-----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, Kd+QsNk+X8RaJrSUbPrS5KuwTYDCXCU504bw6vZ9m4HkyLmiO32cLoeuWxoPSDHy JXROnmjnmkKUwdC3LGwrKw== 0000014995-97-000012.txt : 19970324 0000014995-97-000012.hdr.sgml : 19970324 ACCESSION NUMBER: 0000014995-97-000012 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970321 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-02655 FILM NUMBER: 97560564 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-K/A 1 FORM 10-K/A FOR PERIOD ENDED 9/30/96 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 September 30, For the fiscal year ended 1996 Commission file number 0-2655 DIXON TICONDEROGA COMPANY -------------------------------------------------- (Exact name of Company as specified in its charter) Form 10-K/A X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended September 30, 1996. Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transaction period from to . Delaware 23-0973760 ------------------------------------ ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 195 International Parkway, Heathrow, FL 32746 --------------------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (407) 829-9000 Title of each class Name of each exchange on which registered Common Stock, $1.00 par value American Stock Exchange - ----------------------------- ----------------------- 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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Based on the closing sales price on December 3, 1996, the aggregate market value of the voting stock held by non-affiliates of the Company was $15,380,904. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of December 3, 1996: 3,293,778 shares of common stock, $1.00 Par Value. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K/A or any amendment to this Form 10-K/A. [ ] Documents Incorporated by Reference: Proxy statement to security holders incorporated into Part III for the fiscal year ended September 30, 1996. 2 PART I ITEM 1. BUSINESS NEW DEVELOPMENTS AND BUSINESS STRATEGIES Dixon Ticonderoga Company (hereinafter the "Company") accomplished many strategic objectives during 1996. The Company reorganized and strengthened its management ranks into its two core business groups, as revenues grew to $106.7 million from $95.6 million in 1995. In addition, these businesses earned approximately $10 million in operating income for the second consecutive year (exclusive of provisions for litigation settlements and related costs). The Company also continued its efforts to improve its customer service capabilities by opening a dedicated central distribution center in Shelbyville, Tennessee, and through further technology enhancements. Corporate activities included the recapitalization of the Company's debt, including nearly $70 million of new financing. The new arrangements provide significantly more working capital to support the aforementioned growth of the Company's Consumer and Industrial Groups. Moreover, in 1996 the Company completed and relocated its corporate headquarters to its new facility in Heathrow, Florida. Despite the success experienced in 1996, the results from operations were adversely affected by certain unusual items. The Company provided approximately $2 million ($1.44 million after tax) towards the final settlement of its long-standing Dixon Venture lawsuit, based upon the decision rendered by the Court in April 1996. (This amount was in addition to a 1995 provision of $1.3 million.) In addition, an extraordinary charge of $282,000 was incurred in connection with the early retirement of certain long-term debt as part of the recapitalization described above. Further information regarding these matters is included elsewhere in the Annual Report on Form 10-K/A. COMPANY ORGANIZATION Dixon Ticonderoga Company (Parent) | | -------------------------------------------------------- | | | | | | Dixon Ticonderoga, Inc./ Dixon Europe, Ltd. Bryn Mawr Ocean Canada (Wholly-Owned) (Wholly-Owned) Resorts/Inactive | (Wholly-Owned) | and Dixon Ticonderoga de Ticonderoga Graphite, Mexico, S.A. de C.V. Inc./Inactive (50.1% Owned) (Wholly-Owned) 3 INDUSTRY SEGMENTS In 1996, the Company redefined its principal business segments to reflect its current management structure and strategic objectives. The Company has two principal continuing business segments: its Consumer Group and Industrial Group. These segments, and the primary operations of each, are as follows: BUSINESS SEGMENTS OPERATIONS ----------------- ---------- Consumer Group Manufacture and sale of writing and drawing pencils, pens, artist materials, felt tip markers, industrial markers, lumber crayons, typewriter correction materials and allied products. Industrial Group Manufacture and sale to industry of processed natural and synthetic bulk graphite, graphite oil, solvent and water-based lubricants, as well as colloidal graphitic suspensions (Graphite and Lubricants division); clay and graphite stopper heads, firebrick, non-graphitic refractory kiln furniture and furnace linings (Refractories division). Financial information regarding net revenues, operating profits and identifiable assets related to the Company's industry segments for the years ended September 30, 1996, 1995, and 1994, is contained in Note 11 to Consolidated Financial Statements. The Company's international operations are subject to certain risks inherent in carrying on business abroad, including the risk of currency fluctuations, currency remittance restrictions and unfavorable political conditions. It is the Company's opinion that there are presently no material political risks involved in doing business in the foreign countries (i.e. Mexico, Canada and Europe) in which its operations are being conducted. CONSUMER GROUP The Company manufactures its leading brand TICONDEROGA and a full line of pencils in Versailles, Missouri. The Company also manufactures and markets advertising specialty pencils, pens and markers through its promotional products division. The Company is also the producer of WEAREVER writing products at its facility in Deer Lake, Pennsylvania. In addition to the WEAREVER and Dixon lines of pens, the Company also manufactures and markets its Prang and Ticonderoga lines of markers, mechanical pencils, and allied products at this facility. The Company also manufactures in Sandusky, Ohio (mainly for wholesale school suppliers and retailers) PRANG, COLORART, and other well known brands of wax crayons, chalks, dry and liquid tempera, water colors and art materials. This division also manufactures special markers for industrial use and paper-wrapped pencils, all of which are marketed and sold, together with the products manufactured by the Versailles and Deer Lake operations, by the U.S. Consumer Products group. 4 Under an agreement with Warner Bros. Consumer Products, the Company also manufactures and markets in the U.S. and Canada a complete product line of pencils, pens, crayons, chalks, markers, paints, art kits and related items featuring the famous Looney Tunes characters. (See Note 12 to Consolidated Financial Statements.) Dixon Ticonderoga Inc., a wholly-owned subsidiary with a distribution center in Newmarket, Ontario, and a manufacturing plant in Acton Vale, Quebec, Canada, is engaged in the sale in Canada of black and color writing and drawing pencils, pens, lumber crayons, correction materials, erasers, rubber bands and allied products. It also distributes certain of the school product lines. The Acton Vale plant also produces eraser products and correction materials for distribution by the U.S. Consumer Products group. Dixon Ticonderoga de Mexico, Inc., S.A. de C.V., a majority-owned subsidiary (50.1%) of Dixon Ticonderoga Inc., is engaged in the manufacture and sale in Mexico of black and color writing and drawing pencils, typewriter correction materials, lumber crayons and allied products. This subsidiary also manufactures and sells in Mexico certain products of the type manufactured at the Sandusky facility, as well as marker products manufactured at the Deer Lake facility. Dixon Europe, Limited, a wholly-owned subsidiary of the Company is engaged in the distribution of many Dixon Consumer Products in the United Kingdom and other European countries. INDUSTRIAL GROUP Through its Graphite and Lubricants division, Dixon manufactures and sells processed natural and synthetic graphite, graphite oil, solvent and water-based lubricants as well as colloidal graphitic suspensions. The American Graphite location in Manchester Township, New Jersey, and the Southwestern Graphite location in Burnet, Texas, process and sell graphite to industrial customers, and are engaged in the processing and blending of various grades of foreign and domestic graphites for use in the manufacture and sale of related products. The New Castle Refractories division, with plants located in Ohio, Pennsylvania and West Virginia, manufactures various types of non-graphitic refractory kiln furniture used by the ceramic and glass industries; firebrick, various types and designs of non-graphitic refractory special shapes for ferrous and nonferrous metal industries; refractory shapes for furnace linings and industrial furnace construction; various grades of insulating firebrick and graphite stopper heads. REAL ESTATE OPERATIONS (Discontinued Operations) The Company previously developed Bryn Mawr Ocean Towers (three nine-story towers) on North Hutchinson Island, Florida, which were sold as condominiums. Pursuant to a formal plan and agreement dated September 29, 1995, the Company disposed of the remaining property dedicated to this project and has ceased any further real estate activities. This segment is therefore treated as "Discontinued Operations." (See Note 10 to Consolidated Financial Statements.) 5 DISTRIBUTION Consumer products manufactured at the Sandusky, Ohio; Deer Lake, Pennsylvania; and Versailles, Missouri plants are distributed nationally through wholesale, commercial and retail stationers, school supply houses, industrial supply houses, blueprint and reproduction supply firms, art material distributors and retailers. In 1996, the Company opened a central distribution center in Shelbyville, Tennessee, to enhance service levels, especially with respect to large retail customers. The consumer products manufactured at the Canadian and Mexican plants are distributed nationally in these countries through wholesalers, distributors, school supply houses and retailers. The industrial products manufactured at the various plants are sold by direct sales, manufacturers' representatives and industrial distributors in North America. In addition, these products are sold worldwide, principally in Central and South America, Europe, the Philippines and Japan. RAW MATERIALS Graphite, which can be considered a strategic raw material for the Company's business, is sold by the Company in bulk and as a component, and is used in the manufacture of refractory products, lubricants and leads for wood-cased pencils. Graphite is purchased from Brazil, Madagascar, India, Mexico, People's Republic of China, Sri Lanka, West Germany and Zimbabwe. There were no significant raw material shortages of any consequence during 1996 nor any anticipated for future periods. TRADEMARKS, PATENTS AND COPYRIGHTS The Company owns a large number of trademarks, patents and copyrights in each industry segment related to products manufactured and marketed by it, which have been secured over many years. These have been of value in the growth of the business and should continue to be of value in the future. However, in the opinion of the Company, its business generally is not dependent upon the protection of any patent or patent application or the expiration of any patent. SEASONAL ASPECTS OF THE BUSINESS The Consumer Group reflects greater portions (approximately 65% in 1996) of its sales in the third and fourth fiscal quarters of the year due to shipments of school orders to its distribution network. This practice, which is standard for this industry, usually causes the Company to incur additional bank borrowings during the period between shipment and payment. The Industrial Group has no material seasonal aspects. COMPETITION Both of the Company's industry segments are engaged in a highly competitive business with a number of competitors, some of whom are larger and have greater resources than the Company. Important to the Company's market position are the quality and performance of its products, its marketing and distribution systems, and the reputation developed over the many years that the Company has been in business. 6 RESEARCH AND DEVELOPMENT The Company employs approximately 17 full-time professional employees in the area of quality control and product development. The Company has established a centralized research and development laboratory in its Sandusky, Ohio facility. For accounting purposes, research and development expenses in any year presented in the accompanying Consolidated Financial Statements do not represent more than 1% of revenues. EMPLOYEES The total number of persons employed by the Company was approximately 1,240 of which 796 were employed in the United States. 7 ITEM 2. PROPERTIES The following properties of the Company are owned and are collateralized or pledged under the Company's loan agreement with a consortium of lenders (First Union Capital Corporation as agent), except for the Heathrow, Florida, property, which is subject to a separate mortgage agreement. See Notes 3 and 4 to Consolidated Financial Statements. Most of the buildings are of steel frame and masonry or concrete construction. SQUARE FEET LOCATION OF FLOOR SPACE Heathrow, Florida (Corporate Headquarters) 33,000 Sandusky, Ohio (Consumer) 276,000 Manchester Township, New Jersey (American Graphite) (Graphite and Lubricants division) 76,000 Near Burnet, Texas (Southwestern Graphite) (Graphite and Lubricants division) 97,000 New Castle, Pennsylvania (Refractories division) 131,000 Newell, West Virginia (Refractories division) 45,000 Massillon, Ohio (Refractories division) 113,000 Zoar, Ohio (Refractories division) 65,000 Acton Vale, Quebec, Canada (Dixon Ticonderoga Inc.) (Consumer) 32,000 Tlalnepantla, D.F., Mexico (Dixon Ticonderoga de Mexico, S.A. de C.V.) (Consumer) 55,000 Versailles, Missouri (Consumer) 120,000 Shelbyville, Tennessee (Consumer) 94,000 Deer Lake, Pennsylvania (Consumer) 150,000 The Company also owns a non-operating graphite mine near Burnet, Texas, included with land at historical cost in the consolidated balance sheets. 8 ITEM 3. LEGAL PROCEEDINGS In March 1986, The Dixon Venture ("Venture") (an unrelated company) filed a civil action in the New Jersey Superior Court seeking recovery of damages and costs allegedly incurred by Venture in connection with the clean- up of industrial property acquired from the Company in Jersey City, New Jersey in February, 1984. Venture's claims were brought pursuant to the New Jersey Environmental Clean-up Responsibility Act ("ECRA"), an environmental remedial statute dealing with the transfer of industrial property. On April 24, 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 continues to evaluate pursuing 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 is in the process of preparing and filing an appeal. As a result of the judgment, the Company increased its liability accrued for this matter to $3.3 million during fiscal 1996. Also see Note 12 to Consolidated Financial Statements. ITEM 4. SUBMISSION ON MATTERS TO VOTE OF SECURITY HOLDERS None. 9 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Dixon Ticonderoga Company common stock is traded on the American Stock Exchange. The following table sets forth the low and high per share prices as per the American Stock Exchange closing prices for the applicable quarter. FISCAL FISCAL QUARTER ENDING 1996 1995 -------------- ------------ ------------ LOW HIGH LOW HIGH --- ---- --- ---- December 31 5.50 9.88 7.38 9.88 March 31 6.38 7.75 8.50 11.13 June 30 6.00 7.50 7.13 8.88 September 30 6.50 8.13 7.25 8.38 Since fiscal 1990, the Board of Directors has suspended payment of dividends. The Board will continue to review the Company's future performance and determine the dividend policy on a quarter-to-quarter basis. The Company's debt agreements restrict the amount of dividends which can be paid in the future. (See Notes 3 and 4 to Consolidated Financial Statements). The number of record holders of the Company's common stock at December 3, 1996, was 448. 10 ITEM 6. SELECTED FINANCIAL DATA DIXON TICONDEROGA COMPANY AND SUBSIDIARIES FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1996 (in thousands, except per share amounts)
1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ REVENUES $106,696 $95,565 $91,932 $82,138 $81,740 ======== ======= ======= ======= ======= INCOME FROM CONTINUING OPERATIONS $ 1,168 $ 1,658 $ 3,417 $ 476 $ 437 LOSS FROM DISCONTINUED OPERATIONS - (595) (116) (146) (179) EXTRAORDINARY ITEM (282) - - - - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - - - 235 - -------- ------- ------- ------- ------- NET INCOME $ 886 $ 1,063 $ 3,301 $ 565 $ 258 ======== ======= ======= ======= ======= EARNINGS (LOSS) PER COMMON SHARE: CONTINUING OPERATIONS $ .36 $ .52 $ 1.10 $ .15 $ .14 DISCONTINUED OPERATIONS - (.19) (.04) (.04) (.06) EXTRAORDINARY ITEM (.09) - - - - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - - - .07 - -------- ------- ------- ------- ------- NET INCOME $ .27 $ .33 $ 1.06 $ .18 $ .08 ======== ======= ======= ======= ======= TOTAL ASSETS $ 77,848 $70,158 $68,852 $63,946 $61,981 ======== ======= ======= ======= ======= LONG-TERM DEBT $ 25,119 $14,541 $19,141 $18,279 $23,083 ======== ======= ======= ======= ======= DIVIDENDS PER COMMON SHARE $ - $ - $ - $ - $ - ======== ======= ======= ======= =======
11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1996 vs. 1995: Income from continuing operations before income taxes, minority interest and extraordinary items decreased $1,014,000 in 1996. In 1996 and 1995 there were provisions of $2,039,000 and $1,530,000, respectively, for litigation settlements and legal costs related to several lawsuits (see Item 3 and Note 12 to Consolidated Financial Statements). Foreign Consumer operating profits decreased $962,000 primarily due to provisions for doubtful accounts receivable (of approximately $500,000) in Mexico, as well as 1995 foreign currency gains of over $500,000. The referenced $500,000 provision for doubtful accounts was principally due to one large and unusual bad debt regarding a large Mexican retailer. The Company does not expect such losses to reoccur, nor does this represent any trend or deterioration of the Company's Mexico accounts receivable. Also in 1996, there were additional distribution and promotional costs incurred by U.S. Consumer to service the mass retail and mega-store markets. Interest expense decreased $229,000 due to lower average borrowings. Income tax expense decreased in the same proportions as before tax income. The difference between the effective tax rate and the U.S. statutory rate primarily is due to the effect of lower foreign rates and certain permanent items. 1995 vs. 1994: Income from continuing operations before income taxes and minority interest decreased $1,000,000 in 1995. Included in 1995 are provisions of $1,530,000 for litigation settlements and legal costs related to several lawsuits (see Item 3 and Note 12 to Consolidated Financial Statements). In 1994, there was a gain on sale of subsidiary stock and other assets of $2,313,000 relating primarily to the sale of stock in our Mexico subsidiary (see Note 8 to Consolidated Financial Statements). Net corporate expenses decreased $690,000 in 1995, while interest expense decreased $678,000. The interest expense reduction was principally due to the Mexican subsidiary's low borrowing position subsequent to the aforementioned sale of stock. Income taxes decreased $380,000 on lower before tax income and the 1995 effective rate decreased due to the impact of lower foreign rates and certain permanent items. 1994 vs. 1993: The improvement in income before income taxes amounted to $3,946,000 in 1994. The increase in gain on sale of subsidiary stock and other assets of $1,942,000 is primarily due to the sale of the stock in the Mexico subsidiary (see Note 8 to Consolidated Financial Statements). Increased revenue in the Consumer Group (primarily due to volume) led to better manufacturing efficiencies. New products and more aggressive marketing, particularly in the retail market, contributed to this volume increase. Industrial Group revenue improved principally due to Refractory division increases in volume and more favorable mix contributing to higher profitability. The interest expense increase was due primarily to higher average rates of interest in 1994. Income taxes increased $993,000 on higher income. The 1994 effective tax rate was lower than the statutory rate due to the favorable effects of lower foreign tax rates and utilization of foreign tax credits and net operating loss valuation allowances, partially offset by unfavorable effects of certain permanent items, including the difference between tax and book bases of subsidiary stock sold. 12 Discontinued Operations: The 1995 loss from discontinued operations of the real estate segment represents a net operating loss of $175,000 (net of a tax benefit of $104,000) and a loss on disposal of $420,000 (net of a tax benefit of $250,000). Net operating losses of the real estate segment was $116,000 in 1994. Extraordinary Item: The 1996 extraordinary charge of $282,303 represents costs associated with the early retirement of the Company's 10.59% Senior Subordinated Notes, due 1999. See Note 4 to Consolidated Financial Statements. REVENUES Overall 1996 revenues increased $11,131,000 over the prior year. The changes by segment are as follows: Increase % Increase (Decrease) (Decrease) Total Volume Price/Mix ---------- ------------------------ Consumer U.S. $8,223,000 15 14 1 Consumer Foreign 3,082,000 19 19 - Industrial (174,000) (1) - (1) Consumer revenues in the United States increased primarily in the commercial office supply mega-stores and mass retail markets. The increase in Foreign Consumer revenue included increases of $1,100,000 in Canada and $1,960,000 in Mexico. In the prior year, Mexico revenue was depressed because of the devaluation of the Mexican peso that occurred in early fiscal 1995. This year's revenue decreased $1,700,000 in Mexico due to the decline of the peso value compared to the U.S. dollar. This decline was offset by increased peso selling prices. 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 devaluation, consumer confidence has been shaken, leading to an immediate 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. 13 Revenues in 1995 increased $3,632,000 over the prior year. The changes by segment are as follows: Increase % Increase (Decrease) (Decrease) Total Volume Price/Mix ---------- ------------------------ Consumer U.S. $4,624,000 9 8 1 Consumer Foreign (2,198,000) (13) (9) (4) Industrial 1,206,000 5 4 1 U.S. Consumer revenue volume increases were primarily in the office supply mega-store market. The decrease in Foreign Consumer revenue was primarily due to the majority-owned subsidiary in Mexico. Revenue in Mexico decreased $5,200,000 due to the decline of the peso value compared to the U.S. dollar. This decrease was partially offset by increased peso selling prices. Industrial revenue increased primarily due to higher volume in the Refractory division. Overall 1994 revenues increased $9,795,000 over the prior year. The increases and decreases by segment are as follows: Increase % Increase (Decrease) (Decrease) Total Volume Price/Mix ---------- ------------------------ Consumer U.S. $6,347,000 15 14 1 Consumer Foreign 1,807,000 11 12 (1) Industrial 1,641,000 7 3 4 The increase in U.S. Consumer Products volume was in both the commercial and mass retail markets and was enhanced by new product introductions. Foreign revenue increase was primarily by our subsidiary in Mexico. However, the foreign revenue increase is after revenue reductions in Canada and Mexico of $470,000 and $450,000, respectively, due to the decline of their local currency value (as compared with the U.S. dollar). Industrial revenue increased due principally to improved Refractory division product mix and higher volume. OPERATING PROFITS There was a decrease of $582,000 in operating profits by segment in 1996 (exclusive of provisions for litigation settlements and related costs). Foreign Consumer operating profits decreased $962,000 primarily due to the aforementioned provisions for doubtful accounts receivable (of approximately $500,000) in Mexico, as well as 1995 foreign currency gains of over $500,000. U.S. Consumer operating profits increased $367,000. This increase was due to the U.S. Consumer revenue growth. However, additional distribution and promotional costs incurred to service the U.S. Consumer retail and mega-store markets partially offset revenue growth. In addition, provisions for litigation settlements and related costs increased over provisions made in 1995, and accordingly, decreased U.S. Consumer and Industrial operating profits by $411,000 and $98,000, respectively. 14 Operating profits increased $1,476,000 in 1995 (exclusive of provisions for litigation settlements and related costs). Foreign operations increased $984,000. Our Canadian subsidiary increase of $396,000 reflected higher revenues and a stable year with respect to that country's currency. The increase in Mexico was primarily due to increased shipments to the U.S. and related plant efficiencies and currency gains. Industrial Group revenues increased $350,000 on higher Refractories division volume. U.S. Consumer operating profits were relatively flat. U.S. Consumer revenue and gross profit increases were offset by increased selling and distribution costs, primarily incurred to service the office supply mega-store markets. Total cost of goods sold in 1995 decreased (65.1% of sales as compared with 67.7% in 1994) due primarily to increased manufacturing efficiencies from higher production volume at the U.S. and Mexico Consumer plants. Litigation settlements and related costs decreased U.S. Consumer and Industrial operating profits by $1,049,000 and $481,000, respectively. In 1994, operating profits by segment increased $2,718,000. Consumer increased $2,132,000 on significantly higher revenues. A decrease in the value of the local currency in Mexico was offset by price increases and volume. Industrial increased $500,000 on higher volume and favorable product mix of the Refractories division. MINORITY INTEREST Minority interest represents 49.9% of the net income of the consolidated subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. ($920,000 and $1,151,000 in 1996 and 1995, respectively), equivalent to the extent of the investment of the minority shareholders. As described in Note 8 to Consolidated Financial Statements, this minority interest was created by an initial public offering in September 1994. Accordingly, 1994 minority interest of $11,000 only reflects the portion of net income earned in the latter part of September 1994. EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS As discussed in Note 1 to Consolidated Financial Statements, the Financial Accounting Standards Board (FASB) issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement, which must be adopted by the Company no later than fiscal 1997, establishes accounting standards with respect to the impairment of long-lived assets. Its adoption is not expected to materially affect the future results of operations or financial position of the Company. In 1995, the FASB also issued Statement No. 123, "Accounting for Stock- Based Compensation." The statement (effective for the Company in fiscal 1997) would provide certain specific disclosures regarding the value of stock option grants made in fiscal 1996 and thereafter. The Company does not expect to 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. 15 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 1996 improved by approximately $1.3 million over the prior year, due principally to more strict inventory control practices. Inventory levels were reduced in excess of $1 million, despite an increase in sales of 16%, in the Company's Consumer Group. In comparison, Consumer inventory levels increased 15% in 1995. This significant improvement in inventory management was offset by an increase in accounts receivable due to higher revenues. Company revenues for the fourth quarter increased 21% in 1996. As is the case historically, cyclical short-term borrowings (see below) financed peak mid-year increases in accounts receivable and inventories. The Company's investing activities included approximately $4 million in purchases of property and equipment in 1996. This higher level of purchases as compared with prior years is attributable to the construction of the Company's new corporate headquarters facility in Heathrow, Florida. Expenditures to complete this building project approximated $2.2 million in 1996 (with a total project cost of approximately $3.6 million). The construction costs were ultimately financed through a permanent $2.73 million mortgage arrangement. (See Note 4 to Consolidated Financial Statements). The Company also intends to finance certain strategic manufacturing equipment (in the amount of $2.8 million) under a long-term lease arrangement commencing in late 1996. Generally, all other major capital projects are discretionary in nature and thus no material purchase commitments exist. Other capital expenditures will include customary projects, and will continue to be funded from operations and existing financing arrangements. The Company completed major refinancing activities during 1996. In July 1996, the Company entered into new financing arrangements with a consortium of lenders (First Union Commercial Corporation as agent) 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 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%. These 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 September 30, 1996, the Company had approximately $27 million of unused lines of credit available under this new financing arrangement. 16 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 September 30, 1996). In connection with the private placement, the Company issued to noteholders warrants to purchase 300,000 shares of Company stock at $7.24 per share. The note agreement contains provisions which limit the payment of dividends and require the maintenance of certain financial covenants and ratios, with which the Company is presently in compliance. 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. Refer to Notes 3 and 4 to Consolidated Financial Statements for further description of the aforementioned new financing arrangements. 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. 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA DIXON TICONDEROGA COMPANY AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE PAGE Report of Independent Accountants 18 Consolidated Balance Sheets as of September 30, 1996 and 1995 19-20 Consolidated Statements of Operations For the Years Ended September 30, 1996, 1995 and 1994 21-22 Consolidated Statements of Shareholders' Equity For the Years Ended September 30, 1996, 1995 and 1994 23 Consolidated Statements of Cash Flows For the Years Ended September 30, 1996, 1995 and 1994 24-25 Notes to Consolidated Financial Statements 26-41 Schedule For the Years Ended September 30, 1996, 1995, and 1994: II. Valuation and Qualifying Accounts 42 Consent of Independent Accountants 43 Information required by other schedules called for under Regulation S-X is either not applicable or is included in the Consolidated Financial Statements or Notes thereto. 18 REPORT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors of Dixon Ticonderoga Company We have audited the accompanying consolidated financial statements and the financial statement schedule of Dixon Ticonderoga Company and subsidiaries as listed in the index on page 23 of this Form 10-K/A. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dixon Ticonderoga Company and subsidiaries at September 30, 1996 and 1995, and the consolidated results of their operations and cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand, L.L.P. COOPERS & LYBRAND L.L.P. Orlando, Florida November 27, 1996 19 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995
ASSETS 1996 1995 ------ ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 2,597,032 $ 1,513,622 Receivables, less allowance for doubtful accounts of $1,352,411 in 1996 and $796,715 in 1995 23,442,889 18,202,541 Inventories 31,460,934 32,638,385 Assets held for sale 94,937 436,306 Other current assets 2,949,859 2,254,101 ----------- ----------- Total current assets 60,545,651 55,044,955 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT: Land and buildings 15,711,724 12,908,945 Machinery and equipment 16,537,994 16,986,408 Furniture and fixtures 917,222 902,043 ----------- ----------- 33,166,940 30,797,396 Less accumulated depreciation (17,730,505) ( 17,229,617) ----------- ----------- 15,436,435 13,567,779 ----------- ----------- OTHER ASSETS 1,866,054 1,545,110 ----------- ----------- $77,848,140 $70,157,844 =========== =========== 20 LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 -------------------- ----------- ----------- CURRENT LIABILITIES: Notes payable $14,159,143 $17,877,665 Current maturities of long-term debt 1,613,773 4,587,016 Accounts payable 5,461,348 5,280,884 Accrued liabilities 10,934,838 8,388,309 ----------- ----------- Total current liabilities 32,169,102 36,133,874 ----------- ----------- LONG-TERM DEBT 25,119,305 14,540,884 ----------- ----------- DEFERRED INCOME TAXES AND OTHER 1,051,171 1,177,288 ----------- ----------- MINORITY INTEREST 3,517,006 3,073,375 ----------- ----------- 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 in 1996 and 3,448,466 shares in 1995 3,537,211 3,448,466 Capital in excess of par value 2,489,674 2,166,329 Retained earnings 13,526,520 12,640,762 Cumulative translation adjustment (2,669,031) (2,087,354) ----------- ----------- 16,884,374 16,168,203 Less treasury stock, at cost (243,433 shares in 1996; 255,147 shares in 1995) (892,818) (935,780) ----------- ----------- 15,991,556 15,232,423 ----------- ----------- $77,848,140 $70,157,844 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 21 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- REVENUES $106,695,874 $95,565,000 $91,932,479 ------------ ----------- ----------- COSTS AND EXPENSES: Cost of goods sold 70,343,837 62,193,918 62,246,254 Selling and administrative expenses 27,955,760 24,241,328 22,721,878 Provisions for litigation settlements and related costs 2,039,000 1,530,377 -- ------------ ----------- ----------- 100,338,597 87,965,623 84,968,132 ------------ ----------- ----------- OPERATING INCOME 6,357,277 7,599,377 6,964,347 ------------ ----------- ----------- INTEREST EXPENSE (3,423,650) (3,652,824) (4,330,581) GAIN ON SALE OF SUBSIDIARY STOCK AND OTHER ASSETS -- -- 2,313,470 ------------ ----------- ----------- (3,423,650) (3,652,824) (2,017,111) ------------ ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 2,933,627 3,946,553 4,947,236 INCOME TAXES 845,044 1,137,897 1,518,053 ------------ ----------- ----------- 2,088,583 2,808,656 3,429,183 MINORITY INTEREST 920,522 1,150,690 11,469 ------------ ----------- ----------- INCOME FROM CONTINUING OPERATIONS 1,168,061 1,657,966 3,417,714 ------------ ----------- ----------- DISCONTINUED OPERATIONS: Loss from operations -- (174,923) (116,481) Loss on disposal -- (420,000) -- ------------ ----------- ----------- -- (594,923) (116,481) ------------ ----------- ----------- EXTRAORDINARY ITEM (282,303) -- -- ------------ ----------- ----------- NET INCOME $ 885,758 $ 1,063,043 $ 3,301,233 ============ =========== =========== 22 EARNINGS (LOSS) PER COMMON SHARE: Continuing operations $ .36 $ .52 $ 1.10 Discontinued operations -- (.19) (.04) Extraordinary item (.09) -- -- ------------ ----------- ----------- Net income $ .27 $ .33 $ 1.06 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 23 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Common Capital in Cumulative Stock $1 Excess of Retained Translation Treasury Par Value Par Value Earnings Adjustment Stock ----------- ----------- ----------- ----------- ----------- BALANCE, September 30, 1993 $ 3,376,835 $ 1,769,171 $ 8,276,486 $ (627,419) $(1,007,043) Net income 3,301,233 Cumulative translation adjustment 95,964 Employee stock options exercised 48,038 253,958 Employee Stock Purchase Plan (9,305 shares) 19,510 34,131 ----------- ----------- ----------- ----------- ----------- BALANCE, September 30, 1994 $ 3,424,873 $ 2,042,639 $11,577,719 $ (531,455) $ (972,912) Net income 1,063,043 Cumulative translation adjustment (1,555,899) Employee stock options exercised 23,593 91,985 Employee Stock Purchase Plan (10,123 shares) 31,705 37,132 ----------- ----------- ----------- ----------- ----------- BALANCE, September 30, 1995 $ 3,448,466 $ 2,166,329 $12,640,762 $(2,087,354) $ (935,780) Net income 885,758 Cumulative translation adjustment (581,677) Employee stock options exercised 88,745 295,368 Employee Stock Purchase Plan (11,714 shares) 27,977 42,962 ----------- ----------- ----------- ----------- ----------- BALANCE, September 30, 1996 $ 3,537,211 $ 2,489,674 $13,526,520 $(2,669,031) $ (892,818) =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 24 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Income from continuing operations $1,168,061 $1,657,966 $3,417,714 Loss from discontinued operations -- (594,923) (116,481) Loss from extraordinary item (282,303) -- -- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,361,081 2,379,728 2,502,451 Gain on sale of subsidiary stock and other assets -- -- (2,313,470) Deferred taxes (900,298) 83,802 (19,111) Provision for doubtful accounts receivable 977,965 421,850 198,647 Income attributable to minority interest 920,522 1,150,690 11,469 (Income) loss attributable to currency transactions (201) (511,424) 110,830 Changes in assets [(increase) decrease] and liabilities [increase(decrease)]: Receivables, net (6,627,147) (227,805) (3,252,329) Inventories 632,502 (4,929,306) (698,187) Other current assets 122,595 147,739 (260,203) Accounts payable and accrued liabilities 3,176,740 (21,632) 3,270,750 Other assets (530,503) 114,006 (331,606) ---------- ----------- ----------- Net cash provided by (used in) operating activities 1,019,014 (329,309) 2,520,474 ---------- ----------- ----------- Cash flows from investing activities: Purchases of plant and equipment (4,090,295) (3,007,547) (1,842,331) Proceeds from sale of assets -- -- 573,708 Proceeds from sale of subsidiary stock -- -- 5,734,723 ---------- ----------- ----------- Net cash provided by (used in) investing activities (4,090,295) (3,007,547) 4,466,100 ---------- ----------- ----------- 25 1996 1995 1994 ----------- ----------- ----------- Cash flows from financing activities: Principal additions to Senior Subordinated Notes 16,500,000 -- -- Principal reductions of Senior Subordinated Notes (10,350,000) (3,325,000) (3,325,000) Proceeds from additions to long-term debt 2,725,000 -- 9,666,667 Proceeds from additions to notes payable -- 8,040,299 7,937,368 Principal reductions of long-term debt (1,222,847) (1,131,276) (5,980,120) Principal reductions of notes payable (3,718,522) -- (14,248,878) Other non-current liabilities (1,949) (109,626) 113,341 Employee Stock Purchase Plan 70,939 68,837 53,641 Exercise of stock options 384,113 115,578 301,996 ----------- ----------- ----------- Net cash provided by (used in) financing activities 4,386,734 3,658,812 (5,480,985) ----------- ----------- ----------- Effect of exchange rate changes on cash (232,043) (631,098) (14,866) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,083,410 (309,142) 1,490,723 Cash and cash equivalents, beginning of year 1,513,622 1,822,764 332,041 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 2,597,032 $ 1,513,622 $ 1,822,764 =========== =========== =========== Supplemental Disclosures: Cash paid during the year for: Interest (net of amount capitalized) $3,545,106 $ 3,697,023 $ 4,282,857 Income taxes 972,403 1,616,427 400,411
The accompanying notes are an integral part of the consolidated financial statements. 26 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Business: Dixon Ticonderoga Company is a diversified manufacturer and marketer of writing and art products as well as a producer of graphite, lubricant and refractory products. Its largest principal customers are school products distributors, mass merchandisers and industrial manufacturers, although none account for over 6% of revenues. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Loss contingencies: The Company recognizes loss contingencies, including environmental liabilities, when they become probable and the related amounts can be reasonably estimated. Principles of consolidation: The consolidated financial statements include the accounts of Dixon Ticonderoga Company and all of its subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. Minority interest represents the minority shareholders' proportionate share of the equity of the Company's Mexico subsidiary (49.9%). Translation of foreign currencies: In accordance with Financial Accounting Standards Board (FASB) Statement No. 52, the Company has determined that each foreign subidiary's functional currency is their local currency. All assets and liabilities are translated at period-end exchange rates. All revenues and expenses are translated using average exchange rates during that period. Translation gains and losses are reflected as a separate component of shareholders' equity. Gains and losses from foreign currency transactions are included in the Consolidated Statement of Operations. Foreign currency transaction gains (losses) included in net income were approximately $511,000, and ($111,000) for fiscal years 1995 and 1994, respectively. 27 Cash and cash equivalents: Cash and cash equivalents include investment instruments with a maturity of three months or less at time of purchase. Inventories: Inventories are stated at the lower of cost or market. Certain inventories amounting to $16,253,000 and $15,250,000, at September 30, 1996 and 1995, respectively, are stated on the last-in, first-out (LIFO) method of determining inventory costs. Under the first-in, first-out (FIFO) method of accounting, these inventories would be $958,000 and $1,282,000 higher at September 30, 1996 and 1995, respectively. All other inventories are accounted for using the FIFO method. The financial accounting basis for the LIFO inventories exceeds the LIFO tax basis by approximately $1,276,000 and $1,339,000 at September 30, 1996 and 1995, respectively. Inventories consist of (in thousands): September 30, 1996 1995 -------- -------- Raw material $ 12,538 $ 12,450 Work in process 4,268 4,462 Finished goods 14,655 15,726 -------- -------- $ 31,461 $ 32,638 ======== ======== Assets held for sale: Assets held for sale represent idled and other assets specifically identified for sale within the next fiscal year. The assets are stated at their aggregate net book value which does not exceed estimated net realizable value. Property, plant and equipment: Property, plant and equipment are stated at cost. During 1996, capitalized interest (reflected in land and buildings) amounted to $120,443. Depreciation is provided principally on a straight-line basis over the estimated useful lives of the respective assets. The range of estimated useful lives by class of property, plant and equipment are as follows: Buildings and improvements 10-25 years Machinery and equipment 5-15 years Furniture and fixtures 3- 5 years When assets are sold or retired, their cost and related accumulated depreciation are removed from the accounts. Any gain or loss is included in income. 28 Income taxes: The Company recognizes deferred tax assets and liabilities for future tax consequences of events that have been included in the financial statements or tax returns. Under this method, amounts for deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Accounting for long-lived assets: The FASB recently issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement, which must be adopted by the Company no later than fiscal 1997, establishes accounting standards with respect to the impairment of long-lived assets. Its adoption is not expected to materially affect the future results of operations or financial position of the Company. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year classifications. (2) ACCRUED LIABILITIES: The major components of accrued liabilities are as follows (in thousands): September 30, 1996 1995 -------- -------- Salaries and wages $ 2,012 $ 1,707 Employee benefit plans 769 797 Income taxes 1,572 1,173 Other 6,582 4,711 -------- -------- $ 10,935 $ 8,388 ======== ======== (3) NOTES PAYABLE: 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 through July 1999. This includes a revolving line of credit facility in the amount of $40 million which bears interest at either the prime rate (8.25% at September 30, 1996), plus 0.5%, or the prevailing LIBOR rate (approximately 5.5% at September 30, 1996) plus 2.5%. Borrowings under the revolving credit facility ($13,016,000 as of September 30, 1996) are based upon eligible accounts receivable and inventories of the Company's U.S. and Canada operations, as defined. In addition, the financing agreement also includes a term loan in the amount of $7.75 million (see Note 4). In 1995, the Company executed an interest rate "swap" agreement which effectively fixes the rate of interest on approximately $5 million of the revolver debt at 8.87% for five years. The carrying value of borrowings under the revolving credit facility is a reasonable estimate of fair value as interest rates are based on prevailing market rates. 29 These 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. As of September 30, 1996, 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 September 30, 1996, the Company had approximately $27 million of unused lines of credit available under this new financing arrangement. A fee of 0.25% is paid on the unused portion of the revolving credit facility. The weighted average interest rate of the Company's outstanding notes payable (including foreign borrowings) was 8.6%, 9.4% and 12.9% as of September 30, 1996, 1995 and 1994, respectively. (4) LONG-TERM DEBT: Long-term debt consists of the following (in thousands): September 30, 1996 1995 -------- -------- 12% Senior Subordinated Notes $ 16,500 $ -- 10.59% Senior Subordinated Notes -- 10,350 Bank term loan 7,500 8,667 Building mortgage 2,717 -- Other 16 111 -------- -------- 26,733 19,128 Less-current maturities (1,614) (4,587) -------- -------- $ 25,119 $ 14,541 ======== ======== In September 1996, the Company completed the private placement of $16.5 million of new 12% Senior Subordinated Notes valued at their face amount, due 2003. The net proceeds were used to retire early the remaining $7 million of the Company's prior issue of 10.59% Senior Subordinated Notes due 1999, to reduce short-term borrowings and to provide 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 September 30, 1996). In connection with the private placement, the Company issued to noteholders warrants to purchase 300,000 shares of Company stock at $7.24 per share. No value was assigned to the warrants, which expire in 2003, based on a fair market value determination at the date of issuance. The note agreement contains provisions which limit the payment of dividends and require the maintenance of certain financial covenants and ratios. As of September 30, 1996, the Company is in compliance with all such provisions. 30 In connection with the early retirement of the 10.59% Senior Subordinated Notes, the Company incurred a loss on early extinguishment of debt of $448,303 ($282,303, after tax), presented as an extraordinary item in the accompanying consolidated financial statements. The loan and security agreement with the Company's primary lender (see Note 3) also includes a term loan in the amount of $7.75 million. Interest on the term loan is payable monthly at either the bank's prime rate (8.25% at September 30, 1995) plus 0.5% or the prevailing LIBOR rate (approximately 5.5% at September 30, 1995) plus 2.5%. In 1995, the Company executed an interest rate "swap" agreement which effectively fixes the term loan rate at 8.75% through its maturity. The term loan is payable in varying monthly installments through May 2001. In addition, in 1996 the Company entered into a mortgage agreement with respect to its corporate headquarters building in Heathrow, Florida. The mortgage (in the original amount of $2.73 million) is for a period of 15 years and bears interest at 8.1%. Carrying values of the Senior Subordinated Notes, the bank term loan and the building mortgage are reasonable estimates of fair value as interest rates are based on prevailing market rates. The aggregate fair value of the Company's three interest rate "swap" agreements (discussed in Note 3 and above) is an unrecognized loss of approximately $50,000, representing the costs to settle the underlying agreements as of September 30, 1996. Aggregate maturities of long-term debt are as follows (in thousands): 1997 $ 1,614 1998 1,662 1999 1,782 2000 1,791 2001 6,746 Thereafter 13,138 ------- $26,733 ======= 31 (5) INCOME TAXES: The components of net deferred tax liability recognized in the accompanying consolidated balance sheet are as follows (in thousands): 1996 1995 -------- ------- U.S. current deferred tax assets (included in other current assets) $ 1,884 $ 1,267 Foreign current deferred tax liability (included in accrued liabilities) (758) (1,071) U.S. and foreign, noncurrent deferred tax liability (included in deferred income taxes and other) (1,017) (1,155) ------- ------- Net deferred tax asset (liability) $ 109 $ (959) ======= ======= Deferred tax assets: Vacation pay $ 193 $ 168 Accrued pension 175 147 Accrued legal 983 381 Accrued environmental costs 135 151 Accounts receivable 224 216 Other 111 -- Foreign net operating loss carryforward 504 492 Valuation allowance (504) (492) ------- ------- Total deferred tax assets 1,821 1,063 ------- ------- Deferred tax liabilities: Inventories (549) (786) Depreciation (461) (464) Property, plant and equipment (502) (525) Foreign dividend income (200) (200) Other -- (47) ------- ------- Total deferred tax liability (1,712) (2,022) ------- ------- Net deferred tax asset (liability) $ 109 $ (959) ======= ======= It is the policy of the Company to accrue deferred income taxes on temporary differences related to the financial statement carrying amounts and tax bases of investments in foreign subsidiaries which are expected to reverse in the foreseeable future. Certain undistributed earnings of foreign subsidiaries that are essentially permanent in duration and not expected to reverse in the foreseeable future approximate $8,600,000 as of September 30, 1996. The determination of the unrecognized deferred tax liability for such temporary differences is not practicable. 32 The provision for income taxes (benefit) from continuing operations is comprised of the following (in thousands): 1996 1995 1994 ------ ------ ------ Current: U.S. Federal $ 910 $ 795 $ 76 State 13 44 70 Foreign 822 215 1,391 ------ ------ ------ $1,745 $1,054 $1,537 ------ ------ ------ Deferred: U.S. Federal (740) (612) 88 Foreign (160) 696 (107) ------ ------ ------ (900) 84 (19) ------ ------ ------ $ 845 $1,138 $1,518 ====== ====== ====== Foreign deferred tax provision (benefit) is comprised principally of temporary differences related to Mexico asset purchases. U.S. deferred benefit in 1996 and 1995 results primarily from expenses accrued but not deductible for taxes. The Company has net operating loss carryforwards for its United Kingdom subsidiary of approximately $2,000,000 without an expiration date. The differences between the provision for income taxes on continuing operations computed at the U.S. statutory federal income tax rate and the provision in the consolidated financial statements are as follows (in thousands): 1996 1995 1994 ------ ------ ------ Amount computed using statutory rate $ 997 $1,342 $1,682 Foreign income (327) (329) (203) State taxes, net of federal benefit 9 29 46 Permanent differences 126 104 154 Difference between tax and book basis of subsidiary stock - - 386 Utilization of NOL valuation allowance - - (400) NOL from utilization of foreign tax credits - - (113) Others 40 (8) (34) ------ ------ ------ Provision for income taxes $ 845 $1,138 $1,518 ====== ====== ====== 33 Permanent differences result primarily from intercompany net income that is eliminated from the consolidated statements of operations but are taxed in various jurisdictions. (6) EMPLOYEE BENEFIT PLANS: The Company maintains several defined benefit pension plans covering substantially all union employees. The benefits are based upon fixed dollar amounts per years of service. The assets of the various plans (principally corporate stocks and bonds, insurance contracts and cash equivalents) are managed by independent trustees. The policy of the Company and its subsidiaries is to fund the minimum annual contributions required by applicable regulations. The following table sets forth the plans' funded status (accumulated benefits exceed assets in all plans) at September 30, 1996 and 1995 (in thousands): September 30, 1996 1995 ------- ------- Actuarial present value of: Accumulated benefit obligation $(3,530) $(3,366) ======= ======= Projected benefit obligation $(3,530) $(3,366) Plan assets at market value 2,277 2,030 ------- ------- Projected benefit obligation in excess of plan assets (1,253) (1,336) Unrecognized net gain from past experience different from assumptions 474 441 Unrecognized net obligation being recognized over periods from 10 to 16 years 762 800 ------- ------- Pension liability $ (17) $ (95) ======= ======= 34 Net periodic pension costs include the following components (in thousands): 1996 1995 1994 ---- ---- ---- Service costs - benefits earned during period $ 124 $ 100 $ 99 Interest cost on projected benefit obligation 222 184 179 Actual (return) loss on plan assets (167) (150) 28 Net amortization and deferral 155 155 (44) ----- ----- ----- Net periodic pension cost $ 334 $ 289 $ 262 ===== ===== ===== In determining the projected benefit obligation, the assumed discount rates ranged from 4.5% to 7.5% for 1996, 6.0% to 7.5% for 1995, and 4.5% to 7.5% for 1994. The expected long-term rates of return on assets used in determining net periodic pension cost ranged from 7.5% to 8.5% for 1996, 7.5% to 8.5% for 1995, and 7.5% to 9% for 1994. There are no assumed rates of increase in compensation expense in any year, as benefits are fixed and do not vary with compensation levels. The Company also maintains a defined-contribution plan (401K) for all non-union domestic employees who meet minimum service requirements, as well as a supplemental deferred contribution plan for certain executives. Company contributions under the plans consist of a basic 3% of the compensation of participants for the plan year, and for those participants who elected to make voluntary contributions to the plan, matching contributions up to an additional 4%, as specified in the plan. Charges to operations for these plans for the years ended September 30, 1996, 1995 and 1994 were $586,000, $552,000, and $479,000, respectively. In fiscal 1994, the Company adopted FASB Statement No. 106 "Employers Accounting for Postretirement Benefits Other Than Pensions". This statement generally requires the accrual of health care benefits and other postretirement benefits over the course of the employees' active service. For substantially all current employees, there are no postretirement benefits provided, except for pension plans. The current expenses and the effect of adopting the new statement are not material. (7) SHAREHOLDERS' EQUITY: The Company provides an employee stock purchase plan under which 100,000 shares of its common stock can be issued. Among the terms of this plan, eligible employees may purchase through payroll deductions shares of the Company's common stock up to 10% of their compensation at the lower of 85% of the fair market value of the stock on the first or last day of the plan year (May 1 and April 30). On May 1, 1996, 1995, and 1994, 11,714, 10,123, and 9,305 shares, respectively, were issued under this plan. At September 30, 1996, there are 19,689 shares available for future purchases under the plan. In addition, the Company has granted options to key employees, under the 1979 and 1988 Dixon Ticonderoga Company Executive Stock Plans to purchase shares of its common stock at the market price on the date of grant. Options under the 1979 Plan (as amended) become exercisable one year after date of grant and were exercisable during a period not to exceed ten years from date of grant. All remaining options under the 1979 Plan were exercised during 1996. Under the 1988 Plan (as amended) options vest 25% after one year; 25% after two years; and 50% after three years, and remain exercisable for a period of three years from the date of vesting. All options expire three months after termination of employment. At September 30, 1996, there were 287,192 options outstanding and 231,390 shares 35 available for future grants under the Plans. The following table summarizes the combined stock options activity for 1996, 1995 and 1994:
1996 1995 1994 ---------------- ---------------- ------------------ Number of Option Number of Option Number of Option Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Options outstanding 74,026 $4.20 74,026 $4.20 94,213 $4.20 beginning of year 52,333 4.75 75,302 4.75 103,152 4.75 1,500 5.13 2,000 5.13 2,000 5.13 42,375 7.75 43,000 7.75 46,000 7.75 2,000 6.13 2,000 6.13 99,000 8.63 Options exercised (74,026) 4.20 (20,187) 4.20 (14,069) 4.75 (22,969) 4.75 (27,850) 4.75 (500) 5.13 (125) 7.75 Options granted 2,000 6.13 94,000 6.75 17,000 7.13 2,000 8.13 100,000 8.63 Options expired (1,447) 4.75 or canceled (1,500) 5.13 (500) 7.75 (3,000) 7.75 (2,000) 8.13 (2,000) 8.63 (1,000) 8.63 (2,000) 6.75 ------- ------- ------- 287,192 271,234 196,328 ======= ======= =======
In 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation." The statement (effective for the Company in fiscal 1997) provides for certain specific disclosures regarding the value of stock option grants made in fiscal 1996 and thereafter. The Company does not expect to 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 the Statement have not been calculated at this time. 36 In March 1995, the Company declared a dividend distribution of one Preferred Stock Purchase Right on each share of Company common stock. Each Right will entitle the holder to buy one-thousandth of a share of a new series of preferred stock at a price of $30.00 per share. The Rights will be exercisable only if a person or group (other than the Company's chairman, Gino N. Pala, and his family members) acquires 20% or more of the outstanding shares of common stock of the Company or announces a tender offer following which it would hold 30% or more of such outstanding common stock. The Rights entitle the holders other than the acquiring person to purchase Company common stock having a market value of two times the exercise prices of the Right. If, following the acquisition by a person or group of 20% or more of the Company's outstanding shares of common stock, the Company were acquired in a merger or other business combination, each Right would be exercisable for that number of the acquiring company's shares of common stock having a market value of two times the exercise prices of the Right. The Company may redeem the Rights at one cent per Right at any time until ten days following the occurrence of an event that causes the Rights to become exercisable for common stock. The Rights expire in ten years. (8) GAIN ON SALE OF SUBSIDIARY STOCK AND OTHER ASSETS: In September 1994, the Company completed an initial public offering of the stock of its wholly-owned subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. ("Dixon Mexico"). The underwriter for the offering was Casa de Bolsa Prime, S.A. de C.V. The offering represented 49.9% of the shares of Dixon Mexico and was placed in the new Mexican Intermediate Market. A total of 16,627,760 shares were sold at a per-share price of N$1.35 (new pesos) in a mixed offering. Of this amount, 4,163,605 shares (or approximately 25%) were sold in a primary offering with the net proceeds going to Dixon Mexico for working capital and/or the reduction of cyclical bank borrowings. The balance (12,464,155 shares or approximately 75%) represented a secondary offering of shares owned by the Company with the net proceeds going to reduce U.S. debt. The net proceeds (after underwriting commissions and related expenses) were approximately N$5 million from the primary offering and N$16 million from the secondary offering (or U.S. $1.4 million and U.S. $4.7 million, respectively). Proceeds from the offering (after taxes of approximately U.S. $1.0 million) reduced the Company's consolidated debt (net of cash balances) by approximately U.S. $5 million. The net after- tax gain from the transaction was approximately U.S. $1.6 million. (The gain on sale of company-owned shares was approximately U.S. $970,000 and on the sale of new shares in the subsidiary was U.S. $630,000). The Underwriting Agreement between the Company, Dixon Mexico and Casa de Bolsa Prime, S.A. de C.V., provided for a firm offering of shares as described above at the per-share price of N$1.35, less underwriting commissions of 5%, plus other customary expenses. Prior to the offering, there were no relationships between Casa de Bolsa Prime, S.A. de C.V. and either the Company or Dixon Mexico. After the successful completion of the offering, the Company maintained 50.1% controlling ownership of Dixon Mexico and five of nine seats on its board of directors. The remaining four seats on the Dixon Mexico board of directors will be held by designees of Casa de Bolsa Prime, S.A. de C.V. or other investors having a minimum of 10% ownership in Dixon Mexico. 37 To protect the continuing business relationships between the Company and Dixon Mexico and ensure the continuity of management planning, development and administration of the operation, the Company executed a trademark license agreement and various other business agreements with Dixon Mexico. The trademark license agreement is for a minimum term of ten years. All other agreements are for a minimum term of five years. In return for the rights, services and assistance provided by the Company under these agreements, Dixon Mexico will pay to the Company a total fee of 1.5% of its total monthly sales. Also in fiscal 1994, the Company sold idle property in Westampton, New Jersey, generating net proceeds of $460,000 (which approximated its net book value), as well as certain idle equipment. In addition, the Company expensed approximately $300,000 to provide for contingencies related to a previous sale of property. (9) EARNINGS PER COMMON SHARE: Earnings per common share have been computed based upon the total weighted average number of common shares outstanding (3,233,684, 3,180,626, and 3,114,538 in 1996, 1995 and 1994, respectively). (10) DISCONTINUED OPERATIONS: Pursuant to a 1995 formal plan and agreement, the Company transferred the remaining property and its developmental rights dedicated to the Bryn Mawr Ocean Towers Condominium project to its Association. Discontinued operations in 1995 reflect a loss on disposal of $420,000 (net of a tax benefit of $250,000). The Real Estate segment has been accounted for as a discontinued operation as of September 30, 1995, and, accordingly, its operating results are reported in this manner in all years presented in the accompanying Consolidated Financial Statements and related data. Revenues of the Real Estate segment were $135,000 in 1994. There were no revenues in 1995. Net real estate operating losses were $279,000 and $126,000 in 1995 and 1994, respectively. Related income tax benefits were $104,000 and $10,000 in 1995 and 1994, respectively. 38 (11) LINE OF BUSINESS REPORTING: In 1996, the Company redefined its principal business segments to reflect its current management structure and strategic objectives. Accordingly, certain prior year amounts have been reclassified to conform with the related current year presentation. The Company has two principal business segments -- its Consumer Group and Industrial Group. The following information sets forth certain data pertaining to each line of business as of September 30, 1996, 1995 and 1994, and for the years then ended (in thousands). Consumer Industrial Total Group Group Company -------- ---------- ------- Net revenues: 1996 $81,756 $24,940 $106,696 1995 $70,451 $25,114 $ 95,565 1994 $68,025 $23,908 $ 91,933 Operating profits: 1996 $ 4,622 $ 3,128 $ 7,750 1995 $ 5,628 $ 3,213 $ 8,841 1994 $ 5,554 $ 3,341 $ 8,895 Certain corporate expenses have been allocated based upon respective segment sales, including provisions for litigation settlements and related costs of $2,039 and $1,530 in 1996 and 1995, respectively. Interest expense was $3,424, $3,653 and $4,330; general corporate expenses were $1,393, $1,241 and $1,931 in 1996, 1995 and 1994 respectively; gains on sales of assets were $2,313 in 1994, resulting in income from continuing operations before income taxes of $2,934, $3,947, and $4,947 in 1996, 1995 and 1994, respectively. Consumer Industrial Total Group Group Company -------- ---------- ------- Identifiable assets: 1996 $59,115 $13,417 $ 72,532 1995 $51,373 $13,801 $ 65,174 1994 $51,090 $13,555 $ 64,645 39 Corporate assets were $5,316, $4,984, and $3,423, at September 30, 1996, 1995 and 1994, respectively. Assets of discontinued operations were $783 at September 30, 1994. Consumer Industrial Total Group Group Company -------- ---------- ------- Depreciation and amortization: 1996 $ 1,296 $ 441 $ 1,737 1995 $ 1,347 $ 456 $ 1,803 1994 $ 1,578 $ 437 $ 2,015 Expenditures for plant and equipment: 1996 $ 1,250 $ 585 $ 1,835 1995 $ 1,029 $ 461 $ 1,490 1994 $ 898 $ 704 $ 1,602 Corporate depreciation and amortization were $624, $577, and $487 for the years ended September 30, 1996, 1995 and 1994, respectively. Corporate expenditures for equipment were $2,418, $1,601, and $389 in 1996, 1995 and 1994, respectively. Foreign operations (Consumer Group): Operating Identifiable Revenues Profits Assets -------- --------- ------------ 1996: Canada $ 8,715 $ 670 $ 6,277 Mexico 9,544 1,946 8,906 United Kingdom 873 (45) 635 1995: Canada $ 7,623 $ 576 $ 6,839 Mexico 7,588 2,997 8,085 United Kingdom 839 (40) 648 1994: Canada $ 7,087 $ 180 $ 4,433 Mexico 10,551 2,431 10,475 United Kingdom 617 (62) 483 40 (12) COMMITMENTS AND CONTINGENCIES: Under an agreement with Warner Bros. Consumer Products, the Company manufactures and markets in the U.S. and Canada a complete line of products featuring the famous Looney Tunes characters. Under the terms of the agreement, the Company has the right to market and sell all types of pencils, pens, crayons, chalks, markers, paints, art kits and related items. Through fiscal 1996, the Company has exceeded its minimum obligation under the agreement and currently pays a royalty of 10% on all related sales. In 1995, the Company entered into employment agreements with two executives which provide for the continuation of salary (currently aggregating $31,700 per month) and related employee benefits for a period of 24 months following their termination of employment under certain changes in control of the Company. In addition, all options held by the executives would become immediately exercisable upon the date of termination and remain exercisable for 90 days thereafter. 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. On April 24, 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 continues to evaluate pursuing 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 is in the process of preparing and filing an appeal. As a result of the judgment, a provision of approximately $2 million ($1.44 million, net of tax or 45 cents per share) has been recorded in 1996. In 1995, the Company provided approximately $1.5 million in total ($960,000 net of tax or 30 cents per share) for settlement and related legal costs associated with three separate lawsuits, including $1.3 million for the aforementioned ECRA claim. 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 September 30, 1996), the resolution of these matters will not materially affect the Company's future results of operations or financial position. 41 (13) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In Thousands, Except Per Share Data): 1996: First Second Third Fourth ---- ----- ------ ----- ------ Revenues $20,946 $20,622 $33,170 $31,958 Operating income (loss) 980 (1,023)* 3,680 2,720 Income (loss) before taxes and minority interest 365 (1,814)* 2,759 1,624 Minority interest (114) (127) (348) (332) Extraordinary item -- -- -- (282) Net income (loss) 151 (1,254)* 1,417 572 Earnings (loss) per share .05 (.39)* .44 .17 1995: First Second Third Fourth ---- ----- ------ ----- ------ Revenues $21,393 $19,371 $28,446 $26,355 Operating income 1,373 1,623 3,181 1,422* Income before taxes and minority interest 618 784 2,185 360* Minority interest (58) (332) (154) (607) Discontinued operations (20) (30) (100) (445) Net income (loss) 302 140 1,185 (564)* Earnings (loss) per share .10 .04 .37 (.18)* * Reflects provision for litigation settlements and related costs as described in Note 12. (14) SUBSEQUENT EVENT: On November 22, 1996, the Company's New Castle Refractories Division entered into an agreement to perpetually license certain silicon carbide refractory brick technology from Carborundum Corporation. Under the terms of the perpetual license agreement, the Company is obligated to pay a fixed sum of $450,000 with payments made through 2001 or earlier, if certain stipulated sales levels are reached. The Company also executed related agreements to, at its option, purchase manufactured product or specific equipment from Carborundum Corporation. 42 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
Deductions Balance at Additions From Balance Beginning Charged Reserves at Close Description of Period to Income (1) of Period ALLOWANCE FOR DOUBTFUL ACCOUNTS: Year Ended September 30, 1996 $ 796,715 $ 977,965 $ 422,269 $1,352,411 ========= ========= ========= ========== Year ended September 30, 1995 $ 564,905 $ 421,850 $ 190,040 $ 796,715 ========= ========= ========= ========== Year ended September 30, 1994 $ 610,427 $ 198,647 $ 244,169 $ 564,905 ========= ========= ========= ==========
(1) Write-off of accounts considered to be uncollectible (net of recoveries). 43 CONSENT OF INDEPENDENT ACCOUNTANTS Shareholders and Board of Directors of Dixon Ticonderoga Company We consent to the incorporation by reference into the previously filed registration statements of Dixon Ticonderoga Company on Form S-8 (File Nos. 33-20054 and 33-23380) of our report, dated November 27, 1996, on our audit of the consolidated financial statements and financial statement schedule of Dixon Ticonderoga Company and subsidiaries as of September 30, 1996 and 1995, and for each of the three years in the period ended September 30, 1996, which report is included in this Annual Report on Form 10-K/A. /s/ Coopers & Lybrand, L.L.P. COOPERS & LYBRAND L.L.P. Orlando, Florida March 18, 1997 44 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information required under this Item with respect to Directors will be contained in the Company's 1996 Proxy Statement, pursuant to Regulation 14A, which is incorporated herein by reference. The following table sets forth the names and ages of the Company's Executive Officers, together with all positions and offices held with the Company by such Executive Officers. All Executive Officers are subject to re-election or re-appointment by the Board of Directors at the first Directors' Meeting succeeding the next Annual Meeting of shareholders. Name Age Title ---- --- ----- Gino N. Pala 68 Chairman of the Board since February (Father-in-law of 1989; President and Chief Executive Richard F. Joyce) Officer since July 1985; prior thereto President and Co-chief Executive Officer since 1978. Richard A. Asta 40 Executive Vice President of Finance and Chief Financial Officer since February 1991; prior thereto Senior Vice President - Finance and Chief Financial Officer since March 1990. Richard F. Joyce 41 Vice Chairman of the Board since (Son-in-law of January 1990; President and Chief Gino N. Pala) Operating Officer, Consumer Group, since March, 1996; Executive Vice President and Chief Legal Executive since February 1991; prior thereto Corporate Counsel since July 1990. 45 Leonard D. Dahlberg, Jr. 45 Executive Vice President, Industrial Group, since March 1996; prior thereto Executive Vice President of Manufacturing/Consumer Products Division since August 1995; prior thereto Senior Vice President of Manufacturing since February 1993; prior thereto Vice President of Manufacturing since March 1990. Kenneth A. Baer 50 Vice President and Treasurer since January 1991; prior thereto Treasurer since November 1985. Laura Van Camp 45 Corporate Secretary since January 1986; prior thereto secretary to President and Chief Executive Officer since February 1982. John Adornetto 55 Vice President and Corporate Controller since January 1991; prior thereto Corporate Controller since September 1978. Richard H. D'Antonio 48 Senior Vice President and Chief Information Officer since March 1996; prior thereto Vice President of Information Services since October 1993; prior thereto Principal of RHD Management Consulting since May 1990. ITEM 11. EXECUTIVE COMPENSATION Information required under this Item will be contained in the Company's 1996 Proxy Statement which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item will be contained in the Company's 1996 Proxy Statement which is incorporated herein by reference. 46 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item will be contained in the Company's 1996 Proxy Statement which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial statements See index under Item 8. Financial Statements and Supplementary Data. 2. Exhibits The following exhibits are required to be filed as part of this Annual Report on Form 10-K/A: (3) Amended and Restated Bylaws* (10)a. First Modification of Amended and Restated Revolving Credit Loan and Security Agreement by and among Dixon Ticonderoga Company, Dixon Ticonderoga, Inc., First Union Commercial Corporation, First National Bank of Boston and National Bank of Canada* (10)b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant Purchase Agreement* (10)c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock Purchase Warrant Agreement* (10)d. License and Technological Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company* (10)e. Equipment Option and Purchase Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company* (10)f. Product Purchase Agreement between Carborundum Corporation and New Castle Refractories Company, a division of Dixon Ticonderoga Company* (21) Subsidiaries of the Company* (27) Financial Data Schedule* *Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended September 30, 1996, file number 0-2655, filed in Washington, D.C. (b) Reports on Form 8-K: None. 47 SIGNATURES Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized. DIXON TICONDEROGA COMPANY /s/ Gino N. Pala -------------------------- Gino N. Pala, President and Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, this Annual Report on Form 10-K/A has been signed below by the following persons on behalf of the Company in the capacities indicated. /s/ Gino N. Pala Chairman of Board, President, Chief - ---------------------------- Executive Officer and Director Gino N. Pala Date: March 20, 1997 /s/ Richard F. Joyce Vice Chairman, Executive Vice President/ - ---------------------------- Corporate Counsel and Director Richard F. Joyce Date: March 20, 1997 /s/ Richard A. Asta Executive Vice President of Finance and - ---------------------------- Chief Financial Officer Richard A. Asta Date: March 20, 1997 /s/ Joseph R. Sadowski Director - ---------------------------- Date: March 19, 1997 Joseph R. Sadowski /s/ Philip M. Shasteen Director - ---------------------------- Date: March 19, 1997 Philip M. Shasteen /s/ Ben Berzin, Jr. Director - ---------------------------- Date: March 19, 1997 Ben Berzin, Jr. -----END PRIVACY-ENHANCED MESSAGE-----