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SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 ( d )

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2001 Commission file number 1-8689
------------------ -------


DIXON TICONDEROGA COMPANY
- --------------------------------------------------------------------------------
(Exact name of Company as specified in its charter)
Form 10-K

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, 2001.

- --- 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 Number)

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, 2001, the aggregate market value
of the voting stock held by non-affiliates of the Company was $3,806,686.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 3, 2001: 3,177,462 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 or any amendment to this Form
10-K. [ ]

Documents Incorporated by Reference: Proxy statement to security holders
incorporated into Part III for the fiscal year ended September 30, 2001.





PART I
------

ITEM 1. BUSINESS
- ----------------
RECENT EVENTS AND STRATEGIES
----------------------------

In fiscal 2001, Dixon Ticonderoga Company (hereinafter the "Company")
refocused its efforts on its core Consumer Group while continuing its aggressive
restructuring and cost reduction efforts begun in 1999. As a result, the Company
had significantly improved operating performance, reporting pro forma net income
from continuing operations in 2001 of $1.2 million or $0.38 per share (exclusive
of the net effects of restructuring and related costs) as compared with pro
forma net income from continuing operations of $271,000 or $0.08 per share in
the prior year. Operating income (exclusive of restructuring and related costs)
grew $2.2 million or 55% in fiscal 2001. Including the effects of restructuring
and related costs and results from discontinued operations, net loss in 2001 was
($480,000) or ($0.15) per share, as compared with ($798,000) or ($0.25) per
share in the prior year.
The Company successfully completed its Mexico consolidation into a new
300,000 square foot modern facility as well as further personnel reductions in
manufacturing, sales, marketing and corporate activities. In addition, the
Company continued its working capital reduction program begun in 2000,
emphasizing enhanced inventory control, improved accounts payable management and
strict Mexico accounts receivable collection efforts. These initiatives
contributed to net cash provided by operating activities of over $4 million in
the past two years, as compared with net cash used by operating activities of
approximately $16 million in the two years ended 1999.
In 2001, the Company also increased its production of wood slats for pencil
manufacturing at its wholly-owned China subsidiary, Beijing Dixon Ticonderoga
Stationery Company, Ltd. The subsidiary also expanded its sourcing and
distribution activities, providing certain new and innovative products for
international sale by the Company.
To further focus its efforts, the Company formalized its decision to offer
for sale its New Castle Refractories division, the last business of its
Industrial Group, on September 17, 2001. The Company had disposed of its
Graphite and Lubricants division in 1999. These operations have been reported as
discontinued operations and the Company's Consumer Group is now its single
business segment.
The Company is also continuing to negotiate with its lenders to restructure
its various debt agreements as it continues its efforts (with the assistance of
its outside advisors) to pursue an infusion of some form of new equity capital
or a secondary financing source.
Further information regarding these matters is included elsewhere in this
Annual Report on Form 10-K.




COMPANY ORGANIZATION
--------------------
Dixon Ticonderoga Company
(Parent)


-----------------------------------------------------------------------
| | | | |
| | | | |
| | | | |
Dixon Dixon Dixon Industrial Beijing Dixon Ticonderoga
Ticonderoga, Europe, Ltd. Mexico, S.A. de C.V. Ticonderoga Graphite,
Inc. Canada (Wholly-Owned) (Wholly-Owned) Stationery Inc./Inactive
(Wholly-Owned) Company, Ltd. (Wholly-Owned)
(Wholly-Owned)
|
|
Grupo Dixon,
S.A. de C.V.
and subsidiaries
(97% Owned)





2



INDUSTRY SEGMENTS
-----------------

The Company has one principal continuing business segment: its Consumer
Group. This segment's primary operations are the manufacture and sale of writing
and drawing pencils, pens, artist materials, felt tip markers, industrial
markers, lumber crayons, correction materials and allied products.
Certain financial information regarding net revenues, operating profits and
identifiable assets for the years ended September 30, 2001, 2000 and 1999, is
contained in Note 11 to Consolidated Financial Statements.


CONSUMER GROUP
- --------------

The Company manufactures its leading brand Ticonderoga(R) and a full line
of pencils in Versailles, Missouri. The Company manufactures and markets
advertising specialty pencils, pens and markers through its promotional products
division. The Company also manufactures and markets Wearever(R) and Dixon(R) pen
writing products as well as Prang(R) and Ticonderoga(R) lines of markers,
mechanical pencils and allied products.
In Sandusky, Ohio, the Company manufactures (mainly for wholesale school
suppliers and retailers) its Prang(R) brand of soy-bean based and wax crayons,
chalks, dry and liquid tempera, water colors and art materials. This division
also manufactures special markers for industrial use, all of which are marketed
and sold together with the products discussed above, by the U.S. Consumer
division.
Under an agreement with Warner Bros. Consumer Products, the Company also
markets in Canada and Mexico a line of pencils, pens and related products
featuring the famous Looney Tunes(R) and Scooby Doo(R) characters.
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 group.
Grupo Dixon, S.A. de C.V., a majority-owned subsidiary (97%), is engaged,
through its subsidiaries, in the manufacture and sale in Mexico of black and
color writing and drawing pencils, correction materials, lumber crayons and
allied products. Grupo Dixon also manufactures and sells in Mexico, under its
Vinci(R) brand, certain products of the type manufactured at the Sandusky
facility, as well as marker products and modeling clay.
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.
Beijing Dixon Ticonderoga Stationery Company, Ltd., a wholly-owned
subsidiary of the Company, is engaged in the manufacture of wood slats for
pencil manufacturing and the sourcing and distribution of certain consumer
products for international sale by the Company.
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.


3


INDUSTRIAL GROUP (DISCONTINUED OPERATIONS)
- ------------------------------------------

On September 17, 2001, the Company formalized its decision to offer for
sale its New Castle Refractories division, the last business of its Industrial
Group. This 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, silicon-carbide brick,
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.
Prior to the sale of the Company's Graphite and Lubricants division in
March 1999, the Industrial Group also manufactured and sold processed natural
and synthetic bulk graphite, graphite oil, solvent and water-based lubricants
and colloidal graphitic suspensions.

DISTRIBUTION
------------

Consumer products manufactured in the Company's U.S. facilities 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 an effort to enhance
service levels (especially with large retail customers), the Company leases a
central distribution center in Macon, Georgia. 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 Mexico subsidiary has recently moved its distribution operations
to a new facility in Mexico City.

RAW MATERIALS
-------------

Wood slats for pencil manufacturing can be considered a strategic raw
material for the Company's business and are purchased from various suppliers in
the U.S., Indonesia and China (including the Company's wholly-owned China
subsidiary). There were no significant raw material shortages of any consequence
during 2001 nor are any expected in the near future.

TRADEMARKS, PATENTS AND COPYRIGHTS
----------------------------------

The Company owns a large number of trademarks, patents and copyrights
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
--------------------------------

Greater portions (approximately 60% in 2001) of the Company's sales occur
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.

COMPETITION
-----------

The Company is 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.


4


RESEARCH AND DEVELOPMENT
------------------------

The Company employs approximately 16 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 represent less
than 1% of revenues.

EMPLOYEES
---------

The total number of persons employed by the Company was approximately 1,479
of which 512 were employed in the United States.


ITEM 2. PROPERTIES
- ------------------

The properties of the Company, set forth in the following table are owned
and are collateralized or pledged under the Company's loan agreement with a
consortium of lenders (First Union Capital Corporation as agent), and its
Heathrow, Florida, property, 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
Versailles, Missouri (Consumer) 120,000
New Castle, Pennsylvania
(Refractories division/discontinued operations) 131,000
Newell, West Virginia
(Refractories division/discontinued operations) 45,000
Massillon, Ohio
(Refractories division/discontinued operations) 113,000
Acton Vale, Quebec, Canada (Dixon Ticonderoga Inc.) (Consumer) 32,000
Beijing, China
(Beijing Dixon Ticonderoga Stationery Company, Ltd.) (Consumer) 25,000

The Company leases approximately 100,000 square feet in Macon, Georgia for
its U.S. Consumer central distribution center. The Company's Mexico subsidiary
leases a 300,000 square-foot facility near Mexico City, used for distribution
and certain manufacturing operations, as well as its corporate headquarters. The
Company's Canada subsidiary leases 12,000 square feet in Newmarket, Ontario used
for distribution and office space.


5


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. In January 1998,
the Company paid $3.6 million to satisfy this claim in full, including all
accrued interest. The Company continued to pursue other responsible parties for
indemnification and/or contribution to the payment of this claim (including its
insurance carriers) and in fiscal 2000 the Company reached settlements with its
various insurers for reimbursement of legal costs in the amount of $653,000. In
2001, a pending malpractice suit against its former attorneys was settled and
the Company received $575,000. Also see Note 13 to Consolidated Financial
Statements.
Additionally, in May 2000 a news article alleged that the talc in all
domestic brands of crayons, including the Company's, contained trace amounts of
a fiber resembling asbestos. In response to these allegations, all domestic
crayon manufacturers, including the Company, the talc supplier and the United
States Consumer Product Safety Commission (CPSC) engaged in independent
laboratory testing for asbestos fibers in crayons. All test results reflected
the unequivocal absence of asbestos in domestically made crayons, including the
test results from the Government's own OSHA laboratory. In any event, all
domestic crayon manufacturers, including the Company, voluntarily agreed to
reformulate their crayons and discontinue the use of talc to eradicate any
persistent public concerns regarding crayon safety. The Company released a
reformulated crayon in 2001.
Each of the domestic crayon manufacturers, including the Company, and the
CPSC released press statements verifying the safety and non-toxicity of crayons
both on store and consumer shelves. Nevertheless, the Company became aware of
seven legal actions threatened against itself and other domestic crayon
manufacturers as a result of the erroneous report. Of the seven threatened legal
actions, six were filed against the Company and four were dismissed. The two
remaining legal actions involve a class action suit and a misleading advertising
claim. The Company settled these two legal actions for an immaterial net cost.
The Company believes that there are no pending actions which will have a
material adverse effect on the Company's financial condition or results of
operations.


ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------

None.




6


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 under the symbol "DXT". The following table sets forth the low ad high
per share prices as per the American Stock Exchange closing prices for the
applicable quarter.

FISCAL 2001 FISCAL 2000
QUARTER ENDING LOW HIGH LOW HIGH
-------------------- ----- ------ ----- ------
December 31 $2.13 $5.00 $5.88 $10.00
March 31 2.75 5.50 3.88 7.13
June 30 3.35 4.50 2.88 4.19
September 30 2.15 4.10 2.75 5.44


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 Note 4 to Consolidated Financial Statements).
The number of record holders of the Company's common stock at December 3,
2001 was 419.


7



ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------



DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
FOR THE FIVE YEARS ENDED SEPTEMBER 30, 2001
(in thousands, except per share amounts)


2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
REVENUES $ 90,492 $ 91,691 $ 97,372 $ 99,874 $ 89,416
========== ========== ========== ========== ==========
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ 620 $ (733) $ 399 $ 2,279 $ 2,509

INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (1,100) (65) 6,283 857 1,092
---------- ---------- ---------- ---------- ----------

NET INCOME (LOSS) $ (480) $ (798) $ 6,682 $ 3,136 $ 3,601
========== ========== ========== ========== ==========

EARNINGS (LOSS) PER
COMMON SHARE (BASIC):
CONTINUING OPERATIONS $ .20 $ (.23) $ .12 $ .67 $ .75


DISCONTINUED OPERATIONS (.35) (.02) 1.83 .26 .33
---------- ---------- ---------- ---------- ----------

NET INCOME (LOSS) $ (.15) $ (.25) $ 1.95 $ .93 $ 1.08
========== ========== ========== ========== ==========

EARNINGS (LOSS) PER
COMMON SHARE (DILUTED):
CONTINUING OPERATIONS $ .20 $ (.23) $ .11 $ .62 $ .73

DISCONTINUED OPERATIONS (.35) (.02) 1.76 .23 .32
---------- ---------- ---------- ---------- ----------

NET INCOME (LOSS) $ (.15) $ (.25) $ 1.87 $ .85 $ 1.05
========== ========== ========== ========== ==========

TOTAL ASSETS $ 86,412 $ 86,718 $ 92,888 $ 92,630 $ 84,161
========== ========== ========== ========== ==========

LONG-TERM DEBT $ 2,018 2 $ 30,210 $ 39,400 1 $ 21,927 $ 23,556
========== ========== ========== ========== ==========

DIVIDENDS PER
COMMON SHARE $ - $ - $ - $ - $ -
========== ========== ========== ========== ==========


1The increase in long-term debt in 1999 is attributable to the refinancing of
the Company's previous revolving credit agreement under a five-year facility.
(See Note 4 to Consolidated Financial Statements.)

2The reduction in long-term debt is due to reclassification of the Company's
senior credit facility and subordinated notes to current maturities of long-term
debt. (See Notes 4 and 15 to Consolidated Financial Statements.)


8


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS
--------------------------

SUMMARY OF RESULTS OF OPERATIONS
- --------------------------------

Discontinued operations:
- ------------------------

In order to focus on its core Consumer Group businesses, on September 17,
2001 the Company formalized its decision to offer for sale its New Castle
Refractories division, the last business of its Industrial Group. The Company
had disposed of its Graphite and Lubricants division in 1999. These businesses
had revenues of $9,529,000, $11,188,000 and $17,317,000 in 2001, 2000 and 1999,
respectively. Income (loss) from discontinued operations was ($56,000),
($65,000) and $6,280,000 in 2001, 2000 and 1999, respectively, (including
pre-tax gains on sales of assets of $1,202,000 in 2001 and $9,636,000 in 1999,
and income tax benefit (expense) of $29,000, $23,000 and ($3,987,000) in 2001,
2000 and 1999, respectively). Interest expense of $427,000, $597,000 and
$603,000 has been allocated to discontinued operations in 2001, 2000 and 1999,
respectively.
The Company reported an anticipated loss on disposal of $1,570,000 (or
$1,044,000 after tax benefit) including provisions for a loss on the sale of the
New Castle Refractories division of $468,000, for the wind-up of that division's
pension plans of $432,000 and for operating losses through the expected date of
disposal of $670,000. For financial reporting purposes, the Company is
accounting for the disposition of its Industrial Segment as a discontinued
operation and, accordingly, its statements of operations present the results of
the discontinued Industrial Segment separately from the results of continuing
operations. Since a discussion of the results of the Industrial Segment is not
meaningful to an understanding of the continuing Consumer business, all
discussions comparing the results of operations refer to the continuing
operations of the Consumer Group. (For further information regarding
discontinued operations, see Note 12 to Consolidated Financial Statements.)

2001 vs. 2000:
- --------------

Income before taxes, minority interest and discontinued operations
increased $2,125,000. Charges for the Company-wide restructuring and
consolidation plan decreased $640,000. Restructuring costs in 2001 included
$418,000 in U.S. costs associated with a prior phase of restructuring, as well
as $450,000 in Mexico for the consolidation of operations into a new facility.
Operating profits increased primarily due to lower selling, distribution and
administrative expenses. General corporate expenses also decreased due to
continued aggressive cost reduction efforts. Interest expense increased
$716,000, mainly due to higher borrowings in Mexico to finance the consolidation
of manufacturing facilities. Income taxes also increased due to pretax income in
2001, as compared to losses in the prior year.

2000 vs. 1999:
- --------------

Income before taxes, minority interest and discontinued operations
decreased $2,568,000 in 2000. The Company recorded pre-tax provisions of
$1,508,000 and $1,917,000 in 2000 and 1999, respectively, for restructuring and
related costs for a Company-wide cost reduction program and plant consolidation.
Restructuring costs in 2000 included $1,040,000 for employee severance and
related costs and $468,000 for the sale or abandonment of Mexico properties. In
fiscal 2000, approximately $367,000 was charged to the 2000 severance cost
accrual and $156,000 against the accrual for property abandonment. In addition,
$1,704,000 was charged against the remaining 1999 accrual. (See Note 10 to
Consolidated Financial Statements.) U.S. Consumer operating profits decreased
primarily due to lower revenue and higher manufacturing inefficiencies due to
strict inventory reduction efforts and consolidation activities. Foreign
Consumer operating profits reflected a decrease in Mexico due to start-up
inefficiencies relating to the transfer of certain U.S. production and lower
margins due to competitive pricing pressures. Interest expense decreased
$496,000 primarily due to lower foreign borrowings and interest rates. Income
taxes decreased due to the decrease in pre-tax income.


9


REVENUES
- --------

Overall 2001 revenues decreased $1,199,000 from the prior year. The changes
are as follows:

Decrease % Increase (Decrease)
(in thousands) Total Volume Price / Mix
-------------- ----------------------------
U.S. $ (273) - 1 (1)
Foreign (926) (3) (13) 10

U.S. revenue decreased primarily in the mass market retail channels where
competitive pressures from large suppliers and importers are the greatest. The
decrease in these channels was principally offset by increases in the
traditional educational channel. Foreign revenue decreased primarily due to
lower demand from large retail customers, partially offset by Mexico price
increases.
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 at least once in each of the last three decades, the last one being
in August of 1998. In the short term after such devaluations, 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. This currency risk in
Mexico is presently managed through occasional foreign currency hedges, local
currency financing and by export sales to the U.S. denominated in U.S. dollars.
Overall 2000 revenues decreased $5,681,000 from the prior year. The changes
are as follows:

Increase (Decrease) % Increase (Decrease)
(in thousands) Total Volume Price / Mix
------------------- ----------------------------
U.S. $ (8,724) (13) (12) (1)
Foreign 3,043 10 12 (2)

U.S. revenue decreased principally in the mass retail and wholesale club
markets reflecting the effects of reduced customer inventory levels and
increased competition from imports. Foreign revenue increased primarily in the
Mexico and Canada mass markets reflecting additional product distribution in
these channels.


OPERATING INCOME
- ----------------

Operating income in 2001 increased $2,841,000 over the prior year. U.S.
operating income increased $1,812,000 (excluding restructuring charges)
primarily due to lower selling, distribution and administrative costs. Foreign
operating income decreased $340,000, primarily in Canada, due to lower revenues.
General corporate expenses (excluding restructuring costs) decreased an
additional $730,000 due to lower salaries, fringes and related costs reflecting
continued aggressive cost reduction efforts. These decreases in selling,
distribution, administrative and general corporate expenses contributed to
significantly lower consolidated selling and administrative costs (30.4% of
sales as compared to 32.9% in the prior year). Restructuring and related costs
decreased $640,000 in 2001 as the Company finalized its efforts under the second
phase of its restructuring program.
Operating income in 2000 decreased $3,064,000 from 1999. U.S. operating
income decreased $650,000 due principally to the decrease in revenues and higher
manufacturing inefficiencies. Foreign operating income decreased $2,260,000
primarily due to competitive pricing pressures and start-up costs resulting from
production moving from the U.S. to Mexico. The higher manufacturing costs in the

10


U.S. and Mexico substantially contributed to the relative increase in total cost
of goods sold in 2000 (62.6% of sales as compared with 60.3% in 1999). General
corporate expenses increased $150,000 primarily due to higher restructuring and
related personnel costs. Due to the lower revenues, selling and administrative
costs increased as a percentage of sales (32.9% in 2000 compared to 31.9% in
1999). However, consolidated selling and administrative expenses decreased
$884,000 in 2000, reflecting ongoing cost reduction efforts.


MINORITY INTEREST
- -----------------

Minority interest represents 3% of the net income of the consolidated
subsidiary, Grupo Dixon, S.A. de C.V., since September, 1999 and 20.2% prior
thereto ($31,267, $23,938 and $402,135 in fiscal 2001, 2000 and 1999,
respectively), equivalent to the extent of the investment of the minority
shareholders. (See Note 8 to Consolidated Financial Statements.)


CURRENT ECONOMIC ENVIRONMENT AND EVENTS
- ---------------------------------------

Although not directly impacted by recent events in the U.S. and abroad,
softening economic conditions could affect the retail mass or other markets
served by the Company's Consumer Group and thus could lead to reduced overall
revenues. In addition, certain expenses (such as insurance costs) could be
significantly higher in the coming years than in 2001 due to recent events.


LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

The Company generated approximately $1.4 million in cash flows from
operating activities in 2001. The Company's strict inventory control and
reduction efforts in the U.S. led to an increase in cash flows related to
inventories of approximately $500,000, continuing a correction begun in 2000
after a $7.3 million decrease in cash flows attributable to the build-up of
inventories in 1999. In addition, further improvement in accounts payable
management in the U.S. and Mexico and strong accounts receivable collections in
Mexico helped to partially offset the effects of higher U.S. accounts receivable
in 2001. Overall, in 2001 and 2000, the Company generated approximately $4.1
million in cash flows from operating activities, as compared with net cash used
of $10.4 million in 1999.
The Company's 2001 investing activities included approximately $2.2 million
in net purchases of property and equipment, compared to $1.4 million in the
prior year. This reflects a higher level of purchases as compared with recent
years, due to the Company's expansion of its Mexico manufacturing and
consolidation into its newly leased 300,000 square-foot facility. In 2001, these
expenditures were partially offset by approximately $1.3 million in net proceeds
on the sale of an idled Mexico plant and other assets. A note receivable of
$3.25 million from the sale of a division was collected in 2000 and is reflected
as proceeds from investing activities. Generally, all major capital projects are
discretionary in nature and thus no material purchase commitments exist. Capital
expenditures are usually funded from operations and existing financing or new
leasing arrangements.
The Company's primary financing arrangements are with a consortium of
lenders, providing a total of up to $42.5 million in financing through September
2004. The financing agreements, as amended, include a revolving line of credit
facility in the amount of $35 million, which bears interest at either the prime
rate plus 0.75%, or the prevailing LIBOR rate plus 2.25%, through September
2004. The agreements also provide for the payment of various bank fees
approximating $20,000 per month. Borrowings under the revolving credit facility
are based upon eligible accounts receivable and inventories of the Company's
U.S. and Canada operations, subject to reserves for anticipated subordinated
debt payments and certain other items, as defined. The Company has executed an
interest rate swap agreement that effectively fixed the rate of interest on $8
million of these borrowings at 8.98% through August 2005. The loan and security
agreements also include a term loan in the initial amount of $7.5 million. The
term loan is payable in monthly installments of $125,000, plus interest, through

11


September 2004. The loan bears interest based upon the same prevailing rate
described above in connection with the revolving credit facility. The Company
entered into the aforementioned interest rate swap agreements to balance and
manage overall interest rate exposure and minimize overall cost of borrowings.
These 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. On September 15, 2001, a waiver of compliance
with one provision of the Company's primary lending agreement expired and
shortly thereafter its senior lenders prohibited the payment of $5.5 million in
principal due to senior subordinated noteholders on September 26, 2001. The
payment due date was later extended by the noteholders until November 14, 2001
and the aforementioned waiver from the Company's senior lenders was also
extended through that date. These extensions expired on November 15, 2001. The
senior lenders again blocked any payment to the subordinated noteholders and the
Company has continued to negotiate with its various lenders since then. As of
September 30, 2001, the Company was not in compliance with two financial
covenants under its senior debt agreements and one financial covenant under its
subordinated note agreement. The Company has received an additional extension
and waiver of certain existing defaults under its senior debt agreements through
May 3, 2002 to allow the Company more time to address its debt issues to the
mutual satisfaction of all parties involved. The Company has asked both its
senior and subordinated lenders to amend various provisions of their debt
agreements until at least October 2002 to allow time for the Company to pursue a
longer-term solution. As of September 30, 2001, the Company had approximately
$23 million of unused lines of credit available under the revolving credit
facility. In addition, the Company's Mexico subsidiary has $16 million in bank
lines of credit ($9 million unused as of September 30, 2001) expiring at various
dates which bear interest at a rate based upon either a floating U.S. bank rate
or the rate of certain Mexican government securities. The Company relies heavily
on the availability of the lines of credit in the U.S. and Mexico for liquidity
in its operations.
The Company also has outstanding $16.5 million of 12% Senior Subordinated
Notes valued at their face amount, due 2003. The subordinated note agreement
provides for a total interest rate of 13.5% through June 2002 and 12.25% through
maturity in 2003. Due to the Company's noncompliance under its primary lending
arrangements discussed above, it was prohibited from making a scheduled
subordinated note payment of $5.5 million due in September 2001. The note
agreement provides for an additional interest charge of 2% on this amount until
payment is made. The note agreement, as amended, contains provisions that limit
dividends and other payments, and requires the maintenance of certain financial
covenants and ratios, one of which the Company did not comply with as of
September 30, 2001.
The Company believes that amounts available under its lines of credit under
its senior debt and under lines of credit available to its Mexican subsidiary,
if funded, are sufficient to fulfill all current and anticipated operating
requirements of its business. The senior lenders have consistently supported the
Company and they, as well as the Company's foreign lenders, have continued
funding under their agreements throughout the ongoing negotiations. However, the
Company does not believe it will have excess cash flow to retire the total $16.5
million in subordinated notes by their due date in 2003. The Company has asked
the subordinated noteholders and they have expressed a willingness to consider
restructuring their scheduled principal payments to allow the Company sufficient
time to retire the notes through the infusion of some form of new equity
capital, new secondary financing and/or the sale of assets. However, the Company
cannot assure that its efforts will be successful, that the subordinated
noteholders will amend their scheduled payments and/or that it will maintain
and/or secure new sources of capital. In addition, the Company's Mexico
subsidiary cannot assure that its lines of credit will continue to be available
after their respective expiration dates, or that replacement lines of credit
will be secured.
Due to the defaults described above, the subordinated and senior debts have
been classified as current maturities of long-term debt in the accompanying 2001
consolidated balance sheet. Moreover, in light of the current circumstances
regarding the Company's various debt arrangements, the report of the Company's
independent accountants includes an explanatory paragraph as to substantial
doubt about the Company's ability to continue as a going concern.

12


In March 1999, the Company's Board of Directors approved a Stock Repurchase
Program authorizing the acquisition of up to $3 million in Dixon Ticonderoga
Company stock. Under this program, which has been concluded, the Company
repurchased 337,000 shares at a cost of $2.8 million ($2 million in fiscal
2000). These repurchases were financed through the aforementioned and previous
U.S. revolving line of credit facilities.
Refer to Notes 3, 4 and 15 to Consolidated Financial Statements for further
description of the aforementioned financing arrangements.
The Company has retained Wachovia Securities (formerly First Union
Securities) and certain other outside consultants to advise and assist it in
evaluating certain strategic alternatives, including capital restructuring,
mergers and acquisitions, and/or other measures designed to resolve the
Company's issues with its lenders while maximizing shareholder value.


RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 "Business Combinations" and Statement No. 142 "Goodwill and
Other Intangible Assets". Statement No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting and broadens the criteria for recording intangible assets separate
from goodwill. Statement No. 142 requires the use of a nonamortization approach
to account for purchased goodwill and indefinite lived intangibles. Under a
nonamortization approach, goodwill and indefinite lived intangibles will not be
amortized into results of operations, but instead would be reviewed for
impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and indefinite lived intangibles
is more than its fair value. The provisions of Statement No. 141 are effective
currently. The provisions of Statement No. 142 will be effective for the Company
in fiscal 2003. Management does not expect these standards, when implemented, to
have a material effect on its future results of operations or financial
position.
In June 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations". The statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The statement is effective for
the Company in fiscal 2003. The Company does not expect the adoption of
Statement No. 143 to have a material impact on the Company's future results of
operations or financial position.
In August 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", and the accounting and reporting
provisions of APB Opinion 30, "Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions", for the disposal of a
segment of a business. The statement is effective for the Company in fiscal
2003. The Company does not expect the adoption of Statement No. 144 to have a
material impact on the Company's future results of operations or financial
position.


13


FORWARD-LOOKING STATEMENTS
- --------------------------

The statements in this Annual Report on Form 10-K that are not purely
historical are "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding, among other things, the effects of the devaluation of the
Mexican peso; the sufficiency and continued availability of the Company's lines
of credit and its ability to meet its current and anticipated obligations;
management's inventory reduction plan and expectation for savings from the
restructuring and cost-reduction program; the Company's ability to increase
sales in its core businesses; and its expectations with regards to legal
proceedings. Readers are cautioned that any such forward-looking statements are
not guarantees of future performance and involve known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those expressed or implied by such forward-looking statements.
Such risks include (but are not limited to) the risk that the Company's lenders
will not continue to fund the Company in the future as they have in the past
when defaults have occurred; the inability of the Company to successfully
negotiate a restructuring of its subordinated debt and the exercise by its
lenders of various remedies available to them in the event of continued
defaults; the cancellation of the lines of credit available to the Company's
Mexico subsidiary; the inability to maintain and/or secure new sources of
capital; manufacturing inefficiencies as a result of the inventory reduction
plan; difficulties encountered with the consolidation and cost-reduction
program; increased competition; U.S. and foreign economic factors; foreign
currency exchange risk and interest rate fluctuation risk, among others.


14


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

As discussed elsewhere, the Company is exposed to the following principal
market risks (i.e. risks of loss arising from adverse changes in market rates):
foreign exchange rates and interest rates on debt.
The Company's exposure to foreign currency exchange rate risk in its
international operations is principally limited to Mexico and, to a lesser
degree, Canada. Approximately 37% of the Company's fiscal 2001 net revenues were
derived in Mexico and Canada, combined (exclusive of intercompany activities).
Foreign exchange transaction gains and losses arise from monetary assets and
liabilities denominated in currencies other than the business unit's functional
local currency. It is estimated that a 10% change in both the Mexican peso and
Canadian dollar exchange rates would impact reported operating profit by
approximately $500,000. This quantitative measure has inherent limitations
because it does not take into account the changes in customer purchasing
patterns or any adjustment to the Company's financing or operating strategies in
response to such a change in rates. Moreover, this measure does not take into
account the possibility that these currency rates can move in opposite
directions, such that gains from one may offset losses from another.
In addition, the Company's cash flows and earnings are subject to changes
in interest rates. As of September 30, 2001, approximately 46% of total short
and long-term debt is fixed, at rates between 8% and 13.5%. The balance of the
Company debt is variable, principally based upon the prevailing U.S. bank prime
rate or LIBOR rate. An interest rate swap, which expires in 2005, fixes the rate
of interest on $8 million of this debt at 8.98%. A change in the average
prevailing interest rates of the remaining debt of 1% would have an estimated
impact of $200,000 upon the Company's pre-tax results of operations and cash
flows. This quantitative measure does not take into account the possibility that
the prevailing rates (U.S. bank prime and LIBOR) can move in opposite directions
and that the Company has, in most cases, the option to elect either as the
determining interest rate factor.


15


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------


DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

PAGE
----

Report of Independent Certified Public Accountants 17

Consolidated Balance Sheets as of
September 30, 2001 and 2000 18-19

Consolidated Statements of Operations For the
Years Ended September 30, 2001, 2000 and 1999 20

Consolidated Statements of Comprehensive Income
(Loss) For the Years Ended September 30, 2001, 2000 and 1999 21

Consolidated Statements of Shareholders' Equity
For the Years Ended September 30, 2001, 2000 and 1999 22

Consolidated Statements of Cash Flows For the
For the Years Ended September 30, 2001, 2000 and 1999 23-24

Notes to Consolidated Financial Statements 25-44

Schedule For the Years Ended September 30, 2001, 2000 and 1999:

II. Valuation and Qualifying Accounts 45

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.


16



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Shareholders and Board of Directors of
Dixon Ticonderoga Company

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Dixon
Ticonderoga Company and its subsidiaries at September 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, in 2001, the Company changed
its method of accounting for derivative instruments.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 4 and
15 to the financial statements, the Company did not make a scheduled payment to
its subordinated lenders creating a default under the terms of the debt
agreement. Additionally, the Company's debt agreements with its senior lenders
include cross-default provisions that could result in a default under the terms
of the Company's senior debt agreement, if the subordinated debt payments are
not made and if the subordinated lenders declare an event of default.
Negotiations to amend the scheduled subordinated note payments are ongoing.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 15. The financial statements do not include any
adjustments that result from the outcome of this uncertainty.


PricewaterhouseCoopers LLP
Tampa, Florida
December 6, 2001, except as to the
first paragraph of Note 15 for which
the date is January 10, 2002


17


DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND 2000




2001 2000
------------ -------------
ASSETS:
-------

CURRENT ASSETS:
Cash and cash equivalents $ 844,299 $ 448,452
Receivables, less allowance for doubtful
accounts of $1,482,524 in 2001 and
$1,418,908 in 2000 31,647,950 30,881,626
Inventories 35,583,082 36,215,931
Other current assets 2,227,785 4,171,064
------------ -------------
Total current assets 70,303,116 71,717,073
------------ -------------
PROPERTY, PLANT AND EQUIPMENT:

Land and buildings 10,608,980 10,145,872
Machinery and equipment 17,155,371 16,054,327
Furniture and fixtures 1,741,811 1,654,404
------------ -------------
29,506,162 27,854,603
Less accumulated depreciation (19,022,674) (17,572,320)
------------ -------------
10,483,488 10,282,283
------------ -------------
OTHER ASSETS 5,625,771 4,718,379
------------ -------------
$86,412,375 $86,717,735
============ =============


18


LIABILITIES AND SHAREHOLDERS' EQUITY: 2001 2000
- ----------------------------------------------- ------------- -------------
CURRENT LIABILITIES:
Notes payable $ 6,294,268 $ 3,574,929
Current maturities of long-term debt 32,598,531 7,135,198
Accounts payable 9,321,957 8,068,133
Accrued liabilities 9,132,057 10,056,935
------------- -------------
Total current liabilities 57,346,813 28,835,195
------------- -------------
LONG-TERM DEBT 2,018,125 30,210,410
------------- -------------
DEFERRED INCOME TAXES AND OTHER 984,492 177,248
------------- -------------
MINORITY INTEREST 577,241 552,215
------------- -------------
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 3,710,309 shares in 2001 and
3,710,309 shares in 2000 3,710,309 3,710,309
Capital in excess of par value 3,670,135 3,700,272
Retained earnings 25,667,675 26,147,547
Accumulated other comprehensive loss (4,101,681) (3,093,577)
------------- -------------
28,946,438 30,464,551
Less treasury stock, at cost (532,847 shares
in 2001 and 542,262 shares in 2000) (3,460,734) (3,521,884)
------------- -------------
25,485,704 26,942,667
------------- -------------
$86,412,375 $86,717,735
============= =============

The accompanying notes are an integral part of the
consolidated financial statements.

19



DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


2001 2000 1999
------------- ------------- -------------
REVENUES $90,492,514 $91,691,241 $97,372,466
------------- ------------- -------------
COSTS AND EXPENSES:
Cost of goods sold 56,732,494 57,462,598 58,788,522
Selling and administrative expenses 27,536,687 30,204,945 31,088,434
Provision for restructuring and related costs 867,666 1,508,481 1,916,800
------------- ------------- -------------
85,136,847 89,176,024 91,793,756
------------- ------------- -------------
OPERATING INCOME 5,355,667 2,515,217 5,578,710

INTEREST EXPENSE 4,387,700 3,672,365 4,168,533
------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (BENEFIT)
AND MINORITY INTEREST 967,967 (1,157,148) 1,410,177

INCOME TAXES (BENEFIT) 316,933 (448,087) 606,531
------------- ------------- -------------
651,034 (709,061) 803,646

MINORITY INTEREST 31,267 23,938 402,135
------------- ------------- -------------

INCOME (LOSS) FROM CONTINUING OPERATIONS 619,767 (732,999) 401,511
------------- ------------- -------------

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF APPLICABLE INCOME TAXES (1,099,639) (65,246) 6,280,224
------------- ------------- -------------

NET INCOME (LOSS) $ (479,872) $ (798,245) $ 6,681,735
============= ============= =============

EARNINGS (LOSS) PER COMMON SHARE (BASIC):
Continuing operations $ .20 $ (.23) $ .12
Discontinued operations (.35) (.02) 1.83
------------- ------------- -------------
Net income (loss) $ (.15) $ (.25) $ 1.95
============= ============= =============

EARNING (LOSS) PER COMMON SHARE (DILUTED):
Continuing operations $ .20 $ (.23) $ .11
Discontinued operations (.35) (.02) 1.76
------------- ------------- -------------
Net income (loss) $ (.15) $ (.25) $ 1.87
============= ============= =============



The accompanying notes are an integral part of the
consolidated financial statements.

20



DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


2001 2000 1999
------------- ------------- -------------

NET INCOME (LOSS) $ (479,872) $ (798,245) $ 6,681,735

OTHER COMPREHENSIVE INCOME (LOSS):

Cumulative effect adjustment to
recognize fair value of cash flow hedge (54,205) - -

Adjustment to recognize fair value
of cash flow hedge (451,388) - -

Foreign currency translation adjustments (502,511) (677,102) 957,362
------------- ------------- -------------

TOTAL COMPREHENSIVE INCOME (LOSS) $(1,487,976) $(1,475,347) $ 7,639,097
============= ============= =============



The accompanying notes are an integral part of the
consolidated financial statements.


21




DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


Common Capital in Accumulated Other
Stock $1 Excess of Retained Comprehensive Treasury
Par Value Par Value Earnings Income (Loss) Stock Total
------------ ------------ ------------ --------------- ------------- -------------

BALANCE, September 30, 1998 $ 3,654,559 $ 3,327,755 $ 20,264,057 $ (3,373,837) $ (817,295) $ 23,055,239
Net income 6,681,735 6,681,735
Other comprehensive income 957,362 957,362
Employee stock options
exercised (34,001 shares) 34,000 227,094 261,094
Employee Stock Purchase Plan
(6,619 shares) 31,622 31,672 63,294
Purchase of treasury stock
(76,567 shares) (789,618) (789,618)
------------ ------------ ------------ --------------- ------------- -------------

BALANCE, September 30, 1999 3,688,559 3,586,471 26,945,792 (2,416,475) (1,575,241) 30,229,106

Net loss (798,245) (798,245)
Other comprehensive loss (677,102) (677,102)
Employee stock options
exercised (21,750 shares) 21,750 147,094 168,844
Employee Stock Purchase Plan
(10,757 shares) (33,293) 69,867 36,574
Purchase of treasury stock
(260,230 shares) (2,016,510) (2,016,510)
------------ ------------ ------------ --------------- ------------- -------------

BALANCE, September 30, 2000 3,710,309 3,700,272 26,147,547 (3,093,577) (3,521,884) 26,942,667

Net income (479,872) (479,872)
Other comprehensive loss (1,008,104) (1,008,104)
Employee Stock Purchase Plan
(9,415 shares) (30,137) 61,150 31,013
------------ ------------ ------------ --------------- ------------- -------------

BALANCE, September 30, 2001 $ 3,710,309 $ 3,670,135 $ 25,667,675 $ (4,101,681) $(3,460,734) $ 25,485,704
============ ============ ============ =============== ============= =============


The accompanying notes are an integral part of
the consolidated financial statements.

22



DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999


2001 2000 1999
------------- ------------ -------------
Cash flows from operating activities:

Net income (loss) from continuing operations $ 619,767 $ (732,999) $ 401,511

Net income (loss) from discontinued operations (1,099,639) (65,246) 6,280,224

Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,398,964 2,521,400 2,607,425
Deferred taxes (534,000) (639,000) (889,000)
Provision for doubtful accounts receivable 151,263 218,795 191,356
Gain on sale of assets (1,202,448) - (9,636,318)
Income attributable to minority interest 31,267 23,938 402,135
(Income) loss attributable to foreign
currency exchange 52,071 (78,888) (127,299)

Changes in assets [(increase) decrease] and
liabilities [increase (decrease)]:
Receivables, net (1,252,621) (1,994,505) 1,677,182
Inventories 474,990 3,087,532 (7,279,117)
Other current assets 101,950 17,422 (781,505)
Accounts payable and accrued liabilities 803,641 646,793 (1,787,274)
Other assets 802,706 (228,794) (1,480,679)
------------- ------------ -------------
Net cash provided by (used in) operating
activities 1,347,911 2,776,448 (10,421,359)
------------- ------------ -------------
Cash flows from investing activities:

Purchases of plant and equipment, net (2,188,773) (1,399,403) (638,384)
Proceeds on sale of assets 1,276,063 3,250,000 19,596,710
------------- ------------ -------------
Net cash provided by (used in) investing
activities (912,710) 1,850,597 18,958,326
------------- ------------ -------------


23



2001 2000 1999
------------- ------------ -------------
Cash flows from financing activities:

Principal reductions of notes payable - - (23,361,167)
Proceeds from additions to long-term debt 138,566 70,715 17,523,741
Proceeds from additions to notes payable 2,779,894 1,023,554 -
Principal reductions of long-term debt (2,728,952) (3,693,022) (320,471)
Debt refinancing costs - (369,842) -
Purchase of treasury stock - (2,016,510) (789,618)
Purchase of subsidiary stock - - (3,734,668)
Other non-current liabilities 6,759 (42,975) (465,169)
Employee Stock Purchase Plan 31,013 36,574 63,294
Exercise of stock options - 168,844 261,095
------------- ------------ -------------
Net cash provided by (used in)financing
activities 227,280 (4,822,662) (10,822,963)
------------- ------------ -------------
Effect of exchange rate changes on cash (266,634) (291,344) 368,128
------------- ------------ -------------

Net decrease in cash and cash equivalents 395,847 (486,961) (1,917,868)

Cash and cash equivalents, beginning
of year 448,452 935,413 2,853,281
------------- ------------ -------------
Cash and cash equivalents, end of year $ 844,299 $ 448,452 $ 935,413
============= ============ =============

Supplemental disclosures:

Cash paid during the year for:
Interest $ 4,647,079 $3,148,398 $ 4,887,426
Income taxes 2,434,487 1,518,291 5,100,663

Non-cash investing and financing activities:

In fiscal 2001, the Company accepted a note receivable due May 2006 in the
amount of $1.64 million as consideration for the sale of an idle building in
Deer Lake, Pennsylvania.

During fiscal 1999, the Company accepted a note receivable of $3,250,000 as
partial consideration for the sale of assets of its Graphite and Lubricants
division. This note was repaid in fiscal 2000.


The accompanying notes are an integral part of the
consolidated financial statements.



24


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. Its largest principal customers are school
products distributors and mass merchandisers, although none account for
over 7% of revenues.

Revenue recognition:
--------------------

Revenues are comprised of gross sales from the shipment of product to
customers, less product returns and allowances. The Company recognizes
sales when the following has occurred: evidence of a sales arrangement
exists; delivery of product to the customer; the price is fixed or
determinable; and collectibility is reasonably assured. An estimate of
sales returns and allowances is recorded in the period that the related
product is shipped.

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 Grupo Dixon, S.A. de
C.V., subsidiary. In 1999, the Company repurchased shares of this
subsidiary on the open market, reducing the minority interest from 20.2%
to 3%.

Translation of foreign currencies:
-------------------------------------

In accordance with Financial Accounting Standards Board (FASB) Statement
No. 52, the Company has determined that each foreign subsidiary'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 other
comprehensive income (loss), except for Mexico for the period January 1,
1997 through December 31, 1998. As of January 1, 1997, Mexico was
considered a highly inflationary economy for purposes of applying this
statement. Mexico translation gains and losses, therefore, affected
results of operations through December 31, 1998. Gains and losses from
foreign currency transactions are included in the Consolidated Statement

25


of Operations. Total foreign currency exchange gains (losses) included in
operating income were approximately $(52,000), $79,000 and $127,000 for
fiscal years 2001, 2000 and 1999 respectively.

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 $14,126,292 and $13,813,000 at September 30, 2001 and 2000,
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 $760,000 and $805,000 higher at
September 30, 2001 and 2000, respectively. All other inventories are
accounted for using the FIFO method.

Inventories consist of (in thousands):
--------------------------------------

September 30,

2001 2000
--------- ---------

Raw material $13,328 $12,839
Work in process 3,572 3,656
Finished goods 18,683 19,721
--------- ---------

$35,583 $36,216
========= =========


Property, plant and equipment:
---------------------------------

Property, plant and equipment are stated at cost. 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.


Impairment of long-lived assets:
--------------------------------

Long-lived assets used in the Company's operations, including cost in
excess of net assets of businesses acquired, are reviewed for impairment
when events and circumstances indicate that the carrying amount of an
asset may not be recoverable. The primary indicators of recoverability are
the associated current and forecasted undiscounted operating cash flows.
Asset impairments in connection with the Company's restructuring programs
are identified and measured using the estimated net proceeds from their
ultimate sale or abandonment. (See Note 10.) The Company's policy is to
record an impairment loss when it is determined that the carrying amount
of the asset exceeds its fair value.


26



Stock-based compensation:
-------------------------

The Company accounts for compensation cost related to employee stock
options and other forms of employee stock-based compensation plans in
accordance with the requirements of Accounting Principles Board (APB)
Opinion 25 and related interpretations. APB 25 requires compensation cost
for stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the date
of grant and the option exercise price. The Company provides additional
proforma disclosures as required under FASB Statement No. 123, "Accounting
For Stock-Based Compensation".


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.


Derivative instruments and hedging activities:
----------------------------------------------

The Company adopted FASB Statement No.133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by FASB Statement No.137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133", an amendment of FASB
Statement No.133, and FASB Statement No.138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", an amendment of
Statement No. 133 (referred to hereafter as "FAS 133") on October 1, 2000.
The Company now records the fair value of interest rate swaps designated
as cash flow hedges in other liabilities with the offset to the other
comprehensive income (loss) component of shareholders' equity. At
adoption, the Company recorded its interest rate swap designated as a cash
flow hedge with a fair value of $86,314 in other liabilities. Other
comprehensive loss was increased $54,205 (net of tax benefit of $32,109)
as a cumulative effect adjustment for this accounting change. During the
year ended September 30, 2001, the Company also recognized an adjustment
to the fair value of this cash flow hedge of $718,773 in other
liabilities. Other comprehensive loss was increased $451,388 (net of tax
benefit of $267,385) during this period.

The Company utilizes interest rate swap agreements to provide an exchange
of interest payments computed on notional amounts that will offset any
undesirable change in cash flows or fair value resulting from market rate
changes on designated hedged bank borrowings. The Company limits the
credit risks of the interest rate agreements by initiating the
transactions with counterparties with significant financial positions,
such as major financial institutions.

FAS 133 requires companies to recognize all of its derivative instruments
as either assets or liabilities in the balance sheet at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of
hedging relationship. For those derivative instruments that are designated
and qualify as hedging instruments, a Company must designate the hedging
instrument, based upon the exposure being hedged, as either a fair value
hedge, cash flow hedge or a hedge of a net investment in a foreign
operation. For derivative instruments that are designated and qualify as a
cash flow hedge (such as the Company's interest rate swap agreements), the
effective portion of the gain or loss on the derivative instrument is
reported as a component of other comprehensive income (loss) and
reclassified into earnings in the same period or periods during which the

27


hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present
value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of the change in fair values. For
derivative instruments not designated as hedging instruments, the gain or
loss is recognized in current earnings during the period of the change in
fair values.

The Company has entered into an interest rate swap agreement through
August 2005 that effectively converts $8 million of its floating-rate debt
to a fixed-rate basis, thus reducing the impact of interest-rate changes
on future interest expense. The fair values of interest rate instruments
are estimated by obtaining quotes from brokers and are the estimated
amounts that the Company would receive or pay to terminate the agreements
at the reporting date, taking into account current interest rates and
other relevant factors.


Recent accounting pronouncements:
---------------------------------

In July 2001, the FASB issued Statement No. 141 "Business Combinations"
and Statement No. 142 "Goodwill and Other Intangible Assets". Statement
No. 141 requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and broadens the
criteria for recording intangible assets separate from goodwill. Statement
No. 142 requires the use of a nonamortization approach to account for
purchased goodwill and indefinite lived intangibles. Under a
nonamortization approach, goodwill and indefinite lived intangibles will
not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only
in the periods in which the recorded value of goodwill and indefinite
lived intangibles is more than its fair value. The provisions of Statement
No. 141 are effective currently. The provisions of Statement No. 142 will
be effective for the Company in fiscal 2003. Management does not expect
these standards, when implemented, to have a material effect on its future
results of operations or financial position.

In June 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations". The statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The statement
is effective for the Company in fiscal 2003. The Company does not expect
the adoption of Statement No. 143 to have a material impact on the
Company's future results of operations or financial position.

In August 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement supersedes
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of", and the accounting and reporting
provisions of APB Opinion 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business. The statement
is effective for the Company in fiscal 2003. The Company does not expect
the adoption of Statement No. 144 to have a material impact on the
Company's future results of operations or financial position.


28


(2) ACCRUED LIABILITIES:
--------------------
The major components of accrued liabilities are as follows (in thousands):

September 30,
2001 2000
-------- ---------

Salaries and wages $ 968 $ 1,462
Employee benefit plans 720 449
Income taxes 1,428 1,940
Other 6,016 6,206
-------- ---------

$9,132 $10,057
======== =========


(3) NOTES PAYABLE:
--------------

The Company's Mexico subsidiary had bank lines of credit totaling
approximately $16 million, under which $6.3 million and $3.6 million of
unsecured notes payable were outstanding as of September 30, 2001 and
2000, respectively. The notes bear interest (weighted average interest
rate of approximately 7.1% and 9.2% at September 30, 2001 and 2000
respectively) based upon either a floating U.S. bank rate or the rate of
certain Mexican government securities and are renewable annually.


(4) LONG-TERM DEBT:
---------------

Long-term debt consists of the following (in thousands):

September 30,
2001 2000
--------- ---------

Senior Subordinated Notes $ 16,500 $ 16,500
Bank notes payable 11,327 12,280
Bank term loan 4,625 6,125
Building mortgage 2,138 2,273
Other 27 167
--------- ---------
34,617 37,345
Less current maturities (32,599) (7,135)
--------- ---------

$ 2,018 $ 30,210
========= =========

The Company's primary financing arrangements are with a consortium of
lenders, providing a total of up to $42.5 million in financing through
September 2004. The financing agreements, as amended, include a revolving
line of credit facility in the amount of $35 million which bears interest
at either the prime rate (6% at September 30, 2001) plus 0.75%, or the
prevailing LIBOR rate (approximately 2.6% at September 30, 2001) plus
2.25% through September 2004. The agreements also provide for the payment
of various bank fees approximating $20,000 per month. Borrowings under the
revolving credit facility are based upon eligible accounts receivable and
inventories of the Company's U.S. and Canada operations, subject to
reserves for anticipated subordinated debt payments and certain other
items, as defined. The Company has executed an interest rate swap
agreement that effectively fixed the rate of interest on $8 million of
these borrowings at 8.98% through August 2005.


29


The loan and security agreements also include a term loan in the initial
amount of $7.5 million. The term loan is payable in monthly installments
of $125,000, plus interest, through September 2004. The loan bears
interest based upon the same prevailing rate described above in connection
with the revolving credit facility.

These 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 was not in compliance with certain provisions of
the loan and security agreement at September 30, 2001 (see Note 15) and,
accordingly, has classified this debt as current maturities of long-term
debt in the accompanying balance sheet as of that date. As of September
30, 2001, the Company had approximately $23 million of unused lines of
credit available under the revolving credit facility.

The Company also has outstanding $16.5 million of Senior Subordinated
Notes valued at their face amount, due 2003. The subordinated note
agreement provides for a total interest rate of 13.5% through June 2002
and 12.25% though maturity in 2003. Due to the Company's noncompliance
under its primary lending arrangements discussed above, it was prohibited
from making a scheduled subordinated note payment of $5.5 million due in
September 2001 (see Note 15). The note agreement provides for an
additional interest charge of 2% on this amount until payment is made. The
note agreement, as amended, contains provisions that limit dividends and
other payments, and requires the maintenance of certain financial
covenants and ratios, one of which the Company did not comply with as of
September 30, 2001. Due to the payment default and noncompliance with a
financial covenant, the subordinated notes have also been classified as
current maturities of long-term debt in the accompanying balance sheet as
of September 30, 2001.

Warrants to purchase 300,000 shares of common stock at an exercise price
of $4.28 per share remain outstanding in connection with the original
subordinated note issue. The warrants expire in 2003.

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 notes payable
and term loan and the building mortgage are reasonable estimates of fair
value as interest rates are based on prevailing market rates.

Aggregate maturities of long-term debt are as follows (in thousands):


2002 $32,599
2003 185
2004 172
2005 187
Thereafter 1,473
----------
$34,617
==========

The bank notes payable and term loan under the Company's primary financing
arrangements have a stated maturity date of September 2004; the Senior

30


Subordinated Notes have stated maturities of $5.5 million each in
September 2001, 2002 and 2003. However, as described above, all of this
long-term debt is reflected in the foregoing table as current maturities.


(5) INCOME TAXES:
-------------

The components of net deferred tax asset recognized in the accompanying
consolidated balance sheet are as follows (in thousands):

2001 2000
------------ ------------
U.S. current deferred tax assets (included
in other current assets) $ 578 $ 831
Foreign current deferred tax liability
(included in accrued liabilities) (1,326) (1,434)
U.S. and foreign, noncurrent deferred tax
asset (liability) (included in other
assets and deferred income taxes and other) 1,559 1,486
------------ ------------
Net deferred tax asset $ 811 $ 883
============ ============

Deferred tax assets:
Provisions for losses from discontinued
operations $ 534 $ -
Depreciation 192 257
Vacation pay 66 75
Accrued pension 622 635
Accrued restructuring and related costs 115 558
Accrued environmental costs 65 49
Installment sale and related expenses 216 702
Other 478 255
Foreign net operating loss carryforward 520 511
Valuation allowance (520) (511)
------------ ------------
Total deferred tax asset 2,288 2,531
------------ ------------
Deferred tax liabilities:
Inventories (1,384) (1,128)
Property, plant and equipment (93) (520)
------------ ------------
Total deferred tax liability (1,477) (1,648)
------------ ------------
Net deferred tax asset $ 811 $ 883
============ ============

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 $26,890,000 as
of September 30, 2001. The determination of the unrecognized deferred tax
liability for such temporary differences is not practicable.

At September 30, 2001 and 2000, the Company had valuation allowances
against certain deferred tax assets totaling $520,000 and $511,000,
respectively. These valuation allowances relate to tax assets in
jurisdictions where it is management's best estimate that there is not a
greater than 50% probability that the benefit of the assets will be
realized in the associated tax returns.


31


The provision (benefit) for income taxes from continuing operations is
comprised of the following (in thousands):

2001 2000 1999
-------- -------- ---------
Current:
U.S. Federal $ (352) $ (530) $ (9)
State (12) (124) (22)
Foreign 1,215 845 1,527
-------- -------- ---------
851 191 1,496
-------- -------- ---------
Deferred:
U.S. Federal (199) (900) (929)
State (71) - (110)
Foreign 264 261 150
-------- -------- ---------
(534) (639) (889)
-------- -------- ---------
$ 317 $ (448) $ 607
======== ======== =========


Foreign deferred tax provision is comprised principally of temporary
differences related to Mexico asset purchases. The U.S. deferred (benefit)
in 2001, 2000 and 1999 result primarily from expenses accrued but not yet
deductible for taxes.

The differences between the provision (benefit) for income taxes from
continuing operations computed at the U.S. statutory federal income tax
rate and the provision (benefit) from continuing operations in the
accompanying consolidated financial statements are as follows (in
thousands):

2001 2000 1999
-------- --------- ---------

Amount computed using
statutory rate $ 329 $ (393) $ 642

Foreign income (28) (169) (26)

State taxes, net of federal
benefit (54) (82) (15)

Permanent differences 168 254 231

Other (98) (58) (225)
-------- -------- ---------

Provision (benefit) for
income taxes $ 317 $ (448) $ 607
======== ========= =========

32


(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 tables set forth the plans' funded status (accumulated
benefits exceed assets in all plans) and other information for the fiscal
years ended September 30, 2001 and 2000 (in thousands):

September 30,
2001 2000
---------- ----------
Change in benefit obligation:

Obligation at beginning of year $ 3,887 $ 4,275

Service cost 178 180

Interest cost 245 238

Actuarial gain 25 (495)

Benefit payments (504) (311)
---------- ----------

Obligation at end of year $ 3,831 $ 3,887
========== ==========




Change in market value of plan assets:

Market value at beginning of year $ 3,338 $ 2,906

Actual return on plan assets 298 219

Employer contributions 357 524

Benefit payments (504) (311)
---------- ----------

Market value at end of year $ 3,489 $ 3,338
========== ==========


33


September 30,
2001 2000
---------- ----------
Prepaid pension asset:

Projected benefit obligation $(3,831) $(3,887)

Plan assets at market value 3,489 3,338
---------- ----------

Projected benefit obligation in excess
of plan assets (342) (549)

Unrecognized net gain from past
experience different from assumptions 278 334

Unrecognized net obligation being
recognized over periods from
10 to 16 years 196 631
---------- ----------
Prepaid pension asset $ 132 $ 415
========== ==========

Net periodic pension costs include the following components (in
thousands):

2001 2000 1999
------- ------- -------
Service costs - benefits earned during period $ 178 $ 180 $ 311
Interest cost on projected benefit obligation 245 237 235
Expected return on plan assets (248) (214) (203)
Net amortization and deferral 76 141 139
------- ------- -------
Net periodic pension cost $ 251 $ 344 $ 482
======= ======= =======


In determining the projected benefit obligation, the weighted average
discount rates utilized were 6.4%, 6.4% and 6.7% for the periods ended
September 30, 2001, 2000 and 1999, respectively. The expected long-term
rates of return on assets used in determining net periodic pension cost
ranged from 7.5 % to 8.5 % in all years presented above. 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 two defined-contribution plans (401k) for all
non-union domestic employees and certain union 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 amount of up to 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, 2001, 2000 and 1999 were $588,000, $610,000 and
$871,000, respectively.


34


(7) SHAREHOLDERS' EQUITY:
---------------------

The Company provides an Employee Stock Purchase Plan under which shares of
its common stock can be issued to eligible employees. 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, 2001, 2000 and
1999, 9,415, 10,757 and 6,619 shares, respectively, were issued under this
plan. At September 30, 2001, there are 72,306 shares available for future
purchases under the plan.

The Company has also granted non-qualified options to key employees, under
the 1988 Dixon Ticonderoga Company Executive Stock Plan, to purchase
shares of its common stock at the market price on the date of grant. 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 five years from the date of vesting. All options expire three months
after termination of employment. At September 30, 2001, there were 267,250
options outstanding and no shares available for future grants under the
1988 Plan.

In addition, the Dixon Ticonderoga Company 1999 Stock Option Plan (the
"1999 Plan") was adopted in fiscal 1999, covering a maximum aggregate
300,000 shares. Under the 1999 Plan, qualified incentive stock options or
non-qualified stock options can be granted to employees at the market
price on the date of grant and which will vest on the same basis as the
1988 Plan described above. Non-qualified options under the 1999 Plan may
also be issued to Company outside directors at the market price on the
date of grant and which may vest over varying periods. In 2001, 159,800
and in 2000, 10,000 options were granted to employees under the 1999 Plan.
In addition, in 1999, 30,000 non-qualified options were granted to outside
directors that vest over a two-year period. At September 30, 2001 there
were 189,800 options outstanding and 110,200 shares available for future
grants under the 1999 Plan. The following table summarizes the combined
stock options activity for 2001, 2000 and 1999.


35




2001 2000 1999
-------------------- ------------------- --------------------
Number Option Number Option Number Option
of Shares Price of Shares Price of Shares Price
-------------------- ------------------- --------------------


Options outstanding
at beginning of year 312 $7.75
27,000 $8.63 41,750 $8.63 44,250 8.63
34,125 6.75 48,625 6.75 60,125 6.75
10,750 7.13 10,750 7.13 15,250 7.13
258,000 8.88 273,000 8.88 317,000 8.88
10,000 14.13
2,500 12.88 5,500 12.88 18,500 12.88
10,000 11.38 10,000 11.38
30,000 11.00 40,000 11.00
7,500 4.25

Options exercised (10,000) 6.75 (10,250) 6.75
(2,000) 7.13
(312) 7.75
(11,750) 8.63 (1,750) 8.63
(19,688) 8.88

Options granted 10,000 11.38
40,000 11.00
10,000 4.25
10,000 4.75
17,500 3.81
132,300 3.70

Options expired
or canceled (2,500) 4.25 (2,500) 4.25
(27,000) 8.63 (3,000) 8.63 (750) 8.63
(12,875) 6.75 (4,500) 6.75 (1,250) 6.75
(27,000) 8.88 (15,000) 8.88 (24,312) 8.88
(8,250) 7.13 (2,500) 7.13
(5,000) 11.00 (10,000) 11.00
(3,000) 12.88 (13,000) 12.88
(10,000) 14.13
---------- ---------- ----------
457,050 379,875 429,625
========== ========== ==========


The Company has adopted the disclosure-only provisions of FASB Statement
No. 123 and, accordingly, there is no compensation expense recognized for
its stock option plans. Pro forma net income (loss) and earnings (loss)
per share would have been as follows if the fair value estimates were used
to record compensation expense:

2001 2000 1999
------------ ------------ ------------

Pro forma net income (loss) $ (505,281) $(1,048,842) $6,476,269
============ ============ ============
Earnings (loss) per share:
Basic $ (.16) $ (.33) $ 1.89
============ ============ ============
Diluted $ (.16) $ (.33) $ 1.81
============ ============ ============


36


These pro forma amounts were estimated using the Black-Scholes valuation
model assuming no dividends, expected volatility of 36% in 2001 and 33% in
prior years, an average risk-free interest rate of 4.7% in 2001 and 6.7%
in prior years and expected lives of approximately six years for all
grants prior to 2001 and eight years thereafter. The weighted average fair
value estimates of options granted during 2001, 2000 and 1999 was $2.47,
$2.92 and $3.67, respectively. The weighted average remaining lives are
5.5, 5.6 and 5.6 years for options granted in 2001, 2000 and 1999,
respectively.

In 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 ten years from the date of distribution.

In March 1999, the Company announced a Stock Repurchase Program
authorizing the acquisition of up to $3 million in Dixon Ticonderoga
Company stock. Under this program, the Company repurchased approximately
337,000 shares at a cost of $2.8 million through March 2000, when the
program was terminated.


(8) SUBSIDIARY STOCK REPURCHASE:
----------------------------

In fiscal 1999, the Company purchased 5,722,760 shares (or 17.2%) of its
subsidiary, Grupo Dixon, S.A. de C.V., for approximately $3.7 million,
bringing its total ownership in its subsidiary to 97%. The shares were
originally issued in 1994, when the Company sold 16,627,760 shares of the
subsidiary in an initial public offering on the Mexico Intermediate
Market. The Company applied the purchase method of accounting to record
these repurchases of subsidiary stock.


(9) EARNINGS PER COMMON SHARE:
-----------------------------

Basic earnings (loss) per common share is calculated by dividing net
income (loss) by the weighted average number of shares outstanding.
Diluted earnings per common share is based upon the weighted average
number of shares outstanding, plus the effects of potentially dilutive
common shares [consisting of stock options (Note 7) and stock warrants
(Note 4)]. For the year ended September 30, 2000, options and warrants to
purchase 679,875 shares of common stock were excluded from the computation
of diluted earnings (loss) per share as such options and warrants were
anti-dilutive.


37


Weighted average common shares used in the calculation of earnings (loss)
per share are as follows:

Year Basic Diluted
---- ---------- ----------
2001 3,171,190 3,176,609
2000 3,202,582 3,202,582
1999 3,420,779 3,581,062


(10) RESTRUCTURING AND RELATED COSTS:
--------------------------------

In fiscal 1999, the Company provided approximately $1,917,000 in
connection with Phase 1 of its Restructuring and Cost Reduction Program,
which was intended to improve overall financial performance in the future.
The program included manufacturing plant closure and consolidation, as
well as personnel reduction in manufacturing, sales and marketing and
corporate activities. Approximately 125 employees (principally plant
workers) were affected by this phase of the program. In 1999,
approximately $213,000 was charged against the restructuring cost and
impairment reserves, as set forth below. The carrying amount of property
and equipment held for disposal in Phase 1 approximated $2 million with
the estimated fair value principally based upon assessments of value made
by local realtors or appraisals. Management disposed of the remaining
assets from Phase 1 in May 2001.

In fiscal 2000, approximately $1,910,000 was charged against the
restructuring cost and impairment reserves for finalization of the Phase 1
program (net of $234,000 in credits representing higher than anticipated
proceeds from the sale and abandonment of property and equipment
identified in the Phase 1 program). As set forth below, the Company
incurred approximately $206,000 in net additional charges, principally
related to unanticipated employee costs and other costs directly related
to the restructuring program which were not eligible for recognition in
1999 and thus expensed as incurred in 2000.

Also in fiscal 2000, the Company provided approximately $1,435,000 of
impairment and restructuring related costs in connection with Phase 2 of
its Restructuring and Cost Reduction Program, which included further
consolidation of certain U.S. manufacturing processes, the consolidation
of its Mexico operations into a new facility and additional personnel
reductions in manufacturing, sales, marketing and corporate activities. An
additional 170 employees (principally plant workers) were affected by the
second phase of the program. The carrying amount of additional property
held for disposal under Phase 2 of the program was $1.1 million and this
additional property was disposed of in 2001 for approximately that amount.


38


The restructuring and impairment related charges and subsequent
utilization through fiscal 2001 are summarized below (in thousands):



Losses from
Employee impairment, sale
severance and abandonment
and related of property
costs and equipment Total
-------------- ----------------- ----------

1999 restructuring and impairment
related charges (Phase 1) $ 587 $ 1,330 $ 1,917

Utilized in fiscal 1999 (199) (14) (213)
-------------- ----------------- ----------

Reserve balances at September 30, 1999 388 1,316 1,704

Utilized in fiscal 2000 (Phase 1) (594) (1,316) (1,910)
-------------- ----------------- ----------
(206) - (206)
-------------- ----------------- ----------

Additional fiscal 2000 provisions
(Phase 1) 206 - 206

2000 restructuring and impairment
related charges (Phase 2) 834 468 1,302
-------------- ----------------- ----------

Total 2000 restructuring and
impairment related charges 1,040 468 1,508
-------------- ----------------- ----------
834 468 1,302

Utilized in fiscal 2000 (Phase 2) (161) (156) (317)
-------------- ----------------- ----------

Reserve balances at September 30,
2000 673 312 985

2001 restructuring and impairment
related charges - 868 868

Utilized in fiscal 2001 (Phase 2) (334) (1,180) (1,514)
-------------- ----------------- ----------

$ 339 $ - $ 339
============== ================= ==========




39


(11) LINE OF BUSINESS REPORTING:
---------------------------

Effective with the Company's 2001 plan to exit the Industrial Segment
(Note 12), at September 30, 2001 the Company's continuing operations only
consist of one principal business segment - its Consumer Group. The
following information sets forth certain additional data pertaining to its
operations as of September 30, 2001, 2000 and 1999, and for the years then
ended (in thousands).

Operating Identifiable
Revenues Profit (Loss) Assets
------------ -------------- ----------------
2001:
United States $ 56,770 $ 2,076 $ 44,598
Canada 8,675 527 5,673
Mexico 23,813 2,849 29,012
United Kingdom 1,046 (26) 674
China 189 (70) 1,363

2000:
United States $ 57,043 $ (658) $ 45,317
Canada 9,515 620 6,741
Mexico 23,943 2,664 27,910
United Kingdom 1,124 (16) 616
China 66 (95) 1,153

1999:
United States $ 65,222 $ 145 $ 57,572
Canada 8,943 557 5,784
Mexico 22,127 4,890 22,921
United Kingdom 1,080 (13) 633


(12) DISCONTINUED OPERATIONS:
------------------------

On September 17, 2001, the Company formalized its decision to offer for
sale its New Castle Refractories division, the last business of its
Industrial Group. The Company had disposed of its Graphite and Lubricants
division in 1999. Accordingly, related operating results of the Industrial
Group have been reported as discontinued operations in the accompanying
consolidated financial statements.


40


Net revenues and income (loss) from discontinued operations are as follows
(in thousands):

2001 2000 1999
--------- ---------- ---------

Net revenues $ 9,529 $11,188 $17,317
========= ========== =========

Income (loss) from discontinued
operations before income taxes $ (85) $ (88) $10,267
Income tax benefit (expense) 29 23 (3,987)
--------- ---------- ---------
(56) (65) 6,280
--------- ---------- ---------
Loss on disposal of Industrial Group (1,570) - -
Income tax benefit 526 - -
--------- ---------- ---------
1,044 - -
--------- ---------- ---------

Income (loss) from discontinued
operations $(1,100) $ (65) $6,280
========= ========== =========
Earnings (loss) per share (basic) $ (0.35) $ (0.02) $ 1.83
========= ========== =========
Earnings (loss per share (diluted) $ (0.35) $ (0.02) $ 1.76
========= ========== =========


Income (loss) from discontinued operations includes pre-tax gains on sales
of assets of $1,202 and $9,636, in 2001 and 1999, respectively,
attributable to the sale of the Company's Graphite and Lubricants
division. In addition, interest expense of $427, $597 and $603 has been
allocated to income (loss) from discontinued operations in 2001, 2000 and
1999, respectively, based upon the identifiable assets of such operations.
The loss on disposal in 2001 includes the anticipated loss on the sale of
the New Castle Refractories division of $468, a provision for the wind-up
of that division's pension plans of $432, and a provision for anticipated
operating losses through the date of disposal (expected to be by August
2002) of $670.

Assets and liabilities relating to discontinued operations and included in
the accompanying consolidated balance sheets are as follows (in
thousands):

September 30,
2001 2000
--------- ----------
Current assets $ 4,619 $ 4,447
Property, plant and equipment, net 473 534
Current liabilities (1,448) (733)
Long-term liabilities and other, net (743) (495)
--------- ----------
Net assets of discontinued operations $ 2,901 $ 3,753
========= ==========

41


(13) COMMITMENTS AND CONTINGENCIES:
------------------------------

The Company has entered into employment agreements with four executives
which provide for the continuation of salary (currently aggregating
$68,700 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 has also entered into
various agreements with nine additional employees which provide for
continuation of salaries (averaging $8,500 each per month) for periods up
to 24 months under certain circumstances.

The Company leases a distribution center in Macon, Georgia for
approximately $365,000 per year and a manufacturing and distribution
facility in Mexico at an average annual rental of $1,188,000 per year. The
Company also leases certain manufacturing equipment under a five-year
noncancelable operating lease arrangement. The rental expense under this
lease was $372,000 in 2001. Annual future minimum rental payments are
approximately $372,000 per year through 2004 and $93,000 in 2005. Rental
expense under a previous equipment lease was $417,000 in 1999.

The Company, in the normal course of business, is party in certain
litigation. In 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 a claim under New
Jersey's Environmental Clean-Up Responsibility Act (ECRA) by a 1984
purchaser of industrial property from the Company. All subsequent appeals
were denied and as a result of the judgment, the Company paid $3.6 million
in 1998 to satisfy this claim in full, including all accrued interest. The
Company continued to pursue other responsible parties for indemnification
and/or contribution to the payment of this claim (including its insurance
carriers) and in fiscal 2000 the Company reached settlements with its
various insurers for reimbursement of legal costs in the amount of
$653,000 (reflected as a reduction in selling and administrative
expenses). In 2001, a pending malpractice suit was settled and the Company
received $575,000 (also reflected as a reduction in selling and
administrative expenses).

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 assesses the extent of environmental matters on an ongoing
basis. In the opinion of management (after taking into account accruals of
approximately $269,000 as of September 30, 2001), the resolution of these
matters will not materially affect the Company's future results of
operations or financial position.


42


(14) SUMMARY OF QUARTERLY FINANCIAL INFORMATION ( UNAUDITED )
--------------------------------------------------------
( In Thousands, Except Per Share Data ):
----------------------------------------

2001: First Second Third Fourth
---- ---------- ---------- ---------- ----------
Revenues $17,242 $18,727 $28,996 $25,528
Income (loss) from continuing
operations (1,144) (326) 1,514 576
Income (loss) from discontinued
operations (166) 646 (98) (1,482)
Net income (loss) (1,310) 320 1,416 (906)

Earnings (loss) per share: (a)
Continuing operations:
Basic (.36) (.10) .48 .18
Diluted (.36) (.10) .48 .18
Discontinued operations:
Basic (.05) .20 (.03) (.47)
Diluted (.05) .20 (.03) (.47)
Net income (loss):
Basic (.41) .10 .45 (.29)
Diluted (.41) .10 .45 (.29)

2000: First Second Third Fourth
---- ---------- ---------- ---------- ----------
Revenues $16,351 $19,395 $30,618 $25,327
Income (loss) from continuing
operations (1,309) (221) 1,371 (574)
Income (loss) from discontinued
operations (191) (26) 145 7
Net income (loss) (1,500) (247) 1,516 (567)

Earnings (loss) per share: (a)
Continuing operations:
Basic (.39) (.07) .44 (.18)
Diluted (.39) (.07) .44 (.18)
Discontinued operations:
Basic (.06) (.01) .04 .00
Diluted (.06) (.01) .04 .00
Net income (loss):
Basic (.45) (.08) .48 (.18)
Diluted (.45) (.08) .48 (.18)

(a) Calculated independently for each period, and consequently, the sum of
the quarters may differ from the annual amount.


43


(15) LIQUIDITY, CAPITAL RESOURCES AND SUBSEQUENT EVENTS:
---------------------------------------------------

On September 15, 2001, a waiver of compliance with one provision of the
Company's primary lending agreement expired and shortly thereafter its
senior lenders prohibited the payment of $5.5 million in principal due to
senior subordinated noteholders on September 26, 2001 (see Note 4). The
payment due date was later extended by the noteholders until November 14,
2001 and the aforementioned waiver from the Company's senior lenders was
also extended through that date. These extensions expired on November 15,
2001. The senior lenders again blocked any payment to the subordinated
noteholders and the Company has continued to negotiate with its various
lenders since then. As of September 30, 2001, the Company was not in
compliance with two financial covenants under its senior debt agreements
and one financial covenant under its subordinated note agreement. The
Company has received an additional extension and a waiver of certain
defaults under its senior debt agreements through May 3, 2002 to allow the
Company more time to address its debt issues to the mutual satisfaction of
all parties involved. The Company has asked both its senior and
subordinated lenders to amend various provisions of their debt agreements
until at least October 2002 to allow the Company time to pursue a
longer-term solution.

The Company believes it has sufficient lines of credit available under its
senior debt and other agreements to fulfill all current and anticipated
operating requirements of its business. Moreover, the senior lenders have
consistently supported the Company by continuing normal funding under
their agreements throughout the ongoing negotiations. However, the Company
does not believe it will have excess cash flow to retire the total $16.5
million in subordinated notes by their due date in 2003. The Company has
asked the subordinated noteholders and they have expressed a willingness
to consider restructuring their scheduled principal payments to allow the
Company sufficient time to retire the notes through the infusion of some
form of new equity capital, new secondary financing and/or the sale of
assets. However, the Company cannot assure that its efforts will be
successful, that the subordinated noteholders will amend their scheduled
payments and/or that it will maintain and/or secure new sources of
capital. Moreover, in light of the current circumstances regarding the
Company's various debt arrangements, the report of the Company's
independent accountants includes an explanatory paragraph as to
substantial doubt about the Company's ability to continue as a going
concern.

The Company's Mexico subsidiary presently has approximately $13 million
lines of credit ($6 million unused) expiring at various dates. The
Company's subsidiary cannot assure that these lines of credit will
continue to be available after their respective expiration dates, or that
replacement lines of credit will be secured.

The Company has retained Wachovia Securities (formerly First Union
Securities) and certain other outside consultants to advise and assist it
in evaluating certain strategic alternatives, including capital
restructuring, mergers and acquisitions, and/or other measures designed to
resolve the Company's issues with its lenders while maximizing shareholder
value.


44


DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 2001, 2000 and 1999

Balance at Additions Additions to Balance
Beginning Charged (Deductions at Close
Description Of Period to Income From) Reserves of Period
- ------------------- ------------ ---------- --------------- -------------

Allowance for Doubtful Accounts:
- --------------------------------

Year Ended
September 30, 2001 $ 1,418,908 $ 151,263 $ (87,647) (1) $ 1,482,524
============ ========== =============== =============

Year Ended
September 30, 2000 $ 1,428,541 $ 218,795 $ (228,428) (1) $ 1,418,908
============ ========== =============== =============

Year Ended
September 30, 1999 $ 1,369,815 $ 191,356 $ (132,630) (1) $ 1,428,541
============ ========== =============== =============

(1) Write-off of accounts considered to be uncollectible (net of recoveries).




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------

None.


45


PART III
--------


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
- --------------------------------------------------------

Certain information required under this Item with respect to Directors and
Executive Officers will be contained in the Company's 2001 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 73 Chairman of the Board since February
(Father-in-law of Richard F. Joyce) 1989; President and Chief Executive
Officer or Co-Chief Executive Officer
since 1978.

Richard F. Joyce 46 Vice Chairman of the Board since
(Son-in-law of Gino N. Pala) January 1990; President and Co-Chief
Executive Officer since March 1999;
prior thereto President and Chief
Operating Officer, Consumer Group, since
March,1996; Executive Vice President and
Chief Legal Executive since February
1991; Corporate Counsel since July 1990.

Richard A. Asta 45 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; and Director
since May 1999.

Leonard D. Dahlberg, Jr. 50 Executive Vice President of Operations
since August 2000; Executive Vice
President of Procurement since April
1999; prior thereto Executive Vice
President, Industrial Group, since
March 1996; Executive Vice President of
Manufacturing/Consumer Products
division since August 1995; Senior Vice
President of Manufacturing since
February 1993; Vice President of
Manufacturing since March 1990.

John Adornetto 60 Vice President and Corporate Controller
since January 1991; prior thereto
Corporate Controller since September
1978.

Diego Cespedes Creixell 43 President, Grupo Dixon S.A. de C.V.,
since August 1996 and Director since
May 2000.


46


ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------

Information required under this Item will be contained in the Company's
2001 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
2001 Proxy Statement which is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------

Information required under this Item will be contained in the Company's
2001 Proxy Statement which is incorporated herein by reference.


47


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:

(2) a. Share Purchase Agreement by and among Dixon Ticonderoga
de Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de C.V.,
and Guillermo Almazan Cueto with respect to the capital
stock of Vinci de Mexico, S.A. de C.V., (English
translation). 4

(2) b. Asset Purchase Agreement dated February 9, 1999, by and
between Dixon Ticonderoga Company, as Seller and Asbury
Carbons, Inc., as Buyer. 6

(3) (i) Restated Certificate of Incorporation. 2

(3) (ii) Amended and Restated Bylaws. 1

(4) a. Specimen Certificate of Company Common Stock. 2

(4) b. Amended and Restated Stock Option Plan. 3

(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. 1

(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and
Warrant Purchase Agreement. 1

(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement. 1

(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1

(10) e. Equipment Option and Purchase Agreement between
Carborundum Corporation and New Castle Refractories
Company, a division of Dixon Ticonderoga Company. 1

(10) f. Product Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1


48


(10) g. Second 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. 5

(10) h. Third Modification of Amended and Restated Revolving
Credit Loan and Security Agreement, Amendment to Loan
Documents and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada and
LaSalle Bank. 7

(10) i. First Modification of Amended and Restated Term Loan
Agreement and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada and
LaSalle Bank. 7

(10) j. Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
2003, Note and Warrant Purchase Agreement.7

(10) k. Fourth Modification of Amended and Restated Revolving
Credit Loan and Security Agreement.

(10) l. Second Modification of Amended and Restated Term Loan
Agreement.

(10) m. Amendment No. 2 to Note and Warrant Purchase Agreement.

(21) Subsidiaries of the Company

(23) Consent of Independent Certified Public Accountants.

1 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.

2 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.

3 Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.

4 Incorporated by reference to the Company's current report on Form 8-K dated
December 12, 1997, filed in Washington D.C.

5 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998, file number 0-2615, filed in Washington, D.C.

6 Incorporated by reference to the Company's current report on Form 8-K dated
March 2, 1999, filed in Washington D.C.

7 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2615 filed in Washington, D.C.

8 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2000, file number 0-2655 filed in Washington, D.C.

(b) Reports on Form 8-K:
None.


49


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 to be
signed on its behalf by the undersigned, thereunto duly authorized.

DIXON TICONDEROGA COMPANY


/s/ Gino N. Pala
----------------------
Gino N. Pala, Chairman of Board and
Co-Chief Executive Officer

Pursuant to the Securities Exchange Act of 1934, this Annual Report on Form
10-K has been signed below by the following persons on behalf of the Company in
the capacities indicated.





/s/ Gino N. Pala
----------------------------
Gino N. Pala Chairman of Board, Co-Chief
Executive Officer and Director
Date: January 15, 2002
/s/ Richard F. Joyce
----------------------------
Richard F. Joyce Vice Chairman of Board,
Co-Chief Executive Officer,
President and Director
Date: January 15, 2002
/s/ Richard A. Asta
----------------------------
Richard A. Asta Executive Vice President of
Finance, Chief Financial
Officer and Director
Date: January 15, 2002
/s/ Diego Cespedes Creixell
----------------------------
Diego Cespedes Creixell President, Grupo Dixon S.A. de
C.V., and Director
Date: January 15, 2002
/s/ Harvey L. Massey
----------------------------
Harvey L. Massey Director
Date: January 15, 2002
/s/ Philip M. Shasteen
----------------------------
Philip M. Shasteen Director
Date: January 15, 2002
/s/ Ben Berzin, Jr.
----------------------------
Ben Berzin, Jr. Director
Date: January 15, 2002
/s/ Kent Kramer
----------------------------
Kent Kramer Director
Date: January 15, 2002
/s/ John Ritenour
----------------------------
John Ritenour Director
Date: January 15, 2002


50


Exhibit (21)
------------


2001 ANNUAL REPORT ON FORM 10-K
-------------------------------

SUBSIDIARIES OF THE COMPANY
---------------------------

All of the Registrant's subsidiaries as of September 30, 2001, are listed below.
Subsidiaries of a subsidiary are indented. All subsidiaries are included in the
consolidated financial statements of the Registrant.


Percentage of
State Or Voting
Jurisdiction of Securities
Organization Owned
----------------- ---------------

Dixon Ticonderoga, Inc. Canada 100%

Grupo Dixon, S.A. de C.V. (Subsidiary of
Dixon Ticonderoga, Inc.) Mexico 97%

Dixon Ticonderoga de Mexico, S.A. de C.V.
(Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%

Dixon Comercializadora Dixon, S.A. de C.V.
(Subsidiary of Grupo Dixon, S.A. de C.V.) Mexico 100%

Servidix, S.A. de C.V. (Subsidiary of
Grupo Dixon, S.A. de C.V.) Mexico 100%

Dixon Industrial Mexico, S.A. de C.V. (a) Mexico 100%

Beijing Dixon Ticonderoga Stationery Company, Ltd. China 100%

Ticonderoga Graphite, Inc. (a) New York 100%

Dixon Europe, Limited United Kingdom 100%

(a) Inactive


51


Exhibit (23)
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------



We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-20054, 33-23380 and 333-22205) of Dixon
Ticonderoga Company of our report dated December 6, 2001, except as to the first
paragraph of Note 15 for which the date is January 10, 2002, relating to the
financial statements and financial statement schedule, which appears in this
Form 10-K.





PricewaterhouseCoopers LLP
Tampa, Florida
January 10, 2002



52