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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1998
_____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 of incorporation) (IRS Employer
Identification No.)
512 Bridge Street, Danville, Virginia 24541
_________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 792-7511
--------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (no par value)
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. [X]
The aggregate market value of Common Stock held by non-affiliates
of the registrant (based upon the closing sale price quoted by The New
York Stock Exchange) on August 28, 1998, was approximately $384,432,000.
In determining this figure, the registrant has assumed that all of its
directors and officers, and all persons known to it to beneficially own
ten percent or more of its Common Stock, are affiliates. This
assumption shall not be deemed conclusive for any other purpose.
As of August 28, 1998, there were 44,525,004 shares of Common Stock
outstanding.
Portions of the registrant's definitive Proxy Statement for its
1998 Annual Meeting of Stockholders to be held November 13, 1998, to be
filed with the Securities and Exchange Commission pursuant to Regulation
14A under the Securities Exchange Act of 1934 (the "Proxy Statement"),
are incorporated by reference into Part III of this Form 10-K.
PART I
ITEM 1.BUSINESS
--------
DIMON Incorporated ("DIMON") is the second largest independent leaf
tobacco merchant in the world. The Company acquired Intabex Holdings
Worldwide S.A. ("Intabex"), on April 1, 1997 (the "Intabex
Acquisition"), and is the successor to Dibrell Brothers, Incorporated
("Dibrell") and Monk-Austin, Inc. ("Monk-Austin"), which merged on
April 1, 1995 (the "Merger"). Principally through the Intabex
Acquisition the Company increased its market share in the established
worldwide leaf tobacco market from approximately 30% to approximately
35%. In addition, DIMON strengthened its presence in several important
tobacco growing regions, including Brazil, Argentina, Malawi, Thailand
and Zimbabwe. The Company's address is 512 Bridge Street, Danville,
Virginia 24541, and its telephone number is (804) 792-7511. See Note O
to the Company's Consolidated Financial Statements for the year ended
June 30, 1998, for detailed information regarding each of the Company's
business segments.
The following discussion may include "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements generally are identified by
words such as "expects" or "anticipates" and words of similar effect
and include statements regarding the Company's financial and operating
goals. Actual results may differ materially from those expressed in any
forward-looking statements due to a variety of factors, including those
discussed herein and below under "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Factors That May
Affect Future Results."
Tobacco
-------
The Leaf Tobacco Industry
-------------------------
The world's large multinational cigarette manufacturers, with one
exception, rely on independent leaf tobacco merchants such as the
Company to supply the majority of their leaf tobacco needs. Leaf
tobacco merchants select, purchase, process, store, pack, ship and, in
certain developing markets, provide agronomy expertise and financing for
growing leaf tobacco. At the present time, there are three major global
leaf tobacco merchants, including the Company. These three merchants
source, process and ship leaf tobacco around the world for delivery to
manufacturers of cigarettes and other tobacco products. The Company
believes that the leaf tobacco industry is characterized by the
following trends:
Growth of American Blend Cigarettes. American blend cigarettes have
gained market share in several major foreign markets, including Asia
(particularly the Pacific Rim), Europe and the Middle East in recent
years. American blend cigarettes contain approximately 50% flue-cured,
35% burley and 15% oriental tobacco, contain less tar and nicotine and
taste milder than locally produced cigarettes containing dark and semi-
oriental tobacco historically consumed in certain parts of the world.
According to the Tobacco Merchants Association ("TMA"), American blend
cigarette consumption (excluding China) has increased from 1.7 trillion
units in calendar 1990 to 1.9 trillion units in calendar 1997, an
increase of 11.8%. The TMA estimates that worldwide American blend
tobacco consumption (excluding China) will increase an additional 6.4%
to more than 2.0 trillion units by the year 2000. The TMA also
estimates that worldwide American blend cigarette consumption (excluding
China), as a percentage of total consumption, has also experienced
substantial growth, increasing from 48.6% in 1990 to 53.8% in 1997, and
is projected to reach 55.5% by the year 2000. As American blend
cigarettes have continued to gain global market share, the demand for
export quality flue-cured, burley and oriental tobacco sourced and
processed by the three independent leaf tobacco merchants, including the
Company, has grown accordingly.
-2-
Growth in Foreign Operations of Large Cigarette Manufacturers. Several
of the large multinational cigarette manufacturers have expanded their
operations throughout the world, particularly in Central and Eastern
Europe and the former Soviet Union, in order to increase their access to
and penetration of these markets. As cigarette manufacturers expand
their global operations, the Company believes that demand will increase
for local sources of leaf tobacco and local tobacco processing and
distribution, primarily due to the semi-perishable nature of unprocessed
leaf tobacco and the existence of domestic content laws in certain
countries. The Company believes that the international expansion of the
large multinational cigarette manufacturers will cause these
manufacturers to place greater reliance on the services of financially
strong leaf tobacco merchants with the ability to source and process
tobacco on a global basis and to help develop higher quality local
sources of tobacco.
Growth in Foreign Sourced Tobacco. In an effort to respond to cigarette
manufacturers' increasing demand for lower cost American blend cigarette
ingredients, the major leaf tobacco merchants have made significant
investments in South America, Africa and Asia, the principal sources of
flue-cured and burley tobacco outside the U.S. This trend is expected
to continue in the foreseeable future as the quality of foreign grown
tobacco continues to improve.
Recent Market Conditions. The Company believes that the present
uncertainty in the litigation and legislative environments has led
certain of the Company's key U.S. customers to decrease their global
purchase programs significantly. In fiscal 1998, the Company's gross
profit on sales to three of its larger customers, Philip Morris
Companies, Inc., R. J. Reynolds Tobacco Company, Inc. and Lorillard
Tobacco Company, was down $40 million from fiscal 1997. Other customers
have become more opportunistic and have begun taking advantage of the
softer global demand for tobacco. In addition, a surplus of flue-cured
and burley tobacco has led to smaller crop sizes in the U.S. for the
coming year.
However, the Company believes that its reduced sales and profit margin
represent a one-time adjustment in world leaf demand. It has also taken
steps that may mitigate the effect of smaller U.S. crop sizes. In
December 1997, the Company entered into a new extended agreement with R.
J. Reynolds Tobacco Company, Inc. ("RJR") to cover processing, in
addition to purchasing, of RJR's domestic tobacco needs. The Company
has also improved its processing efficiency with the closure of its
Greenville, North Carolina processing plant. All processing for RJR
will be concentrated in the Company's plant in Kinston, North Carolina.
The recent economic crisis in Asia has had an impact on the Company.
Weakness in Asian currencies made it difficult for the Company's Asian
customers to translate local currency sales into U.S. dollar purchases
of leaf tobacco during much of fiscal 1998. Not only did committed
inventories for Asian customers invoice more slowly than anticipated,
but the opportunity to ship lower-cost leaf out of Asia was hampered by
a lack of ocean freight containers, resulting from reduced imports of
other goods to the region. In certain areas, however, such as Thailand
and Korea, where exchange rates maintained some stability, the Company
enjoyed a limited resumption of shipments near the end of fiscal 1998.
The economic crisis has recently spread into Russia and the former
Soviet Union with a resulting delay in some shipments for the first
quarter of fiscal 1999.
Lastly, the 1998 Brazilian tobacco crop was approximately 20% smaller
than the 1997 crop as a result of reduced plantings and the effects of
El Nino. Traditionally, activity in Brazil dominates the Company's
fourth quarter and first quarter financial results. Although smaller
crops have translated into weaker earnings, they have also helped
mitigate the impact of a global surplus of leaf tobacco.
Business Strategy
-----------------
The Company's primary business objective is to capitalize on the growth
in worldwide consumption of American blend cigarettes by becoming the
preferred low-cost supplier of leaf tobacco to the large multinational
manufacturers of American blend cigarettes. The Company's goal is to
maintain a ten percent annual growth rate in total gross profit over the
long term. In measuring growth, the Company focuses on
-3-
gross profit generated by sales volumes and not on total sales dollars
which, due to fluctuations in raw material costs, may not correlate with
profitability. The Company hopes to achieve total gross profit growth
of 60% to 70% over the next five years. In addition, the Company
intends to employ its operating leverage to generate a 15% pre-tax
operating return on its assets used in the business, which would double
the Company's operating income over the next five years. The Company
believes that with an appropriate amount of leverage and careful global
tax planning, it can convert its 15% pre-tax operating return on assets
into a 20% after-tax return on equity. The Company believes that
shortfalls in individual years will be made up by increases in the
following years. The Company's ability to achieve these objectives will
be subject to a variety of factors which may cause actual results to
differ materially from these goals, including those discussed below
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors that May Affect Future Results."
To achieve these objectives, the Company has implemented a strategy to
position itself to meet the needs of its cigarette manufacturing
customers throughout the world by directly expanding its global
operations in the major tobacco exporting countries and by forming
strategic partnerships with its major customers in countries with
emerging tobacco production. As part of its strategy, the Company
acquired Intabex on April 1, 1997. The Company believes that the
Intabex Acquisition has enhanced the Company's global tobacco purchasing
capabilities, expanded and diversified its customer base and expanded
its geographic reach. The Company's ability to respond to the global
expansion and changing needs of the large multinational cigarette
manufacturers is a critical factor in developing and expanding customer
relationships. The principal components of the Company's business
strategy are as follows:
Increase the Company's operations in low-cost tobacco growing regions.
To ensure breadth and depth of supply of tobacco, particularly the
tobacco used in American blend cigarettes, the Company has expanded and
plans to continue to expand its operations in South America, Africa and
China, the largest production areas of flue-cured and burley tobacco
outside of the U.S. During fiscal 1998, the company started
construction of a new processing facility in Tanzania that is expected
to be operational in November, 1998. Tanzania provides a desirable
style of flue-cured tobacco that is different from Malawi and Zimbabwe
and will help mitigate any loss of volume from reduced plantings of
flue-cured tobaccos in Malawi over the next few years. The April 1,
1997 acquisition of Intabex and certain assets of Tabex (Pvt) Limited in
Zimbabwe substantially expanded the Company's presence in Brazil,
Argentina, Zimbabwe and Malawi, allowing the Company to enhance
significantly its sourcing capacity in these countries, and established
a new presence in Mozambique, Spain, Sri Lanka, Thailand, Zaire and
Zambia. In 1995, the Company signed an agreement with the China
National Tobacco Corporation to provide additional access to a state-of-
the art processing facility and tobacco sources in the province of
Yunnan. The Company also made acquisitions in 1995 in Bulgaria, Greece
and Turkey. The Company intends to utilize its agronomy expertise in
helping to develop low-cost sources of American blend quality tobacco
and its existing relationships with the major multinational cigarette
manufacturers to gain market share in these growth regions.
Capitalize on outsourcing trends. The Company anticipates further
outsourcing of leaf tobacco purchasing and processing by cigarette
manufacturers. This outsourcing trend is driven by (1) higher margins
in cigarette production, (2) the increasing sophistication required in
sourcing leaf tobacco on a global basis, and (3) continued privatization
of tobacco and cigarette production operations in other countries. In
1994, the Company began providing all leaf tobacco auction buying in the
U.S. for RJR, the second largest cigarette producer in the U.S. In
1995, the Company began to purchase and process all of Lorillard Tobacco
Company's ("Lorillard") auction market tobacco requirements in the U.S.
In December 1997, the Company entered into a new extended agreement with
RJR to cover processing, in addition to purchasing of RJR's domestic
tobacco needs. With the improved tobacco purchasing capabilities and
expanded geographic reach resulting from the Intabex Acquisition, the
Company believes it will continue to be a major beneficiary of the
outsourcing trends in the tobacco industry.
-4-
Improve efficiency and reduce operating costs. The Company has
consistently sought opportunities to improve efficiencies and reduce
operating costs, particularly in connection with the Merger and the
Intabex Acquisition. In connection with the Merger, the Company
initiated a restructuring plan for its operations. The plan was
designed to eliminate unprofitable locations, consolidate duplicative
processing facilities, reduce the salaried workforce, improve operating
efficiencies and increase regional unit accountability. This initiative
resulted in the recognition of various charges, aggregating $3.9
million, $11.8 million, and $17.8 million for fiscal 1997, 1996, and
1995, respectively. These initiatives reduced the Company's annual
operating costs and expenses by approximately $25 million in fiscal
1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In most major tobacco producing areas, the Company and Intabex had
similar operations, which created opportunities for significant cost
savings. Since the acquisition of Intabex, the Company has completed
the following in connection with its consolidation:
- Integration of the African operations of Intabex, including
personnel reductions and consolidation of administrative offices,
the redeployment of the assets of a tobacco processing facility
and the conversion of that facility into a tobacco storage
warehouse, and the dissolution of a joint venture;
- Integration of the Latin American operations of Intabex,
including personnel reductions, consolidation of administrative
offices, the redeployment of the assets of a tobacco processing
facility and the conversion of that facility into a tobacco
storage warehouse;
- Integration of North American operations of Intabex including the
consolidation of the former joint venture partnership Eastern
Carolina Leaf Processors, consolidation of administrative offices
and personnel reductions and the closure of a tobacco processing
facility; and
- Integration of Asian operations, consisting primarily of
personnel reductions and consolidation of some administrative
offices.
During fiscal 1998, DIMON continued to rationalize its operations
throughout the world by closing plants in Brazil, Zimbabwe, and the
United States. The processing machinery and equipment of the closed
plants in Brazil and Zimbabwe were redeployed to other facilities in
Malawi and Tanzania. The Company also terminated the joint venture in
Malawi, and DIMON now processes its Malawi tobacco in a single facility.
Expand operations in new markets. During the last decade, several of
the large multinational cigarette manufacturers have expanded their
global operations, particularly into Central and Eastern Europe and the
former Soviet Union, in order to increase their access to and
penetration of new markets. The Company believes such expansion will
increase demand for local sources of leaf tobacco and local tobacco
processing due to the semi-perishable nature of unprocessed tobacco and
the existence of domestic content laws in certain foreign countries.
The Company believes these factors will cause manufacturers to place
greater reliance on the services of financially strong leaf tobacco
merchants with the ability to source and process tobacco on a global
basis and to help develop higher-quality local sources of leaf tobacco.
Intabex's presence in emerging tobacco markets provides new sources
of supply for the Company. Intabex brings new sources of tobacco in the
countries of Mozambique, Spain, Sri Lanka, Thailand, Zaire and Zambia.
In addition, the Company believes Intabex's tobacco operations in the
emerging markets of Africa and Asia will significantly enhance its
strength in these low-cost tobacco growing regions.
As mentioned above DIMON expanded its operations in Africa during fiscal
1998 with a new processing facility being constructed in Tanzania.
Additionally, the Company acquired 100 percent interest in Agroexpansion
S.A. with processing facilities in Malpartida, Spain.
In the Oriental tobacco operations, a DIMON wholly owned subsidiary
acquired in June 1997 the remaining 55 percent of the outstanding shares
of George Allamanis Tobacco International S.A. ("G.A.T.I."). Based in
Thessaloniki, Greece, G.A.T.I. is a former joint-venture partner in
which DIMON had previously owned a
-5-
45 percent stake. In July 1997, DIMON acquired 100 percent of the
privately held Bulgarian tobacco company Bulmon. Also, in fiscal 1998,
DIMON acquired two Oriental leaf sourcing operations in the former
Yugoslavian Republic of Macedonia.
Through Compania de Filipinas S.A., a wholly owned subsidiary acquired
with Intabex, DIMON sells premium cigar and other dark air-cured tobacco
to the cigar industry.
Operations
----------
The Company has developed an extensive international network through
which it purchases, processes and sells tobacco. In addition to its
processing facilities in Virginia and North Carolina, the Company owns
or has 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
Greece, Macedonia and Turkey, the leading exporters of Oriental tobacco.
The Company also has processing facilities in Germany, Italy, Spain, and
Tanzania. Intabex owned and operated leaf processing facilities in
Argentina, Sri Lanka, and Thailand. The Company and Intabex have
historically contracted with third parties for the processing of tobacco
in certain countries. Including Intabex operations, the Company
contracts with third parties for leaf processing in Canada, Chile,
China, Guatemala, India, Mozambique, Spain, Zaire and Zambia and certain
countries of the former Soviet Union. In addition, the Company has
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.
Purchasing. Prior to the Intabex Acquisition, the Company purchased
tobacco in approximately 26 countries, generally at auction or directly
from growers. The Company now purchases tobacco in 32 countries and has
expanded its purchasing capabilities significantly in Brazil, Argentina,
Malawi, Tanzania, Thailand and Zimbabwe. Although the majority of the
dollar value of tobacco sold by the Company is produced domestically,
the relative importance of tobacco grown overseas to the Company's
profitability has increased steadily. During fiscal 1998, approximately
42% of the dollar value of tobacco purchased by the Company was
purchased in the U.S. Approximately 14%, 9% and 4% of the dollar value
of tobacco purchased by the Company during fiscal 1998 were purchased in
Brazil, Zimbabwe and Malawi, respectively. The balance of the Company's
tobacco purchases during 1998 were made in other tobacco growing
countries, including Argentina, Bulgaria, Canada, China, Germany,
France, Greece, India, Italy, Mexico, Poland, the former Soviet Union,
Tanzania and Turkey. The Company believes it has access to a diverse
supply of tobacco grown in a number of regions throughout the world and
can respond quickly to factors that may cause fluctuations in the
quality, yield or price of tobacco crops grown in any one region.
Tobacco generally is purchased at auction or directly from growers.
Tobacco grown in the U.S., Canada, Malawi and Zimbabwe is purchased by
the Company principally on auction markets. The Company purchases
domestic tobacco on the flue-cured, burley and air-cured auction markets
in Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina,
Tennessee and Virginia for shipment to the Company's facilities in North
Carolina and Virginia for processing to customer specification. The
Company usually purchases tobacco at the auction markets after receiving
specific customer orders or indications of customers' upcoming needs.
The Company's network of more than 100 tobacco buyers allows the Company
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, Greece, Spain,
Tanzania, and Turkey, the Company purchases tobacco directly from
farmers or from local entities that have arranged for purchase from
farmers. These direct purchases are often made by the Company based
upon its projection of the needs of its long-standing customers rather
than against specific purchase orders. The Company's arrangements with
farmers vary from locale to locale depending on the Company's
predictions of future supply and demand, local
-6-
historical practice and availability of capital. For example, in
Brazil, the Company generally contracts to purchase a farmer's entire
tobacco crop at the market price at the time of harvest based on the
quality of the tobacco delivered. Pursuant to these purchase contracts,
the Company provides 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, the Company may also
finance farmers' construction of curing barns.
In addition, the Company's 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, the Company buys
tobacco from local entities that have purchased tobacco from farmers and
supervises the processing of that tobacco by those local entities. The
Company believes that its long-standing relationships with its customers
are vital to its operations outside of the auction markets.
Processing. The Company processes tobacco to meet each customer's
specifications as to quality, yield, chemistry, particle size, moisture
content and other characteristics. The Company processes purchased
tobacco in over 30 facilities located throughout the world, nine of
which were acquired in the Intabex Acquisition. Unprocessed tobacco is
a semi-perishable commodity that generally must be processed within a
relatively short period of time to prevent fermentation or deterioration
in quality. Accordingly, the Company has located its processing
facilities in proximity to its principal sources of tobacco.
Upon arrival at the Company's processing plants, flue-cured and burley
tobacco is first reclassified according to grade. Most of that tobacco
is then blended to meet customer specifications regarding color, body
and chemistry, threshed to remove the stem from the leaf and further
processed to produce strips of tobacco and sieve out small scrap. The
Company also sells a small amount of processed but unthreshed flue-cured
and burley tobacco in loose-leaf and bundle form to certain of its
customers.
Processed flue-cured and burley tobacco is redried to remove excess
moisture so that it can be held in storage by customers or the Company
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 the Company's 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,
Company technicians use laboratory test equipment for quality control to
ensure that the product meets all customer specifications.
From time to time, the Company processes and stores tobacco acquired by
various stabilization cooperatives under the U.S.'s price support
program. The Company 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 the
Company's net sales, they result in additional recovery of fixed cost
that may be significant to gross profit.
Selling. The Company sells its tobacco to manufacturers of cigarettes
and other consumer tobacco products located in about 60 countries around
the world. The Company ships 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, the Company also uses sales agents to
supplement its selling efforts. Several of these customers individually
account for a significant portion of the Company sales in a normal year.
The loss of any one or more of such customers could have a materially
adverse effect on the tobacco business of the Company.
-7-
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 the 1998, 1997, and 1996
sales and other operating revenues, approximately 32%, 42%, and 55%,
respectively, were to various tobacco customers which management has
been led to believe are owned by or under common control of Philip
Morris Companies, Inc. ("Philip Morris") or RJR (Philip Morris, RJR or
Japan Tobacco Company in 1996, with Philip Morris and RJR accounting for
significantly larger portions of the Company's sales) and each of which
contributed in excess of 10% of total sales. No other customer accounts
for more than 10% of the Company's sales. See Note O to the Company's
Consolidated Financial Statements for the year ended June 30, 1998. The
Company generally has maintained relationships with its customers for
over forty years. In fiscal 1998, the Company delivered approximately
28% of its tobacco sales to customers in the U.S., approximately 37% to
customers in Europe and the remainder to customers located in Asia,
South America and elsewhere.
As of June 30, 1998, the Company's consolidated entities had tobacco
inventories of $588.1 million and had significant commitments or
indications from customers for purchases of tobacco. The Company
expects to deliver substantially all of the June 30, 1998 orders in
fiscal 1999. The level of purchase commitments for tobacco fluctuates
from period to period and is significant only to the extent that it
reflects short-term changes in demand for leaf tobacco. The Company
typically makes 80-85% of its 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 the Company
pursuant to orders, but no contractual obligation exists with respect to
tobacco purchased in response to indications. However, the Company has
done business with most of its customers for many years and has never
experienced a significant failure of customers to purchase tobacco for
which they have given indications. Other than the contracts with RJR
and Lorillard described below under "Global Operations -- United States"
and an agreement between Intabex and Tabacalera S.A. providing that
Intabex will provide a significant portion of Tabacalera's tobacco
needs, the Company has no significant supply agreements with its
customers.
The Company typically makes sales based on a customer's letter of
credit, by cash against documents or by payment against invoice.
Virtually all of the Company's sales throughout the world are
denominated in U.S. dollars. While the Company usually receives payment
for tobacco sold after the Company has processed and shipped it, some
customers advance payments to the Company throughout the buying season
as the Company purchases tobacco for the customers' accounts. The
Company distributes processed tobacco directly from its storage
facilities to its customers by truck or rail to its customers' storage
or manufacturing facilities or to port for shipping.
Global Operations
-----------------
United States. The Company owns and operates three processing
facilities in North Carolina and Virginia. A federal program supports
the price of tobacco grown in the U.S. and establishes quotas for
production. Consequently, U.S.-grown tobacco is typically more
expensive than tobacco grown elsewhere. Although domestic tobacco
historically has accounted for the majority of the Company's sales, the
Company expects that, because of this price differential and its
generally increasing business outside of the U.S., sales of flue-cured
and burley tobacco grown in the U.S. and related services will be less
significant than in the past. The Company believes that any short-term
decline in its domestic business should be offset in the short-term by
increased foreign operations.
In late fiscal 1994, Monk-Austin entered into an agreement with RJR to
purchase all of RJR's U.S. auction market tobacco requirements. In late
fiscal 1995, Dibrell entered into an agreement with Lorillard pursuant
to which the Company will purchase and process all of Lorillard's
domestic auction market tobacco requirements. In December 1997, the
Company entered into a new extended agreement with RJR to cover
processing, in addition to purchasing, of RJR's domestic tobacco needs.
Generally, the contracts establish a
-8-
framework for pricing the Company's services (which generally is
negotiated with respect to crop year, grade of tobacco leaf or type of
service provided based on market prices), do not provide for minimum
purchases and are terminable upon reasonable notice. The Company
expects that purchases under these agreements will account for a
substantial portion of its tobacco purchases in the U.S. in the future.
Brazil. The Company believes it is one of the two largest independent
leaf tobacco merchants in Brazil. The Company exports the majority of
the tobacco that it processes in Brazil to its customers around the
world. In fiscal 1998, the Company derived approximately 21% of its
tobacco revenue from its Brazilian operations.
In fiscal 1996, the Company merged its two wholly-owned subsidiaries,
Tabra and Dibrell do Brazil to form DIMON do Brazil. DIMON do Brazil
has three modern tobacco processing facilities located in the center of
Brazil's tobacco production area. Brazil represents the Company's most
significant foreign operation in virtually all respects, including
purchasing volume, processing and storage capacities and operating
income potential. Through the Merger and resulting reduction in
duplicative functions and facilities, the Company reduced annual
operating costs.
Africa. The Company purchases flue-cured and burley tobacco at auction
for customer orders in Zimbabwe and Malawi. The tobacco is threshed and
packed for export at facilities in each country. The Company exports
the majority of the tobacco it processes in Zimbabwe and Malawi to its
customers around the world. In fiscal 1998, the Company derived
approximately 12% of its revenue from its Zimbabwean and Malawian
tobacco operations.
Intabex's business in Africa allowed the Company to significantly
increase market share in the established markets of Zimbabwe and Malawi.
The addition of Intabex's business also creates a significant presence
for the Company in South Africa, Tanzania, Zambia, Mozambique, and
Zaire.
In fiscal 1995, the Company combined the former Dibrell and Monk-Austin
operations in Zimbabwe and Malawi to form two wholly-owned subsidiaries,
DIMON Zimbabwe and DIMON Malawi. Through DIMON Zimbabwe the Company
purchases, processes in one facility and exports flue-cured and burley
tobacco grown in Zimbabwe. Through DIMON Malawi the Company purchases,
processes in one facility and exports flue-cured and burley tobacco
grown in Malawi.
Greece and Turkey. The Company believes that it is one of the largest
exporters of processed oriental tobacco in the world. Greece and Turkey
are the most important producers of oriental tobacco. Through its
wholly-owned subsidiaries, DIMON Hellas Tobacco SA, Georges Allamanis
Tobacco International SA and DIMON Turk Tutun AS, the Company buys,
exports and processes, in two facilities in each country, oriental
tobacco grown in each country.
Other Foreign Operations. The Company also has foreign subsidiaries,
joint ventures and affiliates that purchase and sell tobacco grown in
other countries throughout the world. The Intabex Acquisition provided
the Company a significant presence in the established burley tobacco
market in Thailand, a new presence in Spain and, through a wholly-owned
subsidiary, new business as a supplier of premium cigar and other dark-
air cured tobacco to the cigar industry. In addition, the Company owns
and operates processing facilities in Italy, Germany and Mexico.
In certain countries, such as China and India, the Company has
processing agreements with other processors to use their facilities
under the supervision of the Company's employees. In several South
American countries where the Company operates, tobacco is bought from
the farmers by the processors at negotiated prices, and it is necessary
to prefinance the crop by making advances of cash or materials to the
farmers prior to and during the growing season.
-9-
Competition
-----------
The leaf tobacco industry is highly competitive. Competition among
dealers in leaf tobacco is based on the price charged for products and
services as well as the dealers' ability to meet customer specifications
in the buying, processing and financing of tobacco. The Company
believes that it is well positioned to meet this competition,
particularly in view of its important processing facilities in the U.S.,
Brazil and other major tobacco growing countries. Prior to the Intabex
Acquisition, the Company competed with three major tobacco processors
and had significantly less market share than the world's largest
processor. Following the Intabex Acquisition, the Company's principal
competitors are Universal Corporation ("Universal") and Standard
Commercial Corporation. The Company's market share has increased from
approximately 30% to approximately 35%. Of the independent leaf tobacco
merchants, the Company believes that, based on revenues, it ranks second
in established worldwide market share. The Company further believes
that among independent leaf tobacco merchants, it has the largest or
second largest market share in Argentina, Brazil, Greece, Malawi,
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 that of
the Company.
Seasonality
-----------
The purchasing and processing activities of the Company's 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 June and delivered from January
to July. Other markets around the world have similar purchasing
periods, although at different times of the year, and as the importance
of these markets has grown, the seasonality in the Company's business
has decreased.
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 the Company's
fiscal year, the seasonal components of the Company's working capital
reflect primarily the operations related to foreign grown tobacco.
Flowers
-------
The Company's fresh-cut flower operations consisted of buying flowers
from sources throughout the world and transporting them, normally by
air, to operating units for resale to wholesalers and retailers through
its wholly-owned flowers subsidiary, Florimex. For the fiscal year
ended June 30, 1998, the Company's flower operations had revenues of
$391 million and, at June 30, 1998, assets of $103 million.
On August 12, 1998, the Company signed a Stock and Asset Purchase
Agreement with U.S.A. Floral Products, Inc., disposing of the cut
flowers operations. The Company has treated the flower operations as
discontinued. The sale of Florimex, for approximately $90 million in
cash and assumed debt, is expected to generate a pre-tax gain of
approximately $30 million in the first quarter of the fiscal year ended
June 30, 1999.
-10-
Employees
---------
The Company's consolidated entities employed about 4,000 persons,
excluding seasonal employees, in its worldwide tobacco operations at
June 30, 1998. In the U.S. tobacco operations, the Company's
consolidated entities employed about 750 employees at June 30, 1998.
During processing periods the seasonal employees in the U.S. would
number approximately 1,700. Most U.S. seasonal employees are covered by
collective bargaining agreements with two local labor unions. Most of
the full-time employees of the Company are not covered by collective
bargaining agreements. In the non-U.S. tobacco operations, the
Company's consolidated entities employed about 3,250 persons, excluding
8,600 seasonal employees at June 30, 1998. The Company's worldwide
consolidated cut flower operation entities employed about 1,300 persons,
excluding seasonal employees. The Company considers its employee
relations to be satisfactory.
Government Regulation and Environmental Compliance
--------------------------------------------------
In recent years, governmental entities in the U.S. at all levels have
taken or have proposed actions that may have the effect of reducing
consumption of cigarettes. These activities have included: (1) the U.S.
Environmental Protection Agency's decision to classify tobacco
environmental smoke as a "Group A" (known human) carcinogen; (2)
restrictions on the use of tobacco products in public places and places
of employment including a proposal by the U.S. Occupational Safety and
Health Administration to ban smoking in the work place; (3) proposals by
the U.S. Food and Drug Administration to restrict sharply cigarette
advertising and promotion and to regulate nicotine as a drug; (4)
increases in tariffs on imported tobacco; (5) proposals to increase the
U.S. excise tax and state taxes on cigarettes; (6) the policy of the
U.S. government to link certain federal grants to the enforcement of
state laws banning the sale of tobacco products to minors; and (7)
recent filings of lawsuits against cigarette manufacturers by many U.S.
states and others seeking reimbursement of Medicaid and other
expenditures claimed to have been made by such states to treat diseases
allegedly caused by cigarette smoking. In 1993, Congress enacted a law
(the 75/25 Rule) requiring that all domestically manufactured cigarettes
contain at least 75% domestically grown tobacco. Although that law was
repealed in 1995 and was replaced with import quotas designed to assist
domestic tobacco growers, the law had the effect of drastically
decreasing demand for foreign tobacco in the domestic production of
cigarettes. It is not possible to predict the extent to which
governmental activities might affect the Company's business.
In June 1997, representatives of the leading U.S. manufacturers of
consumer tobacco products, several state attorneys general and certain
private plaintiffs entered into an agreement (the "Resolution") to
support the adoption of federal legislation and ancillary undertakings
that would resolve many of the regulatory and litigation issues
affecting the United States' tobacco industry and, thereby, reduce
uncertainties facing the industry and increase stability in business and
capital markets. Such legislation was never enacted.
Instead, in April 1998, the Senate Commerce Committee approved a bill
(the "Commerce Bill") that was substantially different and
significantly more adverse to the domestic tobacco industry than the
proposed Resolution. The Commerce Bill, as approved by the Commerce
Committee, contemplated industry payments in excess of one-half trillion
dollars over the first twenty-five years, provided the United States
Food and Drug Administration ("FDA") with broad regulatory control over
tobacco products, applied, in certain respects, to international sales
of tobacco products, and eliminated virtually all of the provisions of
the proposed Resolution that would limit liability of the tobacco
industry in civil litigation in the United States. In June 1998, the
United States Senate voted to return the Commerce Bill to the Senate
Commerce Committee for further consideration. Other federal tobacco
bills are also under consideration by Congress. The Company cannot
predict whether the Commerce Bill or any other such federal tobacco
legislation will be enacted, the form any such enactment might take or
the extent to which such measures may affect the Company's business.
The leading cigarette manufacturers also face hundreds of lawsuits
brought throughout the United States and, to a much lesser extent, the
world. Such suits have been brought on behalf of (i) individuals and
classes of individuals alleging personal injury and (ii) state and local
governments seeking recovery of health care costs
-11-
allegedly caused by cigarette smoking, as well as other groups such as
unions, health maintenance organizations, federal and state taxpayers,
Native American tribes and others. Damages claimed in some of the
smoking and health class actions and health care costs recovery cases
range into the billions of dollars. Plaintiffs continue to file more
such suits.
It is not possible to predict the outcome of the litigation pending
against the U.S. cigarette manufacturers. Litigation is subject to many
uncertainties, and it is possible that some of these actions could be
decided unfavorably. An unfavorable outcome or settlement of a pending
smoking and health or health care cost recovery case could encourage the
commencement of additional, similar litigation. Adverse legislative,
regulatory, political and other developments concerning cigarette
smoking and the tobacco industry continue to receive widespread media
attention. These developments may negatively affect the perception of
potential judges and juries with respect to the tobacco industry,
possibly to the detriment of certain pending litigation, and may prompt
the commencement of additional, similar litigation.
The cigarette manufacturers have reached separate settlements with the
states of Florida, Mississippi, Texas and Minnesota, and an
environmental tobacco smoke personal injury class action brought on
behalf of airline flight attendants. These settlements require the
cigarette manufacturers to make scheduled payments for up to twenty-five
years totaling more than $20 billion. The cigarette manufacturers may
attempt to recover a portion of these costs by demanding price and other
concessions from suppliers such as the Company. Such concessions could
materially and adversely affect the Company's margins and its results of
operations.
Due to the present litigation and legislative environment, a substantial
risk exists that past growth trends in tobacco sales may not continue
and that existing sales may decline as a result of the proposed
settlement. In addition, in response to the proposed federal
settlement, groups representing tobacco farmers have proposed certain
measures, including measures similar to the 75/25 Rule, that could
adversely affect the Company's business. However, it is not possible to
predict whether or in what form the proposed federal legislation or any
additional measures will be approved by Congress and the President or
the extent to which any settlement or such measures may affect the
Company's business.
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 a number of other countries. It is impossible to
predict the extent to which these and any additional restrictions might
affect the Company's business.
In addition, from time to time, the leaf tobacco industry has been the
subject of government investigations regarding trade practices. In
September 1998, the Company and several of its 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. The Company expects to
cooperate fully with this investigation.
Financial Information About Industry Segments, Foreign And
Domestic Operations And Export Sales
----------------------------------------------------------
As discussed in Item 1, the Company operates in two business segments:
the purchasing, processing and selling of leaf tobacco and the
purchasing and selling of cut flowers. On August 12, 1998, the Company
signed a Stock and Asset Purchase Agreement to sell the flower
operations. Financial information concerning tobacco and its
geographical operations 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."
-12-
ITEM 2.PROPERTIES
----------
Following is a description of the material properties of the Company:
Corporate
---------
The Company's corporate headquarters are located in Danville, Virginia,
and the tobacco operations are headquartered in Farmville, North
Carolina.
Tobacco Facilities
------------------
The Company operates each of its tobacco processing plants for seven to
nine months during the year to correspond with the applicable growing
season. While the Company believes its processing facilities are being
efficiently utilized, the Company also believes its domestic processing
facilities and certain foreign processing facilities have the capacity
to process additional volumes of tobacco if required by customer demand.
The following is a listing of the various material properties used in
the tobacco operations:
AREA IN
LOCATION USE SQUARE FEET
_____________________________________________________________
UNITED STATES
-------------------
DANVILLE, VA FACTORY/STORAGE 1,891,000
GREENVILLE, N.C. STORAGE 302,000
FARMVILLE, N.C. FACTORY/STORAGE 1,020,000
KINSTON, N.C. FACTORY/STORAGE 1,069,000
LAKE CITY, S.C. STORAGE 252,000
SOUTH AMERICA
------------------
VERA CRUZ, BRAZIL FACTORY/STORAGE 1,043,000
SANTA CRUZ, BRAZIL FACTORY/STORAGE 1,397,000
VENANCIO AIRES, BRAZIL FACTORY/STORAGE 1,250,000
AFRICA
-----------
LILONGWE, MALAWI FACTORY/STORAGE 809,000
HARARE, ZIMBABWE FACTORY/STORAGE 1,080,000
EUROPE
-----------
KARLSRUHE, GERMANY FACTORY/STORAGE 404,000
GLAUZIG, GERMANY FACTORY/STORAGE 1,276,000
THESSALONIKI, GREECE FACTORY/STORAGE 197,000
SPARANISE, ITALY FACTORY/STORAGE 466,000
IZMIR, TURKEY FACTORY(2)/STORAGE 854,000
ASIA
---------
LAMPHUN, THAILAND FACTORY/STORAGE 103,000
-13-
Flower Facilities
-----------------
Florimex had 59 different operating facilities throughout the world.
The owned properties included an international distribution warehouse in
Kelsterbach, Germany (near Frankfurt Airport), with offices and storages
of about 60,000 square feet. In Nuremberg, the headquarters of
Florimex, owned properties include office and storages of about 300,000
square feet. At all Florimex locations there were various properties,
generally located near airports, consisting of owned or leased offices
and storages. The storages at each location included cooler storages of
various sizes to accommodate the needs of individual locations.
Baardse, the Dutch flower exporter, had leased about 110,000 square feet
of office and storage associated with the Aalsmeer auction operation.
Aalsmeer had the largest flower auction facility in The Netherlands.
Baardse also owned greenhouses in Aalsmeer with 125,000 square feet.
The flower facilities were sold to U.S.A. Floral Products, Inc. on
August 12, 1998, pursuant to the Stock and Asset Purchase Agreement.
All of the above property is owned, except as otherwise indicated, by
the Company, its subsidiaries or investee companies. The Company
believes that the facilities are generally well maintained and in good
operating condition and are suitable and adequate for its purposes at
current and reasonably anticipated future sales levels.
ITEM 3.LEGAL PROCEEDINGS
-----------------
DIMON acquired Intabex, and certain assets of Tabex (Private) Limited,
an affiliate of Intabex, on April 1, 1997, for an initial purchase price
of $264.19 million, consisting of 1.7 million shares of DIMON common
stock, $140 million in ten year, 6.25% subordinated convertible
debentures, convertible at $28.77 a share (the "Convertible
Debentures"), and $86.12 million in cash, as reported on Form 8-K filed
April 16, 1997.
On September 22, 1998, DIMON filed an action in the United States
District Court for the Southern District of New York relating to its
acquisition of Intabex. The purchase agreements for DIMON's acquisition
of Intabex and the Tabex assets provided several purchase price
adjustment mechanisms relating to the pre-acquisition financial
statements of Intabex and the representations, warranties and covenants
of Intabex negotiated by DIMON as part of the acquisition. The Intabex
stock purchase agreement provided for a post-closing adjustment in the
purchase price based upon the net worth of Intabex as of March 31, 1997,
as determined by audited financial statements of Intabex that were
prepared in accordance with certain requirements of the stock purchase
agreement. In August 1997, the Intabex purchase price was adjusted
pursuant to this mechanism and reduced by $18.6 million to $245.6
million. The adjustment was effected by the return of $16.7 million
principal amount of Convertible Debentures plus certain interest
payments that had been made thereon, and $1.9 million in cash. The
adjustment was reflected in the Company's Form 10-Q for the quarter
ended September 30, 1997. At the time of the post-closing settlement,
one of the former Intabex shareholders, Folium, Inc., also agreed to
guarantee the sales price by DIMON of certain tobacco inventory that had
been acquired as part of the Intabex acquisition. That guarantee
resulted in a further payment to DIMON by Folium, Inc. of $7.3 million
in April 1998. Folium, Inc. is controlled by a British Virgin Islands
trust of which A.C.B. Taberer is a potential beneficiary. Mr. Taberer
is a director of and consultant to DIMON and the former Chairman of
Intabex.
In addition to the post-closing audit and purchase price adjustment and
the inventory payments, the former Intabex shareholders also agreed to
indemnify DIMON, up to $90 million, for misrepresentations or breaches
in Intabex's representations, warranties or covenants, including
representations and warranties as to Intabex's financial statements for
periods prior to April 1, 1997. Convertible Debentures in the principal
amount of $90 million (the "Set-Off Debentures") were segregated at the
time of the acquisition to secure any claims by DIMON for
indemnification. DIMON is entitled, subject to the fulfillment of
certain conditions, to set-off against the Set-Off Debentures any such
claims. The amount of the Set-Off Debentures declines from $90 million
in stages, with $15 million principal amount of Set-Off Debentures
continuing to be subject to set-off after October 1, 1998, through July
31, 1999, and $10 million continuing to be subject to set-off from
August 1, 1999 through April 1, 2000. However, the Set-Off Debentures
are not released to the extent that claims are outstanding as of any of
those dates. A DIMON subsidiary in Zimbabwe is entitled to similar
-14-
indemnification and set-off rights in connection with the Zimbabwe
tobacco assets purchased from Tabex, subject to a maximum
indemnification and set-off of $12 million. Except for certain claims
relating primarily to prior period taxes, claims for purchase price
adjustment or indemnity under the stock purchase agreement generally
must be asserted by DIMON by September 30, 1998.
To allow adequate opportunity for discovery of possible adjustments,
DIMON required that the claims mechanisms under the purchase agreements
operate at least through September 30, 1998, the anticipated completion
of DIMON's second full audit cycle after the acquisition. In connection
with the completion of its analysis of post-closing adjustments, DIMON
has asserted claims for indemnification for the full amount of the Set-
Off Debentures. The claims reflect DIMON's rights for purchase price
adjustment or indemnification under the stock purchase agreement arising
out of, among other matters, inaccuracies or misrepresentations as to
the carrying values of certain assets or income recorded in the Intabex
financial statements for periods prior to the date of acquisition that
were delivered pursuant to the stock purchase agreement or the
understatement or omission of certain liabilities or expenses recorded
in such financial statements. The acquisition was accounted for using
the purchase method of accounting. As a result, the Intabex financial
statements for periods prior to April 1, 1997, are not included in the
Consolidated Financial Statements of DIMON.
Any recovery pursuant to these claims or upon settlement with the former
Intabex shareholders will be earnings accretive to DIMON. Any recovery
will be applied first against $8.1 million in accounts receivable DIMON
has established in its June 30, 1998, financial statements with respect
to certain of these claims. Any balance will be recorded as an
adjustment to the Intabex purchase price and a reduction in the carrying
value of acquired assets, including goodwill, reflected on DIMON's
consolidated balance sheet as of June 30, 1998. A corresponding
reduction in DIMON's interest expense and in the number of shares used
in calculating fully diluted earnings per share would result from any
reduction in principal amount of Set-Off Debentures.
Interest is payable on the Convertible Debentures quarterly. The stock
purchase agreement provides that, absent an agreement among the parties,
DIMON must obtain a court order before setting off its claims under the
stock purchase agreement against the Set-Off Debentures. DIMON has been
advised by counsel representing one of the former Intabex shareholders
that the former shareholders have acknowledged responsibility for $4.8
million of the $8.1 million in claims reflected as receivables in the
June 30, 1998 consolidated financial statements of DIMON, but have not
agreed as to the accrual of interest and specific allocation of
indemnity responsibility among them as to such claims. As to the
balance of DIMON's claims, the former shareholders have advised DIMON
that they do not have sufficient information currently to examine the
claims.
While DIMON intends to pursue further the settlement of these claims, in
view of the amount of the claims, the settlement procedures provided in
the stock purchase agreement, and the continuing accrual of interest on
the Set-Off Debentures, DIMON filed suit in the United States District
Court for the Southern District of New York against the former Intabex
shareholders, Mr. Taberer and certain members of Mr. Taberer's family on
September 22, 1998, seeking a court order with respect to DIMON's claim
for set-off against the Set-Off Debentures, confirmation of DIMON's
contractual remedies under the stock purchase agreement, and related
damages as a result of the former Intabex shareholders' non-compliance
with the stock purchase agreement and the misstatements and omissions
with respect to the acquisition of Intabex. The total of the claims
covered by the lawsuit is $110 million.
During the pendency of the litigation, Mr. Taberer will not participate
in the deliberations of DIMON's Board of Directors with respect to the
pending dispute or any other related matters.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
-15-
ADDITIONAL INFORMATION - EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all executive officers of the Company, as of June
30, 1998, 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
______________________________________________________________________________________________________
Claude B. Owen, Jr. 53 Chairman of the Board - Chief Executive Officer of
the Company on October 21, 1994. He also served as
Chairman, Chief Executive Officer and President of
Dibrell from July 1993 until the effective time of the
Merger and as Chairman of the Board and Chief
Executive Officer of Dibrell from February 1990 until
July 1993. Mr. Owen also serves as a director for
American National Bankshares, Inc. and Richfood
Holdings, Inc.
Albert C. Monk III 58 President of the Company on October 21, 1994.
He also served as Chairman, Chief Executive
Officer and President of Monk-Austin beginning
from November 8, 1994 until the effective time
of the Merger, Chief Executive Officer and President
of Monk-Austin since 1992 and President of
Monk-Austin since 1990. Mr. Monk is the first cousin
of Robert T. Monk, Jr., a director of DIMON Incorporated.
Brian J. Harker 48 Executive Vice President and Chief Financial Officer
since October 1, 1996. He also served as Senior Vice
President of DIMON International, Inc. from April
1995 to October 1996 and as Senior Vice President-
Director of International Operations of Monk-Austin
from July 1991 to April 1995. Prior thereto he served
as Vice President of Monk-Austin.
Richard D. O'Reilly 49 Senior Vice President-Human Resources since May
16, 1995. From 1989 to 1995, he served as Vice
President-Human Resources at Sweetheart
Corporation Company, Chicago, Illinois.
-16-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
-----------------------------------------------------
DIMON Incorporated's common stock is traded on the New York Stock
Exchange, under the ticker symbol "DMN". The Common Stock began trading
on the NYSE on April 3, 1995.
The following table sets forth for the periods indicated the high and
low reported sales prices of the Common Stock as reported by the NYSE
and the amount of dividends declared per share for the periods
indicated.
DIMON
Common Stock
Dividends
High Low Declared
_______________________________________
Fiscal Year 1998
Fourth Quarter..........$16.81 $10.50 $.17
Third Quarter............26.31 15.56 .17
Second Quarter...........26.43 23.25 .17
First Quarter............26.50 21.50 .15
Fiscal Year 1997
Fourth Quarter..........$26.75 $19.75 $.15
Third Quarter............26.00 21.75 .15
Second Quarter...........23.25 17.87 .15
First Quarter............19.87 17.87 .135
As of June 30, 1998, there were 4,576 shareholders, including
approximately 3,413 beneficial holders of its Common Stock. The Company
pays dividends quarterly.
The Company is subject to certain restrictions on its ability to pay
dividends. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Restrictions of Dividends."
-17-
ITEM 6.SELECTED FINANCIAL DATA (continued)
-----------------------------------
FIVE-YEAR FINANCIAL STATISTICS
DIMON Incorporated and Subsidiaries
Years Ended June 30
(in thousands, except per share amounts___________________________________________________________________________
and number of stockholders) 1998 1997** 1996 1995 1994
==================================================================================================================
Summary of Operations (1)
Sales and other operating revenues.........$2,171,803 $2,125,739 $1,770,166 $1,555,258 $1,095,722
Cost of sales and expenses 2,032,045 1,955,252 1,648,373 1,503,907 1,068,521
Restructuring and merger costs - 3,864 15,858 25,214 -
______________________________________________________________________
Operating income...........................$ 139,758 $ 166,623 $ 105,935 $ 26,137 $ 27,201
Interest expense........................... 83,769 50,518 43,161 40,799 32,123
______________________________________________________________________
Income (loss) from continuing
operations before income taxes,
equity in net income (loss) of
investee companies, income (loss)
from discontinued operations and
extraordinary item.......................$ 55,989 $ 116,105 $ 62,774 $ (14,662) $ (4,922)
Income taxes............................... (14,725) (44,063) (25,324) (6,988) (1,822)
Equity in net income (loss) of
investee companies, net of
income taxes............................. 565 526 (330) (1,805) 98
______________________________________________________________________
Income (loss) before income (loss)
from discontinued operations
and extraordinary item..................$ 41,829 $ 72,568 $ 37,120 $ (23,455) $ (6,646)
Income (loss) from discontinued
operations, net of income taxes.........$ 1,820 $ 4,605 $ 2,750 $ (6,710) $ (1,844)
Extraordinary item:
Partial recovery on Iraqi
receivable, net of income tax............ - - 1,400 - -
______________________________________________________________________
Net Income (Loss)..........................$ 43,649 $ 77,173 $ 41,270 $ (30,165) $ (8,490)
Per Share Statistics (1)
Basic Earnings Per Share:
Income (loss) before income (loss)
from discontinued operations
and extraordinary item..................$ .94 $ 1.69 $ .93 $ (.61) $ (.17)
Income (loss) from discontinued
operations.............................. .04 .11 .07 (.18) (.05)
Extraordinary item....................... - - .04 - -
Net income (loss)........................ .98 1.80 1.04 (.79) (.22)
-18-
ITEM 6.SELECTED FINANCIAL DATA (continued)
-----------------------------------
FIVE-YEAR FINANCIAL STATISTICS
DIMON Incorporated and Subsidiaries
Years Ended June 30
(in thousands, except per share amounts___________________________________________________________________________
and number of stockholders) 1998 1997** 1996 1995 1994
==================================================================================================================
Diluted Earnings Per Share:
Income before income from
discontinued operations and
extraordinary item......................$ .94 * $ 1.67 $ .92 * *
Income (loss) from discontinued
operations.............................. .04 * .10 .06 - -
Extraordinary item....................... - - .03 - -
Net income...............................$ .98 * $ 1.77 $ 1.01 * *
Dividends paid.............................$ .66 $ .585 $ .54 $ .535 $ .495
Book value.................................$ 9.48 $ 9.21 $ 7.46 $ 6.27 $ 7.57
Return on average stockholders' equity...... 10.52% 21.32% 14.88% -11.45% -2.85%
Balance Sheet Data
Current assets.............................$1,208,890 $1,371,479 $ 668,775 $ 731,119 $ 685,443
Current liabilities........................ 502,506 671,486 246,433 453,522 467,776
______________________________________________________________________
Working capital............................$ 706,384 $ 699,993 $ 422,342 $ 277,597 $ 217,667
Working capital ratio...................... 2.4 to 1 2.0 to 1 2.7 to 1 1.6 to 1 1.5 to 1
Property, plant and
equipment (net)..........................$ 318,100 $ 332,752 $ 236,775 $ 223,049 $ 209,739
Total assets...............................$1,797,478 $1,987,603 $1,020,014 $1,093,608 $1,043,816
Revolving credit notes and
other long-term debt.....................$ 673,699 $ 702,826 $ 390,871 $ 292,528 $ 188,825
Convertible Subordinated Debentures........$ 123,328 $ 123,328 $ - $ 56,370 $ 56,475
Stockholders' equity.......................$ 421,930 $ 408,263 $ 315,848 $ 238,806 $ 288,314
Other Statistics
Weighted average common shares,
basic.................................... 44,473 42,850 39,568 38,070 38,068
Weighted average common shares,
diluted.................................. 44,731 * 44,241 42,414 42,297 42,296
Common shares outstanding
at year end.............................. 44,525 44,312 42,366 38,092 38,069
Number of stockholders
at year end (2).......................... 4,576 4,357 4,596 4,249 4,940
Dividends paid.............................$ 29,354 $ 25,071 $ 21,731 $ 15,570 $ 13,014
______________________________________________________________________
* Computation of loss per share is antidilutive for the years 1995 and 1994. For 1998, assumed conversion of
Convertible Debentures at the beginning of the period has an antidilutive effect on earnings per share.
**See Note C to the consolidated financial statements for a discussion of acquisition.
(1) The Summary of Operations and Earnings Per Share for the years ended 1994 through 1997 have been restated to reflect
the income (loss) from discontinued operations and the adoption in 1998 of SFAS 128, "Earnings per Share."
(2) Includes the number of Stockholders of record and non-objecting beneficial owners.
-19-
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's tobacco
operating profits fluctuate from year to year, primarily due to the
effects of worldwide supply and demand on the Company's inventory
positions and government regulations. See "Factors that May Affect
Future Results -- Variability of Annual and Quarterly Financial
Results."
On April 1, 1997, the Company acquired all the outstanding capital stock
of Intabex. The acquisition of Intabex was accounted for under the
purchase method of accounting and, accordingly, no restatement has been
made to the Company's historical financial information. The financial
information of the Company prospectively includes that of Intabex for
periods beginning after March 31, 1997.
The Company's tobacco business is generally conducted in U.S. dollars,
as is the business of the industry as a whole. Accordingly, there is
minimal currency risk related to the sale of tobacco. However, local
country operating costs, including the purchasing and processing costs
for tobacco, are subject to the effects of exchange fluctuations of the
local currency against the U.S. dollar. The Company attempts to
minimize such currency risks by matching the timing of its working
capital borrowing needs against the tobacco purchasing and processing
funds requirements in the individual countries of tobacco origin.
Fluctuations in the value of foreign currencies can significantly affect
the Company's operating results. See "Factors that May Affect Future
Results -- International Business Risks" and Note P to the Company's
Consolidated Financial Statements for the year ended June 30, 1998.
In fiscal 1995, the Company initiated a restructuring plan including
both the tobacco and flower businesses. The plan was designed to
eliminate unprofitable locations, consolidate duplicative processing
facilities, reduce the salaried workforce, improve operating
efficiencies and increase regional unit accountability. This initiative
continued through 1997 and resulted in the recognition of various
charges. Those charges for continuing operations before tax totaled
$3.9 million in 1997, $15.9 million in 1996 and $25.2 million in 1995.
On August 12, 1998, the Company signed a definitive agreement to sell
the assets of its flower business for approximately $90 million in cash
and assumed debt. As a result of the sale, the flower business has been
reflected as a discontinued operation in the Company's income statements
for all periods presented.
-20-
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 Statement of Consolidated
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
______________________________________
1998 1997* 1996*
======================================
Sales and other operating revenues.............. 100.0% 100.0% 100.0%
Cost of goods and services and expenses......... 88.0 87.1 87.7
Selling, administrative and general expenses.... 5.5 4.85 .5
Restructuring and merger related costs.......... - .2 .9
______________________________________
Operating income................................ 6.5 7.9 5.9
Interest expense................................ (3.9) (2.4) (2.4)
______________________________________
Income from continuing operations
before income taxes and income from
discontinued operations....................... 2.6 5.5 3.5
Income taxes.................................... (.7) (2.1) (1.4)
Income from discontinued operations............. .1 .2 .2
______________________________________
Net income...................................... 2.0 3.6 2.3
======================================
* Restated for discontinued operations.
-21-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Comparison of the Year Ended June 30, 1998 to the Year Ended
June 30, 1997
The Company's sales and other operating revenues from continuing
operations were $2.172 billion, an increase of 2.2% from $2.126 billion
in 1997, primarily due to higher volumes of foreign grown tobacco,
offset partially by lower volumes from the United States and lower
prices on foreign grown tobaccos. Higher volumes of foreign grown
tobacco accounted for increases of $296.3 million. Increases in
quantities were principally from South America and Europe. The volume
of foreign grown tobacco has increased 27.5% over the prior fiscal year
primarily due to the inclusion of a full year of Intabex. Lower volumes
in the United States resulted in a $150.6 million decrease in sales, and
lower prices of foreign grown tobacco resulted in a $106.3 million
decrease in sales. The volume of U.S. grown tobacco has decreased
16.7% from the prior fiscal year. The decrease in quantities of U.S.
grown tobacco are primarily the result of decreased orders from domestic
cigarette manufacturers due to uncertainties surrounding settlement of
tobacco legislation and potentially higher excise taxes on cigarettes
sold in the U.S. The decrease in prices of foreign grown tobacco were
primarily due to product mix and decreases in purchase prices of
tobacco. The Company has also been negatively impacted by devaluation
of currencies in certain Asian countries which has resulted in
delay or cancellation of some shipments of tobacco. The Company
believes that the risks of further delays in shipments and the
realization of lower average prices could continue in future periods.
The cost of sales and expenses from continuing operations before
restructuring and merger related costs increased 3.9% from $1.955
billion in 1997 to $2.032 billion in 1998. Operating margin
(operating income) as a percentage of sales before restructuring
decreased from 8.1% in 1997 to 6.5% in 1998. The decrease in operating
margins was due primarily to $10 million in excess costs associated with
start-up operations in Tanzania and $6.9 million in inventory
writedowns. There were also increases in personnel and professional
expenses of $10.8 million and depreciation and amortization of $6.3
million. Amortization expense related to the Intabex acquisition
increased from $.9 million in 1997 to $4.0 million for a full year in
1998.
Restructuring charges in fiscal 1997 were $3.9 million and related
principally to employee separations.
Interest expense in 1998 increased $33.3 million, of which approximately
$44 million was due to higher average borrowings, offset partially by an
approximate $11 million decrease due to lower average rates.
The effective tax rate for 1998 was 26.3% compared to 38% in 1997. The
decrease in rate was due to changes in the distribution of income
between tax jurisdictions.
Income from discontinued operations, net of tax, has decreased $2.8
million, primarily due to a $3 million pre-tax charge in connection with
the reorganization of the Company's German flower operations.
-22-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Comparison of the Year Ended June 30, 1997 to the Year Ended
June 30, 1996
The Company's sales and other operating revenues were $2.126 billion, an
increase of 20.1% from $1.770 billion in 1996, primarily due to higher
prices on tobaccos sold from North America, South America and Africa,
higher volumes in North America and Asia and additional sales from the
subsidiaries of Intabex Holdings Worldwide S.A. ("Intabex"), which was
acquired April 1, 1997. These increases were partially offset by lower
quantities sold from South America. Higher prices accounted for $13.8
million in North America, $53.6 million in South America and $65.7
million in Africa of the increase in sales. Higher quantities accounted
for $33.9 million in North America and $36.6 million in Asia of the
increase in sales. Lower quantities in South America resulted in a
decrease in sales of $67.7 million due to higher quantities in the
fourth quarter of 1996. The acquisition of Intabex resulted in a $188.1
million increase in sales.
Cost of sales and expenses from continuing operations before
restructuring and merger related costs increased 18.6% in 1997 from 1996
primarily due to the increase in sales and increased amortization
expense resulting from goodwill on the acquisition of Intabex, offset by
decreases in personnel costs and legal and professional expenses.
Restructuring charges in 1997 were $3.9 million and were primarily due
to employee separations. Restructuring charges for 1996 were $15.9
million and consisted of $15.7 million for employee separations, a
credit of $.7 million for facility sales and closures and $.9 million
for asset writedowns and other items.
Interest expense increased $7.4 million in 1997 primarily due to higher
average borrowings in financing the acquisition of Intabex, offset by
lower interest rates.
The effective tax rate for 1997 was 38% compared to 40% in 1996. This
decrease is due to the overall blend of the income between taxing
jurisdictions.
Income from discontinued operations increased $1.9 million due to
favorable exchange rate impacts on costs, the effects of discontinuing
lower margin operations and revised credit policies.
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Liquidity and Capital Resources
-------------------------------
The following table is a summary of items from the Consolidated Balance
Sheet and the Statement of Consolidated Cash Flows.
Years Ended June 30
_________________________________________
(in thousands, except for current ratio) 1998 1997* 1996*
___________________________________________________________________________________________
Cash and cash equivalents.......................$ 18,729 $ 107,131 $ 53,820
Net trade receivables........................... 319,295 396,156 190,898
Inventories and advances on
purchases of tobacco.......................... 804,817 835,626 408,210
Total current assets............................ 1,208,890 1,371,479 668,775
Notes payable to banks.......................... 282,470 350,263 -
Accounts payable................................ 96,483 143,927 104,506
Total current liabilities....................... 502,506 671,486 246,433
Current ratio................................... 2.4 to 1 2.0 to 1 2.7 to 1
Revolving Credit Notes and Other
Long-term Debt................................ 548,699 577,826 265,871
Convertible Subordinated Debentures............. 123,328 123,328 -
Senior Notes.................................... 125,000 125,000 125,000
Stockholders' equity............................ 421,930 408,263 315,848
Purchase of property and equipment.............. 61,168 60,860 41,266
Acquisition of subsidiary,
net of cash acquired.......................... - 6,382 (6,543)
Proceeds from sale of property
and equipment................................. 24,597 8,853 8,605
Depreciation and amortization................... 43,476 37,191 33,780
___________________________________________
* Not restated for discontinued operations
The purchasing and processing activities of the Company's tobacco
business are seasonal. The Company's need for capital fluctuates
accordingly and, at any 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 and,
more recently, to finance acquisitions of foreign tobacco operations and
flower operations. The Company also prefinances tobacco crops in
certain foreign countries including Argentina, Brazil, Dominican
Republic, Indonesia and Tanzania by making cash advances to farmers
prior to and during the growing season.
The Company's working capital increased from $700 million at June 30,
1997, to $706 million at June 30, 1998. The Company's current ratio was
2.4 to 1 and 2.0 to 1 at June 30, 1998, and June 30, 1997, respectively.
At June 30, 1998, current assets had decreased $162.6 million and
current liabilities had decreased $169.0 million from June 30, 1997.
The $162.6 million decrease in current assets is primarily due to the
$165.3 million combined decrease in cash and cash equivalents and
receivables. The $169 million decrease in current liabilities is
primarily due to the $154.5 million combined decrease in notes payable
to banks, accounts payable, advances from customers and income taxes.
The decrease in receivables is primarily due to timing of sales in
fiscal 1998 compared to fiscal 1997. The decrease in cash and cash
equivalents is primarily related to the financing activities and the
repayment of debt.
Although inventories and advances on purchases of tobacco have decreased
by $30.8 million compared to 1997, the amounts continue to be high
relative to current sales levels and require increased debt.
Uncommitted inventories for 1998 and 1997 are higher than in previous
years and present continuing financial risk to the Company.
-24-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Cash flows from operating activities increased to $57.3 million in 1998
as compared to $25.3 million in 1997 and $179.8 million in 1996. The
increase in 1998 and the decrease in 1997 in cash provided by operating
activities were due to fluctuations in current assets and liabilities,
offset partially by the changes in net income. Cash flows used by
investing activities decreased $6.1 million, or 14.1%, to $37.1 million
in 1998 as compared to 1997, primarily due to proceeds from the sale of
property and equipment. In 1998 $108.3 million was used by financing
activities primarily due to net debt repayments. In 1997 financing
activities provided $71.1 million primarily due to net additional
borrowings. In 1996 cash was used by financing activities as the
Company applied $153 million primarily to reduce debt. Also, see the
discussion of refinancing activities below.
At June 30, 1998, the Company had seasonally adjusted lines of credit of
$1.3 billion. At June 30, 1998, the Company had borrowed $642 million
under its $1.3 billion lines of credit with interest rates ranging from
6.0% to 12.8%. At June 30, 1998, the unused short-term lines of credit
amounted to $663 million. Total maximum outstanding short-term
borrowings during the year ended June 30, 1998, were $678 million. At
June 30, 1998, the Company has $94.1 million of letters of credit
outstanding and an additional $62.2 million of letters of credit lines
available.
To ensure long-term liquidity, DIMON entered into a $500 million New
Credit Facility, effective June 27, 1997, with 20 banks which replaced
DIMON's $240 million existing credit facility. The Company had $140
million of borrowings under this agreement at June 30, 1998. The
Company uses the New Credit Facility to classify $360 million of working
capital loans to Revolving Credit Notes at June 30, 1998. It is the
Company's intent to finance at least $500 million on a long-term basis.
The New 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 and restrict acquisitions. The
Company continuously monitors its compliance with these covenants. The
New Credit Facility's initial term expires on June 27, 2000, and subject
to approval by the lenders, may be extended. The rates of interest are
based upon the type of loan requested by the Company. During the life
of the agreement, 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 (8.50% at June 30, 1998). The Company pays a commitment
fee of 1/4% per annum on any unused portion of the facility. Decisions
relative to repayments and reborrowings 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, customer advances, cash from
operations and equity and equity-linked securities. At June 30, 1998,
the Company had no material capital expenditure commitments. The
Company believes that these sources of funds combined with the Senior
Notes are sufficient to fund the Company's anticipated needs for 1999.
There can be no assurance, however, that other alternative sources of
capital will be available in the future or, if available, that any such
alternative sources will be available on favorable terms. Reliance on
available credit presents financial risk to the Company going forward.
The Company's off balance sheet financing is not material. Certain
operating leases were acquired with the acquisition of, or have been
added by, several foreign tobacco processing facilities. However, most
operating assets are of long-term and continuing benefit and the Company
has generally purchased these assets.
Tax and Repatriation Matters
----------------------------
The Company and its subsidiaries are subject to income tax laws in each
of the countries in which it does 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
-25-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
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 regularly 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 certain 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 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. This statement will
be effective for the Company's September 30, 1998, interim financial
statements and will require the restatement of all prior-periods
presented. The Company does not expect this statement to have a
material impact on the Company's financial condition or results of
operations upon adoption.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which requires that public
business enterprises report certain information about operating segments
in complete sets of financial statements of the enterprise and in
condensed financial statements of interim periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic
areas in which they operate and their major customers. This statement
is effective for the Company's June 30, 1999, year end financial
statements. The Company does not expect this statement to have a
material impact on the Company's financial condition or results of
operations upon adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" which revises and
standardizes the disclosure requirements for pensions and postretirement
benefits. SFAS 132 will also require additional information on changes
in benefit obligations and fair values of plan assets. This statement
is effective for the Company's June 30, 1999, year end financial
statements. The Company does not expect this statement to have a
material impact on the Company's financial position or results of
operations upon adoption.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives
and hedging activities. This statement will be effective for the
Company's September 30, 1999, interim financial statements. The Company
does not expect this statement to have a material impact on the
Company's financial position or results of operations upon adoption.
Factors that May Affect Future Results
--------------------------------------
The foregoing discussion contains certain forward-looking statements,
generally identified by phrases such as "the Company expects" or words
of similar effect. The following important factors, among other things,
in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results
for 1999 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
-26-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Variability of Annual and Quarterly Financial Results
The comparability of the Company's 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. 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 the
Company's processing schedule can be significantly altered by variations
in harvesting periods.
Further, it is not possible to predict with precision the timing of
orders or sales, and the Company may from time to time in the ordinary
course of business keep a significant amount of processed tobacco in
inventory for its customers to accommodate their inventory management
and other needs. Sales recognition by the Company and its subsidiaries
is based on the passage of ownership, usually with shipment of product.
Since individual shipments may represent significant amounts of
revenue, the Company's quarterly and annual financial results may vary
significantly depending on its customers' needs and shipping
instructions. In particular, because most deliveries of Brazilian
tobacco are made at the end of the 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.
Governmental Intervention, Litigation and the Proposed Settlement of
Tobacco Litigation
In recent years, governmental entities in the U.S. at all levels have
taken or have proposed actions that may have the effect of reducing
consumption of cigarettes. These activities have included: (1) the U.S.
Environmental Protection Agency's decision to classify tobacco
environmental smoke as a "Group A" (known human) carcinogen; (2)
restrictions on the use of tobacco products in public places and places
of employment including a proposal by the U.S. Occupational Safety and
Health Administration to ban smoking in the work place; (3) proposals by
the U.S. Food and Drug Administration to sharply restrict cigarette
advertising and promotion and to regulate nicotine as a drug; (4)
increases in tariffs on imported tobacco; (5) proposals to increase the
U.S. excise tax and state taxes on cigarettes; (6) the policy of the
U.S. government to link certain federal grants to the enforcement of
state laws banning the sale of tobacco products to minors; and (7)
recent filings of lawsuits against cigarette manufacturers by many U.S.
states and others seeking reimbursement of Medicaid and other
expenditures claimed to have been made by such states to treat diseases
allegedly caused by cigarette smoking. In 1993, Congress enacted a law
(the 75/25 Rule) requiring that all domestically manufactured cigarettes
contain at least 75% domestically grown tobacco. Although that law was
repealed in 1995 and was replaced with import quotas designed to assist
domestic tobacco growers, the law had the effect of drastically
decreasing demand for foreign tobacco in the domestic production of
cigarettes. It is not possible to predict the extent to which
governmental activities might affect the Company's business.
In June 1997, representatives of the leading U.S. manufacturers of
consumer tobacco products, several state attorneys general and certain
private plaintiffs entered into an agreement (the "Resolution") to
support the adoption of federal legislation and ancillary undertakings
that would resolve many of the regulatory and litigation issues
affecting the United States' tobacco industry and, thereby, reduce
uncertainties facing the industry and increase stability in business and
capital markets. Such legislation was never enacted.
Instead, in April 1998, the Senate Commerce Committee approved a bill
(the "Commerce Bill") that was substantially different and
significantly more adverse to the domestic tobacco industry than the
proposed Resolution. The Commerce Bill, as approved by the Commerce
Committee, contemplated industry payments in excess of one-half trillion
dollars over the first twenty-five years, provided the United States
Food and Drug Administration ("FDA") with broad regulatory control over
tobacco products, applied, in certain respects, to international sales
of tobacco products, and eliminated virtually all of the provisions of
the proposed Resolution that would limit liability of the tobacco
industry in civil litigation in the United States. In June 1998, the
United States Senate voted to return the Commerce Bill to the Senate
Commerce Committee
-27-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
for further consideration. Other federal tobacco bills are also under
consideration by Congress. The Company cannot predict whether the
Commerce Bill or any other such federal tobacco legislation will be
enacted, the form any such enactment might take or the extent to which
such measures may affect the Company's business.
The leading cigarette manufacturers also face hundreds of lawsuits
brought throughout the United States and, to a much lesser extent, the
world. Such suits have been brought on behalf of (i) individuals and
classes of individuals alleging personal injury and (ii) state and local
governments seeking recovery of health care costs allegedly caused by
cigarette smoking, as well as other groups such as unions, health
maintenance organizations, federal and state taxpayers, Native American
tribes and others. Damages claimed in some of the smoking and health
class actions and health care costs recovery cases range into the
billions of dollars. Plaintiffs continue to file more such suits.
It is not possible to predict the outcome of the litigation pending
against the U.S. cigarette manufacturers. Litigation is subject to many
uncertainties, and it is possible that some of these actions could be
decided unfavorably. An unfavorable outcome or settlement of a pending
smoking and health or health care cost recovery case could encourage the
commencement of additional, similar litigation. Adverse legislative,
regulatory, political and other developments concerning cigarette
smoking and the tobacco industry continue to receive widespread media
attention. These developments may negatively affect the perception of
potential judges and juries with respect to the tobacco industry,
possibly to the detriment of certain pending litigation, and may prompt
the commencement of additional, similar litigation.
The cigarette manufacturers have reached separate settlements with the
states of Florida, Mississippi, Texas and Minnesota, and an
environmental tobacco smoke personal injury class action brought on
behalf of airline flight attendants. These settlements require the
cigarette manufacturers to make scheduled payments for up to twenty-five
years totaling more than $20 billion. The cigarette manufacturers may
attempt to recover a portion of these costs by demanding price and other
concessions from suppliers such as the Company. Such concessions could
materially and adversely affect the Company's margins and its results of
operations.
Due to the present litigation and legislative environment, a substantial
risk exists that past growth trends in tobacco sales may not continue
and that existing sales may decline as a result of the proposed
settlement. In addition, in response to the proposed federal
settlement, groups representing tobacco farmers have proposed certain
measures, including measures similar to the 75/25 Rule, that could
adversely affect the Company's business. However, it is not possible to
predict whether or in what form the proposed federal legislation or any
additional measures will be approved by Congress and the President or
the extent to which any settlement or such measures may affect the
Company's business.
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 a number of other countries. It is impossible to
predict the extent to which these and any additional restrictions might
affect the Company's business.
-28-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Smoking and Health Issues
Reports and speculation with respect to the alleged harmful physical
effects of cigarette smoking have been publicized for many years and,
together with restrictions on cigarette advertisements, requirements
that warning statements be placed on cigarette packaging and in
advertising, increased taxes on tobacco products and controls in certain
foreign countries on production and prices, decreased social acceptance
of smoking and increased pressure from anti-smoking groups have had an
ongoing adverse effect on sales of tobacco products. In addition,
litigation is pending against the leading U.S. manufacturers of consumer
tobacco products seeking damages for health problems alleged to have
resulted from the use of tobacco in various forms. Neither the Company
nor, to the Company's knowledge, any other leaf merchant is a party to
this litigation. It is not possible to predict the outcome of such
litigation or what effect adverse developments in pending or future
litigation against manufacturers might have on the business of the
Company.
Reliance on Significant Customers
The Company's customers are manufacturers of cigarette and tobacco
products located in approximately 60 countries around the world.
Several of these customers individually account for a significant
portion of the Company's sales in a normal year, and the loss of any one
or more of such customers could have a material adverse effect on the
Company's results of operations. Approximately 32% and 42% of the
Company's consolidated tobacco sales for 1998 and 1997 were to two
companies. See Note O to the Company's Consolidated Financial
Statements for the year ended June 30, 1998, included herein.
International Business Risks
The Company's 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 of
repatriation of earnings or proceeds from liquidated assets of foreign
subsidiaries. In certain countries, the Company has advanced
substantial sums or guaranteed local loans or lines of credit in
substantial amounts for the purchase of tobacco from growers. Risk of
repayment is normally limited to the tobacco season, and the maximum
exposure occurs within a shorter period.
The Company's tobacco business is generally conducted in U.S. dollars,
as is the business of the industry as a whole. Accordingly, there is
minimal currency risk related to the sale of tobaccos. 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. The Company attempts to
minimize such currency risks by matching the timing of its working
capital borrowing needs against the tobacco purchasing and processing
funds requirements in the currency of the country of tobacco origin.
Fluctuations in the value of foreign currencies can significantly affect
the Company's operating results. See Note P to the Company's
Consolidated Financial Statements for the year ended June 30, 1998,
included herein.
The Company has expanded its international operations in areas where the
export of tobacco has increased due to increased demand for lower priced
tobacco. In particular, the Company has significant investments in its
purchasing, processing and exporting operations in southern Brazil,
Indonesia, Thailand and the African countries of Malawi, Tanzania 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 the Company's purchase costs
of tobacco and its processing costs, they have not and are not expected
to adversely affect the Company's ability to export tobacco from these
countries.
-29-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
Asian Customers
The Company has significant sales to Asian customers, particularly in
Japan and Korea. As noted previously, tobacco sales are denominated
primarily in U.S. dollars. However, the devaluation of certain Asian
currencies has resulted in reduced orders from certain Asian customers.
The Company continuously evaluates the credit risk of its customers.
However, the Company may incur a loss of business as a result of the
devaluation of Asian currencies.
Restrictions on Dividends
Under the terms of the Indenture, dated May 29, 1996, between the
Company and Crestar Bank, as trustee (the "Indenture"), relating to the
Company's 8 7/8% Senior Notes due 2006 (the "Notes"), the Company will
not be permitted to make certain restricted payments, including cash
dividends on Common Stock, under certain circumstances. The Company
generally may make such restricted payments, provided that (1) the
Company is not in default under the Indenture, (2) the Company is 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 the Company's consolidated net income for
the period from April 1, 1996, through the end of the Company's most
recent fiscal quarter and (z) the net cash proceeds from the sale by the
Company of any equity securities or debt securities that are converted
into equity securities. At June 30, 1998 and 1997, the Company was
permitted to make restricted payments, including cash dividends on its
Common Stock, of up to $73.5 million and $78.0 million, respectively.
Year 2000 Issue
DIMON has recognized the importance of early preparation and planning
for the upcoming millennium change. The Company's Y2K project began in
1996 and is presently being managed by a project office that coordinates
the efforts of operations around the world. The key objectives of the
project have been clearly stated: compliance and readiness at every
location well in advance of January 1, 2000, leading to business
continuity and undisturbed customer service.
In 1996, DIMON also initiated a corporate technology strategy (the
"Vision" project) to upgrade its computer infrastructure and systems
throughout the world. The primary focus of this project was to improve
the capture and use of key information across the Company. A secondary
benefit of the initiative has been the rapid replacement of non-Y2K
compliant equipment and systems with new, Y2K compatible products and
code.
To date, DIMON has spent $2.4 million on the Vision project with an
additional $1.1 million budgeted through June 1999, on application
software. The completion of this project and the implementation of a
third party accounting application at one international site will result
in all of DIMON's core systems being client / server based and fully Y2K
compliant. In addition, an estimated $2.5 million has been spent over
the past two years on the upgrading of network and computer equipment
across all locations. This effort will continue throughout the fiscal
year ending June 30, 1999, with $1 million targeted to complete the Y2K
hardware remediation process throughout the Company.
The Company's critical applications include its manufacturing, inventory
and financial systems at each location. Assessments, remediation and
testing efforts are presently ongoing at all Company sites. Progress
on each site's project plan is tracked by the local entity and
communicated back on a routine basis to the project office. Although it
is impossible to account for every task to be performed and issue that
will be encountered within a project plan, DIMON's Year 2000 project is
presently on schedule with a target date for corporate readiness set for
mid-1999. As part of each location's preparation, contingency plans are
being developed for all critical business processes. Should any of
these processes be impacted as a result of system, equipment or
business-partner failure, action plans will be in place by January 1,
2000, to address the situation.
-30-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
-------------------------------------------------
DIMON has communicated and will continue to communicate with its
suppliers, financial institutions, customers and other key business
partners on their Y2K efforts and in the coordination of testing systems
that electronically link the Company with these businesses. There can
be no assurance that these business partners will be fully compliant or
that problems they may encounter will have no adverse effect on their
ongoing operations. Risk is minimized however with the fact that
DIMON's business is positioned near the beginning of the tobacco supply
chain, with little dependence on technology among its primary suppliers.
As a processor of leaf tobacco, DIMON owns and manages several
processing facilities. The Company is in the process of evaluating the
impact, if any, Year 2000 will have on the operation of these facilities
and all other non-information related technology used throughout the
Company.
No company can provide complete assurance that they have been able to
identify all Year 2000 issues prior to the problems manifesting
themselves. It is the opinion of DIMON management that the Company is
taking adequate and appropriate action to address Year 2000 issues and
does not expect the financial impact of being Year 2000 compliant to be
material to the Company's consolidated financial position, results of
operations or cash flows.
The EURO
A future foreign exchange consideration for the Company is the
introduction of a single European currency, the "Euro," which will
occur on January 1, 1999. The Euro will replace eleven local country
currencies during the transition period from 1999 through 2002.
Although the new currency will not actually be printed until 2002, the
exchange rate of the affected currencies will be permanently fixed
against the Euro on January 1, 1999.
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 multi-
national companies.
The Company will be required to modify certain accounting systems to
record both the Euro and the local currency and has begun a
comprehensive implementation plan to deal with the conversion. The
Company has studied the implications of the overall Euro conversion and
does not expect it to have a material impact on the Company's financial
condition or results of operations upon adoption.
-31-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
STATEMENT OF CONSOLIDATED INCOME
DIMON Incorporated and Subsidiaries
Years Ended June 30
__________________________________________
(in thousands, except per share amounts) 1998 1997 1996
=========================================================================================
Sales and other operating revenues..............$2,171,803 $2,125,739 $1,770,166
Cost of goods and services sold................. 1,911,843 1,851,547 1,551,692
_________________________________________
259,960 274,192 218,474
Selling, administrative and general expenses.... 120,202 103,705 96,681
Restructuring and merger related costs.......... - 3,864 15,858
_________________________________________
Operating Income.............................. 139,758 166,623 105,935
Interest Expense................................ 83,769 50,518 43,161
_________________________________________
Income from continuing operations
before income taxes, equity in net
income (loss) of investee companies,
income from discontinued operations
and extraordinary item........................ 55,989 116,105 62,774
Income taxes.................................... 14,725 44,063 25,324
__________________________________________
Income from continuing operations before
equity in net income (loss) of investee
companies, income from discontinued
operations and extraordinary item............. 41,264 72,042 37,450
Equity in net income (loss) of
investee companies (net of income taxes)...... 565 526 (330)
__________________________________________
Income from continuing operations
before income from discontinued
operations and extraordinary item............. 41,829 72,568 37,120
Income from discontinued operations,
net of income taxes........................... 1,820 4,605 2,750
Extraordinary item:
Partial recovery of Iraqi
receivable (net of income tax
expense of $870)............................ - - 1,400
__________________________________________
NET INCOME $ 43,649 $ 77,173 $ 41,270
==========================================
Basic Earnings Per Share
Income from continuing operations
before income from discontinued
operations and extraordinary item.......... $.94 $1.69 $ .93
Income from discontinued operations.......... .04 .11 .07
Extraordinary item........................... - - .04
__________________________________________
Net Income.................................... $.98 $1.80 $1.04
==========================================
Diluted Earnings Per Share
Income from continuing operations
before income from discontinued
operations and extraordinary item.......... $.94 $1.67 $ .92
Income from discontinued operations.......... .04 .10 .06
Extraordinary item........................... - - .03
__________________________________________
Net Income.................................... $.98 $1.77 $1.01
==========================================
See notes to consolidated financial statements
-32-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
CONSOLIDATED BALANCE SHEET
DIMON Incorporated and Subsidiaries
June 30
__________________________
(in thousands) 1998 1997
===========================================================================
ASSETS
Current assets,
Cash and cash equivalents......................$ 18,729 $ 107,131
Notes receivable............................... 5,600 6,797
Trade receivables, net of allowances
(1998 - $2,799, 1997 - $5,902)................ 319,295 396,156
Inventories:
Tobacco....................................... 588,143 583,579
Other......................................... 24,483 25,282
Advances on purchases of tobacco............... 192,191 226,765
Recoverable income taxes....................... 2,748 3,051
Prepaid expenses and other assets.............. 24,794 22,718
Net assets of discontinued operations.......... 32,907 -
__________________________
Total current assets....... 1,208,890 1,371,479
__________________________
Investments and other assets
Equity in net assets of investee companies..... 6,022 9,326
Other investments.............................. 9,896 12,293
Notes receivable............................... 9,313 12,738
Other.......................................... 13,796 15,803
__________________________
39,027 50,160
__________________________
Intangible assets
Excess of cost over related net assets
of businesses acquired........................ 179,589 180,435
Production and supply contracts................ 26,442 26,681
Pension asset.................................. 3,555 3,348
__________________________
209,586 210,464
__________________________
Property, plant and equipment
Land........................................... 20,085 31,082
Buildings...................................... 174,310 196,887
Machinery and equipment........................ 237,368 231,705
Allowances for depreciation.................... (113,663) (126,922)
___________________________
318,100 332,752
___________________________
Deferred taxes and other deferred charges........ 21,875 22,748
___________________________
$1,797,478 $1,987,603
===========================
-33-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
CONSOLIDATED BALANCE SHEET
DIMON Incorporated and Subsidiaries
June 30
__________________________
(in thousands) 1998 1997
===========================================================================
Current liabilities
Notes payable to banks and others..............$ 282,470 $ 350,263
Accounts payable:
Trade......................................... 80,994 108,283
Officers and employees........................ 7,664 13,441
Other......................................... 7,825 22,203
Advances from customers........................ 50,521 69,787
Accrued expenses............................... 57,294 66,141
Income taxes................................... 5,150 25,146
Long-term debt current......................... 10,588 16,222
_____________________________
Total current liabilities.... 502,506 671,486
_____________________________
Long-term debt
Revolving Credit Notes and Other............... 548,699 577,826
Convertible Subordinated Debentures............ 123,328 123,328
Senior Notes................................... 125,000 125,000
____________________________
797,027 826,154
____________________________
Deferred credits
Income taxes................................... 36,723 36,630
Compensation and other benefits................ 38,812 44,072
____________________________
75,535 80,702
____________________________
Minority interest in subsidiaries................ 480 998
____________________________
Commitments and contingencies.................... - -
____________________________
Stockholders' equity
Preferred Stock - no par value: 1998 1997
------ ------
Authorized shares.......... 10,000 10,000
Issued shares.............. - - - -
Common Stock - no par value: 1998 1997
------ ------
Authorized shares.......... 125,000 125,000
Issued shares.............. 44,525 44,312 182,143 178,939
Retained earnings.............................. 243,816 229,521
Equity-currency conversions.................... (2,664) 670
Additional minimum pension liability........... (1,365) (867)
___________________________
421,930 408,263
___________________________
$1,797,478 $1,987,603
===========================
See notes to consolidated financial statements
-34-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
DIMON Incorporated and Subsidiaries
Additional
Equity- Minimum Unrealized Total
(in thousands, Common Retained Currency Pension Gain (Loss) On Stockholders'
except per share amounts) Stock Earnings Conversions Liability Investments Equity
=================================================================================================================
Balance, June 30, 1995.....$ 80,030 $157,880 $ 1,565 $(1,286) $ 617 $238,806
Net income for the year.... 41,270 41,270
Cash dividends - $0.54
per share................ (21,731) (21,731)
Conversion of foreign
currency financial
statements............... 1,277 1,277
Addition to the minimum
pension liability........ (86) (86)
Stock options exercised.... 1,564 1,564
Realized gain on
investments.............. (617) (617)
Conversion of 7 3/4%
Convertible
Debentures to
Common Stock........... 55,365 55,365
______________________________________________________________________________________
Balance, June 30, 1996.....$136,959 $177,419 $ 2,842 $(1,372) $ - $315,848
Net income for the year.... 77,173 77,173
Cash dividends - $0.585
per share................ (25,071) (25,071)
Conversion of foreign
currency financial
statements............... (2,172) (2,172)
Reduction in the minimum
pension liability........ 505 505
Stock options exercised.... 3,910 3,910
Shares issued in purchase
of Intabex............... 38,070 38,070
_____________________________________________________________________________________
Balance, June 30, 1997.....$178,939 $229,521 $ 670 $ (867) $ - $408,263
Net income for the year.... 43,649 43,649
Cash dividends - $0.66
per share................ (29,354) (29,354)
Conversion of foreign
currency financial
statements............... (3,334) (3,334)
Reduction in the minimum
pension liability........ (498) (498)
Stock options exercised.... 3,204 3,204
______________________________________________________________________________________
Balance, June 30, 1998...$182,143 $243,816 $ (2,664) $ (1,365) $ - $421,930
======================================================================================
See notes to consolidated financial statements
-35-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
STATEMENT OF CONSOLIDATED CASH FLOWS
DIMON Incorporated and Subsidiaries
Years Ended June 30
______________________________________
(in thousands) 1998 1997 1996
========================================================================================
Operating activities
Net Income.....................................$ 43,649 $ 77,173 $ 41,270
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization................. 43,476 37,191 33,780
Deferred items................................ 59 9,440 5,851
Loss (gain) on foreign currency transactions.. (221) 3,655 (2,341)
Gain on disposition of fixed assets........... (1,394) (3,697) (2,415)
Gain on sale of investee ..................... - - (3,751)
Gain on sale of investment.................... - - (1,090)
Changes in discontinued operations............ (6,540) - -
Undistributed (earnings) loss of investees.... (564) (526) 330
Dividends received from investees............. 608 - 1,465
Income applicable to minority interest........ - 124 292
Bad debt expense.............................. 274 89 1,043
Decrease (increase) in accounts receivable.... 35,992 (96,072) (10,671)
Decrease in inventories and advances
on purchases of tobacco..................... 48,427 49,673 64,438
Decrease (increase) in recoverable taxes...... (952) (1,497) 444
Decrease (increase) in prepaid expenses....... (3,872) 12,450 17,257
Increase (decrease) in accounts
payable and accrued expenses................ (58,297) (81,055) 14,811
Increase (decrease) in advances from
customers................................... (23,801) (5,724) 25,116
Increase (decrease) in income taxes........... (19,069) 23,381 (6,117)
Other......................................... (438) 694 92
________________________________________
Net cash provided by operating activities... 57,337 25,299 179,804
________________________________________
Investing activities
Purchase of property and equipment............. (61,168) (60,860) (41,266)
Proceeds from sale of property and equipment... 24,597 8,853 8,605
Payments on notes receivable and
receivables from investees................... 5,270 2,348 1,132
Issuance of notes receivable................... (1,427) (12,869) (1,572)
Proceeds from or (advances) for
other investments and other assets........... (2,133) 13,109 24,422
Purchase of minority interest in subsidiaries.. - (118) -
Acquisition of subsidiary, net of cash acquired - 6,382 (6,543)
Purchase of remaining interest in investee..... (2,200) - -
______________________________________
Net cash used by investing activities....... (37,061) (43,155) (15,222)
______________________________________
Financing activities
Net change in short-term borrowings............ (69,941) (13,431) (229,403)
Repayment of debt.............................. (18,098) (162,833) (28,767)
Proceeds from debt............................. 5,932 268,940 125,514
Cash dividends paid to DIMON Incorporated
stockholders................................. (29,354) (25,071) (21,731)
Cash dividends paid to minority stockholders... - (379) (169)
Proceeds from sale of common stock............. 3,204 3,910 1,552
_______________________________________
Net cash provided (used) by
financing activities...................... (108,257) 71,136 (153,004)
_______________________________________
- -36-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
STATEMENT OF CONSOLIDATED CASH FLOWS (continued)
DIMON Incorporated and Subsidiaries
Years Ended June 30
______________________________________
(in thousands) 1998 1997 1996
========================================================================================
Effect of exchange rate changes on cash..........$ (448) $ 31 $ (84)
_______________________________________
Increase (decrease) in cash and
cash equivalents............................... (88,429) 53,311 11,494
Increase in cash from consolidation
of investee.................................... 27 - -
Cash and cash equivalents at
beginning of year.............................. 107,131 53,820 42,326
_______________________________________
Cash and cash equivalents at end of year....$ 18,729 $ 107,131 $ 53,820
=======================================
Other information:
Cash paid during the year:
Interest......................................$ 85,667 $ 48,935 $ 43,361
Income taxes.................................. 18,252 25,919 21,075
Non-cash investing and financing activities:
Conversion of debt to equity.................. - - 55,365
Purchase of Intabex........................... - 161,398 -
See notes to consolidated financial statements
-37-
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note A - Significant Accounting Policies
----------------------------------------
The accounts of the Company and its consolidated subsidiaries are
included in the consolidated financial statements after elimination of
significant intercompany accounts and transactions. Certain foreign
consolidated subsidiaries of the Company have fiscal year ends of March
31 and May 31 to facilitate reporting of consolidated accounts. The
Company accounts for its investments in certain investee companies
(ownership 20% - 50%) under the equity method of accounting.
Investments in certain other foreign investees and subsidiaries that are
combined with other investments are stated at cost or less than cost
because the Company does not exercise significant influence over
financial or operating policies and because of restrictions imposed on
the transfer of earnings and other economic uncertainties.
Sales recognition is based on the passage of ownership, usually with
shipment of product.
Cash equivalents are defined as temporary investments of cash with
maturities of less than 90 days.
Inventories are valued at the lower of cost or market. Inventory
valuation provisions included in cost of goods and services sold totaled
$16,900 for 1998. Costs of tobacco inventories are generally determined
by the average cost method while costs of other inventories are
generally determined by the first-in, first-out method. Substantially
all of the tobacco inventory represents finished goods. Interest and
other carrying charges on the inventories are expensed in the period in
which they are incurred.
Excess of cost over related net assets of businesses acquired is
being amortized on a straight-line basis over periods ranging from 10 to
40 years. The accumulated amortization at June 30, 1998, is $12,175
($11,115 at June 30, 1997, which included $5,178 related to Florimex
entities).
The carrying value of intangible assets is periodically reviewed by
the Company based on the expected future undiscounted operating cash
flows of the related business unit. Based upon its most recent
analysis, the Company believes that no material impairment of intangible
assets exists at June 30, 1998.
Supply contracts include the cost allocated to two ten-year tobacco
supply agreements with R. J. Reynolds Tobacco Company ("RJR") pursuant
to which the Company will supply RJR and its affiliates with specified
quantities of its required tobaccos. Each contract is being amortized
over the quantities shipped or the contract period, whichever is sooner.
The accumulated amortization at June 30, 1998, is $26,500 ($22,700 at
June 30, 1997).
Production contracts include the cost allocated to contracts
associated with farmers for the future supply of their annual tobacco
production. The production contracts are being amortized primarily on a
straight-line basis over ten years. The accumulated amortization at
June 30, 1998, is $18,155 ($16,155 at June 30, 1997).
Property, plant and equipment is accounted for on the basis of cost.
Provisions for depreciation are computed on a straight-line basis at
annual rates calculated to amortize the cost of depreciable properties
over their estimated useful lives. Buildings and machinery and
equipment are depreciated over ranges of 20 to 40 years and over five to
ten years, respectively. The consolidated financial statements do not
include fully depreciated assets.
The Company provides deferred income taxes on temporary differences
arising from tax loss carryforwards, employee benefit accruals,
depreciation, deferred compensation and undistributed earnings of
consolidated subsidiaries and unconsolidated affiliates not permanently
reinvested.
Basic earnings per share are computed by dividing earnings by the
weighted average number of common shares outstanding. The diluted
earnings per share calculation assumes that all of the outstanding
Convertible Subordinated Debentures outstanding during the periods
presented were converted into Common Stock at the beginning of the
reporting period, or as of the date of issue, thereby increasing the
weighted average number of shares considered outstanding during each
period and reducing the after-tax interest expense. The weighted
average number of shares outstanding are further increased by common
stock equivalents on employee stock options.
-38-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note A - Significant Accounting Policies (continued)
----------------------------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. This statement will be effective
for the Company's September 30, 1998, interim statements and will
require the restatement of all prior-periods presented. The Company
does not expect this statement to have a material impact on the
Company's financial condition or results of operations upon adoption.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which requires that
public business enterprises report certain information about operating
segments in complete sets of financial statements of the enterprise and
in condensed financial statements of interim periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic
areas in which they operate and their major customers. This statement
will be effective for the Company's June 30, 1999 year end and for
interim periods thereafter. The Company does not expect this statement
to have a material impact on the Company's financial condition or
results of operations upon adoption.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which
revises and standardizes the disclosure requirements for pensions and
postretirement benefits. SFAS 132 will also require additional
information on changes in benefit obligations and fair values of plan
assets. This statement is effective for the Company's June 30, 1999,
year end financial statements. The Company does not expect this
statement to have a material impact on the Company's financial position
or results of operations upon adoption.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which provides a
comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. This statement will
be effective for the Company's September 30, 1999, interim financial
statements. The Company does not expect this statement to have a
material impact on the Company's financial position or results of
operations upon adoption.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
-39-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note A - Significant Accounting Policies (continued)
----------------------------------------
DIMON and Subsidiaries Computation of Earnings Per Common Share
YEAR ENDED JUNE 30
______________________________________
(in thousands, except per share data) 1998 1997 (1) 1996 (1)
========================================================================================
BASIC EARNINGS
--------------
Income from continuing operations
before income from discontinued
operations and extraordinary item.............$41,829 $72,568 $37,120
Income from discontinued operations............. 1,820 4,605 2,750
Extraordinary item.............................. - - 1,400
-------- -------- --------
Net Income......................................$43,649 $77,173 $41,270
======== ======== ========
SHARES
------
Weighted Average Number of
Shares Outstanding............................ 44,473 42,850 39,568
======== ======== ========
BASIC EARNINGS PER SHARE
------------------------
Income from continuing operations
before income from discontinued
operations and extraordinary item............. $.94 $1.69 $ .93
Income from discontinued operations............. .04 .11 .07
Extraordinary item.............................. - - .04
-------- -------- --------
Net Income...................................... $ .98 $1.80 $1.04
======== ======== ========
DILUTED EARNINGS
----------------
Income from continuing operations before
income from discontinued operations
and extraordinary item.......................$41,829 $72,568 $37,120
Add after tax interest expense applicable
to 6 1/4% Convertible Debentures issued
April 1, 1997 for 1997 and 7 3/4%
Convertible Debentures issued
June 3, 1993 for 1996......................... - * 1,151 1,765
-------- -------- --------
Income from continuing operations before
income from discontinued operations and
extraordinary item............................ 41,829 73,719 38,885
Income from discontinued operations............. 1,820 4,605 2,750
Extraordinary item ............................. - - 1,400
-------- -------- --------
Net Income as Adjusted..........................$43,649 * $78,324 $43,035
======== ======== ========
SHARES
------
Weighted average number of common
shares outstanding............................ 44,473 42,850 39,568
Shares applicable to stock options,
net of shares assumed to be purchased
from proceeds at the greater of average
market price or ending market price........... 258 323 104
Assuming conversion of 6 1/4% Convertible
Debentures in 1997 and 7 3/4%
convertible debentures in 1996 at
the beginning of the period................... - * 1,068 2,742
-------- -------- --------
Average Number of Shares Outstanding............ 44,731 * 44,241 42,414
======== ======== ========
-40-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note A - Significant Accounting Policies (continued)
----------------------------------------
DIMON and Subsidiaries Computation of Earnings Per Common Share
(continued)
YEAR ENDED JUNE 30
______________________________________
(in thousands, except per share data) 1998 1997 (1) 1996 (1)
========================================================================================
DILUTED EARNINGS PER SHARE
Income from continuing operations before
income from discontinued operations and
extraordinary item............................ $.94 * $1.67 $ .92
Income from discontinued operations............. .04 * .10 .06
Extraordinary item.............................. - - .03
--------- -------- --------
Net Income as Adjusted.......................... $.98 * $1.77 $1.01
======== ======== ========
(1) 1997 and 1996 have been restated for discontinued operations and the
adoption in 1998 of SFAS No. 128, "Earnings per share."
* Assumed conversion of Convertible Debentures at the beginning of the period has an antidilutive
effect on earnings per share.
-41-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note B - Discontinued Operations
--------------------------------
On August 12, 1998, the Company reached a definitive agreement to sell
the net assets of the flower operations for approximately $66 million in
cash and the assumption of $24 million of the debt of Florimex
Worldwide. The Company expects to record a pre-tax gain of
approximately $30 million in the first quarter of the year ending June
30, 1999. Net assets of $32.9 million relating to the sale have been
segregated on the June 30, 1998 Consolidated Balance Sheet.
The results of operations for all years presented have been restated
for the discontinued flower operations.
Net Assets of Discontinued Operations:
June 30,
1998
==============================================================
Assets
Cash and cash equivalents.......................$ 3,262
Receivables..................................... 35,515
Inventories..................................... 3,921
Recoverable income taxes........................ 350
Prepaid expenses and other...................... 5,470
Intangible assets............................... 17,419
Property, plant and equipment, net.............. 37,335
---------
Total Assets................................. 103,272
=========
Liabilities
Notes payable to banks and others............... 10,539
Accounts payable and accruals................... 35,166
Income taxes payable............................ 1,431
Long-term debt.................................. 17,110
Deferred taxes and other........................ 5,661
Minority interest............................... 458
---------
Total Liabilities............................ 70,365
---------
Net Assets of Discontinued Operations........$ 32,907
========
Summary of Operating Results of Discontinued Operations:
1998 1997 1996
=========================================================================================
Sales and other operating revenues...................$391,560 $387,488 $397,307
Cost of goods and services sold...................... 351,517 343,786 353,300
Restructuring and merger costs....................... - - (498)
Selling, administrative and general expenses......... 33,856 33,419 36,029
_________ _________ ________
Operating Income................................. 6,187 10,283 8,476
Interest expense..................................... 1,909 2,509 3,763
_________ _________ ________
Income before income taxes and minority interest..... 4,278 7,774 4,713
Income taxes......................................... 2,358 3,045 1,671
Income applicable to minority interest............... 100 124 292
_________ _________ ________
Income from discontinued operations.................$ 1,820 $ 4,605 $ 2,750
========= ========= =========
-42-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note C - Acquisition
--------------------
On April 1, 1997, DIMON Incorporated acquired all the outstanding
capital stock and other rights of Intabex Holdings Worldwide S.A.
(Intabex), a privately owned Luxembourg holding company. Intabex owned
and operated leaf tobacco buying, processing, and exporting operations
in principal tobacco markets around the world including the United
States, Brazil, Argentina, Malawi, Italy and Thailand. A former Intabex
subsidiary, Compania de Filipinas (CdF), is one of the two major
suppliers of premium cigar leaf and other dark air-cured tobaccos to the
cigar industry in the United States and Europe. Separately, a Zimbabwe
company that is a wholly owned subsidiary of DIMON acquired certain
tobacco assets from an Intabex affiliated company in Zimbabwe. Intabex
is a major supplier of Zimbabwean and other African grown tobacco to the
cigarette industry.
The transaction was accounted for as a purchase, and accordingly,
the consolidated financial statements of DIMON include the results of
operations of Intabex from the date of acquisition. The $245.58 million
aggregate purchase price for Intabex, the Zimbabwe assets and other
rights acquired consisted of 1.70 million shares of DIMON common stock,
$123.3 million in 10-year, 6.25 percent subordinated debentures
convertible into 4.287 million DIMON shares at $28.77 per share, and
$84.21 million in cash. The final purchase price reflects a reduction
of $18.6 million for certain adjustments that were contemplated by the
purchase agreement. The source of cash was working capital of DIMON.
As part of the Stock Purchase Agreement, Intabex's former
shareholders, Folium, Inc., Tabacalera, S.A. and Leaf Management
Investments Ltd., have indemnified DIMON against claims arising from
breaches of representations and warranties made by the former
shareholders in connection with the acquisition of Intabex, subject to a
maximum of $90 million. DIMON may, subject to fulfillment of certain
conditions in the agreement, set off any such claims against $90 million
of the debentures held by Folium and Tabacalera. The amount of
debentures subject to set-off declines in stages, with $15 million
subject to set-off after October 1, 1998, through July 31, 1999, and $10
million subject to set-off from August 1, 1999, through April 1, 2000,
subject to extension with respect to outstanding claims. A DIMON
subsidiary in Zimbabwe is entitled to similar indemnification and set-
off rights in connection with the Zimbabwe tobacco assets purchased,
subject to a maximum of $12 million.
The Company has presented to the former Intabex shareholders claims
under the indemnity provision of the stock purchase agreement
aggregating $11.1 million. The claims and their impact on the financial
statements are discussed below.
Two claims are for liabilities (for advances on tobacco sales and
commissions payable) improperly unrecorded on the Intabex March 1997
balance sheet which were settled by DIMON after the acquisition. The
Company has recorded a receivable from the former Intabex shareholders
in the amount of approximately $4.8 million for these items.
A third claim is for approximately $3.3 million and relates to
approximately 85 separate matters. A portion of these 85 separate
matters relates to liabilities which were unrecorded on the Intabex
March 1997 balance sheet and were settled by DIMON after the
acquisition. A portion of these matters relates to current assets which
were recorded on the Intabex March 1997 balance sheet but which have not
been realized by DIMON. The Company has recorded a receivable from the
former Intabex shareholders for the entire amount of this claim.
The fourth claim relates to property in the Philippines for which
DIMON believes it does not have clear title. DIMON does not have
physical access to the property which has been seized by parties related
to the minority shareholders of the Philippines' subsidiary. The
Company recorded the property during purchase accounting at fair value
for $3.0 million, which approximated net book value on the Intabex March
1997 balance sheet. Except for depreciation expense, DIMON has not
adjusted the net book value of this property.
DIMON believes that the claims identified above are covered by the
indemnities of the purchase agreement. DIMON anticipates either a cash
settlement of the claims from the former Intabex shareholders or other
satisfactory resolution including set off of debentures. The
receivables recorded have the effect of reducing the purchase price and
goodwill.
-43-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note C - Acquisition (continued)
--------------------
DIMON is also discussing with the former Intabex shareholders other
matters which may give rise to indemnification under the stock purchase
agreement for amounts in the range of the maximum amount provided for
indemnification and set-off against the debentures in the Intabex stock
purchase agreement.
The purchase price has been allocated based on
estimated fair values of assets acquired and liabilities assumed at the
date of acquisition. This allocation resulted in an excess of purchase
price over net assets acquired of $167 million, which is being amortized
on a straight-line basis over 40 years.
Unaudited pro forma information of consolidated results of
operations of the Company and the acquired business as if the
acquisition had occurred July 1, 1996, has not been presented given the
uncertainty of the impact of claims under the provisions of the Stock
Purchase Agreement discussed above.
In conjunction with this acquisition, the Company capitalized $9.2
million, net of $3.7 million of tax, to cover the anticipated costs of
combining the acquired tobacco business with existing tobacco operations
of DIMON. The capitalized amounts relate primarily to severance and
closure of certain duplicative administrative, warehouse and plant
facilities acquired from Intabex. Of the capitalized amounts, $7.0
million related to severance and other costs associated with employee
separations and $2.2 million related to costs of planned facility
closures. As these amounts are paid out in cash, the Company will
reduce an accrual established for their expenditure. During 1998, the
Company utilized $2.1 million of the reserves for severance and $1.6
million of the reserves for facility closures. The Company expects the
remaining reserves to be paid out in fiscal 1999.
-44-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note D - Restructuring and Merger Related Costs
-----------------------------------------------
In 1995, the Company commenced various activities to restructure its
worldwide operations. The following tables set forth the Company's
restructuring provisions provided and changes in the related reserves
for 1996, 1997 and 1998. The reserve balances are included in accrued
expenses and deferred compensation and other benefits.
Facilities
Employee Closure
Separations Costs Other Total
==================================================================================================
Reserve balances at July 1, 1995..........$12,517 $ 1,132 $ - $13,649
Provision for restructuring - 1996........ 15,699 (1,244) 905 15,360
Increased (reduced) by:
Cash (payments) receipts.............. (8,150) 4,719 (75) (3,506)
Asset writedowns and other............ - (4,212) (330) (4,542)
_________________________________________________________
Reserve balances at June 30, 1996.........$20,066 $ 395 $ 500 $20,961
Provision for restructuring - 1997........ 2,864 - 1,000 3,864
Reduced by:
Cash payments........................ (9,487) (100) - (9,587)
Asset writedowns and other........... (694) (270) (500) (1,464)
_________________________________________________________
Reserve balances at June 30, 1997.........$12,749 $ 25 $ 1,000 $13,774
Increased (reduced) by:
Cash payments........................ (3,631) (25) - (3,656)
Asset writedowns and other........... 749 - (1,000) (251)
________________________________________________________
Reserve balances at June 30, 1998.........$ 9,867 $ - $ - $ 9,867
====================================================================
The 1996 restructuring provision of $15.4 million was primarily for
additional severance costs. During the year ended June 30, 1996, the
Company severed a total of 367 employees most of which were
involuntarily separated. The severed employees were primarily in the
tobacco division and worked in various departments throughout the
Company.
The 1997 restructuring provision included additional restructuring
charges in the amount of $3.9 million, of which $2.9 million relates to
additional severance costs and $1 million relates to a reduction of
capitalized idle plant expense. Remaining cash outlays associated with
employee separations are expected to total $5.0 million, of which
approximately $1.0 million will be expended in 1999. Remaining amounts
relate primarily to the pension plan charge and other deferred
compensation, which will be made as required for funding appropriate
pension and other payments in future years.
-45-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note E - Investee Companies and Related Parties
-----------------------------------------------
The combined summarized information for investee companies follows:
1998 1997 1996
===================================================================================
Current assets.............................$11,340 $61,887 $13,069
Non-current assets......................... 10,147 13,684 29,087
Current liabilities........................ 9,934 56,933 14,631
Non-current liabilities.................... 755 866 2,446
Interest of other shareholders............. 4,776 8,100 12,733
Net sales.................................. 22,290 44,294 42,388
Gross profit............................... 5,734 9,276 8,771
Net income................................. 1,362 1,014 594
________________________________________
The above changes from 1997 relate to the sale of certain
investees of Intabex, and the changes from 1996 relate primarily to the
Company's purchase of Intabex. Also, as a result of the purchase, two
investee companies are now being accounted for as consolidated entities.
Balances with related parties, primarily unconsolidated, affiliated
companies, are as follows:
1998 1997 1996
========================================================================================
Trade receivables...............................$46,944 $ 16,352 $23,904
Advances on purchases of tobacco................ 92,416 101,540 32,786
Notes receivable................................ 3,767 4,190 -
Trade payables and advances from customers...... 17,719 7,405 6,844
Other income: Interest......................... 756 917 581
Net sales....................................... 11,036 12,274 6,673
Purchases of tobacco............................ 76,352 80,389 61,549
__________________________________________
Note F - Financial Instruments
------------------------------
The estimated fair value of the Company's financial instruments at June
30, 1998 is provided in the following table:
Carrying Fair
Amount Value
______________________________________________________________________________
Senior Notes........................................$125,000 $123,750
Convertible Subordinated Debentures................. 123,328 102,979
Other Long-Term Debt................................ 59,287 58,165
Interest rate swap agreements modify the interest characteristics
of a portion of the Company's debt. The differential to be paid or
received is accrued as interest rates change and recognized as an
adjustment to interest expense in the statement of consolidated income.
The related accrued receivable or payable is included in other assets or
liabilities. The fair values of the swap agreements are not recognized
in the financial statements.
-46-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note F - Financial Instruments (continued)
------------------------------
The counterparties to these contractual arrangements are a diverse
group of major financial institutions with which the Company also has
other financial relationships. The Company is exposed to credit loss in
the event of non-performance by these counterparties. If a counterparty
fails to meet the terms of a swap agreement, the Company's exposure is
limited to the net amount that would have been received, if any, over
the agreement's remaining life. The Company does not anticipate non-
performance by the other parties, given their high credit ratings and no
material loss would be expected from non-performance by any one of such
counterparties.
Interest rate swap agreements with an aggregate notional principal
balance of $322,571 ($125,000 fixed to floating and $197,571 floating to
fixed) and expiring at various dates through July 16, 2002, had a
positive value of $504 at June 30, 1998.
In the normal course of business, the Company is a party to
financial instruments with off balance sheet risk such as letters of
credit and guarantees. Management does not expect any material losses
to result from these instruments.
The fair value estimates presented herein are based on information
available to management at June 30, 1998, and were determined using
quoted market prices and the discounted value of future cash flows.
Note G - Short-Term Borrowing Arrangements
------------------------------------------
The Company has lines of credit arrangements with several banks under
which the Company may borrow up to a total of $1,305,479 ($1,783,889 at
June 30, 1997), excluding all long-term credit agreements. These lines
bear interest at rates ranging from 5.99% to 12.83% at June 30, 1998.
Unused lines of credit at June 30, 1998, amounted to $663,009 ($789,913
at June 30, 1997), net of $156,379 of available letters of credit lines.
There were no compensating balance agreements at June 30, 1998 or 1997.
Note H - Long-Term Debt
-----------------------
Such debt is comprised of:
1998 1997
________________________ _______________________
Maturing Maturing Maturing Maturing
within after within after
One Year One Year One Year One Year
===============================================================================================
Senior Notes............................$ - $125,000 $ - $125,000
Convertible Subordinated Debentures..... - 123,328 - 123,328
Revolving Credit Notes.................. - 500,000 - 500,000
Other Long-Term Debt.................... 10,492 48,661 15,307 77,249
________________________________________________________
$10,492 $796,989 $15,307 $825,577
Capitalized Lease Obligations........... 96 38 915 577
________________________________________________________
$10,588 $797,027 $16,222 $826,154
===============================================================================================
-47-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note H - Long-Term Debt (continued)
-----------------------
Payments of the debt are scheduled as follows:
Convertible Revolving Other
Senior Subordinated Credit Long-Term
Notes Debentures Notes Debt Total
===========================================================================
1999............$ - $ - $ - $10,492 $ 10,492
2000............ - - 500,000 9,543 509,543
2001............ - - - 6,288 6,288
2002............ - - - 30,868 30,868
2003............ - - - 1,400 1,400
2004............ - - - 60 60
Later years..... 125,000 123,328 - 502 248,830
__________________________________________________________
$125,000 $123,328 $500,000 $59,153 $807,481
===========================================================================
On May 29, 1996, the Company issued $125 million in 8 7/8% Senior
Notes (the "Notes") due 2006. The Notes are general unsecured
obligations of the Company and will rank equally in right of payment
with all other unsubordinated indebtedness (including the New Credit
Facility, discussed below) of the Company. The Company used the net
proceeds to repay certain existing short-term indebtedness and for other
corporate purposes. On or after June 1, 2001, the Company may redeem
the Notes in whole or in part, at established redemption prices, plus
accrued and unpaid interest, if any, to the date of redemption. There
are no sinking fund requirements for the Notes. The Notes are subject
to certain covenants that among other things, require specific liquidity
and long-term solvency ratios and, under certain circumstances, restrict
payment of dividends by the Company. The Company generally may make
such restricted payments, provided that (1) the Company is not in
default under the Indenture, (2) the Company is 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 the Company's consolidated net income for the period from April
1, 1996, through the end of the Company's most recent fiscal quarter and
(z) the net cash proceeds from the sale by the Company of any equity
securities or debt securities that are converted into equity securities.
At June 30, 1998, the Company was permitted to make restricted payments,
including cash dividends on its Common Stock, of up to $73.5 million.
On April 1, 1997, in connection with the Intabex acquisition, DIMON
Incorporated issued $123.3 million of 6 1/4% Convertible Subordinated
Debentures due on March 31, 2007 (the "Debentures"). The Debentures are
convertible into approximately 4.29 million shares of the Company's
Common Stock at a conversion price of $28.77 per share at any time prior
to maturity. The Debentures are subordinated in right of payment to all
existing and future senior indebtedness, as defined, of the Company, and
do not have a cross-default provision. The Debentures are redeemable at
the option of the Company under certain circumstances on or after April
1, 2000. As discussed in Note C, Intabex's former shareholders have
indemnified DIMON against certain liabilities in connection with the
acquisition of Intabex. DIMON may set off any such indemnified
liabilities against $90 million of the Debentures. The amount of
Debentures subject to set-off declines in stages, as discussed in Note
C.
To ensure long-term liquidity, DIMON entered into a $500 million
New Credit Facility, effective June 27, 1997, with 20 banks which
replaces DIMON's $240 million Former Credit Facility. The Company had
$140 million borrowings under these agreements on June 30, 1998 (-0- in
1997). However, the Company has used these facilities to classify $360
million ($500 million at June 30, 1997) of working capital loans to
Revolving Credit Notes. It is the Company's intent to finance at least
-48-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note H - Long-Term Debt (continued)
-----------------------
$500 million on a long-term basis. The New Credit Facility is subject
to certain commitment fees and covenants that, among other things,
require DIMON to maintain minimum working capital and tangible net
worth amounts, require specific liquidity and long-term solvency
ratios and restrict acquisitions. The New Credit Facility's initial
term is to June 27, 2000, and pending approval by the lenders, may be
extended. The rates of interest are based upon the type of loan
requested by the Company. During the life of the agreement, the
interest rate could be the prime rate or the LIBOR rate adjusted. The
primary advance rate is the agent bank's base lending rate (8.50% at
June 30, 1998). The Company pays a commitment fee of 1/4% per annum on
any unused portion of the facility. Decisions relative to repayments
and reborrowings are made based on circumstances then existing,
including management's judgment as to the most effective utilization of
funds.
Other long-term debt consists of obligations of DIMON Incorporated
and the tobacco operations in Asia, Africa, Germany and Spain, and is
payable at interest rates varying from 4.85% to 9.6%.
Note I - Long-Term Leases
-------------------------
The Company has both capital and operating leases. The operating leases
are for land, buildings, automobiles and other equipment; the capital
leases are for machinery and equipment. The capitalized lease
obligations are payable through 2000. Interest rates are imputed at
9.6% to 13.0%. Amortization is included in depreciation expense.
Minimum future obligations and capitalized amounts are as follows:
Capital Operating
Leases Leases
===============================================================================
1999...................................................$ 96 $ 3,362
2000................................................... 38 3,166
2001................................................... - 3,106
2002................................................... - 2,377
2003................................................... - 1,270
Later years ........................................... - 17,184
_________________________
$ 134 $30,465
Less amount representing interest and deposits......... -
________
Present value of net minimum lease payments............$ 134
Less current portion of obligations
under capital leases................................. 96
________
Long-term obligations under capital leases.............$ 38
========
Capitalized amounts:
Machinery and equipment, primarily vehicles..........$ 322
Accumulated amortization............................. (102)
_______
$ 220
=======
Note J - Preferred Stock
------------------------
The Board of Directors is authorized to issue shares of Preferred Stock
in series with variations as to the number of shares in any series. The
Board of Directors also is authorized to establish the rights and
privileges of such shares issued including dividend and voting rights.
At June 30, 1998, no shares had been issued.
-49-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note K - Stock Incentive Plan
-----------------------------
At the 1995 Special Meeting of Stockholders, the DIMON Incorporated
Omnibus Stock Incentive Plan (the Incentive Plan) and the DIMON
Incorporated Non-Employee Directors' Stock Option Plan (the Directors'
Plan) were approved.
The Incentive Plan authorizes the issuance of up to 2 million shares
of common stock (subject to increase annually by 3% of the number of
shares of common stock issued during such year, other than pursuant to
the Incentive Plan). The Incentive Plan authorizes the issuance of
various stock incentives to key employees of the Company or any
subsidiary, including nonqualified or incentive stock options, stock
appreciation rights and shares of restricted stock.
Stock options granted under the Incentive Plan allow for the
purchase of common stock at prices determined at the time the option is
granted by a committee composed of independent directors (the
Committee). Stock appreciation rights (SARs) may be granted under the
Incentive Plan in relation to option grants or independently of option
grants. SARs generally entitle the participant to receive in cash the
excess of the fair market value of a share of common stock on the date
of exercise over the value of the SAR at the date of grant. Restricted
stock is common stock that is both nontransferable and forfeitable
unless and until certain conditions are satisfied. As of June 30, 1998
no restricted stock has been awarded under the Incentive Plan. No
awards may be granted under the Incentive Plan after February 8, 2005.
The options and SARs become exercisable on various dates as
originally determined for the grants assumed by DIMON. Under the
Incentive Plan, the Committee will determine the dates that the options
and SARs become exercisable.
A separate Directors' Plan authorizes automatic annual grants to
purchase one thousand shares to each non-employee director. Any 1998
grants will be awarded at the meeting of the DIMON Board following the
1998 annual meeting of the shareholders of DIMON. The option price will
be equal to the fair market value of DIMON common stock on the date of
grant. The maximum number of shares to be issued under the Directors
Plan is 50 thousand shares. Options granted under the Directors' Plan
are immediately exercisable. Options to purchase 20 thousand shares had
been granted as of June 30, 1998.
The Company has elected to treat the costs of SARs as compensation
charges to the income statement with quarterly adjustments for market
price fluctuations. All other options are treated as equivalent shares
outstanding. There was a $2,816 credit to income in 1998, a $2,142
charge to income in 1997, and a $473 charge to income in 1996 arising
from adjustments in fair market values of the SARs.
In October, 1995, the Financial Accounting Standards Board issued
SFAS No. 123 which established financial accounting and reporting
standards for stock-based employees compensation plans. SFAS No. 123
encourages companies to adopt a fair value based method of accounting
for such plans but continues to allow the use of the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion No. 25.
The Company has elected to continue to account for stock-based
compensation in accordance with APB No. 25. If the Company had elected
to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS No. 123, net income and
earnings per share based on fair value would have been reduced to the
unaudited pro forma amounts indicated in the table below (in thousands,
except per share data):
Year Ended June 30
1998 1997
=======================================================================
Net income as reported.........................$43,649 $77,173
Net income Pro Forma........................... 41,603 76,185
Earnings per share, basic as reported.......... .98 1.80
Earnings per share, basic Pro Forma............ .93 1.77
-50-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note K- Stock Incentive Plan (continued)
----------------------------
Information with respect to options and SARs follows:
Year Ended June 30
___________________________
1998 1997 1996
=====================================================================================
Options and SARs outstanding at beginning of year......... 1,854 1,804 1,540
Options and SARs granted.................................. 455 436 403
Options and SARs exercised................................ (237) (263) (130)
Options and SARs cancelled................................ (33) (123) (9)
____________________________
Options and SARs outstanding at end of year.............. 2,039 1,854 1,804
============================
SARs included as outstanding at end of year............... 417 407 528
============================
Options available for future grants at end of year........ 857 822 337
============================
Options and SARs exercisable at end of year............... 830 833 1,023
============================
Option and SAR market prices per share:
Date of grant (at lowest market price).................$22.31 $18.13 $17.00
(at highest market price)...................... 23.38 20.88 15.38
Exercised (at lowest market price)..................... 21.25 19.00 11.33
(at highest market price)...................... 26.38 26.75 20.75
Cancelled (at lowest market price)..................... 11.25 19.25 17.00
(at highest market price)...................... 25.94 26.50 17.00
Weighted average option exercise price information for the years
1998, 1997 and 1996 follows:
1998 1997 1996
_________________________________________________________________________
Outstanding at July 1................. $16.87 $16.46 $16.32
Granted during the year............... $22.33 $18.17 $16.98
Exercised during the year............. $25.10 $23.97 $19.81
Outstanding at June 30................ $18.16 $16.87 $16.46
Exercisable at June 30................ $16.52 $17.53 $17.19
-51-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note K - Stock Incentive Plan (continued)
-----------------------------
Option groups outstanding at June 30, 1998 and related weighted
average price and life information follows:
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
__________________________________________________________________________
8/21/91............ 137 137 $14.42 3
8/27/92............ 199 199 $22.00 4
8/26/93............ 175 175 $16.67 5
8/25/94............ 159 159 $11.50 6
4/1/95............ 140 140 $16.50 7
8/24/95............ 356 - $17.00 7
11/17/95............ 6 6 $15.38 7
8/22/96............ 412 - $18.13 8
11/15/96............ 7 7 $20.88 8
8/21/97............ 441 - $22.31 9
11/14/97............ 7 7 $23.38 9
______ _______
2,039 830
====== =======
The weighted average fair value at date of grant for options
granted during 1998 and 1997 was $10.07 and $7.30 per option,
respectively. The fair value of options at date of grant was estimated
using the Black-Scholes model with the following weighted average
assumptions:
Black-Scholes Assumptions 1998 1997
_________________________________________________________________
Expected Life in Years................ 10 10
Interest Rate......................... 6.49% 6.90%
Volatility............................ 31% 33%
Dividend Yield........................ 2.7% 3.1%
Note L - Retained Earnings
--------------------------
Consolidated retained earnings included $873 at June 30, 1998 ($1,314 at
June 30,1997) for the Company's share of undistributed net income of
investee companies accounted for under the equity method.
Note M - Income Taxes
---------------------
Consolidated retained earnings at June 30, 1998 and 1997 include
undistributed earnings of $261,452 and $175,910 respectively, of certain
foreign consolidated subsidiaries which are not subject to additional
foreign income taxes nor considered to be subject to United States
income taxes unless remitted as dividends. The Company intends to
reinvest these undistributed earnings indefinitely; accordingly, no
provision has been made for United States taxes on such earnings.
At June 30, 1998, the Company has net operating tax loss
carryforwards of approximately $125,601 for income tax purposes that
expire in 1999 and thereafter. The components of income from continuing
operations before income taxes, minority interest, and equity in net
income of investee companies consisted of the following:
-52-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note M - Income Taxes (continued)
---------------------
Note M - Income Taxes (continued)
1998 1997 1996
=================================================================
U.S.....................$(51,109) $ 9,902 $ 6,303
Foreign................. 107,098 106,203 56,471
_________________________________________
$ 55,989 $116,105 $62,774
========================================
The details of the amount shown for income taxes in the Statement
of Consolidated Income follow:
1998 1997 1996
===================================================================
Current
Federal...................$ 2,531 $ 4,566 $ 8,936
State..................... - - 402
Foreign................... 12,499 37,694 10,744
_________________________________________
$15,030 $42,260 $20,082
_________________________________________
Deferred
Federal...................$(8,945) $ 384 $(3,972)
State..................... (1,494) 85 (854)
Foreign................... 10,134 1,334 10,068
_________________________________________
$ (305) $ 1,803 $ 5,242
_________________________________________
Total.....................$14,725 $44,063 $25,324
==================================================================
The reasons for the difference between income tax expense based on
income before income taxes, minority interest, and equity in net income
of investee companies and the amount computed by applying the statutory
Federal income tax rate to such income are as follows:
Pre-tax Income
____________________________________
1998 1997 1996
=============================================================================================
Computed "expected" tax expense..........................$19,596 $40,637 $21,971
State income taxes, net of Federal income tax benefit.... - - (294)
Effect of foreign income taxes........................... (9,009) 5,261 (1,524)
U.S. taxes on foreign income, net of tax credits......... 7,003 958 1,270
Operating loss carryforwards, net........................ 1,152 (2,779) 2,395
Tax benefits derived from Foreign Sales Corporations..... (1,504) (1,624) (1,633)
Permanent Items.......................................... (2,513) 1,610 999
Other.................................................... - - 2,140
___________________________________
Actual tax expense.......................................$14,725 $44,063 $25,324
===================================
-53-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note M - Income Taxes (continued)
---------------------
The long-term deferred tax liabilities (assets) are comprised of the
following:
1998 1997
===============================================================
Deferred tax liabilities:
Fixed assets...........................$ 13,254 $ 16,610
Foreign taxes.......................... 15,311 10,581
Other.................................. 4,921 9,439
_____________________
Gross deferred tax liabilities........... 33,486 36,630
_____________________
Deferred tax assets:
Tax loss carryforwards................. (13,149) (14,387)
Postretirement and other benefits...... (10,726) (10,178)
Currently non-deductible expenses...... (3,072) (2,780)
Other.................................. (1,305) (4,977)
_____________________
Gross deferred tax assets................ (28,252) (32,322)
Valuation allowance...................... 13,073 13,730
_____________________
Net deferred tax assets.................. (15,179) (18,592)
_____________________
Net deferred tax liability...............$ 18,307 $ 18,038
=====================
The net change in the valuation allowance for deferred tax assets
was a decrease of $657 and relates primarily to the utilization of tax
loss carryforwards for which no benefit had been recognized in prior
years.
Note N - Employee Benefits
--------------------------
Retirement Benefits
For 1996, the Company maintained the Defined Benefit Pension Plan (the
Retirement Plan) and an Excess Benefit Plan of the former Dibrell. The
Retirement Plan provides retirement benefits for substantially all of
the former Dibrell's U.S. salaried personnel based on years of service
rendered and compensation during the last five years of employment. The
Company maintains an Excess Benefit Plan that provides individuals who
participate in the Retirement Plan the difference between the benefits
they could potentially accrue under the Retirement Plan and the benefits
actually paid as limited by regulations imposed by the Internal Revenue
Code. The Company funds these plans in amounts consistent with the
funding requirements of Federal Law and Regulations.
Additional non-U.S. plans sponsored by certain tobacco subsidiaries
cover substantially all of their full-time employees located in Greece,
Italy, The Netherlands, Turkey and Zimbabwe.
-54-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note N - Employee Benefits (continued)
--------------------------
Retirement Benefits (continued)
Net pension cost for continuing operations included the following
components:
1998 1997 1996
======================================================================================
Service cost - benefits earned during the year........$ 2,565 $ 1,928 $ 1,239
Interest cost on projected benefit obligation......... 3,913 3,550 3,996
Return on assets - actual............................. (9,420) (3,413) (6,174)
Amortization of transition asset at July, 1986........ (304) (303) (269)
Amortization of prior service costs................... 622 550 651
Amortization of unrecognized loss (gain).............. (372) (336) 2,966
Deferred asset gain................................... 5,573 - -
________________________________
Net pension cost before effect of curtailment......... 2,577 1,976 2,409
Effect of curtailment ................................ - - (698)
________________________________
Net pension cost......................................$ 2,577 $ 1,976 $ 1,711
================================
The funded status of the plans at June 30 was as follows:
1998 1997
================================================================================
Actuarial present value of accumulated benefit obligation
Vested..................................................$47,982 $45,372
Nonvested............................................... 1,377 600
______________________
49,359 45,972
Benefits attributable to projected salary increases....... 4,221 4,009
______________________
53,580 49,981
Plan assets at fair value................................. 52,524 44,457
______________________
Projected benefit obligation in excess of plan assets..... 1,056 5,524
Unamortized transition asset ............................ 1,489 1,784
Unrecognized prior service costs.......................... (7,181) (5,352)
Unrecognized net gain..................................... 11,039 10,426
Adjustment required to recognize minimum liability........ 7,344 4,215
_______________________
Net pension liability.....................................$13,747 $16,597
=======================
For the U.S. plans, projected benefit obligations for the Retirement
Plan and the Excess Benefit Plan were determined using assumed discount
rates of 7.25% for 1998 and 8% for 1997 and 1996. Assumed compensation
increases were 4% for 1998 and 1997 and 7% for 1996 for the Retirement
Plan and 4% for 1998 and 1997 and 5% for 1996 for the Excess Benefit
Plan. The assumed long-term rate of return on plan assets for all three
years was 9% for the Retirement Plan and 8% for all three years for the
Excess Benefit Plan. Plan assets consist principally of common stock
and fixed income securities. For non-U.S. plans, discount rates and
assumed compensation increases are in accordance with locally accepted
practice. No assumed long-term rate of return is made for non-U.S. plan
assets as these plans are generally not funded.
The Company also sponsors a 401-k savings plan for most of its
salaried employees located in the United States. The Company's
contributions to the plan were $588 in 1998, $546 in 1997, and $481 in
1996.
-55-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note N - Employee Benefits (continued)
--------------------------
Retirement Benefits (continued)
The Company has a Profit-Sharing Plan for substantially all of the
salaried employees meeting certain eligibility requirements who were
employed by Monk-Austin. This Profit-Sharing Plan was in lieu of a
defined benefit pension plan. Profit-Sharing Plan contributions are
discretionary. There were no contributions in 1997 and 1996.
The Company adopted a Cash Balance Plan on July 1, 1996, that
combines the Retirement Plan of the former Dibrell Defined Benefit
Pension Plan and the Profit-Sharing Plan of the former Monk-Austin. The
adoption increased the present value of the accumulated benefit
obligation by $2,353, decreased the benefits attributable to projected
salary increases by $2,493 and decreased net pension cost by $403 for
1997.
Postretirement Health and Life Insurance Benefits
The Company provides certain health and life insurance benefits to
retired U.S. employees (and their eligible dependents) who meet
specified age and service requirements. Plan assets consist of paid-up
life insurance policies on certain current retirees. The Company
retains the right, subject to existing agreements, to modify or
eliminate the medical benefits.
The benefit obligation was determined using an assumed discount
rate of 7.25% for 1998 and 8% for 1997 and 1996 and an assumed rate of
increase in health care costs, also known as the health care cost trend
rate, of 7.5% for 1998, 8% for 1997 and 11.5% for 1996. This trend rate
is assumed to decrease gradually to 5.5% by 2002. The assumed long-term
rate of return on plan assets was 5.5% for all three years. Based on
current estimates, increasing the health care cost trend rate by one
percentage point would increase the benefit obligation by approximately
$553.
The following table presents the plan's funded status at June 30
reconciled with amounts recognized in the Company's balance sheet:
1998 1997
=================================================================================
Accumulated postretirement benefit obligation:
Retirees................................................$ 8,377 $ 8,339
Fully eligible active plan participants................. 1,031 903
Other active plan participants.......................... 4,737 3,539
Plan assets at fair value................................. (69) (65)
________________________
Accumulated postretirement benefit obligation
in excess of plan assets................................ 14,076 12,716
Unrecognized prior service cost........................... 2,766 3,020
Unrecognized net gain..................................... 2,929 3,973
_________________________
Accrued postretirement benefit cost.......................$19,771 $19,709
=========================
Net periodic postretirement benefit cost included the following
components:
1998 1997 1996
==============================================================================
Service cost.................................$ 340 $ 315 $ 420
Interest cost................................ 1,025 1,093 1,502
Actual return on plan assets................. (4) (3) 16
Amortization of unrecognized amounts......... (411) (423) -
_________________________________
Net periodic postretirement benefit cost.....$ 950 $ 982 $1,938
=================================
-56-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note N - Employee Benefits (continued)
--------------------------
Postretirement Health and Life Insurance Benefits (continued)
The Company continues to evaluate ways to better manage these
benefits and control the costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have
a significant effect on the amount of the reported obligation and annual
expense.
Employees in operations located in certain foreign countries are
covered by various foreign postretirement life insurance benefit
arrangements. There are no postretirement health benefits due to
coverage ceasing at retirement or coverage continuing through a national
health system. For these foreign plans, the cash-basis cost of benefits
charged to income was not material in 1998, 1997 and 1996.
Note O - Geographic Area Data, Export Sales and Other Information
-----------------------------------------------------------------
The following description and tables present the Company's tobacco
operations in different geographic areas in conformity with the
Statement of Financial Accounting Standards No. 14, "Financial Reporting
for Segments of a Business Enterprise" (SFAS 14). Geographic area
information for tobacco operations as to net sales and operating profit
is based on the origin of the product sold, and identifiable assets are
classified based on the origination of the product. Turkish tobacco is
included in Other origin. Corporate assets consist primarily of those
related to cost investments. Export sales are defined as foreign sales
of United States origin. The flower operations are restated as
discontinued operations for 1998, 1997 and 1996.
The Company is principally engaged in the tobacco business. The
Company buys leaf tobacco on the auction markets in Florida, Georgia,
South Carolina, North Carolina, Virginia, Kentucky, Tennessee and
Maryland for its customers. This tobacco is shipped to plants located
in Virginia and North Carolina where it is processed, packed in
hogsheads or cases and then stored until ordered shipped by its
customers. DIMON is also engaged in buying, processing and exporting
tobacco grown in Argentina, Brazil, China, Greece, Guatemala, India,
Italy, Malawi, Mexico, Tanzania, Thailand, Turkey, Zimbabwe and other
areas which is sold on the world markets. The Company's investee
companies are located in Colombia and Malawi.
The disaggregation of entities necessary for geographic area data
may require the use of estimation techniques for operating profit. The
identifiable assets presentation does not take into account the seasonal
aspects of the tobacco business, particularly the seasonal peak in South
America.
-57-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note O - Geographic Area Data, Export Sales and Other Information
-----------------------------------------------------------------
(continued)
Sales and Operating
Other Profit
Operating As Defined By Identifiable
Revenues SFAS 14 Assets
______________________________________________________________________________________
1998
Tobacco
United States............................$ 806,603 $ 34,171 $ 205,912
South America............................ 542,934 83,550 459,289
Asia..................................... 158,471 20,049 90,546
Africa................................... 326,102 (2,700) 363,192
Other ................................... 337,693 20,039 585,434
Worldwide supply contract................ - - 5,971
____________________________________________
$2,171,803 $155,109 $1,710,344
============
Corporate................................ (15,351) 48,206
Net assets of discontinued operation..... 32,907
Equity in net assets of
investee companies and
related advances: Tobacco.............. 6,022
___________
$1,797,479
__________ ===========
Operating profit
before interest expense................. $139,758
Interest expense........................ (83,769)
__________
Income from continuing operations
before income taxes, equity in net
income (loss) of investee companies,
income from discontinued operations
and extraordinary item................. $ 55,989
=====================================================================================
Europe Far East Other Total
___________________________________________________________________________________
Export sales of U.S. origin.........$137,089 $205,073 $19,880 $362,042
===============================================
Tobacco
____________________________________________________________________________________
Depreciation and amortization..............................................$ 43,476
=========
Capital expenditures.......................................................$ 61,168
=========
Equity in net income of investee companies.................................$ 565
=========
-58-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note O - Geographic Area Data, Export Sales and Other Information
-----------------------------------------------------------------
(continued)
Sales and Operating
Other Profit
Operating As Defined By Identifiable
Revenues SFAS 14 Assets
_______________________________________________________________________________________
1997
Tobacco
United States............................$ 941,894 $ 31,009 $ 195,368
South America............................ 566,094 97,109 621,821
Asia..................................... 111,175 13,590 140,418
Africa................................... 309,831 17,183 433,315
Other ................................... 196,745 21,376 349,114
Worldwide supply contract................ - - 7,571
____________________________________________
$2,125,739 $180,267 (1) $1,747,607
===========
Corporate................................ (13,644) 142,418
Assets of discontinued operation 88,252
Equity in net assets of
investee companies and
related advances: Tobacco.............. 9,326
___________
$1,987,603
___________ ===========
Operating profit
before interest expense................. $166,623
Interest expense......................... (50,518)
__________
Income from continuing operations
before income taxes, equity in
net income (loss) of investee
companies, income from
discontinued operations
and extraordinary item............. $116,105
======================================================================================
(1) Includes restructuring expenses for tobacco operations: $1,940, United States;
$1,040, South America; $884, Other.
Europe Far East Other Total
____________________________________________________________________________________
Export sales of U.S. origin.........$142,979 $161,978 $22,049 $327,006
================================================
Tobacco
____________________________________________________________________________________
Depreciation and amortization..............................................$ 30,477
=========
Capital expenditures.......................................................$ 54,792
=========
Equity in net income of investee companies.................................$ 526
=========
-59-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note O - Geographic Area Data, Export Sales and Other Information
-----------------------------------------------------------------
(continued)
Sales and Operating
Other Profit
Operating As Defined By Identifiable
Revenues SFAS 14 Assets
_______________________________________________________________________________________
1996
Tobacco
United States............................$ 854,853 $ 47,428 $ 106,615
South America............................ 524,886 57,038 442,471
Asia..................................... 43,023 1,372 34,567
Africa................................... 208,898 9,695 170,712
Other ................................... 138,506 10,756 114,213
Worldwide supply contract................ - - 9,171
______________________________________________
$1,770,166 $126,289 (1) $ 877,749
===========
Corporate................................ (20,354)(1) 34,992
Assets of discontinued operation......... 99,005
Equity in net assets of
investee companies and
related advances: Tobacco.............. 8,268
___________
$1,020,014
__________ ===========
Operating profit
before interest expense................. $105,935
Interest expense......................... (43,161)
__________
Income from continuing operations
before income taxes, equity in
net income (loss) of investee companies,
income from discontinued operations and
extraordinary item...................... $ 62,774
=======================================================================================
(1) Includes restructuring expenses for tobacco operations: $431,United States;
$9,308, South America; $330, Africa; $1,369, Other; and $4,420, Corporate.
Europe Far East Other Total
______________________________________________________________________________________
Export sales of U.S. origin...........$159,763 $193,613 $54,886 $408,262
================================================
Tobacco
____________________________________________________________________________________
Depreciation and amortization..............................................$ 26,802
=========
Capital expenditures.......................................................$ 35,444
=========
Equity in net income of investee companies.................................$ (330)
=========
-60-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note O - Geographic Area Data, Export Sales and Other Information
-----------------------------------------------------------------
(continued)
Of the 1998, 1997 and 1996 tobacco sales and other operating
revenues, approximately 32%, 42% and 55%, respectively, were to
various tobacco customers which management has reason to believe are now
owned by or under the common control of two companies (three companies
in 1996), each of which accounted for more than 10% of net sales. At
June 30, 1998, there was approximately $30.4 million due from the two
major tobacco customers and included in Trade receivables.
The following table summarizes the net sales made to each customer
for the periods indicated:
1998 1997 1996
===============================================================================
Customer A..................................$437,231 $484,841 $474,787
Customer B.................................. 269,356 401,396 336,989
Customer C.................................. - - 170,167
____________________________________
Total.......................................$706,587 $886,237 $981,943
====================================
Note P - Foreign Currency Translation
-------------------------------------
The financial statements of foreign entities included in the
consolidated financial statements have been translated to U.S. dollars
in accordance with FASB Statement No. 52, "Foreign Currency
Translation." Under that Statement, all asset and liability accounts
are translated at the current exchange rate, and income statement items
are translated at the average exchange rate for each quarter; resulting
translation adjustments, net of deferred taxes, are made directly to a
separate component of stockholders' equity. Transaction adjustments,
however, are made in the Statement of Consolidated Income. These
include realized exchange adjustments relating to assets and liabilities
denominated in foreign currencies. Financial statements of entities
located in highly inflationary economies are remeasured in U.S. dollars.
The remeasurement of and subsequent transaction adjustments are also
made in the Statement of Consolidated Income.
For 1998, the transaction gain was $221 related primarily to gains
in Thailand, Malawi and Zimbabwe, offset partially by losses in Brazil
and Greece. The transaction adjustment in 1997 was a gain of $3,655
related primarily to Brazil. In 1996 the transaction adjustment was
$2,341 related primarily to Zimbabwe.
Note Q - Contingencies and Other Information
--------------------------------------------
On August 29, 1996, the Company received notices from Brazilian tax
authorities of proposed adjustments to income taxes for the calendar
year 1992 based on the Company's recalculation of monetary correction as
allowed under Law 8200. The approximate proposed adjustment claims
additional tax, including penalties and interest, through June 30, 1998,
of $21,277, before related tax benefits for all assessed interest. In
1993, the Company received notices from Brazilian tax authorities of
proposed adjustments to the income tax returns of the Company's entities
located in Brazil for the calendar years ending 1988 through 1992. The
approximate proposed adjustments claim additional tax, including
penalties and interest through June 30, 1998, of $9,042 before related
tax benefits for all assessed interest. During fiscal year ended June
30, 1998, the Company had $22,793 of assessments reversed in its favor.
The Company believes that it has properly reported its income and paid
its taxes in Brazil in accordance with applicable laws and intends to
contest the proposed adjustments vigorously. The Company expects that
the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated balance sheet or results of
operations.
The Company and certain subsidiaries have available letters of
credit of $156,379 at June 30, 1998, of which $94,148 was outstanding.
These letters of credit represent, generally, performance guarantees
issued in connection with purchases and sales of domestic and foreign
tobacco.
-61-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note Q - Contingencies and Other Information (continued)
--------------------------------------------
The Company is guarantor as to certain lines and letters of credit
of affiliated companies in an amount not to exceed approximately
$15,715. There was approximately $12,089 outstanding under these
guarantees at June 30, 1998.
The Company's foreign subsidiaries have guaranteed certain loans
made by Brazilian banks to local farmers. There was approximately
$32,677 outstanding under these guarantees at June 30, 1998.
The Company enters into forward exchange contracts to hedge certain
foreign currency transactions for periods consistent with the terms of
the underlying transactions. While the forward contracts affect the
Company's results of operations, they do so only in connection with the
underlying transactions. As a result, they do not subject the Company
to risk from exchange rate movements, because gains and losses on these
contracts offset losses and gains on the transactions being hedged. At
June 30, 1998, the Company has forward exchange contracts to purchase
Deutschmarks and Pesetas in the first quarter of fiscal 1999 with
notional amounts totaling $5,100. The exchange rate exposure of these
forward contracts is immaterial. Additionally, the Company entered into
a forward exchange contract to purchase pounds sterling as needed on a
monthly basis throughout fiscal 1999 to fund the operations of the
administrative office in Camberley, U.K. The Company believes that
the exchange rate exposure of this contract is immaterial.
The Company's other off balance sheet risks are not material.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates may change with future
events.
Note R - Selected Quarterly Financial Data (Unaudited)
-------------------------------------------------------
Summarized quarterly financial information is as follows:
Diluted Earnings
Per Share of
In Thousands Common Stock
_________________________________________________________________ ________________
Sales and Other Income from Income (loss)
Operating Gross Continuing from Discontinued Net
Revenues Profit Operations Operations Income (1)
_________________________________________________________________________________________ ________________
1998 Fiscal Year..........$2,171,803 $259,960 $41,829 $ 1,820 $.98 *
Fourth Quarter....... 513,070 57,029 2,128 (511) .04 *
Third Quarter........ 627,721 61,228 8,274 2,368 .24
Second Quarter....... 591,827 58,802 10,580 359 .25
First Quarter........ 439,185 82,901 20,847 (396) .44
_______________________________________________________________
1997 Fiscal Year..........$2,125,739 $274,192 $72,568 $ 4,605 $1.77
Fourth Quarter....... 572,493 100,864 22,853 3,177 .56
Third Quarter........ 561,371 57,371 17,385 1,432 .44
Second Quarter....... 664,032 59,085 15,934 1,127 .40
First Quarter........ 327,843 56,872 16,396 (1,131) .36
_______________________________________________________________
(1) Does not add due to rounding.
* Assumed conversion of Convertible Debentures at the beginning of each period has an
antidilutive effect on earnings per share.
-62-
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note S - SUPPLEMENTAL GUARANTOR INFORMATION
-------------------------------------------
Effective March 31, 1998, DIMON International, Inc. and Florimex
Worldwide, Inc., wholly owned subsidiaries of the Company, were merged
with and into the Company. The mergers were permitted under the
Indenture, dated May 29, 1996, governing the Company's 8 7/8% Senior
Notes due 2006 (the "Notes") and had the effect of eliminating the
guarantees of the Notes made by these subsidiaries. Effective with its
interim financial statements for the quarter ended March 31, 1998, the
Company has discontinued providing separate financial information with
respect to these subsidiaries in the notes to its financial statements.
-63-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE-
------------------------------------------------
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information contained in the Proxy Statement under the caption
"Election of Directors" is incorporated herein by reference thereto.
See "Additional Information - Executive Officers of the Company" at the
end of Part I above for information about the executive officers of the
Company.
ITEM 11. EXECUTIVE COMPENSATION AND TRANSACTIONS
---------------------------------------
The information contained in the Proxy Statement under the caption
"Compensation of Executive Officers and Directors" is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
The information contained in the Proxy Statement under the caption
"Stock Ownership" is incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information contained in the Proxy Statement under the caption
"Stock Ownership" is reported herein by reference thereto.
-64-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
----------------------------------------------------
(a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
--------------------------------------------------------------
Statement of Consolidated Income--Years ended June 30, 1998, 1997 and
1996
Consolidated Balance Sheet--June 30, 1998 and 1997
Statement of Stockholders' Equity--Years ended June 30, 1998, 1997
and 1996
Statement of Consolidated Cash Flows--Years ended June 30, 1998, 1997
and 1996
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
Report of PricewaterhouseCoopers LLP
(b) Current Reports on Form 8-K
On September 23, 1998, the Company filed a Form 8-K/A2 amending Item
7 of the Form 8-K filed on April 16, 1997, and amended by Form 8-K/A1
on June 16, 1997, relating to the acquisition of Intabex.
-65-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K (continued)
----------------------------------------------------
(3)Exhibits
-----------
The following documents are filed as exhibits to this Form 10-K
pursuant to Item 601 of Regulation S-K:
3.01 Amended and Restated Articles of Incorporation of DIMON Incorporated
(incorporated by reference to Appendix VII to DIMON Incorporated's Joint
Proxy Statement filed pursuant to Rule 424(b) in connection with DIMON
Incorporated's Registration Statement on Form S-4 (file 33-89780))
3.02 Amended and Restated By-Laws, as amended, of DIMON Incorporated
(incorporated by reference to Exhibit 3.2 to DIMON Incorporated's
Registration Statement on Form S-4 (file 33-89780))
4.01 Specimen of Common Stock Certificate (incorporated herein by reference
to Exhibit 4.1 to DIMON Incorporated's Registration Statement on Form S-4
(file 33-89780))
4.02 Article III of the Amended and Restated Articles of Incorporation of DIMON
Incorporated (filed as Exhibit 3.01)
4.03 Article III of the Amended and Restated By-Laws of DIMON Incorporated
(filed as Exhibit 3.02)
4.04 Rights Agreement, dated as of March 31, 1995, between DIMON
Incorporated and First Union National Bank of North Carolina, as Rights
Agent (incorporated by reference to Exhibit 4 to DIMON Incorporated
Current Report on Form 8-K, dated April 1, 1995)
4.05 Indenture, dated May 29, 1996 among DIMON Incorporated as issuer,
DIMON International, Inc. and Florimex Worldwide, Inc. as guarantors
and Crestar Bank, as trustee (incorporated by reference to Exhibit 4.05 to
DIMON Incorporated's Annual Report on Form 10-K for the year ended
June 30, 1996)
10.01 DIMON Incorporated Omnibus Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.1 to DIMON Incorporated's Registration
Statement on Form S-4 (file No. 33-89780))
10.02 DIMON Incorporated Non-Employee Directors' Stock Option Plan
(incorporated herein by reference to Exhibit 10.2 to DIMON Incorporated's
Registration Statement on Form S-4 (file No. 33-89780))
10.03 Dibrell Brothers, Incorporated 1994 Omnibus Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 to Dibrell Brothers, Incorporated's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994)
-66-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K (continued)
----------------------------------------------------
(3) Exhibits (continued)
---------------
10.04 Form of Interpretive letter, dated January 11, 1995, under the Dibrell Brothers,
Incorporated 1994 Omnibus Stock Incentive Plan delivered by Dibrell Brothers,
Incorporated to Claude B. Owen, Jr., T. H. Faucett, T. W. Oakes, L. N. Dibrell, III
and H. P. Green (incorporated by reference to Exhibit 10.6 to Dibrell Brothers,
Incorporated's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
10.05 Dibrell Brothers, Incorporated Retirement Plan (Excess Benefit Plan)
(incorporated herein by reference to Exhibit 10.4 to Dibrell Brothers,
Incorporated's Annual Report on Form 10-K for the year ended June 30, 1987)
10.06 Dibrell Brothers, Incorporated Pension Equalization Plan (Benefit Assurance
Plan) (incorporated herein by reference to Exhibit 10.13 to Dibrell Brothers,
Incorporated's Annual Report on Form 10-K for the year ended June 30, 1991)
10.07 Long-Term Stock Investment Plan for Key Employees of Monk-Austin, Inc.
(incorporated by reference to Exhibit 10.5 of Monk-Austin, Inc.'s Registration
Statement on S-1 (File No. 33-51842))
10.08 Form of 1995 Declaration of Amendment to Long-Term Stock Investment
Plan for Key Employees of Monk-Austin, Inc. (incorporated herein by reference
to Exhibit 10.8 to DIMON Incorporated's Registration Statement on Form S-4
(File No. 33-89780))
10.09 Employment Agreement, dated October 18, 1994, between Monk-Austin
International, Inc. and Albert C. Monk, III (incorporated by reference to
Exhibit 10.1 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994)
10.10 Employment Agreement, dated as of December 21, 1994, effective as of
November 1, 1994, by and between Dibrell Brothers, Incorporated and
Claude B. Owen, Jr. (incorporated by reference to Exhibit 10.1 to Dibrell
Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
10.11 Employment Agreement, dated as of December 21, 1994, effective as of
November 1, 1994, by and between Dibrell Brothers, Incorporated and
L. N. Dibrell, III (incorporated by reference to Exhibit 10.1 to Dibrell
Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
-67-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K (continued)
----------------------------------------------------
(3) Exhibits (continued)
---------------
10.12 $500,000,000 Credit Agreement dated as of June 27, 1997 among the
Company, the lenders named therein, NationsBank, N.A. as administrative agent,
First Union National Bank, as documentation agent and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland," New York
Branch and Societe Generale as co-agents (the "Credit Agreement")
(incorporated by reference to Exhibit 10.1 to DIMON Incorporated's
Registration Statement on Form S-3 (No. 333-33267))
10.13 Amendment No. 1 dated May 6, 1998 to the $500,000,000
Credit Agreement dated as of June 27, 1997 among the company,
the lenders named therein, NationsBank, N.A. as administrative
agent, First Union National Bank, as documentation agent and
Cooperatieve Centrale Raiffaisen-Boerenleenbank B.A.,
"Rabobank Nederland," New York Branch and Societe Generale
as co-agents (incorporated by reference to Exhibit 10 to
DIMON Incorporated's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998)
10.14 Form of Note in connection with Credit Agreement (incorporated by
reference to Exhibit 10.2 to DIMON Incorporated's Registration
Statement on Form S-3 (No. 333-33267))
10.15 Stock Purchase Agreement, dated as of February 14, 1997, among
DIMON Incorporated, Intabex Holdings Worldwide S.A., Folium Inc.,
Leaf Management Investments Ltd. and Tabacalera S.A. (incorporated by
reference herein to Exhibit 10.1 to DIMON Incorporated's Current Report
on Form 8-K dated April 16, 1997)
10.16 Indenture, dated as of April 1, 1997, by DIMON Incorporated to LaSalle
National Bank, relating to 6 1/4% Convertible
Subordinated Debentures due March 31, 2007 (incorporated by reference
herein to Exhibit 10.2 to DIMON Incorporated's Current Report on
Form 8-K dated April 16, 1997)
10.17 Non-Competition Agreements, dated as of April 1, 1997, by and between
Intabex S.A. (Zug) and Folium Inc. (incorporated by reference herein to
Exhibit 10.3 and 10.7 to DIMON Incorporated's Current Report on
Form 8-K dated April 16, 1997)
10.18 Registration Rights Agreement, dated as of April 1, 1997, by and between
DIMON Incorporated, Tabacalera S.A., Folium Inc. and Leaf Management
Investments Ltd. (incorporated by reference herein to Exhibit 10.4 to
DIMON Incorporated's Current Report on Form 8-K dated April 16, 1997)
-68-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K (continued)
----------------------------------------------------
(3) Exhibits (continued)
---------------
10.19 Consulting Agreement, dated April 1, 1997, by and between Intabex S.A.
(Zug) and Anthony C.B. Taberer (incorporated by reference herein to
Exhibit 10.5) to DIMON Incorporated's Current Report on Form 8-K dated
April 16, 1997)
10.20 Asset Purchase Agreement, dated as of February 14, 1997, by and between
Dibrell Brothers Zimbabwe (Private) Limited and Tabex (Private) Limited
(incorporated by reference herein to Exhibit 10.6 to DIMON Incorporated's
Current Report on Form 8-K dated April 16, 1997)
10.21 Employment Agreement dated January 3, 1997, with Brian J. Harker
(incorporated by reference to Exhibit 10 to DIMON Incorporated's
Quarterly Report on Form 10-Q dated February 14, 1997)
10.22 Amended DIMON Incorporated Supplemental Retirement
Plan dated July 30, 1998 and effective January 1, 1997
(filed herewith)
10.23 Stock and Asset Purchase Agreement between DIMON Incorporated,
Florimex Worldwide GmbH and U.S.A. Floral Products, Inc.,
Dated August 12, 1998 (filed herewith)
21 List of Subsidiaries (filed herewith)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith)
27 Financial Data Schedule (filed herewith)
(d) Financial Statement Schedules:
Schedule II, Valuation and Qualifying Accounts, appears on the following
pages. The consolidated financial statement schedules listed in Item
14(a) appear on the following pages. All other schedules for which
provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are not applicable and, therefore, have been omitted.
-69-
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
DIMON INCORPORATED AND SUBSIDIARIES
PERIODS ENDED JUNE 30
_________________________________________________________________________________________________________________________________
: COL. A : COL. B : COL. C : COL. D : COL. E :
: : : ADDITIONS : : :
: : Balance at : (1) : (2) : : Balance at :
: DESCRIPTION : Beginning : Charged to : Charged to : Deductions : End of :
: : of Period : Costs : Other Accounts : -Describe : Period :
: : : and : -Describe : : :
: : : Expenses : : : :
:__________________________________:___________________:_________________:____________________:________________:________________:
Year ended June 30, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 8,823,339 $1,042,911(B) $ - $3,308,099(A) $ 6,558,151
Other Investments (616,861) - 616,861 - -
___________ __________ ___________ __________ ___________
Total $ 8,206,478 $1,042,911 $ 616,861(A) $3,308,099 $ 6,558,151
=========== ========== =========== ========== ==========
Year ended June 30, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $ 6,558,151 $ 88,892(B) $ - $ 744,744(A) $ 5,902,299
Other investments - - - - -
___________ __________ ____________ __________ ___________
Total $ 6,558,151 $ 88,892 $ - $ 744,744 $ 5,902,299
=========== ========== =========== ========== ===========
Year ended June 30, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 5,902,299 $ 5,604 $ - $3,108,682(C) $ 2,799,221
Other Investments - - - - -
___________ __________ ___________ __________ ___________
Total $ 5,902,299 $ 5,604 $ - $3,108,682 $ 2,799,221
=========== ========== =========== ========== ===========
(A) CURRENCY TRANSLATION AND DIRECT WRITE-OFF.
(B) INCLUDING DISCONTINUED OPERATING.
(C) CURRENCY TRANSLATION AND DIRECT WRITE-OFF, NET OF DISCONTINUED OPERATIONS.
-70-
Report of Independent Accountants
To the Board of Directors and Shareholders of DIMON Incorporated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of DIMON Incorporated and its subsidiaries at June
30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
September 3, 1998
-71-
Report of Independent Accountants
on Financial Statement Schedule
To the Board of Directors of DIMON Incorporated
Our audits of the consolidated financial statements referred to in our
report dated September 3, 1998 appearing in this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed
in Item 14(a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
September 3, 1998
-72-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on September 22, 1998.
DIMON INCORPORATED (Registrant) /s/ Claude B. Owen, Jr.
By _____________________________________
Claude B. Owen, Jr.
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on September 22, 1998.
/s/ Claude B. Owen, Jr. /s/ Norman A. Scher
__________________________________ __________________________________
Claude B. Owen, Jr. Norman A. Scher
Chairman of the Board and Director of DIMON Incorporated
Chief Executive Officer of DIMON
Incorporated
/s/ Henry F. Frigon
/s/ Joseph L. Lanier, Jr. ____________________________________
__________________________________ Henry F. Frigon
Joseph L. Lanier, Jr. Director of DIMON Incorporated
Director of DIMON Incorporated
/s/ John M. Hines
/s/ Louis N. Dibrell, III ____________________________________
__________________________________ John M. Hines
Louis N. Dibrell, III Director of DIMON Incorporated
Director of DIMON Incorporated
/s/ R. Stuart Dickson
/s/ Albert C. Monk III ____________________________________
__________________________________ R. Stuart Dickson
Albert C. Monk III Director of DIMON Incorporated
Director and President of DIMON
Incorporated
/s/ William R. Slee
/s/ Robert T. Monk, Jr. ___________________________________
__________________________________ William R. Slee
Robert T. Monk, Jr. Director of DIMON Incorporated
Director of DIMON Incorporated
/s/ Thomas F. Keller ___________________________________
__________________________________ Anthony C. B. Taberer
Thomas F. Keller Director of DIMON Incorporated
Director of DIMON Incorporated
/s/ Jerry L. Parker
___________________________________
/s/ James E. Johnson, Jr. Jerry L. Parker
__________________________________ Senior Vice President-Controller
(Principal Accounting Officer) of DIMON
James E. Johnson, Jr. Incorporated
Director of DIMON Incorporated
-73-
EXHIBIT INDEX
-------------
Exhibit Page No.
------- --------
3.01 Amended and Restated Articles of Incorporation of
DIMON Incorporated (incorporated by reference to
Appendix VII to DIMON Incorporated's Joint
Proxy Statement filed pursuant to Rule 424(b) in
connection with DIMON Incorporated's Registration
Statement on Form S-4 (file 33-89780))
3.02 Amended and Restated By-Laws, as amended, of
DIMON Incorporated (incorporated by reference to
Exhibit 3.2 to DIMON Incorporated's
Registration Statement on Form S-4 (file 33-89780))
4.01 Specimen of Common Stock Certificate (incorporated
herein by reference to Exhibit 4.1 to DIMON Incorporated's
Registration Statement on Form S-4 (file 33-89780))
4.02 Article III of the Amended and Restated Articles of
Incorporation of DIMON Incorporated
(filed as Exhibit 3.01)
4.03 Article III of the Amended and Restated By-Laws
of DIMON Incorporated (filed as Exhibit 3.02)
4.04 Rights Agreement, dated as of March 31, 1995,
between DIMON Incorporated and First Union National
Bank of North Carolina, as Rights Agent (incorporated
by reference to Exhibit 4 to DIMON Incorporated
Current Report on Form 8-K, dated April 1, 1995)
4.05 Indenture, dated May 29, 1996 among DIMON
Incorporated as issuer, DIMON International, Inc. and
Florimex Worldwide, Inc. as guarantors and Crestar
Bank, as trustee (incorporated by reference to Exhibit
4.05 to DIMON Incorporated's Annual Report on
Form 10-K for the year ended June 30, 1996)
10.01 DIMON Incorporated Omnibus Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to
DIMON Incorporated's Registration
Statement on Form S-4 (file No. 33-89780))
10.02 DIMON Incorporated Non-Employee Directors'
Stock Option Plan (incorporated herein by reference
to Exhibit 10.2 to DIMON Incorporated's
Registration Statement on Form S-4
(file No. 33-89780))
-74-
EXHIBIT INDEX
-------------
Exhibit Page No.
------- --------
10.03 Dibrell Brothers, Incorporated 1994 Omnibus Stock
Incentive Plan (incorporated by reference to Exhibit 10.6
to Dibrell Brothers, Incorporated's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994)
10.04 Form of Interpretive letter, dated January 11, 1995, under
the Dibrell Brothers, Incorporated 1994 Omnibus Stock
Incentive Plan delivered by Dibrell Brothers, Incorporated
to Claude B. Owen, Jr., T. H. Faucett, T. W. Oakes,
L. N. Dibrell, III and H. P. Green (incorporated by reference
to Exhibit 10.6 to Dibrell Brothers, Incorporated's Quarterly
Report on Form 10-Q for the quarter ended
December 31, 1994)
10.05 Dibrell Brothers, Incorporated Retirement Plan (Excess
Benefit Plan) (incorporated herein by reference to Exhibit
10.4 to Dibrell Brothers, Incorporated's Annual Report on
Form 10-K for the year ended June 30, 1987)
10.06 Dibrell Brothers, Incorporated Pension Equalization Plan
(Benefit Assurance Plan) (incorporated herein by reference
to Exhibit 10.13 to Dibrell Brothers, Incorporated's Annual
Report on Form 10-K for the year ended June 30, 1991)
10.07 Long-Term Stock Investment Plan for Key Employees of
Monk-Austin, Inc. (incorporated by reference to
Exhibit 10.5 of Monk-Austin, Inc.'s Registration
Statement on S-1 (File No. 33-51842))
10.08 Form of 1995 Declaration of Amendment to Long-Term
Stock Investment Plan for Key Employees of
Monk-Austin, Inc. (incorporated herein by reference
to Exhibit 10.8 to DIMON Incorporated's Registration
Statement on Form S-4 (File No. 33-89780))
10.09 Employment Agreement, dated October 18, 1994,
between Monk-Austin International, Inc. and
Albert C. Monk, III (incorporated by reference to
Exhibit 10.1 to Monk-Austin, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended
December 31, 1994)
-75-
EXHIBIT INDEX
-------------
Exhibit Page No.
------- --------
10.10 Employment Agreement, dated as of December 21, 1994,
effective as of November 1, 1994, by and between Dibrell
Brothers, Incorporated and Claude B. Owen, Jr.
(incorporated by reference to Exhibit 10.1 to Dibrell
Brothers, Incorporated's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1994)
10.11 Employment Agreement, dated as of December 21,
1994, effective as of November 1, 1994, by and
between Dibrell Brothers, Incorporated and
L. N. Dibrell, III (incorporated by reference to
Exhibit 10.1 to Dibrell Brothers, Incorporated's
Quarterly Report on Form 10-Q for the quarter
ended December 31, 1994)
10.12 $500,000,000 Credit Agreement dated as of
June 27, 1997 among the Company, the lenders named
therein, NationsBank, N.A. as administrative agent, First
Union National Bank, as documentation agent and
Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland," New York Branch and
Societe Generale as co-agents (the "Credit Agreement")
(incorporated by reference to Exhibit 10.1 to DIMON
Incorporated's Registration Statement on Form S-3
(No. 333-33267))
10.13 Amendment No. 1 dated May 6, 1998 to the $500,000,000
Credit Agreement dated as of June 27, 1997 among the company,
the lenders named therein, NationsBank, N.A. as administrative
agent, First Union National Bank, as documentation agent and
Cooperatieve Centrale Raiffaisen-Boerenleenbank B.A.,
"Rabobank Nederland," New York Branch and Societe Generale
as co-agents (incorporated by reference to Exhibit 10 to
DIMON Incorporated's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998)
10.14 Form of Note in connection with Credit Agreement
(incorporated by reference to Exhibit 10.2 to DIMON
Incorporated's Registration Statement on Form S-3
(No. 333-33267))
10.15 Stock Purchase Agreement, dated as of
February 14, 1997, among DIMON Incorporated,
Intabex Holdings Worldwide S.A., Folium Inc.,
Leaf Management Investments Ltd. and
Tabacalera S.A. (incorporated by reference herein
to Exhibit 10.1 to DIMON Incorporated's
Current Report on Form 8-K dated
April 16, 1997)
-76-
EXHIBIT INDEX
-------------
Exhibit Page No.
------- --------
10.16 Indenture, dated as of April 1, 1997, by DIMON
Incorporated to LaSalle National Bank, relating to
6 1/4% Convertible Subordinated Debentures due
March 31, 2007 (incorporated by reference herein
to Exhibit 10.2 to DIMON Incorporated's Current
Report on Form 8-K dated April 16, 1997)
10.17 Non-Competition Agreements, dated as of
April 1, 1997, by and between Intabex S.A. (Zug)
and Folium Inc. (incorporated by reference herein
to Exhibit 10.3 and 10.7 to DIMON Incorporated's
Current Report on Form 8-K dated April 16, 1997)
10.18 Registration Rights Agreement, dated as of
April 1, 1997, by and between DIMON Incorporated,
Tabacalera S.A., Folium Inc. and Leaf Management
Investments Ltd. (incorporated by reference herein
to Exhibit 10.4 to DIMON Incorporated's Current
Report on Form 8-K dated April 16, 1997)
10.19 Consulting Agreement, dated April 1, 1997, by
and between Intabex S.A. (Zug) and Anthony
C.B. Taberer (incorporated by reference herein to
Exhibit 10.5 to DIMON Incorporated's Current
Report on Form 8-K dated April 16, 1997)
10.20 Asset Purchase Agreement, dated as of
February 14, 1997, by and between Dibrell Brothers
Zimbabwe (Private) Limited and Tabex (Private)
Limited (incorporated by reference herein to
Exhibit 10.6 to DIMON Incorporated's Current
Report on Form 8-K dated April 16, 1997)
10.21 Employment Agreement dated January 3, 1997,
with Brian J. Harker (incorporated by reference to
Exhibit 10 to DIMON Incorporated's Quarterly
Report on Form 10-Q dated February 14, 1997)
10.22 Amended DIMON Incorporated Supplemental Retirement 79 - 100
Plan dated July 30, 1998 and effective January 1, 1997
(filed herewith)
-77-
EXHIBIT INDEX
Exhibit Page No.
10.23 Stock and Asset Purchase Agreement between DIMON 101 - 141
Incorporated, Florimex Worldwide GmbH and U.S.A.
Floral Products, Inc., Dated August 12, 1998
(filed herewith)
21 List of Subsidiaries (filed herewith) 142
23.1 Consent of PricewaterhouseCoopers LLP 143
(filed herewith)
23.2 Consent of PricewaterhouseCoopers LLP 144
(filed herewith)
27 Financial Data Schedule (filed herewith) 145
-78-