Page 1 of 78

Exhibit Index on Pages 65 through 68

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X]  

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended June 30, 2001

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from_______________to_______________.

Commission file number 1-13684

DIMON Incorporated

(Exact name of registrant as specified in its charter)

VIRGINIA

54-1746567

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

512 Bridge Street, Danville, Virginia

24541

(Address of principal executive offices)

(Zip Code)

Registrant's telephone number, including area code

(434) 792-7511

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Exchange On Which Registered

Common Stock (no par value)

New York Stock Exchange

Common Stock Purchase Rights

Securities registered pursuant to Section 12(g) of the Act:

None

          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, and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]

No [ ]

          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 this Form 10-K or any amendment to this Form 10-K. [ ]

          As of August 20, 2001, there were 44,575,004 shares of Common Stock outstanding.

PART I

ITEM 1.

BUSINESS

======================================================================================================

THE COMPANY

BUSINESS DESCRIPTION

Product

Geographic Regions of Operation

We have developed an extensive international network through which we purchase, process and sell tobacco. In addition to our processing facilities in Virginia and North Carolina, we own or have an interest in processing facilities in Brazil and Zimbabwe, the two most significant non-U.S. exporters of flue-cured tobacco, Malawi and Mexico, two of the leading non-U.S. exporters of burley tobacco, and Bulgaria, Greece, Kyrgyzstan,

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Macedonia and Turkey, the leading exporters of Oriental tobacco. We also have processing facilities in Germany, Italy, Tanzania and Thailand. We have historically contracted with third parties for the processing of tobacco in certain countries including Argentina, Canada, Chile, China, Congo, Guatemala, India, Indonesia, Spain and certain countries of the former Soviet Union. In addition, we have entered into contracts, joint ventures and other arrangements for the purchase of tobacco grown in substantially all countries that produce export-quality flue-cured and burley tobacco, including Argentina, Canada, China, and India.

Through our wholly-owned subsidiary, Compania General de Tabacos de Filipinas S.A. ("CdF"), we are also a leading international dealer in dark tobaccos, typically used for cigars and smokeless tobacco products. CdF maintains its administrative and sales headquarters in Barcelona, Spain, and has operations in the major dark tobacco producing countries, including Colombia, Dominican Republic, Indonesia, Northern Brazil, Paraguay and the Philippines.

Purchasing

Tobacco is purchased at auction or directly from growers. Traditionally, tobacco grown in the United States has been purchased by us on auction markets. However, beginning with the 2000 U.S. burley crop and continuing to the 2001 U.S. flue-cured crop, there has been a significant shift by our larger U.S. customers to purchasing directly from farmers ("direct contract buying"). With the shift to direct contract buying, our sales and other operating revenues is estimated to decrease $180 million to $200 million in fiscal year 2002 from fiscal year 2001. Although we will continue to make U.S. purchases at auction, we plan to purchase the majority of our 2001 flue-cured and burley crop requirements through direct contract buying. This shift to direct contract buying has decreased the number of auction warehouses in the U.S. Some of the former warehouses are now used as receiving points for direct contract buying. Our continued purchases of domestic tobacco on the flue-cured, burley and air-cured auction markets in Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee and Virginia as well as tobacco received under direct contract buying are shipped to our facilities in North Carolina and Virginia for processing to customer specification. We also expect that tobacco purchased under direct contract from farmers by our customers will continue to be processed in our North Carolina and Virginia facilities, although we may no longer take ownership of those tobaccos in some cases. We do not expect that our gross profit will be materially affected by the shift to direct contract buying by our customers, although sales revenues will be reduced and our profit margin may improve. Although we believe that we have taken proper actions to operate effectively in the U.S. direct contract buying environment, there are challenges in managing our operating cost base in the United States in light of the continued requirement to field buying personnel in the residual auction markets. See "Risk Factors."

In addition, we purchase tobacco grown in Canada, Malawi and Zimbabwe principally on auction markets. We usually purchase tobacco at the auction markets after receiving specific customer orders or indications of customers' upcoming needs. Our network of tobacco buyers allows us to cover the major auctions of flue-cured and burley tobacco throughout the world. These buyers are experts in differentiating hundreds of grades of tobacco based on customer specifications and preferences that take into account, among other factors, the texture, visual appearance and aroma of the tobacco.

In non-auction markets such as Argentina, Brazil, Bulgaria, Greece, Mexico, Kyrgyzstan, Spain, Tanzania and Turkey, we purchase tobacco directly from farmers or from local entities that have arranged for purchase from farmers. We often make these direct purchases based upon our projection of the needs of our long-standing customers rather than against specific purchase orders. Our arrangements with farmers vary from locale to locale depending on our predictions of future supply and demand, local historical practice and availability of

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capital. For example, in Brazil, we generally contract to purchase a farmer's entire tobacco crop at the market price per grade at the time of harvest based on the quality of the tobacco delivered. Pursuant to these purchase contracts, we provide farmers with fertilizer and other materials necessary to grow tobacco and may extend loans to farmers to finance the crop. Under longer-term arrangements with farmers, we may also finance farmers' construction of curing barns.

In addition, our agronomists maintain frequent contact with farmers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop. In other non-auction markets, such as Argentina and India, we buy tobacco from local entities that have purchased tobacco from farmers and supervise the processing of that tobacco by those local entities. We believe that our long-standing relationships with our customers are vital to our operations outside of the auction markets.

Processing

Processed flue-cured and burley tobacco is redried to remove excess moisture so that it can be held in storage by customers or us for long periods of time. After redrying, whole leaves, bundles, strips or stems are separately packed in cases, bales, cartons or hogsheads for storage and shipment. Packed flue-cured and burley tobacco generally is transported in the country of origin by truck or rail, and exports are moved by ship. Prior to and during processing, steps are taken to ensure consistent quality of the tobacco, including the regrading and removal of undesirable leaves, dirt and other foreign matter. Customer representatives are frequently present at our facilities to monitor the processing of their particular orders. Increased consumption of discount and value-priced cigarettes and competition among leaf merchants have led to improvements in processing designed to minimize waste and thereby increase yield. Throughout the processing, our technicians use laborator y test equipment for quality control to ensure that the product meets all customer specifications.

From time to time, we process and store tobacco acquired by various stabilization cooperatives under the domestic price support program. We can derive significant revenues from the fees charged for such services, particularly in years when a substantial portion of the domestic tobacco crop is acquired by such cooperatives under the program. While these revenues are not material to our net sales, they result in additional recovery of fixed costs that may be significant to gross profit. With the shift to direct contract buying, we expect these revenues to decrease, which may correspondingly affect gross profit on these sales.

Customers and Selling Arrangements

Customers

We ship tobacco to manufacturers of cigarettes and other consumer tobacco products located in approximately 90 countries around the world. We ship tobacco to international locations designated by these manufacturers. A majority of the shipments of tobacco are to factories of these manufacturers that are located outside the U.S. In certain countries, we also use sales agents to supplement our selling efforts. Several of our customers individually account for a significant portion of our sales in a normal year. In addition, some of our customers have begun to acquire, dispose or consolidate their operations, which may increase our reliance on fewer customers. The loss of any one or more of such customers could have a materially adverse effect on our business.

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The consumer tobacco business in most markets is dominated by a relatively small number of large multinational cigarette manufacturers and by government controlled entities. Of our 2001, 2000, and 1999 sales and other operating revenues, approximately 45%, 35%, and 37%, respectively, were to various tobacco customers which we have been led to believe are owned by or under common control of Japan Tobacco Inc., Philip Morris Companies Inc., or R. J. Reynolds Tobacco Company, Inc., each of which contributed in excess of 10% of total sales. No other customer accounts for more than 10% of our sales. We generally have maintained relationships with our customers for over forty years. In fiscal 2001, we delivered approximately 31% of our tobacco sales to customers in the U.S., approximately 36% to customers in Europe and the remainder to customers located in Asia, Africa and elsewhere.

Selling Arrangements

We typically make approximately 90% of our leaf tobacco auction purchases pursuant to customer orders or supply contracts or customer indications of anticipated need, with most purchases made based on indications. Customers are legally bound to purchase tobacco purchased by us pursuant to orders, but no contractual obligation exists with respect to tobacco purchased in response to indications. However, we have done business with most of our customers for many years and have never experienced a significant failure of customers to purchase tobacco for which they have given indications.

We have agreements with R. J. Reynolds Tobacco Company and Lorillard Tobacco Company to purchase (only for Lorillard) and process the majority of their U.S. tobacco requirements. Generally, the agreements establish a framework for pricing our services (which generally is negotiated with respect to crop year, grade of tobacco leaf or type of service provided based on market prices), but do not provide for minimum purchases and are terminable upon reasonable notice. Other than these contracts, we have no significant supply agreements with our customers.

Competition

The leaf tobacco industry is highly competitive. Competition among leaf tobacco merchants is based primarily on the price charged for products and services as well as the merchant's ability to meet customer specifications in the buying, processing and financing of tobacco. In addition, there is competition in all countries to buy the available leaf tobacco.

Currently, there are three major global competitors in the leaf tobacco industry, including DIMON, and all three are dependent upon a few large tobacco manufacturing customers. Our principal competitors are Universal Corporation and Standard Commercial Corporation. Of the independent leaf tobacco merchants, we believe that, based on revenues, we rank second in established worldwide market share. We further believe that among independent leaf tobacco merchants, we have the largest or second largest market share in Argentina, Brazil, Greece, Guatemala, Malawi, Mexico, Spain, Turkey, the U.S. and Zimbabwe as well as other countries. Universal's market share in the U.S. and Africa is considerably greater than ours. The number of manufacturers has declined in recent years due to consolidation. The loss of, or a substantial reduction in the services provided to, any large or significant customer could have a material adverse effect on our financial condition or results of operations.

Seasonality

The purchasing and processing activities of our tobacco business are seasonal. Flue-cured tobacco grown in the U.S. is purchased generally during the five-month period beginning in July and ending in November. U.S.-grown burley tobacco is purchased usually from late November through January or February. Tobacco grown in Brazil is purchased usually from January through July. Other markets around the world have similar purchasing periods, although at different times of the year.

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Mature tobacco, prior to being processed and packed, is a semi-perishable commodity. The production cycle for redrying and packing is relatively short. For example, flue-cured tobacco in the U.S. is processed, packed and invoiced within the same five-month period (July through November) that it is purchased. During this period, inventories of unprocessed tobacco, inventories of redried tobacco and trade accounts receivable normally reach peak levels in succession. Current liabilities, particularly advances from customers and short-term notes payable to banks, normally reach their peak in this period as a means of financing the seasonal expansion of current assets. Increasing amounts of U.S.-grown burley and foreign tobacco are now being processed in periods other than July through November, reducing the seasonal fluctuations in working capital. At June 30, the end of our fiscal year, the seasonal components of our working capital reflect primarily the operations related to foreign grown tobacco.

Research and Development

Employees

Government Regulation and Environmental Compliance

Financial Information about Industry Segments, Foreign and Domestic Operations, and Export Sales

The Company is engaged in the tobacco business: the purchasing, processing, selling and storing of leaf tobacco. Financial information concerning the Company's reporting is included in Note O to the Notes to Consolidated Financial Statements. Information with respect to the Company's working capital appears in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."

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ITEM 2.          

PROPERTIES

Corporate

Facilities

LOCATION

USE

AREA IN
SQUARE FEET

___________________________________________________________________________________________________________________

          UNITED STATES

DANVILLE, VA.

FACTORY/STORAGE

1,891,000

GREENVILLE, N.C.

STORAGE

745,000

FARMVILLE, N.C.

FACTORY/STORAGE

943,000

LAKE CITY, S.C.

STORAGE

252,000

ROCKY MOUNT, N.C.

FACTORY/STORAGE

239,000

          SOUTH AMERICA

VERA CRUZ, BRAZIL

STORAGE

380,000

SANTA CRUZ, BRAZIL

FACTORY/STORAGE

896,000

VENANCIO AIRES, BRAZIL

FACTORY/STORAGE

1,089,000

          AFRICA

LILONGWE, MALAWI

FACTORY/STORAGE

665,000

HARARE, ZIMBABWE

FACTORY/STORAGE

1,080,000

MOROGORO, TANZANIA

FACTORY/STORAGE

701,000

          EUROPE

KARLSRUHE, GERMANY

FACTORY/STORAGE

428,000

THESSALONIKI, GREECE

FACTORY/STORAGE

626,000

SPARANISE, ITALY

FACTORY/STORAGE

466,000

IZMIR, TURKEY

FACTORY(2)/STORAGE

839,000

          ASIA

LAMPHUN, THAILAND

FACTORY/STORAGE

181,000

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ITEM 3.

LEGAL PROCEEDINGS

On December 20, 2000, the plaintiffs in Deloach, et al. v. Philip Morris Companies Inc., et al., following the transfer of the suit from the United States District Court for the District of Columbia to the United States District Court for the Middle District of North Carolina, Greensboro Division (Case No. 00-CV-1235) (the "Deloach Suit") filed a motion for leave to file a third amended complaint adding the Company and other leaf tobacco merchants as defendants. On February 20, 2001, the court granted the motion for leave to amend and added the Company and other leaf tobacco merchants as defendants. The Company joined in a motion to dismiss the complaint filed by all defendants, and that motion has been denied.

The Deloach Suit is a purported class action brought on behalf of U.S. tobacco growers and quota holders that alleges that the defendants violated antitrust laws by bid-rigging at tobacco auctions and by conspiring to undermine the tobacco quota and price support program administered by the federal government. The plaintiffs seek injunctive relief, trebled damages in an unspecified amount, pre- and post-judgment interest, attorneys' fees and costs of litigation. The court has stayed discovery on the merits of the case, pending disposition of the plaintiffs' motion for class certification. The Company and the other defendants are opposing class certification and will otherwise vigorously defend the suit. This suit is still in its initial stages, and at this time, the Company cannot estimate the amount or range of loss that could result if the suit is resolved in a manner unfavorable to the Company.

-8-

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ADDITIONAL INFORMATION - EXECUTIVE OFFICERS OF THE COMPANY

The names and ages of all executive officers of the Company, as of June 30, 2001, are set forth below. Executive officers serve at the pleasure of the Board of Directors and are elected at each annual organizational meeting of the Board.

NAME

AGE

POSITION

__________________________________________________________________________________________________________________

Brian J. Harker

51

James A. Cooley

50

Larry R. Corbett

55

Steve B. Daniels

43

H. Peyton Green, III

52

Senior Vice President-Sales and Marketing of DIMON since November 1998; prior thereto Senior Vice President-Regional Executive Africa/Asia Region, DIMON International, Inc., a wholly-owned subsidiary of DIMON.

E. Shelton Griffin

54

Gustav R. Stangl

45

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PART II

ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

DIMON 
Common Stock

High 

Low 

Dividends
Declared 

____________________________________________

Fiscal Year 2001

Fourth Quarter..............................................

$11.61

$6.29

$.05  

Third Quarter...............................................

9.25

4.75

.05  

Second Quarter.............................................

5.81

2.69

.05  

First Quarter................................................

3.44

2.19

.05  

Fiscal Year 2000

Fourth Quarter..............................................

$  3.25

$1.94

$.05   

Third Quarter...............................................

3.38

2.25

.05   

Second Quarter.............................................

4.00

2.81

.05   

First Quarter................................................

6.00

3.75

.05   

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ITEM 6.

SELECTED FINANCIAL DATA

FIVE-YEAR FINANCIAL STATISTICS
DIMON Incorporated and Subsidiaries

Years Ended June 30

(in thousands, except per share amounts

__________________________________________________________________________

and number of stockholders)

2001

2000

1999

1998

1997**

======================================================================================================

Summary of Operations

   Sales and other operating revenues..

$1,400,955     

$1,473,630   

$1,815,223   

$2,171,803  

$2,125,739  

   Restructuring (recovery), asset

      impairment and merger costs......

(1,384)    

(211)  

25,932   

-  

3,864  

   Income (loss) from continuing

      operations before cumulative

      effect of accounting changes...

24,997     

17,988   

(28,378)  

41,829  

72,568  

   Cumulative effect of accounting

      changes, net of income taxes (1)..

(103)    

-   

-   

-   

-   

   Income from discontinued

      operations, net of income taxes...

-     

-   

22,912  

1,820  

4,605  

___________________________________________________________________________________________________________________

    Net Income (Loss)

24,894     

17,988   

(5,466) 

43,649  

77,173  

___________________________________________________________________________________________________________________

Per Share Statistics

   Basic Earnings Per Share:

   Income (loss) from continuing

      operations before cumulative

      effect of accounting changes..

$          .56     

$          .40   

$       (.63)  

$         .94  

$       1.69  

      Net income (loss) (1) .................

.56  

.40   

(.12)  

.98  

1.80  

   Diluted Earnings Per Share:

   Income (loss) from continuing

      operations before cumulative

      effect of accounting changes..

.56 *  

.40 *

(.63)*

.94 *

1.67  

      Net income (loss).................

.56 *  

.40 *

(.12)*

.98 *

1.77  

   Dividends paid.......................

.20     

.20   

. 40   

.66  

.585  

   Book value............................

9.23     

9.06   

8.91   

9.48  

9.21  

___________________________________________________________________________________________________________________

Balance Sheet Data

   Working capital (2)...................

$   172,863     

$   433,735   

$  443,602  

$ 706,384  

$ 699,993  

   Total assets...........................

1,182,089     

1,266,749   

1,479,194  

1,797,478  

1,987,603  

   Revolving Credit Notes and

      Other Long-Term Debt (2).......

128,641     

400,856   

458,180  

673,699  

702,826  

   Convertible Subordinated

      Debentures...........

73,328     

73,328   

73,328  

123,328  

123,328  

   Stockholders' equity................

411,539     

403,504   

396,539  

421,930  

408,263  

___________________________________________________________________________________________________________________

Other Statistics

   Common shares outstanding

      at year end.........................

44,575     

44,525   

44,525  

44,525  

44,312  

   Number of stockholders

      at year end (3).....................

4,611     

4,899   

5,729  

4,576  

4,357  

___________________________________________________________________________________________________________________

*

**

(1)   

(2)   

(3)   

Includes the number of Stockholders of record and non-objecting beneficial owners.

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ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

======================================================================================================

The Company believes that it is the world's second largest independent purchaser and processor of leaf tobacco. The Company was formed through the April 1, 1995 merger of Dibrell Brothers, Incorporated (established in 1873) and Monk-Austin, Inc. (established in 1907).

          The Company's operating results in fiscal years 2000 and 2001 have improved due to generally improved economic conditions in important non-U.S. markets, more favorable supply and demand conditions in the tobacco industry generally and the Company's implementation of a number of cost-saving measures. During fiscal years 2000 and 2001, world market conditions for leaf tobacco slowly, but progressively, improved as the Company's customers' raw material inventories appeared to be reaching equilibrium with revised production and sales estimates. The Company's gross profit on sales to three of our larger U.S. customers increased marginally in fiscal years 2000 and 2001. In addition, the economies in Asia seem to have rebounded during fiscal years 2000 and 2001, with the Company's sales to Asian customers returning to more normalized levels.

          In contrast, uncertainty in the litigation and legislative environments in fiscal 1999 led certain of the Company's key U.S. customers to decrease their global purchase programs significantly, as they sought to adjust raw material inventories to match more cautious production and sales estimates. In fiscal 1999, the Company's gross profit on sales to three of its larger U.S. customers was down approximately $27.5 million from fiscal 1998. In fiscal 1999, economic problems in Asia and the former Soviet Union also had an impact on the Company. Weakness in local currencies made it difficult for the Company's customers in these regions to translate local currency sales into U.S. dollar purchases of leaf tobacco, causing shipping delays during much of fiscal 1999. Various significant mergers and acquisitions among the Company's customers also had the effect of decreasing demand for leaf tobacco in fiscal 1999 as raw material inventories of the newly combined entities were being rationalized. Finally, a surplus of flue-cured and burley tobacco at that time led to significantly smaller crop sizes in the U.S.

          To offset the impact of these conditions, in March 1999, the Company announced the closure of its Kinston, North Carolina processing facility, the reduction of staffing at its Farmville, North Carolina processing facility, and the substantial reorganization of its North American operations. To further improve the operating efficiency of its Brazilian operations, the Company sold one of three production facilities in August 1999. The Company also implemented other global cost efficiency initiatives during fiscal year 1999, including the severance of approximately 200 employees primarily in the United States.

          In addition, in 1999, global tobacco processing overcapacity caused management to believe that certain assets should be analyzed for impairment. The analysis, based on undiscounted cash flows, resulted in an impairment writedown in 1999 of $10.1 million for assets which were identified as available-for-sale by the Company in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," (SFAS No. 121). In accordance with SFAS No. 121, when an impairment writedown is required, the related assets are adjusted to their estimated fair value. In determining fair value, the Company considered the range of preliminary purchase prices being discussed with potential buyers as well as third-party appraisals. The estimated market value of the assets written down as part of the restructuring and asset impairment costs, consisting primarily of buildings and machinery and equipment, was approximately $24.2 million.

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ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations

======================================================================================================

The following table expresses items in the Statements of Consolidated Income and Comprehensive Income as a percentage of sales for each of the three most recent years. Any reference in the table and the following discussion to any given year is a reference to the Company's fiscal year ended June 30.

Years Ended
June 30

__________________________________________________

2001  

2000  

1999  

======================================================================================================

Sales and other operating revenues............................

100.0%

100.0%

100.0%

Cost of goods and services..........................

86.4   

87.3   

91.4   

Selling, administrative and general expenses................

7.4   

7.2   

6.5   

Restructuring (recovery) and asset

   impairment costs.............................

(.1) 

-   

1.4   

Recovery from litigation settlements.........................

(.3) 

-   

(.9)  

__________________________________________________

Operating income.................................................

6.6  

5.5   

1.6   

Interest expense...................................................

(3.8) 

(3.9)  

(3.6)  

Current charge derivative financial instruments..............

(.3) 

-   

-    

__________________________________________________

Income (loss) from continuing operations

   before income taxes and income from

   discontinued operations.......................................

2.5  

1.6   

(2.0)  

Income taxes (benefit)............................................

.7  

.4   

(.5)  

Income from discontinued operations.........................

-  

-   

1.2   

__________________________________________________

Net income (loss)...................................................

1.8  

1.2   

(.3)  

________________________________________________________________________________________________________________

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ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Comparison of the Year Ended June 30, 2001 to the Year Ended June 30, 2000

======================================================================================================

The Company's sales and other operating revenues were $1.401 billion, a decrease of 4.9% from $1.474 billion in 2000. The decrease was primarily due to lower quantities and prices of foreign grown tobacco and lower U.S. service and processing fees, and was offset partially by higher quantities and prices for U.S. grown tobacco and higher foreign service and processing revenues. The decreases due to lower quantities and prices of foreign grown tobacco were $89.5 million and $9.1 million, respectively. The increase in revenues from quantities of U.S. grown tobacco was $21.9 million, net of the decrease in revenues due to the shift to direct contract buying for certain customers with respect to the burley crop. The increase in revenues from higher prices of U.S. grown tobacco was $5.7 million. The decrease in quantities of foreign grown tobacco was primarily due to the delayed shipments and smaller crop size in South America in fiscal 2001 and the Company's liquidation of old crop African tobacco in fiscal 2000. The decrease in prices of foreign grown tobacco was primarily the result of sales of old crop tobacco in Africa and Europe. Service and processing revenue from U.S. sources decreased $3.7 million primarily due to lower revenues from the U.S. Flue Cured Stabilization program offset partially due to changes in customer contracts related to the shift in the U.S. burley market from an auction system to a direct contract buying system, which shifts certain sales revenues to processing revenues. Service and processing revenues from foreign sources increased $1.7 million and related primarily to fertilizer sales in Brazil.

          Cost of sales and expenses, before recovery of restructuring and litigation settlements, decreased $79 million, or 5.7%, from $1.393 billion in 2000 to $1.314 billion in 2001. Most of the decrease is the direct result of lower sales. Gross profit increased $3.5 million, or 1.9% from $187.5 million in 2000 to $191.0 million in 2001. Gross margin as a percentage of sales increased from 12.7% in 2000 to 13.6% in 2001. The improved gross margin relates to the liquidation of old crop African tobacco in 2000 and favorable exchange rates in Europe and South America during 2001. Lower selling, general and administrative expenses decreased cost of sales and expenses $3.1 million primarily due to favorable exchange variances in Europe, lower travel expenses and lower expenses for rent and maintenance costs, offset partially by increases in incentive compensation.

          The Company has recovered $1.4 million of restructuring charges in fiscal 2001 and $0.2 million in fiscal 2000, primarily related to the disposals of fixed assets.

          During fiscal 2001 the Company's subsidiary in Spain, Compania de Filipinas (CdF) settled litigation regarding the alleged breach of contract in CdF's sale of a building located in Barcelona in 1991. CdF successfully concluded the lawsuit in February 2001, resulting in income of $3.9 million.

          Interest expense decreased $4.1 million from $57.7 million in 2000 to $53.6 million in 2001. A decrease in interest expense of $10.1 million due to lower average borrowings were partially offset by increases of $6.0 million due to increases in average interest rates.

          During the fiscal year ended June 30, 2001 the Company recognized non-cash charges of $4.7 million from the change in the fair value of interest rate swap instruments following the adoption of SFAS No. 133. For further discussion of the effect of the Company's adoption of SFAS No. 133 see Notes F and R to Consolidated Financial Statements.

          The effective tax rate in 2001 was 27% compared to 23% in 2000. The change in the tax rate is due to changes in the distribution of income between taxing jurisdictions.

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ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Comparison of the Year Ended June 30, 2000 to the Year Ended June 30, 1999

======================================================================================================

The Company's sales and other operating revenues in 2000 were $1.474 billion, a decrease of 18.8% from $1.815 billion in 1999. The decrease was primarily due to lower quantities of U.S. and foreign grown tobacco, lower prices of foreign grown tobacco and lower foreign service and processing revenues, offset partially by higher prices of U.S. grown tobacco and higher U.S. service and processing revenues. Changes in quantities from 1999 resulted in decreases of $215.0 million on U.S. grown tobacco and $85.0 million on foreign grown tobacco. The decreases in foreign grown tobacco are primarily due to lower quantities in Africa and Asia, partially offset by higher quantities in Europe and South America. Prices of foreign grown tobacco decreased from 1999 and resulted in a decrease in revenue of $61.1 million. Lower prices of foreign grown tobaccos were primarily due to lower green prices. Prices of U.S. grown tobacco increased from 1999 resulting in an increase in revenue of $8.3 million. Service and processing revenue increased $11.8 million primarily due to increased services provided to the U.S. Flue Cured Stabilization program.

          The cost of sales and expenses decreased $383 million or 21.6% from $1.776 billion in 1999 to $1.393 billion in 2000. Most of the decrease is the direct result of lower volumes sold and lower average prices. Gross profit increased 19.2% from $157.2 million in 1999 to $187.5 million in 2000. Gross profit as a percentage of sales increased from 8.6% in 1999 to 12.7% in 2000. In 1999, the gross profit was negatively impacted by reduction of old crop inventories during a time of depressed leaf prices. In 1999, the Company initiated a global restructuring plan to more closely match capacities to demand. Both the resolution of the inventory problems and the global restructuring plan have resulted in improving gross margin. Cost of sales and expenses were also reduced by $11.2 million as selling, administrative and general expenses decreased primarily due to decreased personnel and legal and professional costs.

          Restructuring and asset impairment costs were $25.9 million in 1999. These costs included $20.8 million for facilities and $5.1 million for personnel related costs.

          Interest expense decreased $8.4 million from $66.1 million in 1999 to $57.7 million in 2000. The decrease relates primarily to lower borrowings, partially offset by increases in interest rates.

          The effective tax rate for 2000 was 23% compared to 23.9% in 1999. The change in tax rate is the result of the distribution of income between taxing jurisdictions.

-15-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources

======================================================================================================

The following table is a summary of items from the Consolidated Balance Sheet and the Statement of Consolidated Cash Flows.

Years Ended June 30                       

______________________________________________

(in thousands, except for current ratio)

2001   

2000   

1999   

==================================================================================================

Cash and cash equivalents.......................................

$ 14,594

$ 27,249

$ 21,451

Net trade receivables.............................................

177,733

222,754

260,593

Inventories and advances on purchases of tobacco..........

457,400

463,801

606,534

Total current assets...............................................

673,279

753,874

922,500

Notes payable to banks..........................................

205,823

198,095

297,376

Accounts payable.................................................

69,343

71,554

94,169

Total current liabilities...........................................

500,416

320,139

478,898

Current ratio.......................................................

1.3 to 1

2.4 to 1

1.9 to 1

Revolving Credit Notes and Other Long-Term Debt.......

3,641

275,856

333,180

Convertible Subordinated Debentures.........................

73,328

73,328

73,328

Senior Notes.......................................................

125,000

125,000

125,000

Stockholders' equity..............................................

411,539

403,504

396,539

Purchase of property and equipment...........................

19,061

11,962

32,156

Proceeds from sale of property and equipment..............

3,255

9,559

3,843

Depreciation and amortization..................................

44,310

43,986

45,141

___________________________________________________________________________________________________________________

          The Company's operating profits fluctuate from year to year, primarily due to the effects of worldwide supply and demand on the Company's inventory positions and other factors. See "Factors that May Affect Future Results."

          The purchasing and processing activities of the Company's business are seasonal. The Company's need for capital fluctuates accordingly and, at any one of several seasonal peaks, the Company's outstanding indebtedness may be significantly greater or less than at year end. The Company historically has needed capital in excess of cash flow from operations to finance inventory and accounts receivable. The Company also prefinances tobacco crops in certain foreign countries including Argentina, Brazil, Dominican Republic and Indonesia by making cash advances to farmers prior to and during the growing season.

          The Company's working capital decreased from $434 million at June 30, 2000 to $173 million at June 30, 2001. The Company's current ratio was 1.3 to 1 at June 30, 2001 compared to 2.4 to 1 at June 30, 2000. At June 30, 2001 current assets had decreased $80.6 million and current liabilities had increased $180.3 million from June 30, 2000. The $80.6 million decrease in current assets is primarily due to a $45.0 million decrease in net trade receivables, a $16.6 million decrease in current deferred and recoverable income taxes, a $12.7 million decrease in cash and a $6.4 million decrease in inventories and advances on purchases of tobacco. Increases in current liabilities relate primarily to increases of $116.7 million in the current portion of long-term debt and $54.1 million in advances from customers. The increase in the current portion of long-term debt and corresponding reduction in working capital relate to the maturing of the Company's $250 million credit facility which has an initial term expiring on June 27, 2002. The increase in advances from customers and decrease in accounts receivable relate primarily to the delay in the Brazilian crop and related shipments.

          Cash flows from operating activities were $149.8 million in 2001 as compared to $177.7 million in 2000 and $181.5 million in 1999. The decrease from cash flows from operations in 2001 compared to 2000 is primarily due to $141.8 million less cash provided from inventories and advances on purchases of tobacco in 2001 partially offset by an increase of $74.4 million in cash advanced from customers and a decrease of $31.5 million in cash used for accounts payable and accrued expenses.

-16-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

======================================================================================================

          The decrease in cash provided from inventories and advances on purchases of tobacco in 2001 is the result of the company's continuing effort to maintain lower inventory levels and generally de-leverage its balance sheet. The decrease in cash used for accounts payable and the increase in advances from customers are the result of the delay in the Brazilian crop and related shipments.

          The decrease in cash flow from operating activities in 2000 compared to 1999 is primarily due to a $36.1 million decrease in cash flows provided from current assets and a $9.7 million increase in cash used to reduce current liabilities, partially offset by a $23.5 million increase in net income and $11.9 million less of non-recurring charges for restructuring and asset impairment, recovery from litigation settlement and discontinued operations.

          Cash flows used by investing activities were $14.5 million in 2001 compared to cash provided of $3.6 million in 2000 and $43.7 million in 1999. The decreased cash from investing activities in 2001 compared to 2000 is primarily due to higher purchases of property and equipment and lower proceeds from the sale of property and equipment and less cash provided by investments. The decrease in 2000 from 1999 is primarily due to the proceeds from the sale of discontinued operations and related assets in 1999, offset partially by lower purchases of property and equipment and higher proceeds from sales of property and equipment. In 2001, $147.3 million was used for financing activities compared to $172.8 million in 2000 and $219.9 million in 1999. The decreased usage in 2001 compared to 2000 is primarily due to lower net debt repayments. The decreased usage in 2000 compared to 1999 relates primarily to lower net debt rep ayments and lower dividends paid.

          At June 30, 2001, the Company had seasonally adjusted lines of credit of $532.5 million. At June 30, 2001, the Company had borrowed $205.8 million under its $532.5 million lines of credit with a weighted average interest rate of 5.76%. At June 30, 2001, unused short-term lines of credit amounted to $268.7 million. Total maximum borrowings, excluding the long-term credit agreements, during the fiscal year were $509.6 million. At June 30, 2001, the Company had $32.1 million of letters of credit outstanding and an additional $25.9 million of letters of credit lines available.

          DIMON entered into a $250 million credit facility effective June 27, 2000, with a group of eight banks, which replaced the Company's $300 million credit facility. The Company had $120 million of borrowings under this agreement at June 30, 2001. The $250 million credit facility is subject to certain commitment fees and covenants that, among other things, require DIMON to maintain minimum working capital and tangible net worth amounts, require specific liquidity and long-term solvency ratios, including certain borrowing base restrictions, and restrict acquisitions. The Company continuously monitors its compliance with these covenants. The $250 million credit facility's initial term expires on June 27, 2002, and, subject to approval by the lenders, may be extended. The Company intends to either extend or replace the $250 million credit facility during fiscal 2002. Borrowings under the $250 million credit facility b ear interest at rates that vary depending on the type of loan requested by the Company. The interest rate could be the prime rate or the LIBOR rate adjusted. The primary advance rate is the agent bank's base lending rate (6.75% at June 30, 2001). The Company pays a commitment fee of 1% per annum on any unused portion of the facility. Decisions relative to drawings and repayments are made based on circumstances then existing, including management's judgment as to the most effective utilization of funds.

          The Company has historically financed its operations through a combination of short-term lines of credit, revolving credit arrangements, customer advances, cash from operations and equity and equity-linked securities. At June 30, 2001, the Company had no material capital expenditure commitments. The Company believes that these sources of funds will be sufficient to fund the Company's anticipated needs for 2002. There can be no assurance, however, that these sources of capital will be available in the future or, if available, that any such sources will be available on favorable terms.

          The Company's off-balance sheet financing is not material. The Company leases certain information technology hardware, primarily in response to concerns over technical obsolescence, under operating leases. Also, certain operating leases were acquired with the acquisition of, or have been added by, several foreign processing facilities. However, most operating assets are of long-term and continuing benefit and the Company has generally purchased these assets.

-17-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Tax and Repatriation Matters

======================================================================================================

The Company and its subsidiaries are subject to income tax laws in each of the countries in which they do business through wholly owned subsidiaries and through affiliates. The Company makes a comprehensive review of the income tax requirements of each of its operations, files appropriate returns and makes appropriate income tax planning analyses directed toward the minimization of its income tax obligations in these countries. Appropriate income tax provisions are determined on an individual subsidiary level and at the corporate level on both an interim and annual basis. These processes are followed using an appropriate combination of internal staff at both the subsidiary and corporate levels as well as independent outside advisors in review of the various tax laws and in compliance reporting for the various operations.

          Dividend distributions are made from certain subsidiaries while the undistributed earnings of certain other foreign subsidiaries are not subject to additional foreign income taxes nor considered to be subject to U.S. income taxes unless remitted as dividends. The Company intends to reinvest such undistributed earnings of foreign subsidiaries indefinitely; accordingly, no provision has been made for U.S. taxes on those earnings. The Company regularly reviews the status of the accumulated earnings of each of its U.S. and foreign subsidiaries and reevaluates the aforementioned dividend policy as part of its overall financing plans.

Accounting Matters

======================================================================================================

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," which provided a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133," which delayed implementation of SFAS No. 133 until years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which amended SFAS No. 133. Effective July 1, 2000, the Company adopted SFAS No. 133 as amended. See Notes F and R to the Notes to Consolidated Financial Statements.

          Effective July 1, 2000, four of the Company's European subsidiaries changed their fiscal year end from March 31 to June 30. More efficient financial reporting routines have allowed the Company to eliminate the traditional fiscal quarter lag associated with the inclusion of these subsidiaries in its consolidated financial statements. For the quarter ended September 30, 2000, income of $284 earned by the affected subsidiaries during the period between April 1, 2000 and June 30, 2000 has been recognized as the cumulative effect of an accounting change. See Note R to the Notes to Consolidated Financial Statements.

          In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives.

          The Company intends to apply the new rules of accounting for goodwill and other intangible assets beginning the first quarter of fiscal 2003. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of approximately $4.3 million ($.10 basic earnings per share) per year. During fiscal year 2003, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of July 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial condition of the Company.

Factors that May Affect Future Results

======================================================================================================

The following important factors, among other things, in some cases have affected, and in the future could affect, our actual operating and financial results and could cause our actual results for 2002 and beyond to differ materially from those expressed in any forward-looking statements made by us. The terms "we" or "our" in this section refer to DIMON Incorporated and its consolidated subsidiaries.

-18-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Risk Relating to Our Operations

======================================================================================================

Variability of our annual and quarterly financial results reduces your ability to gauge our performance and increases the risk of an investment in our securities.

Our financial results, particularly the quarterly financial results, may be significantly affected by fluctuations in tobacco growing seasons and customer instructions with regard to the sales of processed tobacco. These fluctuations result in varying volumes and sales in given periods and reduce your ability to compare our financial results in different periods or in the same periods in different years. The cultivation period for tobacco is dependent upon a number of factors, including the weather and other natural events, such as hurricanes or tropical storms, and our processing schedule can be significantly altered by variations in harvesting periods.

The timing and unpredictability of customer orders and shipments causes us to keep tobacco in inventory, increases our risk and results in variations in quarterly and annual financial results.

It is not possible to predict with precision the timing of orders or sales. We may from time to time in the ordinary course of business keep a significant amount of processed tobacco in inventory for our customers to accommodate their inventory management and other needs. Sales recognition by us and our subsidiaries is based on the passage of ownership, usually with shipment of product. Since individual shipments may represent significant amounts of revenue, our quarterly and annual financial results may vary significantly depending on our customers' needs and shipping instructions. In particular, because significant deliveries of Brazilian tobacco are made at the end of our fourth fiscal quarter of each year or the beginning of the first quarter of the following year, significant amounts of sales and operating profits may shift from fiscal year to fiscal year.

Our adoption and application of certain standards in financial accounting could cause our annual and quarterly financial results to vary and will reduce your ability to gauge our performance and increases the risk of an investment in our securities.

Effective July 1, 2000, we adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." As a result of adoption of SFAS No. 133, we recognize all derivative financial instruments, such as interest rate swap contracts and foreign exchange contracts, in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. We use forward contracts to mitigate our exposure to changes in foreign currency exchange rates on forecasted transactions. Generally, the effective portion of unrealized gains and losses associated with forward contracts and the intrinsic value of option contracts are deferred as a component of accumulated other comprehensive income until the underlying hedge transactions are reported on our consolidated statement of earnings. We have traditionally used interest rate swaps to mitigate our exposure to changes in interest rates related to certain debt agreements. The swaps convert floating-rate debt to fixed-rate debt. Interest rate swaps, to the extent they are effective hedges, are accounted for as cash flow hedges, with the changes in the fair values of these instruments being recorded in accumulated other comprehensive income net of deferred taxes. Changes in the fair values of derivatives not qualifying as hedges are reported in income. As a result of fluctuations in interest rates and volatility in market expectations, the fair market value of interest rate swap instruments can be expected to appreciate or depreciate over time. We plan to continue the practice of economically hedging various components of our debt. However, as a result of SFAS No. 133, such swap instruments may now create volatility in future reported earnings.

          In addition, when we apply SFAS No. 142 beginning in the first quarter of fiscal 2003 we will no longer amortize goodwill and intangible assets, resulting in increased earnings. However, if we determine that there has been a material impairment to goodwill or other intangible assets, we will recognize the amount of that impairment as a charge to earnings in the applicable reporting period. This could cause variances in our reported earnings in different quarters and years, which may impair your ability to compare results in those periods. See "Accounting Matters" and Notes F and R to our Consolidated Financial Statements.

-19-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

The shift to direct buying of green tobacco by many of our U.S. customers will affect your ability to compare our quarter to quarter or year to year results and could have an adverse affect on our results of operations.

Comparability of our sales revenues will be affected by the shift to direct contract buying in the United States. Traditionally in the United States, we have taken ownership of all green tobaccos we purchase, then process and resell that tobacco to our customers. Concurrent with the shift from an auction system to a direct contract buying system in the United States, beginning with the 2000 U.S. burley crop, certain major U.S. customers have begun purchasing green tobacco directly from the growers. Although we expect that the tobacco purchased directly from growers by our customers will continue to be processed in our U.S. facilities, we may no longer take ownership of that tobacco and may no longer record revenues associated with its resale. We will continue to earn and record service revenues for the processing of all such tobaccos. We do not expect the absolute value of gross profit to be materially affected by the shift to direct contract buying by its customers, alth ough sales revenues will be reduced and our profit margin may improve. In addition, although we expect to purchase the majority of the 2001 flue-cured and burley crop requirements through direct contract buying, we will still need to maintain buying personnel in the residual auction markets, which could affect our ability to manage our costs.

Our extension of credit to tobacco farmers could have an adverse effect on our financial condition.

We make advances to tobacco farmers in many countries to finance the farmer's growing of tobacco for sale to us. Crop advances to farmers are generally secured by the farmer's agreement to deliver green tobacco. In the event of crop failure, recovery of advances could be delayed until deliveries of future crops or indefinitely. The temporary or permanent loss of these advances to farmers could have a material adverse effect on our financial condition on results of operations.

Competition could adversely affect our operating results.

The leaf tobacco industry is highly competitive. Competition among leaf tobacco merchants is based primarily on the price charged for products and services as well as the firm's ability to meet customer specifications in the buying, processing and financing of tobacco. In addition, there is competition in all countries to buy the available tobacco. There are three major global competitors in the leaf tobacco industry, and they are dependent upon a few large tobacco manufacturing customers. The number of manufacturers has declined in recent years due to consolidation. The loss of, or a substantial reduction in the services provided to, any large or significant customer could have a material adverse effect on our financial condition on results of operations.

Our reliance on a small number of significant customers may adversely affect our results of operations.

Our customers are manufacturers of cigarette and tobacco products in several countries around the world. Several of these customers individually account for a significant portion of our sales in a normal year. Of our consolidated tobacco sales in 2001, 2000 and 1999, approximately 45%, 35% and 37%, respectively, represented sales to various tobacco customers which we believe are owned by or under common control of Japan Tobacco Inc., Philip Morris Companies Inc., or R. J. Reynolds Tobacco Company, Inc. The loss of any one or more of such customers could have a material adverse effect on our financial condition or results of operations. In addition, tobacco product manufacturers are currently experiencing a period of consolidation, and further consolidation among our customers could decrease such customer's demand for our leaf tobacco or processing services.

We face increased risks of doing business due to the extent of our international operations.

We do business in over 30 countries, many of which do not have stable economies or governments. Our international operations are subject to international business risks, including unsettled political conditions, expropriation, import and export restrictions, exchange controls, inflationary economies and currency risks and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries. These risks are exacerbated in countries where we have advanced substantial sums or guaranteed local loans or lines of credit in substantial amounts for the purchase of tobacco from growers.

          We have expanded our international operations in areas where the export of tobacco has increased due to increased demand for lower priced tobacco. We have significant investments in our purchasing, processing and exporting operations in Brazil, Indonesia, Thailand and the African countries of Malawi, Tanzania and

-20-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Zimbabwe. In particular, we derive significant operating profit from our operations in Brazil and Zimbabwe. In recent years, these countries' economic problems have received wide publicity related to devaluation of the local currency and inflation. While devaluation can affect our purchase costs of tobacco and our processing costs, it has not and is not expected to affect adversely our ability to export tobacco from these countries.

          Specifically, Zimbabwe is experiencing a period of civil unrest in combination with a deteriorating economy. If the current political situation continues, we could experience disruptions and delays associated with our operations in that country which could have a material adverse effect on our financial condition or results of operations.

Fluctuations in foreign currency exchange rates could adversely affect our results of operations.

Our business is generally conducted in U.S. dollars, as is the business of the tobacco industry as a whole. However, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the U.S. dollar. We attempt to minimize such currency risks by matching the timing of our working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country where the tobacco is grown. Fluctuations in the value of foreign currencies can significantly affect our operating results.

          In addition, the devaluation of foreign currencies, particularly Asian and Eastern European currencies, has resulted and may in the future result in reduced purchasing power from customers in these areas. We may incur a loss of business as a result of the devaluation of these currencies now or in the future.

Our indentures and credit agreements contain, and in the future could contain additional, covenants and tests that would limit our ability to take actions or cause us to take actions we may not normally take.

Our existing indentures and credit agreements contain, and the indentures governing the debt securities we may offer may contain, a number of significant covenants. These covenants will limit our ability to, among other things:

·

borrow additional money;

·

make capital expenditures and other investments;

·

merge, consolidate or dispose of our assets;

·

acquire assets in excess of certain dollar amounts; and

·

grant liens on our assets.

          Our credit facility and existing indentures require, and any future indenture may require, us to meet certain financial tests. The failure to comply with these covenants and tests would cause a default under those agreements. A default, if not waived, could result in the debt under our credit facility and indentures becoming immediately due and payable and could result in a default or acceleration of our other indebtedness with cross-default provisions. If this occurs, we may not be able to pay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us. Complying with these covenants and tests may cause us to take actions that we otherwise would not take or not take actions that we otherwise would take.

Provisions in our indentures restrict our ability to make payments, including payments of dividends to our shareholders.

Under the terms of an Indenture, dated May 29, 1996, between us and SunTrust Banks, Inc., as trustee, relating to our 8 7/8% Senior Notes due 2006, we will not be permitted to make certain payments that are restricted by the Indenture, including cash dividends on our common stock. We generally may make such restricted payments, provided that (1) we are not in default under the Indenture, (2) we are able to incur at least $1.00 of additional indebtedness under a consolidated interest coverage ratio test set forth in the Indenture, and (3) the aggregate amount of the payments to be made is less than the total of (x) $20.0 million, (y) 50% of our

-21-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

consolidated net income for the period from April 1, 1996, through the end of our most recent fiscal quarter and (z) the net cash proceeds from our sale of any equity securities or debt securities that are converted into equity securities. At June 30, 2001 and 2000, we were permitted to make restricted payments, including cash dividends on our common stock, of up to $36.1 million and $32.6 million, respectively.

Risks Relating to the Tobacco Industry

=====================================================================================================

Recent reductions in demand for consumer tobacco products could adversely affect our results of operations.

The tobacco industry, both in the United States and abroad, continues to face a number of issues that may reduce the consumption of cigarettes and adversely affect our business, sales volume, results of operations, cash flows and financial condition.

          These issues, some of which are more fully discussed below, include:

·

governmental actions seeking to ascribe to tobacco product manufacturers liability for adverse health effects associated with smoking and exposure to environmental tobacco smoke;

·

smoking and health litigation and against tobacco product manufacturers;

·

possible tax increases on consumer tobacco products;

·

current and potential actions by state attorneys general to enforce the terms of the Master Settlement Agreement ("MSA") between state governments in the United States and tobacco product manufacturers;

·

governmental and private bans and restrictions on smoking;

·

actual and proposed price controls and restrictions on imports in certain jurisdictions outside the United States;

·

restrictions on tobacco product manufacturing, marketing, advertising and sales;

·

the diminishing social acceptance of smoking;

·

increased pressure from anti-smoking groups; and

·

other tobacco product legislation that may be considered by Congress, the states and other countries.

Tobacco product manufacturer litigation may reduce demand for our services.

Our primary customers, the leading cigarette manufacturers, face hundreds of lawsuits brought throughout the United States and, to a lesser extent, the rest of the world. The effects of the lawsuits on our customers could reduce their demand for tobacco from us. These lawsuits have been brought by plaintiffs, including (1) individuals and classes of individuals alleging personal injury, (2) governments (including governmental and quasi-governmental entities in the United States and abroad) seeking recovery of health care costs allegedly caused by cigarette smoking, and (3) other groups seeking recovery of health care expenditures allegedly caused by cigarette smoking, including third-party health care payors, such as unions and health maintenance organizations. Damages claimed in some of the smoking and health cases range into the billions of dollars. In September 1999, the United States Department of Justice filed a lawsuit against the leading cigarette manufacturers, seek ing to recover billions of dollars in alleged federal smoking-related health care costs. Plaintiffs continue to file lawsuits.

-22-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

          There have been several jury verdicts in tobacco product litigation during the past three years. For example, in July 2000, the jury in the Engle smoking and health class action in Florida returned a verdict against the cigarette manufacturer defendants for approximately $145 billion in punitive damages. The Engle case is being appealed. More recently, a jury in a Los Angeles individual smoker case returned a verdict against Philip Morris Incorporated for $3 billion in punitive damages. The judge in the case reduced the award to $100 million. Philip Morris Incorporated has stated publicly its intention to appeal the case.

          In November 1998, certain United States tobacco product manufacturers entered into the MSA with 46 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Marianas to settle asserted and unasserted health care cost recovery and other claims. These manufacturers had previously settled similar claims brought by Mississippi, Florida, Texas and Minnesota and an environmental tobacco smoke and health class action brought on behalf of airline flight attendants. The MSA has received final judicial approval in all 52 settling jurisdictions.

          Key provisions of the MSA are as follows:

·

making payments of approximately $206 billion over 25 years from the cigarette manufacturers to the states;

·

marketing and advertising restrictions, including bans on cartoon characters, point-of-sale advertising, billboards, bus and taxi placards and sponsorships of most sporting events by brand names;

·

disbanding the Tobacco Institute, the Council for Tobacco Research and the Council for Indoor Air Research;

·

eliminating vending machine sales and requiring that all tobacco products be behind a counter; and

·

making payments of $1.7 billion for educational efforts about the dangers of smoking and to discourage youth smoking.

          Other state settlement agreements include provisions relating to advertising and marketing restrictions, public disclosure of industry documents, limitations on challenges to tobacco product control and underage use laws, lobbying activities and other provisions.

          It is not possible to predict the outcome of the litigation pending against the U.S. cigarette manufacturers, or the extent to which these actions might adversely affect our customers, their demand for our product and our business generally. Unfavorable outcomes in pending cases could encourage the commencement of additional litigation. Adverse legislative, regulatory, political and other developments concerning cigarette smoking and the tobacco product industry continue to receive widespread media attention. These developments may negatively affect the perception of potential judges and juries with respect to the tobacco product industry, possibly affecting the outcome of litigation. Although we are not a party to the litigation against the tobacco product manufacturers, the Master Settlement Agreement or the State Settlement Agreements, determinations that are adverse to the manufacturers could adversely affect their purchases as our customers.

Legislative and regulatory initiatives could reduce consumption of consumer tobacco products and demand for our services.

In recent years, members of Congress have introduced legislation, some of which has been the subject of hearings or floor debate, that would subject cigarettes to various regulations under the Department of Health and Human Services or regulation under the Consumer Products Safety Act, establish anti-smoking educational campaigns or anti-smoking programs, or provide additional funding for governmental anti-smoking activities, further restrict the advertising of cigarettes, including requiring additional warnings on packages and in advertising, provide that the Federal Cigarette Labeling and Advertising Act and the Smoking Education Act could not be used as a defense against liability under state statutory or common law, allow state and local governments to restrict the sale and distribution of cigarettes, and further restrict certain advertising of cigarettes

-23-

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

and eliminate or reduce the tax deductibility of tobacco product advertising. It is not possible to determine the outcome of these regulatory initiatives, or to predict what, if any, other foreign or domestic governmental legislation or regulations will be adopted relating to the manufacturing, advertising, sale or use of cigarettes, or to the tobacco industry generally. However, if any or all of the foregoing were to be implemented, our business, volume, results of operations, cash flows and financial condition could be materially adversely affected.

          Reports with respect to the harmful physical effects of cigarette smoking have been publicized for many years, and the sale, promotion and use of cigarettes continue to be subject to increasing governmental regulation. Since 1964, the Surgeon General of the United States and the Secretary of Health and Human Services have released a number of reports linking cigarette smoking with a broad range of health hazards, including various types of cancer, coronary heart disease and chronic lung disease, and recommending various governmental measures to reduce the incidence of smoking. The 1988, 1990, 1992 and 1994 reports focus upon the "addictive" nature of cigarettes, the effects of smoking cessation, the decrease in smoking in the United States, the economic and regulatory aspects of smoking in the Western Hemisphere, and cigarette smoking by adolescents, particularly the "addictive" nature of cigaret te smoking in adolescence.

          A number of foreign nations also have taken steps to restrict or prohibit cigarette advertising and promotion, to increase taxes on cigarettes and to discourage cigarette smoking. In some cases, such restrictions are more onerous than those in the U.S. For example, advertising and promotion of cigarettes has been banned or severely restricted for a number of years in Australia, Canada, Finland, France, Italy, Singapore and other countries. It is impossible to predict the extent to which these and any additional restrictions might affect our business.

          In addition, from time to time, the leaf tobacco industry has been the subject of government investigations regarding trade practices. In September 1998, we and several of our employees received subpoenas relating to an investigation by the Antitrust Division of the United States Department of Justice into certain buying practices alleged to have occurred in the industry. We have received notice that this investigation has been concluded without any action taken against us. In addition, we are currently defending a purported class action brought on behalf of U.S. tobacco growers alleging that cigarette manufacturers and certain leaf tobacco merchants violated U.S. antitrust laws by bid-rigging at tobacco auctions and conspiring to undermine the tobacco quota and price support program. See Note Q to the Consolidated Financial Statements.

          Due to the present litigation, regulatory and legislative environment, a substantial risk exists that past growth trends in tobacco product sales may not continue and that existing sales may decline. It is not possible to predict the extent to which any of these issues may affect our business.

The EURO

======================================================================================================

Eleven countries in the European Union began the conversion from their local currencies to the "Euro" on January 1, 1999. As of that date, the exchange rate of the affected currencies was permanently fixed against the Euro. However, the new currency will not be placed in circulation until 2002.

          The underlying intent of this change is to create a strong, hard currency for the European Union that will be a competitor to the U.S. dollar for international trading and financial transactions. The Euro will eliminate cross-border exchange risk within the adopting countries and may significantly reduce many foreign exchange exposures for multinational companies.

          The Company modified certain accounting systems to record both the Euro and the local currency to deal with the conversion. The Company has studied the implications of the overall Euro conversion and does not expect the conversion, once complete, to have a material impact on the Company's consolidated financial condition or results of operations.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The information required by this item, to the extent applicable, is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Relating to Our Operations" above and in Note F to the Consolidated Financial Statements regarding Financial Instruments.

-24-

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
DIMON Incorporated and Subsidiaries

Years Ended June 30

_______________________________________________

(in thousands, except per share data)

2001    

2000    

1999    

======================================================================================================

Sales and other operating revenues...................................

$1,400,955 

$1,473,630 

$1,815,223 

Cost of goods and services sold.......................................

1,209,931 

1,286,128 

1,657,984 

_______________________________________________

191,024 

187,502 

157,239 

Selling, administrative and general expenses.......................

103,537 

106,657 

117,826 

Restructuring (recovery) and asset impairment costs............

(1,384)

(211)

25,932 

Recovery from litigation settlements.................................

 (3,923)

- 

(15,353)

_______________________________________________

Operating Income...................................................

92,794 

81,056 

28,834 

Interest expense.........................................................

53,574 

57,704 

66,123 

Current charge derivative financial instruments...................

4,680 

- 

- 

_______________________________________________

Income (loss) from continuing operations before income taxes,

equity in net income (loss) of investee companies,

cumulative effect of accounting changes and

income from discontinued operations............................

34,540 

23,352 

(37,289)

Income taxes (benefit)..................................................

9,272 

5,381 

(8,923)

_______________________________________________

Income (loss) from continuing operations before equity in net

income (loss) of investee companies, cumulative effect of

accounting changes and income from discontinued

operations..................................................

25,268 

17,971 

(28,366)

Equity in net income (loss) of investee companies (net of

income taxes)......................................................

(271)

17 

(12)

_______________________________________________

Income (loss) from continuing operations before

cumulative effect of accounting changes and income

from discontinued operations..............................

24,997 

17,988 

(28,378)

Cumulative effect of accounting changes, net of income taxes:

Reporting period of subsidiaries............................

284 

-  

-  

Derivative financial instruments...........................

(387)

-  

-  

Discontinued business:

Loss from operations, net of income taxes.................

-  

-  

(841)

Gain on disposal, net of $4,288 tax............................

-  

-  

23,753 

_______________________________________________

NET INCOME (LOSS)................................................

$  24,894 

$  17,988 

$ (5,466)

=========================================

Other Comprehensive Income:

Net Income (Loss)...................................................

$  24,894 

$  17,988 

$ (5,466)

Increase in Equity Currency Conversion........................

(2,776)

(2,576)

(2,448)

Increase (decrease) in Additional Minimum

Pension Liability....................

(478)

456 

333 

Increase in Derivative Financial Instruments..........

(4,828)

-  

-  

_______________________________________________

TOTAL COMPREHENSIVE INCOME (LOSS)..................

$  16,812 

$  15,868 

$ (7,581)

=========================================

-25-

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME (Continued)
DIMON Incorporated and Subsidiaries

Years Ended June 30

_______________________________________________

(in thousands, except per share data)

2001    

2000    

1999    

======================================================================================================

Basic Earnings Per Share

Income (loss) from continuing operations before

cumulative effect of accounting changes and

discontinued operations.........................................

$.56 

$.40 

$(.63)

Cumulative effect of accounting changes...................

- 

- 

- 

Discontinued operations............................................

- 

- 

.51 

______________________________________________

Net Income (Loss)...................................................

$.56 

$.40 

$(.12)

=========================================

Diluted Earnings Per Share

Income (loss) from continuing operations before

cumulative effect of accounting changes and

discontinued operations.........................................

$.56 

$.40 

$(.63)

Cumulative effect of accounting changes...................

- 

- 

- 

Discontinued operations............................................

- 

- 

.51 

_______________________________________________

Net Income (Loss)...................................................

$.56 

$.40 

$(.12)

=========================================

Pro forma amounts assuming the changes in

accounting are applied retroactively:

Income (loss) from continuing operations before

discontinued operations.................

$24,610 

$19,081 

$(28,583)

Discontinued business:

Loss from operations, net of income taxes...................

- 

- 

(841)

Gain on disposal, net of $4,288 tax...........

- 

- 

23,753 

_______________________________________________

Pro forma Net Income (Loss)................

$24,610 

$19,081 

$  (5,671)

=========================================

Basic Earnings Per Share

Income (loss) from continuing operations before

discontinued operations................

$.55 

$.43 

$(.64)

Discontinued operations..................

- 

- 

.51 

_______________________________________________

Pro forma Net Income (Loss)................

$.55 

$.43 

$(.13)

=========================================

Diluted Earnings Per Share

Income (loss) from continuing operations before

discontinued operations.................

$.55 

$.43 

$(.64)

Discontinued operations..................

- 

- 

.51 

_______________________________________________

Pro forma Net Income (Loss)................

$.55 

$.43 

$(.13)

=========================================

___________________________________________________________________________________________________________________

See notes to consolidated financial statements

-26-

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

CONSOLIDATED BALANCE SHEET
DIMON Incorporated and Subsidiaries

June 30                     

____________________________________

(in thousands)

2001    

2000    

====================================================================================================

ASSETS

Current assets

   Cash and cash equivalents..............................................

$  14,594 

$  27,249 

   Notes receivable.........................................................

4,991 

4,707 

   Trade receivables, net of allowances (2001 - $1,230,

      2000 - $7,264).........................................................

177,733 

222,754 

   Inventories:

      Tobacco.................................................................

398,236 

383,881 

      Other....................................................................

18,354 

16,351 

   Advances on purchases of tobacco...................................

40,810 

63,569 

   Current deferred and recoverable income taxes....................

4,816 

21,413 

   Prepaid expenses and other assets....................................

13,745 

13,950 

____________________________________

         Total current assets.............................................

673,279 

753,874 

____________________________________

Investments and other assets

   Equity in net assets of investee companies..........................

2,358 

3,175 

   Other investments.......................................................

2,970 

6,184 

   Notes receivable.........................................................

8,795 

10,038 

   Other.......................................................................

24,613 

22,689 

____________________________________

38,736 

42,086 

____________________________________

Intangible assets

   Excess of cost over related net assets of

      businesses acquired...................................................

158,945 

165,163 

   Production and supply contracts......................................

7,085 

11,685 

   Pension asset.............................................................

938 

1,456 

____________________________________

166,968 

178,304 

____________________________________

Property, plant and equipment

   Land.......................................................................

19,127 

18,795 

   Buildings..................................................................

181,641 

178,508 

   Machinery and equipment..............................................

208,618 

201,238 

   Allowances for depreciation...........................................

(139,078)

(121,325)

____________________________________

270,308 

277,216 

____________________________________

Deferred taxes and other deferred charges.............................

32,798 

15,269 

____________________________________

$1,182,089 

$1,266,749 

___________________________________________________________________________________________________________________

-27-

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

CONSOLIDATED BALANCE SHEET
DIMON Incorporated and Subsidiaries

June 30                     

____________________________________

(in thousands)

2001    

2000    

====================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

   Notes payable to banks..................................................

$    205,823 

$ 198,095 

   Accounts payable:

      Trade....................................................................

51,511 

53,348 

      Officers and employees..............................................

10,030 

6,077 

      Other....................................................................

7,802 

12,129 

   Advances from customers..............................................

72,612 

18,555 

   Accrued expenses........................................................

22,306 

21,963 

   Income taxes..............................................................

8,325 

4,651 

   Long-term debt current.................................................

122,007 

5,321 

____________________________________

         Total current liabilities.............................................

500,416 

320,139 

____________________________________

Long-term debt

   Revolving Credit Notes and Other....................................

3,641 

275,856 

   Convertible Subordinated Debentures................................

73,328 

73,328 

   Senior Notes..............................................................

125,000 

125,000 

____________________________________

201,969 

474,184 

____________________________________

Deferred credits:

   Income taxes..............................................................

6,380 

14,980 

   Compensation and other.........................................

60,825 

53,371 

____________________________________

67,205 

68,351 

____________________________________

Minority interest in subsidiaries..........................................

960 

571 

____________________________________

Commitments and contingencies.........................................

- 

- 

____________________________________

Stockholders' equity

2001 

2000 

   Preferred Stock - no par value:

      Authorized shares....................

10,000

10,000

      Issued shares..........................

-

-

- 

-

   Common Stock - no par value:

2001  

2000  

      Authorized shares....................

125,000

125,000

      Issued shares..........................

44,575

44,525

182,284 

182,143 

   Retained earnings......................................................

245,601 

229,625 

   Accumulated other comprehensive income........................

(16,346)

(8,264)

____________________________________

411,539 

403,504 

____________________________________

$1,182,089 

$1,266,749 

___________________________________________________________________________________________________________________

See notes to consolidated financial statements

-28-

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

STATEMENT OF STOCKHOLDERS' EQUITY
DIMON Incorporated and Subsidiaries

Accumulated
Other Comprehensive Income

________________________________________

(in thousands,
except per share amounts)

Common
Stock

Retained
Earnings

Equity-
Currency
Conversions

Additional
Minimum
Pension
Liability

Derivative Financial Instruments

Total
Stockholders'
Equity

======================================================================================================

Balance, June 30, 1998...

$182,143

$243,816 

$ (2,664)

$(1,365)

$       -  

$421,930 

Net loss for the year.....

(5,466)

(5,466)

Cash dividends - $.40

per share..................

(17,810)

(17,810)

Conversion of foreign

currency financial

statements...............

(2,448)

(2,448)

Reduction in the minimum

pension liability........

333 

333 

___________________________________________________________________________________

Balance, June 30, 1999....

$182,143

$220,540 

$ (5,112)

$(1,032)

$       -  

$396,539 

Net income for the year...

17,988 

17,988 

Cash dividends - $.20

per share.................

(8,903)

(8,903)

Conversion of foreign

currency financial

statements................

(2,576)

(2,576)

Reduction in the minimum

pension liability.........

456 

456 

___________________________________________________________________________________

Balance, June 30, 2000....

$182,143

$229,625 

$ (7,688)

$   (576)

$       -  

$403,504 

Net income for the year...

24,894 

24,894 

Cash dividends - $.20

per share................

(8,918)

(8,918)

Issue of 50,000 shares of

restricted stock.....

141

141 

Conversion of foreign

currency financial

statements................

(2,776)

(2,776)

Increase in the minimum

pension liability.........

(478)

(478)

Increase in derivative

financial instruments..

(4,828)

(4,828)

___________________________________________________________________________________

Balance, June 30, 2001....

$182,284

$245,601 

$(10,464)

$(1,054)

$(4,828)

$411,539 

___________________________________________________________________________________________________________________

See notes to consolidated financial statements

-29-

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

STATEMENT OF CONSOLIDATED CASH FLOWS

DIMON Incorporated and Subsidiaries