-----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, BrUi+Q7kD2OP1MhqIBaXYR2hhirSmC1PT6vFAVE917WHpMbbjuHx/yfzcrLch7yL g8DU6Nxuc1FtvByDeo6HLw== 0000014995-98-000017.txt : 19980515 0000014995-98-000017.hdr.sgml : 19980515 ACCESSION NUMBER: 0000014995-98-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980301 FILED AS OF DATE: 19980514 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: SEC FILE NUMBER: 001-08689 FILM NUMBER: 98619398 BUSINESS ADDRESS: STREET 1: 195 INTERNATIONAL PKWY STREET 2: STE 200 CITY: HEATHROW STATE: FL ZIP: 32746-5036 BUSINESS PHONE: 4078759000 MAIL ADDRESS: STREET 1: PO BOX 958413 STREET 2: STE 200 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 10Q FOR QTR END MAR 1998 SECURITIES AND EXCHANGE COMMISSION{PRIVATE } 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 MARCH 31, 1998 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 March 31, 1998 ------------------------------ --------------------- Common Stock $1 par value 3,381,715 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Information Consolidated Balance Sheets -- March 31, 1998 and September 30, 1997 3-4 Consolidated Statements of Operations -- For The Three and Six Months Ended March 31, 1998 and 1997 5 Consolidated Statements of Cash Flows -- For The Six Months Ended March 31, 1998 and 1997 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 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15-16 Signatures 17 PART I. FINANCIAL INFORMATION Item 1. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES - ------- CONSOLIDATED BALANCE SHEET
March 31, 1998 September 30, 1997 -------------- ------------------ CURRENT ASSETS: Cash and cash equivalents $ 736,261 $ 5,607,587 Receivables, less allowance for doubtful accounts of $1,611,193 at March 31, 1998 and $1,004,537 at September 30, 1997 22,475,918 25,969,659 Inventories 39,847,690 31,580,175 Other current assets 3,522,446 3,225,881 ------------ ------------ Total current assets 66,582,315 66,383,302 ------------ ------------ PROPERTY, PLANT and EQUIPMENT: Land and buildings 17,107,412 16,955,803 Machinery and equipment 20,453,118 17,130,035 Furniture and fixtures 1,229,248 944,267 ------------ ------------ 38,789,778 35,030,105 Less accumulated depreciation (20,669,880) (19,542,880) 18,119,898 15,487,225 OTHER ASSETS 2,716,150 2,290,712 ------------ ------------ $ 87,418,363 $ 84,161,239 ============ ============
March 31, 1998 September 30, 1997 -------------- ------------------ CURRENT LIABILITIES: Notes payable $25,175,605 $16,058,080 Current maturities of long-term debt 1,680,773 1,745,080 Accounts payable 6,705,704 7,077,955 Accrued liabilities 6,899,385 12,712,385 ------------- ------------- Total current liabilities 40,461,467 37,593,500 ------------- ------------- LONG-TERM DEBT 23,053,752 23,555,618 ------------- ------------- DEFERRED INCOME TAXES AND OTHER 1,289,726 1,142,631 ------------- ------------- MINORITY INTEREST 2,311,946 2,006,865 ------------- ------------- 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 3,615,809 shares as of March 31, 1998, and 3,591,681 shares as of September 30, 1997 3,615,809 3,591,681 Capital in excess of par value 2,931,869 2,770,668 Retained earnings 17,553,326 17,127,698 Cumulative translation adjustment (2,940,966) (2,768,856) 20,721,191 ------------- ------------- 21,160,038 20,721,191 Less - treasury stock, at cost (858,566) (858,566) ------------- ------------- (234,094 shares) 20,301,472 19,862,625 ------------- ------------- $ 87,418,363 $ 84,161,239 ============= ============= The accompanying notes to consolidated financial statements are an integral part of these statements. DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1998 1997 1998 1997 ---- ---- ---- ---- REVENUES $24,853,289 $21,906,942 $48,649,905 $44,214,822 ----------- ----------- ----------- ----------- COST AND EXPENSES: Cost of goods sold 15,386,760 14,000,791 30,705,604 28,661,261 Selling and administrative expenses 8,106,368 6,790,832 15,296,161 13,145,424 ----------- ----------- ----------- ----------- 23,493,128 20,791,623 46,001,765 41,806,685 ----------- ----------- ----------- ----------- OPERATING INCOME 1,360,161 1,115,319 2,648,140 2,408,137 INTEREST EXPENSE 1,096,432 894,973 1,887,194 1,694,595 ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 263,729 220,346 760,946 713,542 INCOME TAXES (BENEFIT) (43,582) 24,733 30,240 150,707 ----------- ----------- ---------- ----------- 307,311 195,613 730,706 562,835 MINORITY INTEREST 186,999 145,882 305,081 298,727 ----------- ----------- ---------- ----------- NET INCOME $ 120,312 $ 49,731 $ 425,625 $ 264,108 =========== =========== ========== =========== EARNINGS PER COMMON SHARE: BASIC $ .04 $ .02 $ .13 $ .08 =========== =========== ========== ========== DILUTED $ .03 $ .01 $ .11 $ .08 =========== =========== ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 3,374,467 3,309,690 3,370,165 3,301,647 =========== =========== ========== ========== DILUTED 3,699,439 3,334,227 3,718,635 3,326,711 =========== =========== ========== ========== The accompanying notes to consolidated financial statements are an integral part of these statements.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 425,625 $ 264,108 Adjustment to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,336,138 1,285,689 Deferred taxes 197,809 171,528 Provision for doubtful accounts receivable 114,241 97,170 (Income)loss attributable to currency transactions 300,001 (42,775) Income attributable to minority interest 305,081 298,727 Changes in assets and liabilities, net of effects of acquisition: Receivables, net 4,617,090 4,399,028 Inventories (7,259,132) (5,739,620) Other current assets (302,065) (419,136) Accounts payable and accrued liabilities (7,434,153) (1,031,468) Other assets (232,722) (461,938) ------------ ------------ Net cash provided by (used in) operations (7,932,087) (1,178,687) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment, net (577,954) (1,074,968) Purchase of Vinci de Mexico, S.A. de C.V., net of cash acquired (3,289,200) -- ------------ ------------ Net cash provided by (used in) investing activities (3,867,154) (1,074,968) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of subsidiary stock -- (2,519,324) Net proceeds from notes payable 7,555,433 4,691,876 Principal reductions of long-term debt (761,897) (588,319) Exercise of stock options 185,329 174,420 Other non-current liabilities -- 347,436 ------------ ------------ Net cash provided by (used in) financing activities 6,978,865 2,106,089 ------------ ------------ Effect of exchange rate changes on cash (50,950) (118,866) ------------ ------------ Net increase (decrease) in cash and cash equivalents (4,871,326) (266,432) Cash and cash equivalents, beginning of period 5,607,587 2,597,032 ------------ ------------ Cash and cash equivalents, end of period $ 736,261 $ 2,330,600 ============ ============ Supplemental Disclosures: Cash paid during the period: Interest (net of amount capitalized) $1,886,329 $ 1,596,990 Income taxes 589,699 262,024 The accompanying notes to consolidated financial statements are an integral part of these statements.
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 March 31, 1998, and the results of their operations and cash flows for the six months ended March 31, 1998 and 1997, have been included. The results of operations for such interim periods are not necessarily indicative of the results for the entire year. Certain fiscal 1997 balances have been reclassified to conform to current year presentation. 2. INVENTORIES: Since amounts for inventories under the last-in, first-out (LIFO) method are based on annual determinations of quantities and costs as of the end of the fiscal year, the inventories at March 31, 1998 (for which the LIFO method of accounting are used) are based on certain estimates relating to quantities and costs as of year end. Under the first-in, first-out (FIFO) method of accounting, these inventories would be $897,000 and $803,000 higher at March 31, 1998 and September 30, 1997, respectively. Inventories consist of (in thousands): March 31, 1998 September 30, 1997 -------------- ------------------ Raw materials $ 12,864 $ 11,760 Work in process 4,940 4,400 Finished goods 22,044 15,420 -------- -------- $ 39,848 $ 31,580 ======== ======== 3. EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS: In 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130 "Reporting Comprehensive Income" which is effective for the Company in fiscal 1999. This statement requires the reporting of net income and all other changes to equity during the period, except those resulting from investments by owners and distributions to owners, in a separate statement that begins with net income or in the consolidated statement of operations below net income. The Company estimates that currently the only component of comprehensive income that bypasses the statement of operations is foreign currency translation adjustments presently being reported in the Consolidated Statement of Shareholders' Equity. 4. TRANSLATION OF FOREIGN CURRENCIES: Since January 1, 1997, Mexico is considered as a highly inflationary economy for the purpose of applying FASB Statement No. 52, "Foreign Currency Translation." Translation gains and losses therefore impact the results of operations. Foreign currency transaction gains (losses) included in net income were approximately ($300,000) and $43,000 for the periods ended March 31, 1998 and 1997, respectively. 5. ACCOUNTING FOR INCOME TAXES: The difference between income taxes calculated at the U.S. statutory federal income tax rate and the provision in the accompanying Consolidated Financial Statements is primarily due to lower effective foreign tax rates, state income taxes and other permanent items. Income taxes reconciled to the statutory rates are as follows for all periods presented: Three Months Ended Six Months Ended March 31, March 31, 1998 1997 1998 1997 ---- ---- ---- ---- Taxes calculated at federal $ 90 $ 75 $ 259 $ 243 statutory rate Foreign income (120) (48) (265) (99) State taxes (35) (26) (46) (27) Other permanent items 21 2 82 34 ------- ------ ------- ------- Provision (benefit) for income taxes $ (44) $ 25 $ 30 $ 151 ======= ====== ======= ======= 6. CONTINGENCIES: The Company, in the normal course of business, is party in certain litigation. 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 plus prejudgment interest. All company appeals have been denied and in January 1998 the Company paid $3.6 million to satisfy this claim in full, including all accrued interest. The Company continues 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 attorney). 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 $200,000 as of March 31, 1998), the resolution of these matters will not materially affect the Company's future results of operations or financial position. 7. ACQUISITION: In December 1997, the Company's subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V., acquired all of the capital stock of Vinci de Mexico, S.A. de C.V. ("Vinci"), and certain assets of a related entity for a final total purchase price of approximately 28.3 million pesos (approximately $3.5 million) in cash. Vinci is a well-known manufacturer of tempera and oil paints, chalk and modeling clay in Mexico. The company also manufactures plastic products (such as rulers and geometric sets), water colors and crayons. The acquisition was accounted for under the "purchase" method of accounting and the balance sheet herein includes the fair value of Vinci's specific assets and liabilities, including goodwill approximating $320,000. Goodwill is amortized over the estimated period of benefit of 20 years. The results of Vinci's operations have been included in the consolidated results of operations since the date of acquisition. The following shows pro forma, unaudited data that would have resulted had the acquisition been consummated as of October 1, 1996: (in thousands, except per share data) Three Months Ended Six Months Ended March, 31, March 31, --------- -------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues $ 24,853 $ 23,084 $ 49,582 $ 46,506 Net income (loss) 120 (137) 479 (504) Earnings (loss) per share: .04 (.04) .14 (.15) Basic .03 (.04) .13 (.15) Diluted Item 2. - ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REVENUES for the quarter ended March 31, 1998, increased $2,946,000 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. $ 887 8 8 -- Consumer Foreign 2,097 45 47 (2) Industrial (38) (1) (1) -- The U.S. Consumer revenue increase was primarily in the educational market due to more aggressive promotional programs and a restructured sales force. The increase in Foreign Consumer primarily reflects marketing efforts in the Mexico mass market and the acquisition of Vinci (see Note 7 to Consolidated Financial Statements). Revenue decreased $360,000 and $90,000 in Mexico and Canada, respectively, due to declines in their local currencies compared to the U.S. dollar. Revenues for the six months ended March 31, 1998, increased $4,435,000 over the same period last year. The changes by segment are as follows: Increase % Increase(Decrease) (Decrease) (in thousands) Total Volume Price/Mix -------------- ----- ------ --------- Consumer U.S. $1,483 6 8 (2) Consumer Foreign 2,963 36 38 (2) Industrial (11) -- -- -- Revenue in Mexico increased $3,120,000 due to increased shipments to the mass market and the acquisition of Vinci. Decreases of $260,000 and $160,000 in the revenue of Mexico and Canada, respectively, was due to the decline in their local currencies compared to the U.S. dollar. U.S. Consumer principally reflects continued increases in the educational market. Revenues increased $1,057,000 from the prior quarter as follows: Increase % Increase(Decrease) (Decrease) (in thousands) Total Volume Price/Mix -------------- ----- ------ --------- Consumer U.S. ($1,468) (11) (9) (2) Consumer Foreign 2,287 52 47 5 Industrial 238 4 4 -- The decrease in U.S. Consumer revenue reflects the historical trend where the first fiscal quarter is positively impacted by holiday sales. Foreign Consumer revenue increased primarily due to the mass market in Mexico and the Vinci acquisition, despite a decrease of $290,000 due to the decline in the value of the peso compared to the U.S. dollar. 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's Mexico subsidiary maintains a peso currency option to protect against short-term devaluation in excess of approximately 10%. In the six months ended March 31, 1998, the Mexican peso devaluated approximately 9% as compared with the U.S. dollar. This currency risk in Mexico is also managed through local currency financing and by export sales to the U.S. denominated in U.S. dollars. OPERATING INCOME increased $263,000 over the same quarter last year. Foreign Consumer increased $402,000 on higher revenue in the Mexico mass market, despite currency losses of approximately $300,000 due to the aforementioned peso devaluation. U.S. Consumer increased $113,000 as higher gross margins were partially offset by increased sales costs. Industrial decreased $85,000 on increased selling and administrative expenses. General corporate expenses were $167,000 higher, contributing to an overall increase in total selling and administrative expenses (32.6% of sales compared to 31.0% in the same quarter last year). Operating income increased $259,000 for the six months ended March 31, 1998 over the same period last year. Foreign Consumer operating income increased $600,000 despite $300,000 in currency losses due to the aforementioned peso devaluation. The addition of Vinci added $250,000 and continuing growth in the mass market segment accounted for the remaining increase. The U.S. Consumer operating income decreased $390,000 due to higher selling costs and unfavorable product mix. The higher selling costs contributed to an increase in total selling and administrative expenses (31.4% of sales compared to 29.7% last year). Operating income increased $90,000 over the prior quarter. Foreign Consumer increased $730,000 on higher revenues. U.S. Consumer decreased $310,000 on lower volume, reflecting seasonal holiday sales in the prior quarter. Administrative costs increased $370,000 on higher salary and benefit costs, contributing to an increase in total selling and administrative expenses of 1.7% of sales. INTEREST EXPENSE increased $201,000 and $192,000 for the quarter and six months ended March 31, 1998, respectively, over the same periods last year on increased borrowings reflecting the payment of the legal claim described in Note 6 to Consolidated Financial Statements. Interest expense increased $305,000 over the prior quarter due to this legal claim as well as higher seasonal borrowings. INCOME TAXES decreased $68,000 in the current fiscal quarter and $120,000 for the six months ended March 31, 1998, as compared with the prior year periods, respectively, due principally to lower effective foreign tax rates. (See Note 5 to Consolidated Financial Statements). MINORITY INTEREST represents 49.9% of the net income of the consolidated subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. through January 1997. In February 1997, the Company increased its ownership, thus reducing minority interest to approximately 20%. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities in the first six months of fiscal 1997 decreased by approximately $6.8 million over the same period last year, due principally to the payment of the legal claim (Note 6 to Consolidated Financial Statements) and other large calendar year-end selling and promotional expense obligations. In addition, Mexico accelerated inventory purchases in the current period to take advantage of certain tax benefits and discounts. Investing activities included approximately $3.3 million (net of cash acquired) related to the acquisition of Vinci (see Note 7 to Consolidated Financial Statements). Total other capital expenditures are expected to approximate less than $2 million in fiscal 1998. Such expenditures approximate less than $531,000 in the first six months, as compared with $1,075,000 in the prior year period. 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. The Company has financing arrangements with a consortium of lenders to fund capital expenditures and provide working capital. The 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 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. At March 31, 1998, the Company had approximately $15 million of unused lines of credit available under this financing arrangement. In September 1996, the Company also completed the private placement of $16.5 million of 12% Senior Subordinated Notes, due 2003. 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 requires the maintenance of certain financial covenants and ratios, with which the Company is presently in compliance. In January 1998, the Company canceled a reverse interest rate "swap" agreement covering $10 million of the notes, resulting in a deferred gain of approximately $375,000, to be recognized over the remaining original term of the notes. 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. YEAR 2000 COMPUTER ISSUES The Company is in process of assessing and addressing the impact of the year 2000 on its computer hardware and software. The Company is presently undergoing an upgrade of its principal operating and application software, which is believed to be year 2000 compliant. Peripheral applications and/or personal computer systems may not be compliant in all cases. Management and its outside management information consultants are in the process of developing a plan to assure full compliance by 1999. Accordingly, the Company does not expect this matter to materially impact how it conducts business nor its future results of operations or financial position. FORWARD-LOOKING STATEMENTS Any "forward-looking statements" contained in this Quarterly Report on Form 10-Q involve known and unknown risks (including, but not limited to certain foreign currency risk), uncertainties and other factors that could cause the actual results to differ materially from those expressed or implied by such forward- looking statements. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------- ---------------------------------------------------------------- At the Company's Annual Meeting of Shareholders held on March 6, 1998, one matter was submitted to a vote of shareholders. Gino N. Pala and Richard F. Joyce were elected as directors of the Company for terms expiring in 2001. The following table sets forth certain information with respect to the election of directors at the annual meeting: Shares Withholding Name of Nominee Shares Voted For Authority --------------- ---------------- --------- Gino N. Pala 3,123,976 4,142 Richard F. Joyce 3,123,976 3,242 The following table sets forth the other directors of the Company whose terms of office continued after the aforementioned annual meeting of the shareholders: Name of Director Term Expires ------------------ ------------ Joseph R. Sadowski 1999 Philip M. Shasteen 1999 John E. Ramondo 2000 Kent Kramer 2000 Ben Berzin, Jr. 2000 Item 6. Exhibits and Reports on Form 8-K - ------- ------------------------------------------ (a) Exhibits ---------- The following exhibits are required to be filed as part of this quarterly report on Form 10-Q: (3) (i) Restated Certificate of Incorporation * (3) (ii) Amended and Restated Bylaws ** (4) (a) Specimen Certificate of Company Common Stock * (4) (b) Amended and Restated Stock Option Plan *** (27) Financial Data Schedule **** * Incorporated by reference to the Company's quarterly report on Form 10-Q for the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C. ** Incorporated by reference to the Company Annual Report on Form 10-K for the year ended September 30, 1996, file number 0-2655, filed in Washington, D.C. *** Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated January 27, 1997, filed in Washington, D.C. **** Filed electronically via EDGAR. (b) Reports on Form 8-K -------------------------- Not applicable. 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: May 13, 1998 By: /s/ Gino N. Pala ---------------------------- Gino N. Pala Chairman of the Board, President, Chief Executive Officer and Director Dated: May 13, 1998 By: /s/ Richard A. Asta ---------------------------- Richard A. Asta Executive Vice President of Finance and Chief Financial Officer Dated: May 13, 1998 By: /s/ John Adornetto ---------------------------- John Adornetto Vice President/Corporate Controller and Chief Accounting Officer 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: May 13, 1998 By: ---------------------------- Gino N. Pala Chairman of the Board, President, Chief Executive Officer and Director Dated: May 13, 1998 By: ---------------------------- Richard A. Asta Executive Vice President of Finance and Chief Financial Officer Dated: May 13, 1998 By: ---------------------------- John Adornetto Vice President/Corporate Controller and Chief Accounting Officer EX-27 2
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. 6-MOS SEP-30-1998 MAR-31-1998 736,261 0 24,087,111 1,611,193 39,847,690 66,582,315 38,789,778 20,669,880 87,418,363 40,461,467 0 3,615,809 0 0 16,685,663 87,418,363 48,649,905 48,649,905 30,705,604 30,705,604 15,296,161 0 1,887,194 760,946 30,240 425,625 0 0 0 425,625 .13 .11
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