SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-8689
DIXON TICONDEROGA COMPANY
Incorporated pursuant to the Laws of Delaware State
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Internal Revenue Service - Employer Identification No. 23-0973760
195 International Parkway, Heathrow, FL 32746
(407) 829-9000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $1 par value,
outstanding on June 30, 2002, was 3,192,832.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
June 30, 2002 and September 30, 2001 3-4
Consolidated Statements of Operations -- For The
Three and Nine Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Comprehensive Income
(Loss) -- For The Three and Nine Months Ended June 6
30, 2002 and 2001
Consolidated Statements of Cash Flows -- For The
Nine Months Ended June 30, 2002 and 2001 7
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-19
Item 3. Quantitative and Qualitative Disclosures About Market 20
Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21-22
Signatures 23
2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1.
- -------
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
June 30, 2002 September 30,
(Unaudited) 2001
--------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $ 576,293 $ 844,299
Receivables, less allowance for
doubtful accounts of $1,379,214 at
June 30, 2002 and $1,482,524 at
September 30, 2001 40,386,805 31,647,950
Inventories 31,038,051 35,583,082
Other current assets 2,735,763 2,227,785
-------------- --------------
Total current assets 74,736,912 70,303,116
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 10,878,498 10,608,980
Machinery and equipment 16,805,905 17,155,371
Furniture and fixtures 1,626,923 1,741,811
-------------- --------------
29,311,326 29,506,162
Less accumulated depreciation (19,434,671) (19,022,674)
-------------- --------------
9,876,655 10,483,488
-------------- --------------
OTHER ASSETS 6,101,947 5,625,771
-------------- --------------
$90,715,514 $86,412,375
============== ==============
3
June 30, 2002 September 30,
(Unaudited) 2001
--------------- --------------
CURRENT LIABILITIES:
Notes payable $ 11,178,623 $ 6,294,268
Current maturities of long-term debt 34,152,891 32,598,531
Accounts payable 9,017,100 9,321,957
Accrued liabilities 8,191,734 9,132,057
--------------- --------------
Total current liabilities 62,540,348 57,346,813
--------------- --------------
LONG-TERM DEBT 1,896,365 2,018,125
--------------- --------------
DEFERRED INCOME TAXES AND OTHER 697,613 984,492
--------------- --------------
MINORITY INTEREST 592,042 577,241
--------------- --------------
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 3,710,309 3,710,309
Capital in excess of par value 3,593,826 3,670,135
Retained earnings 25,725,733 25,667,675
Accumulated comprehensive income (loss) (4,679,813) (4,101,681)
--------------- --------------
28,350,055 28,946,438
Less - treasury stock, at cost (517,477
shares at June 30, 2002 and 532,847
shares at September 30, 2001) (3,360,909) (3,460,734)
--------------- --------------
24,989,146 25,485,704
--------------- --------------
$ 90,715,514 $ 86,412,375
=============== ==============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
4
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-------------------------------------------------
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001
-----------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2002 2001 2002 2001
REVENUES $29,047,115 $28,841,140 $65,367,571 $64,501,642
------------- ------------- -------------- -------------
COST AND EXPENSES:
Cost of goods sold 18,005,461 17,985,687 41,128,118 40,624,630
Selling and administrative expenses 8,119,861 6,849,770 21,296,339 19,706,181
Provision for restructuring and
related costs 146,811 440,553 472,612 762,988
------------- ------------- -------------- -------------
26,272,133 25,276,010 62,897,069 61,093,799
------------- ------------- -------------- -------------
OPERATING INCOME 2,774,982 3,565,130 2,470,502 3,407,843
INTEREST EXPENSE 1,034,000 1,174,811 2,840,176 3,256,248
------------- ------------- -------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAX
(BENEFIT) AND MINORITY INTEREST 1,740,982 2,390,319 (369,674) 151,595
INCOME TAX (BENEFIT) 359,493 844,789 (341,474) 75,006
MINORITY INTEREST 23,530 30,733 44,548 33,095
------------- ------------- -------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 1,357,959 1,514,797 (72,748) 43,494
DISCONTINUED OPERATIONS, NET OF
INCOME TAXES -- (98,385) 130,806 382,390
------------- ------------- -------------- -------------
NET INCOME $ 1,357,959 $ 1,416,412 $ 58,058 $ 425,884
============= ============= ============== =============
EARNINGS (LOSS) PER COMMON SHARE
(BASIC):
Continuing operations $ 0.43 $ 0.48 $ (0.02) $ 0.01
Discontinued operations -- (0.03) 0.04 0.12
------------- ------------- -------------- -------------
Net income $ 0.43 $ 0.45 $ 0.02 $ 0.13
============= ============= ============== =============
EARNINGS (LOSS) PER COMMON SHARE
(DILUTED):
Continuing operations $ 0.43 $ 0.48 $ (0.02) $ 0.01
Discontinued operations -- (0.03) 0.04 0.12
------------- ------------- -------------- -------------
Net income $ 0.43 $ 0.45 $ 0.02 $ 0.13
============= ============= ============== =============
Shares Outstanding:
Basic 3,187,709 3,174,324 3,180,878 3,169,616
============= ============= ============== =============
Diluted 3,187,709 3,178,999 3,180,878 3,171,120
============= ============= ============== =============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
5
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
------------------------------------------------------------------
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2002 AND 2001
----------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
NET INCOME $1,357,959 $1,416,412 $ 58,058 $ 425,884
OTHER COMPREHENSIVE INCOME (LOSS):
Cumulative effect adjustment to
recognize fair value of cash
flow hedges -- -- -- (54,205)
Current period adjustment to
recognize fair value of
cash flow hedges (107,421) 43,863 43,548 (233,085)
Foreign currency translation
adjustments (1,524,191) 1,098,103 (621,680) 746,790
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (273,653) $2,558,378 $ (520,074) $ 885,384
=========== =========== =========== ===========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
6
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------
FOR THE NINE MONTHS ENDED JUNE 30, 2002 AND 2001
------------------------------------------------
2002 2001
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ (72,748) $ 43,494
Net income from discontinued operations 130,806 382,390
Adjustment to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 1,878,150 1,849,141
Deferred taxes -- 49,681
Provision for doubtful accounts receivable 154,457 154,048
Gain on sale of assets (208,290) (1,202,448)
Gain attributable to foreign currency exchange (37,828) (231,909)
Income attributable to minority interest 44,548 33,095
Changes in assets and liabilities:
Receivables (10,040,052) (10,595,201)
Inventories 4,277,291 (1,507,486)
Other current assets (241,273) (262,095)
Accounts payable and accrued liabilities (935,900) 591,220
Other assets (606,141) (205,671)
--------------- ---------------
Net cash used in operations (5,656,980) (10,901,741)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (1,088,146) (2,639,342)
Proceeds on sale of assets 208,290 1,034,028
--------------- ---------------
Net cash used in investing activities (879,856) (1,605,314)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 5,338,269 6,517,076
Net proceeds from long-term debt 1,432,600 5,696,430
Deferred financing costs (586,198) --
Sales of treasury stock 23,516 31,013
Other non-current liabilities 40,736 (22,036)
--------------- ---------------
Net cash provided by financing activities 6,248,923 12,222,483
--------------- ---------------
Effect of exchange rate changes on cash 19,907 265,985
--------------- ---------------
Net decrease in cash and cash equivalents (268,006) (18,587)
Cash and cash equivalents, beginning of period 844,299 448,452
--------------- ---------------
Cash and cash equivalents, end of period $ 576,293 $ 429,865
=============== ===============
Supplemental Disclosures:
Cash paid during the period:
Interest $ 2,459,790 $ 3,893,169
Income taxes 1,289,057 1,872,223
During the nine months ended June 30, 2001, the Company accepted a note
receivable of $1,640,000 as partial consideration for the sale of certain
assets.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
7
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, all adjustments (solely of a normal
recurring nature) necessary for the fair presentation of the financial
position of Dixon Ticonderoga Company and subsidiaries as of June 30,
2002, and the results of their operations and cash flows for the nine
months ended June 30, 2002 and 2001, have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the entire year.
2. Inventories:
Since amounts for inventories under the LIFO method are based on annual
determinations of quantities and costs as of the end of the fiscal year,
the inventories at June 30, 2002 (for which the LIFO method of accounting
are used) are based on certain estimates relating to quantities and costs
as of year end.
Inventories consist of (in thousands):
June 30, September 30,
2002 2001
------------ -------------
Raw materials $ 12,973 $ 13,328
Work in process 2,699 3,572
Finished goods 15,366 18,683
------------ -------------
$ 31,038 $ 35,583
============ =============
3. Effect of new accounting pronouncement:
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.
8
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.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". The statement addresses the accounting for
extinguishment of debt, sale-leaseback transactions and certain lease
modifications. The statement is effective for transactions occurring after
May 15, 2002. The Company does not expect the adoption of Statement No.
145 to have a material impact on the Company's future results of
operations or financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." The provisions of Statement No. 146 are effective for
exit or disposal activities that are initiated after December 31, 2002.
The Company does not expect the adoption of Statement No. 146 to have a
material impact on the Company's future results of operations or financial
position.
4. RESTRUCTURING AND RELATED COSTS:
In the first nine months of fiscal 2002, the Company continued its efforts
towards completion of Phase 2 of its Restructuring and Cost Reduction
Program, including the further consolidation of certain U.S. manufacturing
processes with its Mexico operations as well as additional personnel
reductions at all facilities. The restructuring and related costs
(severances and lease settlement expense) and utilization since September
30, 2001 are summarized below (in thousands):
Losses from the
Employee impairment, sale
severance or abandonment
and related of property and
costs equipment Total
---------- --------------- ---------
Reserve balances at September 30, 2001 $ 339 $ -- $ 339
Period ended June 30, 2002
restructuring and impairment
related charges 174 299 473
Reserves balances at June 30, 2002 (374) (299) (673)
---------- --------------- ---------
Reserves balances at June 30, 2002 $ 139 $ -- $ 139
========== =============== =========
In addition, the Company incurred $64,000 and $386,000 in costs associated
with the disposal of property remaining from its prior phase of
restructuring in the quarter and nine months ended June 30, 2001,
respectively. Moreover, in the June 30, 2001 quarter, the Company incurred
$377,000 in Mexico for the consolidation of operations into a new
facility.
9
5. LINE OF BUSINESS REPORTING:
Effective with the Company's 2001 plan to exit the Industrial Segment
(Note 6), the Company's continuing operations consist only of one
principal business segment - its Consumer Group. The following information
sets forth certain additional data pertaining to its operations for the
three and nine-month periods ended June 30, 2002 and 2001 (in thousands).
Three Months Nine Months
------------------------ ------------------------
Operating Operating
Revenues Profit (Loss) Revenues Profit (Loss)
----------- ------------ ----------- ------------
2002:
United States $ 17,414 $ 706 $ 37,819 $ (970)
Canada 2,793 382 6,393 773
Mexico 8,542 1,618 20,376 2,528
United Kingdom 297 18 761 10
China 1 51 19 130
----------- ----------- ----------- ------------
$ 29,047 $ 2,775 $ 65,368 $ 2,471
=========== =========== =========== ============
2001:
United States $ 17,136 $ 1,240 $ 39,868 $ 391
Canada 2,893 535 6,240 653
Mexico 8,434 1,723 17,551 2,462
United Kingdom 314 6 768 (23)
China 64 61 75 (75)
----------- ----------- ----------- ------------
$ 28,841 $ 3,565 $ 64,502 $ 3,408
=========== =========== =========== ============
The United States operating profit (loss) in each period includes
unallocated corporate expenses.
6. DISCONTINUED OPERATIONS:
In September 2001, the Company formalized its decision to offer for sale
its New Castle Refractories division, the last business of its Industrial
Group. Accordingly, related operating results of the Industrial Group have
been reported as discontinued operations in the accompanying consolidated
financial statements. The Company expects to complete the sale of this
division in September 2002.
10
Net revenues and income (loss) from discontinued operations in the
accompanying financial statements are as follows (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- ---------- --------- ----------
Net revenues $ -- $ 2,414 $ -- $ 7,122
========= ========== ========= ==========
Income (loss) from
discontinued operations
before income taxes $ -- $ (148) $ 208 $ 575
Income taxes -- (50) 77 193
--------- ---------- --------- ----------
Income (loss) from
discontinued operations $ -- $ (98) $ 131 $ 382
========= ========== ========= ==========
Earnings (loss) per share $ -- $ (0.03) $ 0.04 $ 0.12
(basic) ========= ========== ========= ==========
Earnings (loss) per share $ -- $ (0.03) $ 0.04 $ 0.12
(diluted) ========= ========== ========= ==========
Income (loss) from discontinued operations includes allocated interest
expense of $106 and $322 in the three-month and nine-month periods ended
June 30, 2001, respectively, based upon the identifiable assets of such
operations. The Company recorded pre-tax gains of $208 and $1,202 on the
sale of idle real estate in the nine-month periods ended June, 2002 and
2001, respectively. In September 2001, the Company provided $670 for
anticipated operating losses and $432 for the wind-up of certain pension
plans. Losses from discontinued operations during the three-month and
nine-month periods ended June 30, 2002 were $212 and $577, respectively
(including $81 and $248 in allocated interest expense, respectively). In
addition, during the nine-month period ended June 30, 2002, the Company
paid $432 for the wind-up of pension plans.
Assets and liabilities relating to discontinued operations and included in
the accompanying consolidated balance sheets are as follows (in
thousands):
June 30, September 30,
2002 2001
------------ --------------
Current assets $ 4,452 $ 4,619
Property, plant and equipment, net 401 473
Current liabilities (1,242) (1,448)
Long-term liabilities and other, net (811) (743)
------------ --------------
Net assets of discontinued operations $ 2,800 $ 2,901
============ ==============
7. LIQUIDITY AND CAPITAL RESOURCES:
In September 2001, a waiver of compliance with one provision of the
Company's existing primary lending agreement expired and its senior
lenders prohibited the payment of $5.5 million in principal due to senior
subordinated noteholders on September 26, 2001. The subordinated notes
payment due date was extended by the noteholders on various dates since
(most recently through August 19, 2002) to allow the Company more time to
address its debt issues to the mutual satisfaction of all parties
involved.
The Company is close to reaching terms with a new senior lender and its
existing subordinated lenders to refinance and restructure its present
U.S. debt through 2005. The new lender has preliminarily agreed to provide
a three-year $28 million senior debt facility which would replace the
Company's existing senior debt with a consortium of lenders. The new
senior debt arrangement would provide $5 million in increased working
capital liquidity that would be available for operations and to make
certain subordinated debt payments.
11
The senior debt facility would include a $25 million revolving loan, which
would bear interest at either the prime rate, plus 0.75%, or the
prevailing LIBOR rate, plus 3.5%. The agreement would also provide for a
closing fee of 1% of the maximum credit line and a fee of 0.25% on the
first and second anniversary of the loan; a monthly maintenance fee of
$5,000; and certain additional transactional fees. Borrowings under the
revolving loan would be based upon 85% of eligible U.S. and Canada
accounts receivable, as defined; 50% of certain accounts receivable having
extended payment terms; and varying advance rates for U.S. and Canada raw
materials and finished goods inventories. The facility would include term
loans aggregating $3 million, which would bear interest at either the
prime rate, plus 1.5%, or the prevailing LIBOR rate, plus 4.5%. These
loans are expected to be payable in monthly installments of $50,000, plus
interest. The loan agreement would also contain restrictions regarding
subordinated debt payments (discussed below), a requirement to maintain a
minimum level of operating cash flow and net worth and a limitation on the
amount of annual capital expenditures.
The Company also reached tentative agreement with the holders of $16.5
million of Senior Subordinated Notes to restructure the notes, extending
the maturity date to 2005. The Company would pay approximately $6.5
million to its subordinated lenders over the next three years, at which
time the balance of approximately $10 million would be due. Payments to
the subordinated lenders would be subject to certain restrictions imposed
under the pending senior debt facility. At the time of the expected
closing of the new senior debt facility described above, the Company would
pay all subordinated debt accrued interest (approximately $1.9 million)
and $1 million in principal. Interest on the balance of subordinated debt
would be paid quarterly thereafter. If the Company would be unable to make
any portion of the remaining $5.5 million by 2005 (due to restrictions
imposed under the new senior debt facility or otherwise) the noteholders
would receive warrants equivalent to approximately 2.27% of the diluted
common shares outstanding for each $1 million in unpaid principal, in
addition to warrants (expiring in September 2003) now held by them. Any
warrants received or earned would be relinquished if the notes were to be
paid in full during the term of the new agreement. The agreement would
also grant the subordinated lenders a lien on Company assets (junior in
all aspects to the new senior debt lender). The interest rate on the
subordinated notes has been 13.5% through June 30, 2002 (12% payable in
cash and 1.5% PIK) plus an additional 2% on the past due amount of $5.5
million. At closing, the interest rate on the notes would change to 12.5%
(without PIK) through maturity in 2005. The new subordinated note
agreement would include certain other provisions, including the
elimination or adjustment of financial covenants contained in the original
agreement.
The closing of the restructuring of the Company's senior and subordinated
debt is subject to the lenders completing an intercreditor agreement and
to final negotiation and documentation. All parties are working toward a
closing by September 2002. Although the Company believes that the debt
restructuring will be consummated on substantially the terms described
above, there can be no assurance that that will be the case.
During its debt negotiations, the Company has improved its cash management
processes and believes it has sufficient lines of credit available under
its present senior debt and other agreements to fulfill all current and
anticipated operating requirements of its business until it closes its
contemplated new debt agreements. Moreover, the present senior lenders
have consistently supported the Company by continuing normal funding under
their agreements throughout the ongoing negotiations. The Company expects
to finalize the new borrowing arrangements described above before the end
of its current fiscal year. However, the Company cannot assure that they
will close on these new borrowing arrangements or that changes in the
terms described above will not be made prior to closing. In light of the
circumstances regarding the Company's various existing loan arrangements,
the report of the Company's independent accountants (with respect to its
fiscal 2001 financial statements) included an explanatory paragraph as to
substantial doubt about the Company's ability to continue as a going
concern.
12
The Company's Mexico subsidiary presently has approximately $14 million in
bank lines of credit ($3 million unused at June 30, 2002) expiring at
various dates. The Company is awaiting approval on at least $3 million of
additional Mexico lines of credit and is presently reviewing other debt
proposals for its Mexico subsidiary. The Company's subsidiary cannot
assure that these lines of credit will continue to be available after
their respective expiration dates, or that additional 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.
13
Item 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
REVENUES for the quarter ended June 30, 2002, increased $206,000 from the
same quarter last year. The changes by segment are as follows:
Increase % Increase (Decrease)
(Decrease) ------------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $ 278 2 5 (3)
Foreign Consumer (72) (1) 4 (5)
U.S. Consumer revenue volume increases in the retail and educational
channel were partially offset by lower prices offered to enhance inventory
reduction efforts. Foreign Consumer was slightly lower overall as higher volume
was more than offset by the effects of devaluation of the Mexican peso
(approximating $280,000) and Mexico price reductions in response to competitive
pricing pressure.
Revenues for the nine months ended June 30, 2002, increased $866,000 from
the same period last year. The changes by segment are as follows:
Increase % Increase (Decrease)
(Decrease) ------------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $(2,049) (5) (3) (2)
Foreign Consumer 2,915 12 15 (3)
The U.S. Consumer revenue decrease was primarily in the educational market
as distributor consolidations led to reduced purchases in an effort to lower
their inventory levels. Foreign Consumer revenue increased primarily in Mexico
primarily due to increased sales to existing mass market customers and
additional government business.
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 1998. In the short term after such a devaluation, consumer confidence
has been shaken, leading to an immediate reduction in revenues in the months
following the devaluation. Then, after the immediate shock, and as the peso
stabilizes, revenues tend to grow. Selling prices tend to rise over the long
term to offset any inflationary increases in costs. The peso, as well as any
currency value, depends on many factors including international trade, investor
confidence, and government policy, to name a few. These factors are impossible
for the Company to predict, and thus, an estimate of potential effect on results
of operations for the future cannot be made. This currency risk in Mexico is
presently managed through occasional foreign currency hedges, local currency
financing and by export sales denominated in U.S. dollars.
OPERATING INCOME in the quarter ended June 30, 2002 decreased $790,000
from the same quarter last year. Overall gross profit margins remained stable,
as this decrease was predominantly due to higher selling and administrative
costs, partially offset by lower restructuring costs. U.S. administrative costs
for the prior year quarter and nine months ended June 30, 2001, reflected a
reduction of approximately $600,000 for legal recoveries from a settlement with
certain insurance companies. In addition, the current year period reflects
higher U.S. selling costs associated with increased sales in the retail
mass market and higher bank financing charges. These factors were primarily
responsible for an increase in selling and administrative costs (28.0% of sales
as compared to 23.7% of sales in the prior year quarter). Restructuring costs
decreased $294,000 from the prior year, when Mexico consolidated its operations
into a new facility.
Operating income for the nine months ended June 30, 2002 decreased
$937,000. As discussed above, overall gross profit margins were comparable and
the reduction in operating income was due to the factors contributing to higher
14
selling and administrative costs (32.6% of sales as compared to 30.6% of sales
in the prior year period), partially offset by lower restructuring costs in the
period.
INTEREST EXPENSE decreased $141,000 and $416,000 in the quarter and nine
months ended June 30, 2002, respectively (net of interest allocated to
discontinued operations, as discussed in Note 6 to Consolidated Financial
Statements). The decreases in the current year periods are primarily due to
lower borrowing levels, reflecting the Company's inventory reduction efforts.
INCOME TAX decreased $485,000 and $417,000 in the quarter and nine months
ended June 30, 2002, respectively, due principally to lower pretax income (or
higher pretax loss) and a lower effective tax rate in Mexico from an
unanticipated refund of prior year tax of approximately $170,000.
MINORITY INTEREST represents approximately 3% of the results of operations
of the Company's Mexico subsidiary.
CURRENT ECONOMIC ENVIRONMENT AND EVENTS
- -------------------------------------------
Although not directly impacted by recent events in the U.S. and abroad
(such as September 11th and the Mid-East crisis), softening economic conditions
appeared to have an effect in certain U.S. markets earlier in the fiscal year
and thus could lead to reduced overall annual revenues. In addition, certain
expenses (such as insurance and financing costs) have increased and could be
significantly higher in the coming years due to tightening in the various
financial markets in light of these events.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's cash flows used in operating activities decreased by $5.2
million in the period ended June 30, 2002 principally due to strict inventory
reduction efforts. In addition to cash flows from changes in inventory, account
receivable collections increased and the Company enhanced its cash management
processes. The improvements were partially offset by higher cash flows used to
extinguish certain Mexico trade liabilities.
The Company's fiscal 2002 investing activities included approximately $1.1
million in net purchases of property and equipment, compared to $2.6 in the
prior year period. The prior year 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. The 2001 expenditures were partially offset by approximately $1
million in net proceeds from the sale of an idled Mexico plant. 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, initially 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 $30 million, which bears interest at either
the prime rate plus 1.15%, or the prevailing LIBOR rate plus 2.65%, through
September 2004. The agreements also provide for the payment of various bank fees
approximating $14,000 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 in the loan documents. 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.
The Company 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 Company entered into the interest rate swap agreement 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. As of June 30, 2002, the Company had
15
approximately $15 million outstanding under the revolving credit facility. In
addition, the Company's Mexico subsidiary currently has approximately $14
million in bank lines of credit ($3 million unused at June 30, 2002) expiring at
various dates that bear interest at a rate based upon either a floating U.S.
bank rate or the rate of certain Mexican government securities. The Company is
awaiting approval on at least $3 million of additional Mexico lines of credit
and is presently reviewing other debt proposals for its Mexico subsidiary. The
Company's Mexico subsidiary cannot assure that its lines of credit will continue
to be available after their respective expiration dates, or that additional
lines of credit will be secured. 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 September 2003. The subordinated note
agreement provides for an interest rate of 13.5% through June 2002 and 12.25%
through maturity in 2003. The note agreement, as amended, contains provisions
that limit dividends and other payments, and requires the maintenance of certain
financial covenants and ratios.
In September 2001, a waiver of compliance with one provision of the
Company's existing primary lending agreement expired and its senior lenders
prohibited the payment of $5.5 million in principal due to senior subordinated
noteholders on September 26, 2001. The subordinated notes payment due date was
extended by the noteholders on various dates since (most recently through August
19, 2002) to allow the Company more time to address its debt issues to the
mutual satisfaction of all parties involved.
The Company is close to reaching terms with a new senior lender and its
existing subordinated lenders to refinance and restructure its present U.S. debt
through 2005. The new lender has preliminarily agreed to provide a three-year
$28 million senior debt facility which would replace the Company's existing
senior debt with a consortium of lenders. The new senior debt arrangement would
provide $5 million in increased working capital liquidity that would be
available for operations and to make certain subordinated debt payments.
The senior debt facility would include a $25 million revolving loan, which
would bear interest at either the prime rate, plus 0.75%, or the prevailing
LIBOR rate, plus 3.5%. The agreement would also provide for a closing fee of 1%
of the maximum credit line and a fee of 0.25% on the first and second
anniversary of the loan; a monthly maintenance fee of $5,000; and certain
additional transactional fees. Borrowings under the revolving loan would be
based upon 85% of eligible U.S. and Canada accounts receivable, as defined; 50%
of certain accounts receivable having extended payment terms; and varying
advance rates for U.S. and Canada raw materials and finished goods inventories.
The facility would include term loans aggregating $3 million, which would bear
interest at either the prime rate, plus 1.5%, or the prevailing LIBOR rate, plus
4.5%. These loans are expected to be payable in monthly installments of $50,000,
plus interest. The loan agreement would also contain restrictions regarding
subordinated debt payments (discussed below), a requirement to maintain a
minimum level of operating cash flow and net worth and a limitation on the
amount of annual capital expenditures.
The Company also reached tentative agreement with the holders of $16.5
million of Senior Subordinated Notes to restructure the notes, extending the
maturity date to 2005. The Company would pay approximately $6.5 million to its
subordinated lenders over the next three years, at which time the balance of
approximately $10 million would be due. Payments to the subordinated lenders
would be subject to certain restrictions imposed under the pending senior debt
facility. At the time of the expected closing of the new senior debt facility
described above, the Company would pay all subordinated debt accrued interest
(approximately $1.9 million) and $1 million in principal. Interest on the
balance of subordinated debt would be paid quarterly thereafter. If the Company
would be unable to make any portion of the remaining $5.5 million by 2005 (due
to restrictions imposed under the new senior debt facility or otherwise) the
noteholders would receive warrants equivalent to approximately 2.27% of the
diluted common shares outstanding for each $1 million in unpaid principal, in
addition to warrants (expiring in September 2003) now held by them. Any warrants
received or earned would be relinquished if the notes were to be paid in full
during the term of the new agreement. The agreement would also grant the
subordinated lenders a lien on Company assets (junior in all aspects to the new
senior debt lender). The interest rate on the subordinated notes has been 13.5%
through June 30, 2002 (12% payable in cash and 1.5% PIK) plus an additional 2%
on the past due amount of $5.5 million. At closing, the interest rate on the
notes would change to 12.5% (without PIK) through maturity in 2005. The new
subordinated note agreement would include certain other provisions, including
the elimination or adjustment of financial covenants contained in the original
agreement.
16
The closing of the restructuring of the Company's senior and subordinated
debt is subject to the lenders completing an intercreditor agreement and to
final negotiation and documentation. All parties are working toward a closing by
September 2002. Although the Company believes that the debt restructuring will
be consummated on substantially the terms described above, there can be no
assurance that that will be the case.
During its debt negotiations, the Company has improved its cash management
processes and believes it has sufficient lines of credit available under its
present senior debt and other agreements to fulfill all current and anticipated
operating requirements of its business until it closes its contemplated new debt
agreements. Moreover, the present senior lenders have consistently supported the
Company by continuing normal funding under their agreements throughout the
ongoing negotiations. The Company expects to finalize the new borrowing
arrangements described above before the end of its current fiscal year. However,
the Company cannot assure that they will close on these new borrowing
arrangements or that changes in the terms described above will not be made prior
to closing. In light of the circumstances regarding the Company's various
existing loan arrangements, the report of the Company's independent accountants
(with respect to its fiscal 2001 financial statements) included an explanatory
paragraph as to substantial doubt about the Company's ability to continue as a
going concern.
Due to the defaults described above, the subordinated and senior loans
have been classified as current maturities of long-term debt in the accompanying
consolidated balance sheets. Moreover, in light of the circumstances regarding
the Company's various existing loan arrangements, the report of the Company's
independent accountants (with respect to its fiscal 2001 financial statements)
included an explanatory paragraph as to substantial doubt about the Company's
ability to continue as a going concern.
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.
Contractual cash obligations as of June 30, 2002 are summarized in the
table below. The senior and subordinated debt balances are reflected as an
obligation in the current fiscal year, due to the defaults described above.
Payments Due by Period (in thousands)
-----------------------------------------------------------
Contractual Cash Current Fiscal years Fiscal years
Obligations Total fiscal year 2003-2005 2006-2007 Thereafter
- ------------------- --------- ---------- ----------- ----------- ----------
Long Term Debt $ 47,228 $ 45,332 $ 607 $ 389 $ 900
Capital Lease
Obligations 46 30 16 -- --
Operating Leases 5,680 505 5,076 99 --
--------- ---------- ----------- ----------- ----------
$ 52,954 $ 45,867 $ 5,699 $ 488 $ 900
========= ========== =========== =========== ==========
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
17
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.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The statement addresses the accounting for extinguishment of debt,
sale-leaseback transactions and certain lease modifications. The statement is
effective for transactions occurring after May 15, 2002. The Company does not
expect the adoption of Statement No. 145 to have a material impact on the
Company's future results of operations or financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)." The provisions of
Statement No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect the adoption of
Statement No. 146 to have a material impact on the Company's future results of
operations or financial position.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
revenue and expenses during the period reported. The following accounting
policies require management to make estimates and assumptions. These estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the period that they are determined to be necessary. If actual
results differ significantly from management's estimates, the financial
statements could be materially impacted.
Accounts receivable is recorded net of allowance for doubtful accounts. The
Company regularly reviews the adequacy of its accounts receivable allowance
after considering the size of the accounts receivable, the age of each invoice,
each customer's expected ability to pay and the collection history with each
customer. The allowance for doubtful accounts represents management's best
estimate, but changes in circumstances relating to accounts receivable may
result in a requirement for additional allowances in the near future.
Inventories are stated at the lower of cost or market. The inventory
valuation policy is based on a review of forecasted demand compared with
existing inventory levels. If the estimate of forecasted demand is significantly
less than the actual demand, the Company may have excess inventory which may be
over-valued.
Long-lived assets, such as property, plant and equipment, are reviewed for
impairment when events and circumstances indicate that the carrying amount of an
asset may not be recoverable. When such events occur, the Company compares the
carrying amount of the assets to undiscounted expected future cash flows. Should
this comparison indicate that there is an impairment, the amount of the
impairment is calculated using discounted expected future cash flows. If the
estimate of an asset's future cash flows is significantly different from the
asset's actual cash flows, we may over- or under-estimate the value of an
asset's impairment. A long-lived asset's value is also dependent upon its
estimated useful life. A change in the useful life of a long-lived asset could
result in higher or lower depreciation and amortization expense. If the asset's
actual life is different than its estimated life, the asset could be over- or
under-valued.
18
Restructuring and related costs reserves are recorded in connection with
the restructuring initiatives as they are announced. These reserves include
estimates pertaining to employee severance costs, the settlement of contractual
obligations and other matters. Although management does not anticipate
significant changes, the actual costs may differ from these estimates, resulting
in further charges or reversals of previously recorded charges.
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements in this Quarterly Report on Form 10-Q 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 the Company's expectation that it will
consummate its debt restructuring, and, if so, the terms upon which the debt
will be restructured. 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 complete its restructuring of its debt agreements 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.
19
Item 3.
- -------
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 41% of the Company's year-to-date fiscal 2002 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 June 30, 2002, approximately 39% 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
annual 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.
20
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS 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
Quarterly Report on Form 10-Q:
(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
(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
21
(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. 8
(10) l. Second Modification of Amended and Restated Term Loan
Agreement. 8
(10) m. Amendment No. 2 to Note and Warrant Purchase Agreement. 8
(21) Subsidiaries of the Company 9
(99.1) Certification by Officers
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.
9 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2001, file number 1-8689 filed in Washington, D.C.
(b) Reports on Form 8-K:
--------------------
None.
22
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIXON TICONDEROGA COMPANY
-------------------------
Dated: August 14, 2002
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board and
Co-Chief Executive Officer
Dated: August 14, 2002
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance
Chief Financial Officer
Dated: August 14, 2002
---------------------------------
By: /s/ John Adornetto
---------------------------------
John Adornetto
Vice President/Corporate Controller and
Chief Accounting Officer
23
Exhibit 99.1
------------
CERTIFICATION BY OFFICERS
-------------------------
In connection with the Quarterly Report of Dixon Ticonderoga Company on
Form 10-Q for the period ending June 30, 2002 as filed with the Securities and
Exchange Commission on the date hereof the undersigned certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Quarterly Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly present, in all
material respects, the financial condition and results of operations of
the Company.
DIXON TICONDEROGA COMPANY
-------------------------
Dated: August 14, 2002
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board and
Co-Chief Executive Officer
Dated: August 14, 2002
-------------------------------
By: /s/ Richard F. Joyce
-------------------------------
Richard F. Joyce
Vice-Chairman of Board and
Co-Chief Executive Officer
Dated: August 14, 2002
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance
Chief Financial Officer
Dated: August 14, 2002
---------------------------------
By: /s/ John Adornetto
---------------------------------
John Adornetto
Vice President/Corporate Controller and
Chief Accounting Officer