seasonal school and mass market sales. OPERATING INCOME increased $313,000 over the same quarter last year. U.S. Consumer increased $265,000. Increased manufacturing efficiencies contributed to lower total cost of goods sold (65.7% of sales as compared with 68.2% in the prior year quarter). This improvement was partially offset by higher distribution and promotional costs incurred to service the retail and mega-store markets, which largely contributed to an increase in total selling and administrative expenses (28.5% of sales as compared with 27.0% last year). Foreign operating income also increased $145,000 on higher revenue. Industrial operating income decreased $60,000 due to somewhat higher general and administrative expenses. Operating income decreased $1,427,000 from the prior quarter due primarily to the aforementioned seasonality that generates higher revenues and related operating income in the final fiscal quarter. INTEREST EXPENSE increased $185,000 over the same quarter last year. The increase was primarily due to new mortgage debt for the Company's corporate headquarters building and higher effective rates and balances of subordinated debt. An additional $41,000 relates to the Foreign Consumer segment. Interest expense decreased $296,000 over the prior quarter primarily due to lower cyclical borrowing levels. INCOME TAXES increased $25,000 over the same quarter last year and decreased $313,000 from the prior quarter principally due to changes in before tax income. MINORITY INTEREST represents 49.9% of the net income of the consolidated subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. in each period presented. In February 1997, the Company increased its ownership, thus reducing minority interest to approximately 20%. See Note 6 to Consolidated Financial Statements. 12 LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition has benefited from its recent operating success and the completion of major financing initiatives. Cash flows from operating activities in the first quarter of fiscal 1997 improved by approximately $2.7 million over the same quarter last year, due principally to increased receivable collections from strong fourth quarter 1996 revenues. These cash flows were partially offset by higher inventory levels needed to service the Company's growing U.S. and Foreign Consumer business. Investing activities in the same quarter last year included approximately $1 million of costs related to the construction of the Company's new corporate headquarters. Total capital expenditures in fiscal 1997 are expected to return to more customary levels (approximately $2.2 million). Such expenditures approximated $573,000 in the first quarter. In addition, the Company has financed certain strategic manufacturing equipment (in the amount of $2.5 million) under a long-term operating lease arrangement. Generally, all other major capital projects are discretionary in nature and thus no material purchase commitments exist. Other capital expenditures will continue to be funded from operations and existing financing arrangements. In July 1996, the Company entered into new financing arrangements with a consortium of lenders to provide additional working capital. The new loan and security agreement provides for a total of $48 million in financing. This includes a revolving line of credit facility in the amount of $40 million which bears interest at either the prime rate, plus 0.5%, or the prevailing LIBOR rate plus 2.5%. Borrowings under the revolving credit facility are based upon eligible accounts receivable and inventories of the Company's U.S. and Canada operations, as defined. The financing agreement also includes a term loan in the original amount of $7.75 million. The term loan bears interest at the same rate, and is payable in varying monthly installments through 2001. The Company previously executed certain interest rate "swap" agreements which effectively fix the rate of interest on approximately $13 million of this debt at 8.75% to 8.87%. The new financing arrangements are collateralized by the tangible and intangible assets of the U.S. and Canada operations (including accounts receivable, inventories, property, plant and equipment, patents and trademarks) and a pledge of the capital stock of the Company's subsidiaries. The loan and security agreement contains provisions pertaining to the maintenance of certain financial ratios and annual capital expenditure levels, as well as restrictions as to payment of cash dividends. The Company is presently in compliance with all such provisions. These new arrangements provide up to $10 million in additional financing as compared with the Company's previous primary lender agreement. At December 31, 1996, the Company had approximately $28 million of unused lines of credit available under this new financing arrangement. In September 1996, the Company also completed the private placement of $16.5 million of new 12% Senior Subordinated Notes, due 2003. The net proceeds were used to retire early the remaining $7 million of the Company's prior issue of Senior Subordinated Notes due 1999, and to reduce short-term borrowings, thus providing additional working capital. This transaction also reduced the Company's annual debt service obligations by approximately $3.3 million through 1998. The Company executed a reverse interest rate "swap" agreement which converts $10 million of the notes to a floating rate of interest (approximately 10.6% at December 31, 1996). In connection with the private placement, the Company issued to noteholders warrants to purchase 300,000 shares of Company stock at its market value of $7.24 per share. The note agreement contains provisions which limit the payment of dividends and requires the maintenance of certain financial covenants and ratios, with which the Company is presently in compliance. 13 The Company entered into the aforementioned interest rate "swap" agreements to balance and manage overall interest rate exposure and minimize overall cost of borrowings. The "swaps" are not presently expected to have a material effect on total interest expense over the term of the underlying agreements. The new and existing sources of financing and cash expected to be generated from future operations will, in management's opinion, be sufficient to fulfill all current and anticipated requirements of the Company's ongoing business and to meet all of its obligations. 14 PART II. OTHER INFORMATION Item 5. Other Information - ------- ----------------- Information regarding the Company's repurchase of shares in its subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. (See PART I - Item 1., Note 6 to Consolidated Financial Statements and Item 2., Management's Discussion and Analysis of Financial Condition and Results of Operations) is incorporated by reference herein and in lieu of a separate report on Form 8-K. Item 6. Exhibits - ------- -------- Note applicable. 15 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIXON TICONDEROGA COMPANY Dated: February 14, 1997 By: /s/ Gino N. Pala ---------------------------- Gino N. Pala Chairman of the Board, President, Chief Executive Officer and Director Dated: February 14, 1997 By: /s/ Richard A. Asta ---------------------------- Richard A. Asta Executive Vice President of Finance and Chief Financial Officer Dated: February 14, 1997 By: /s/ John Adornetto ---------------------------- John Adornetto Vice President/Corporate Controller and Chief Accounting Officer EX-27 2 DEC 31, 1996 FDS
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows, and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-1997 DEC-31-1996 1,806,583 0 17,041,657 974,629 34,217,079 56,388,064 33,578,630 18,208,528 73,972,011 28,169,382 0 3,537,211 0 0 12,545,586 73,972,011 22,307,880 22,307,880 14,660,470 14,660,470 6,354,592 0 799,622 493,196 125,974 214,377 0 0 0 214,377 .07 .07
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