Back to GetFilings.com
Page 1 of 255
Exhibit Index
on Page 63 through 67
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, 1999
_____ 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:
Title of Each Class Name of Exchange On Which Registered
Common Stock (no par value) New York Stock Exchange
Common Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90
days.
Yes.....X...... No...........
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [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 September 20, 1999, was
approximately $169,461,000. 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 September 20, 1999, there were 44,525,004 shares of Common
Stock outstanding.
Portions of the registrant's definitive Proxy Statement for
its 1999 Annual Meeting of Stockholders to be held November 12,
1999, 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
--------
THE COMPANY
-----------
DIMON Incorporated (the "Company") is the second largest
independent leaf tobacco merchant in the world. The Company was
formed through the April 1, 1995 merger of Dibrell Brothers,
Incorporated (established in 1873) and Monk-Austin, Inc.
(established in 1907). Effective April 1, 1997, the Company
acquired Intabex Holdings Worldwide S.A. ("Intabex"), then the
world's fourth largest independent leaf tobacco merchant.
Previously, the Company was also engaged in the fresh-cut flower
industry through its wholly-owned Florimex subsidiary. Florimex
was sold effective September 30, 1998 and the results of its
operations, together with the gain on disposal, are treated as
discontinued in the Company's Consolidated Financial Statements.
BUSINESS DESCRIPTION
--------------------
Product
-------
The world's large multinational cigarette manufacturers, with one
exception, rely primarily 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. The Company's
revenues primarily comprise sales of processed tobacco and fees
charged for related services to manufacturers of tobacco products
around the world. The Company does not manufacture cigarettes or
other consumer tobacco products.
The Company deals primarily in flue-cured, burley, and oriental
tobaccos that are used in international brand cigarettes.
International brand cigarettes have gained market share in several
major foreign markets including Asia (particularly the Pacific
Rim), Europe and the Middle East in recent years. International
brand 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,
international brand cigarettes represented 48% of worldwide
cigarette consumption (excluding China) in 1990, compared to 54% in
1998. As international brand cigarettes have continued to gain
global market share, the demand for export quality flue-cured,
burley and oriental tobacco sourced and processed by the Company
and its competitors has grown accordingly.
Several of the large multinational cigarette manufacturers have
expanded their operations throughout the world, particularly in
Asia, 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 by improving local
agronomic practices.
Through its wholly-owned subsidiary, Compania General de Tabacos de
Filipinas S.A. ("CdF"), the Company is also a leading
international dealer in dark tobaccos, typically used for cigars
and smokeless tobacco products.
- -2-
Markets, Customers and Selling Arrangements
-------------------------------------------
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 the Company's customers individually account for a significant
portion of the Company sales in a normal year. In addition, some
of our customers have begun to consolidate their operations, which
may increase the company's reliance on fewer customers. The loss
of any one or more of such customers could have a materially
adverse effect on the tobacco business of the Company.
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 1999,
1998, and 1997 sales and other operating revenues, approximately
29%, 32%, and 42%, 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. or R. J. Reynolds
Tobacco Company, Inc., each of which contributed in excess of 10%
of total sales. No other customer accounts for more than 10% of
the Company's sales. The Company generally has maintained
relationships with its customers for over forty years. In fiscal
1999, the Company delivered approximately 30% 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.
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 1999, 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 approximately $27.5 million from fiscal 1998. 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.
Recent economic problems in Asia and the former Soviet Union have
had an impact on the Company. Weakness in local currencies made it
difficult for the Company's customers in these regions to translate
local currency sales into U.S. dollar purchases of leaf tobacco,
causing shipping delays during much of fiscal 1999. Also, as
disposable income declined, consumers in these regions tended to
trade down from international brand cigarettes to cheaper, lower
quality alternatives.
However, the Company believes that its reduced sales and profit
margins represent a temporary adjustment in world leaf demand. The
Company has taken steps that may mitigate the effect of current
market conditions. In March 1999, the Company announced the
closure of its Kinston, North Carolina processing facility and the
substantial reorganization of its North American operations. To
further improve the operating efficiency of its Brazilian
operations, the Company sold one of three production facilities in
August 1999. This action, together with other global cost
efficiency initiatives implemented during fiscal year 1999, are
expected to provide more than $25 million in annual operating cost
savings. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Factors That May Affect
Future Results."
As of June 30, 1999, the Company's consolidated entities had
tobacco inventories of $417.6 million and had significant
commitments or indications from customers for purchases of tobacco.
The Company expects to deliver substantially all of the June 30,
1999 orders in fiscal 2000. 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 approximately 90% 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.
- -3-
The Company has entered into agreements with R. J. Reynolds Tobacco
Company and Lorillard Tobacco Company to purchase and process their
entire domestic auction market tobacco requirements. Generally,
the agreements establish a 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. Other than these contracts, 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.
Most 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.
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, Tanzania
and Thailand. The Company has historically contracted with third
parties for the processing of tobacco in certain countries
including Canada, Chile, China, Congo, Guatemala, India, Spain 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.
The Company purchases tobacco in 31 countries. Although a
significant portion 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 1999, approximately 44% of the dollar
value of tobacco purchased by the Company was purchased in the U.S.
Approximately 12%, 9% and 4% of the dollar value of tobacco
purchased by the Company during fiscal 1999 was purchased in
Brazil, Zimbabwe and Malawi, respectively.
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 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 the United States, there
has been speculation in the industry about the possibility of
purchasing tobacco under contract directly from growers rather than
through the auction system. The Company is not aware of any
significant effort to do so and is unable to predict whether or the
extent to which such a change in purchasing methods may occur or
the effect that it would have on the Company's business.
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,
- -4-
local 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.
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. 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 domestic
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 costs that may be significant to gross profit.
The Company's dark tobacco operation, CdF, maintains its
administrative and sales headquarters in Barcelona and has
operations in the major dark tobacco producing countries including
Colombia, the Dominican Republic, Indonesia, Northern Brazil,
Paraguay, and the Philippines.
Seasonality and Working Capital Practices
-----------------------------------------
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.
-5-
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.
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, shipping, 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.
At the present time, there are three major global leaf tobacco
dealers, including the Company. The Company's principal
competitors are Universal Corporation ("Universal") and Standard
Commercial Corporation. The Company believes that it has a global
market share of 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, Guatemala, Malawi, Mexico, Spain, Turkey, the U.S. and
Zimbabwe as well as other countries. Universal's market share in
the U.S. and Africa is considerably greater than that of the
Company.
Research and Development
------------------------
The Company routinely cooperates with both its customers and the
manufacturers of the equipment used in its processing facilities to
improve processing technologies. However, no material amounts are
expended for research and development, and the Company holds no
material patents, licenses, franchises, or concessions.
Employees
---------
The Company's consolidated entities employed about 3,200 persons,
excluding seasonal employees, in its worldwide operations at June
30, 1999. In the U.S. operations, the Company's consolidated
entities employed about 540 employees at June 30, 1999. 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. operations, the
Company's consolidated entities employed about 2,660 persons,
excluding 8,600 seasonal employees at June 30, 1999. The Company
considers its employee relations to be satisfactory.
Government Regulation and Environmental Compliance
--------------------------------------------------
See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations - Factors That May Affect Future
Results" for a discussion of government regulation and
environmental compliance.
Financial Information About Industry Segments, Foreign And
----------------------------------------------------------
Domestic Operations, And Export Sales
-------------------------------------
The Company is principally engaged in the tobacco business: the
purchasing, processing, selling and storing of leaf tobacco.
Financial information concerning the Company's reporting is
included in Note O to the Notes to Consolidated Financial
Statements. Information with respect to the Company's working
capital appears in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
- -6-
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.
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 operations:
AREA IN
LOCATION USE SQUARE FEET
_________________________________________________________
UNITED STATES
_________________
DANVILLE, VA. FACTORY/STORAGE 1,891,000
GREENVILLE, N.C. STORAGE 745,000
FARMVILLE, N.C. FACTORY/STORAGE 1,020,000
LAKE CITY, S.C. STORAGE 252,000
ROCKY MOUNT, N.C. FACTORY/STORAGE 239,000
SOUTH AMERICA
_________________
VERA CRUZ, BRAZIL FACTORY/STORAGE 1,364,000
SANTA CRUZ, BRAZIL FACTORY/STORAGE 1,396,000
VENANCIO AIRES, BRAZIL FACTORY/STORAGE 1,250,000
AFRICA
_________________
LILONGWE, MALAWI FACTORY/STORAGE 809,000
HARARE, ZIMBABWE FACTORY/STORAGE 1,080,000
MOROGORO, TANZANIA FACTORY/STORAGE 602,000
EUROPE
_________________
KARLSRUHE, GERMANY FACTORY/STORAGE 404,000
THESSALONIKI, GREECE FACTORY/STORAGE 197,000
SPARANISE, ITALY FACTORY/STORAGE 466,000
IZMIR, TURKEY FACTORY(2)/STORAGE 839,000
ASIA
_________________
LAMPHUN, THAILAND FACTORY/STORAGE 181,000
- -7-
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. As described below, contractual
purchase price reduction mechanisms have resulted in total
reductions of $75.9 million, for a net purchase price of $188.29
million.
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 to 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 one of the sellers,
Folium, Inc., of $7.3 million in April 1998.
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.
Following its analysis of post-closing adjustments, DIMON asserted
claims for indemnification for the full amount of the Set-Off
Debentures. The purchase agreements generally required that DIMON
assert such claims by September 30, 1998, the anticipated
completion of DIMON's second full audit cycle after the
acquisition. Consequently, on September 22, 1998, DIMON filed an
action in the United States District Court for the Southern
District of New York to enforce its right to indemnity.
On May 24, 1999, DIMON settled the above mentioned action. As part
of the settlement, $50 million of the Set-Off Debentures were
cancelled, and DIMON dismissed all of its claims in the action.
DIMON continues to have a right of set-off against the final $10
million in Set-Off Debentures until April 1, 2001, decreasing to $5
million in Set-off Debentures until April 1, 2002, to satisfy
certain additional claims for indemnification that it may discover.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
- -8-
ADDITIONAL INFORMATION - EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of all executive officers of the Company, as of
June 30, 1999, are set forth below. Executive officers serve at
the pleasure of the Board of Directors and are elected at each
annual organizational meeting of the Board.
NAME AGE POSITION
____________________________________________________________________________
Brian J. Harker 49 President and Chief Executive Officer since
May 1999; prior thereto President of
DIMON Incorporated since March 1999; prior
thereto Executive Vice President and Chief
Financial Officer since October 1, 1996; prior
thereto Senior Vice President of
DIMON International, Inc.
Albert C. Monk III 59 Vice Chairman of the Board since March 1999;
prior thereto President of the Company
since 1994.
James A. Cooley 48 Senior Vice President-Chief Financial Officer
since February 1999; prior thereto Senior Vice
President-Treasurer since September 1997; prior
thereto Vice President-Treasurer.
Larry R. Corbett 53 Senior Vice President-Regional Executive North
America/Asia since March, 1999; prior
thereto Senior Vice President-Regional Executive
North America since March, 1998; prior thereto
Senior Vice President North American Region,
DIMON International.
Steve B. Daniels 41 Senior Vice President-Regional Executive Latin
America/Africa since March, 1999; prior
thereto Senior Vice President-Regional Executive
Latin America since March 1998; prior thereto
Senior Vice President Brazil/South America Region,
DIMON International.
Richard D. O'Reilly 50 Senior Vice President-Human Resources since May
1995; prior thereto Vice President-Human Resources
Sweetheart Corporation, Chicago, Illinois.
- -9-
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 1999
Fourth Quarter...........$ 6.50 $ 3.25 $.05
Third Quarter............ 7.94 3.81 .09
Second Quarter........... 13.50 6.56 .09
First Quarter............ 12.31 8.69 .17
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
As of June 30, 1999, there were 5,729 shareholders, including
approximately 4,557 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."
- -10-
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
FIVE-YEAR FINANCIAL STATISTICS
DIMON Incorporated and Subsidiaries
Years Ended June 30
(in thousands, except per share amounts____________________________________________________________________________
and number of stockholders) 1999 1998 1997** 1996 1995
===================================================================================================================
Summary of Operations
Sales and other operating revenues $1,815,223 $2,171,803 $2,125,739 $1,770,166 $1,555,258
Restructuring, asset impairment and
merger costs........................... 25,932 - 3,864 15,858 25,214
Income (loss) before income (loss)
from discontinued operations
and extraordinary item................ (28,378) 41,829 72,568 37,120 (23,455)
Income (loss) from discontinued
operations, net of income taxes....... 22,912 1,820 4,605 2,750 (6,710)
Extraordinary item:
Partial recovery on Iraqi
receivable, net of income tax.......... - - - 1,400 -
___________________________________________________________________________________________________________________
Net Income (Loss)........................ (5,466) 43,649 77,173 41,270 (30,165)
___________________________________________________________________________________________________________________
Per Share Statistics
Basic Earnings Per Share:
Income (loss) before income (loss)
from discontinued operations
and extraordinary item................ $ (.63) $ .94 $ 1.69 $ .93 $ (.61)
Net income (loss)...................... (.12) .98 1.80 1.04 (.79)
Diluted Earnings Per Share:
Income (loss) before income (loss)
from discontinued operations
and extraordinary item................ (.63)* .94* 1.67 .92 *
Net income............................. (.12)* .98* 1.77 1.01 *
Dividends paid........................... .40 .66 .585 .54 .535
Book value............................... 8.91 9.48 9.21 7.46 6.27
___________________________________________________________________________________________________________________
Balance Sheet Data
Working capital.......................... $ 443,602 $ 706,384 $ 699,993 $ 422,342 $ 277,597
Total assets............................. 1,471,290 1,797,478 1,987,603 1,020,014 1,093,608
Revolving Credit Notes and
Other Long-Term Debt................... 458,180 673,699 702,826 390,871 292,528
Convertible Subordinated Debentures 73,328 123,328 123,328 - 56,370
Stockholders' equity..................... 396,539 421,930 408,263 315,848 238,806
___________________________________________________________________________________________________________________
Other Statistics
Common shares outstanding
at year end............................ 44,525 44,525 44,312 42,366 38,092
Number of stockholders
at year end (1)........................ 5,729 4,576 4,357 4,596 4,249
___________________________________________________________________________________________________________________
* Computation of loss per share is antidilutive for the year 1995. For 1998 and 1999, 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)Includes the number of Stockholders of record and non-objecting beneficial owners.
- -11-
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.
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.
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, 1999.
In fiscal 1995, the Company initiated a restructuring plan 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 March 22, 1999, the Company announced that it planned to close
its tobacco processing plant in Kinston, North Carolina, reduce
staffing at its processing facility in Farmville, North Carolina,
and substantially downsize its leaf tobacco buying department in
the United States. These actions are the result of smaller tobacco
crops anticipated in 1999 and beyond. The Company also planned to
close a processing facility and sales office in Brazil and a
processing facility in Germany. As of June 30, 1999, the Company
has recognized $25.9 million in pre-tax charges related to this
restructuring and asset impairment, of which approximately $20.8
million is non-cash.
During the year ended June 30, 1999, the Company severed
approximately 200 employees, primarily in the United States, and
expensed $5.1 million for severance costs. As of June 30, 1999,
severance paid out totaled $1.1 million. Cash outlays for
severance to be paid out in fiscal 2000 are approximately
$3.7 million.
Asset writedowns incurred during the year in connection with the
restructuring included a charge of $10.7 million associated with
the closing and planned disposal of property, plant and equipment
in the facilities mentioned above.
In addition, global overcapacity of tobacco caused management to
believe that certain assets should be analyzed for impairment. The
analysis, based on undiscounted cash flows, resulted in an
impairment writedown of $10.1 million for assets which have been
identified as available-for-sale by the Company in
- -12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," (SFAS 121). In accordance
with SFAS 121, when an impairment writedown is required, the
related assets are adjusted to their estimated fair value. In
determining fair value, the Company considered the range of
preliminary purchase prices being discussed with potential buyers
as well as third-party appraisals.
The estimated market value of the assets written down as part of
the restructuring and asset impairment costs, consisting primarily
of buildings and machinery and equipment, is approximately $24.2
million.
Results of Operations
---------------------
The following table expresses items in the Statements of
Consolidated Income and Comprehensive Income as a percentage of
sales for each of the three most recent years. Any reference in
the table and the following discussion to any given year is a
reference to the Company's fiscal year ended June 30.
Years Ended
June 30
__________________________________
1999 1998 1997*
==================================
Sales and other operating revenues............. 100.0% 100.0% 100.0%
Cost of goods and services and expenses........ 91.4 88.0 87.1
Selling, administrative and general expenses... 6.5 5.5 4.8
Restructuring and asset impairment costs....... 1.4 - .2
Recovery from litigation settlement............ (.9) - -
__________________________________
Operating income............................... 1.6 6.5 7.9
Interest expense............................... (3.6) (3.9) (2.4)
__________________________________
Income (loss) from continuing operations
before income taxes and income from
discontinued operations...................... (2.0) 2.6 5.5
Income taxes................................... .5 (.7) (2.1)
Income from discontinued operations............ 1.2 .1 .2
__________________________________
Net income..................................... (.3) 2.0 3.6
==================================
* Restated for discontinued operations.
- -13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Comparison of the Year Ended June 30, 1999 to the Year
Ended June 30, 1998
------------------------------------------------------
The Company's sales and other operating revenues were $1.815
billion, a decrease of 16.4% from $2.172 billion in 1998 primarily
due to lower quantities of foreign and U.S. grown tobaccos, lower
prices of U.S. and foreign grown tobaccos and lower service and
processing revenues in both U.S. and foreign operations. The lower
quantities and lower average prices are both results of a worldwide
oversupply of tobacco. Quantities of U.S. grown tobacco decreased
7.5% from 1998 and quantities of foreign grown tobacco decreased
9.1% from 1998. The changes in quantities accounted for decreases
of $56.6 million and $99.5 million respectively. The decreased
quantities of foreign grown tobaccos were primarily a result of
decreased volumes in Europe and South America, partially offset by
higher volumes of African grown tobacco. Average prices of U.S.
grown tobacco declined 2.0% and average prices of foreign tobacco
declined 9.0%. The impact of the change in U.S. prices was $14.0
million and the impact of the change in prices of foreign grown
tobacco was $126.2 million. Prices of foreign grown tobacco have
also decreased due to declines in the purchase price of tobacco.
Decreases in service and processing revenue accounted for a
decrease of $26.9 million on foreign operations and $21.8 million
on U.S. operations. Foreign service and processing revenues
decreased primarily due to lower fertilizer sales to farmers. The
decrease in U.S. service and processing revenue was primarily due
to lower volumes processed for the U.S. stabilization program.
Other decreases in operating revenues from 1998 to 1999 are related
to items such as interest income, gain on the sale of investments,
and recovery of tax and license items.
The cost of sales and expenses decreased $256 million or 12.6% from
$2.032 billion in 1998 to $1.776 billion in 1999. Most of the
decrease is the direct result of lower volumes sold and lower
average prices. In fiscal 1999, the Company's gross profit on
sales to three of its larger customers was down approximately $27.5
million from fiscal 1998. Operating margin, as a percentage of
sales, before restructuring and asset impairment costs and recovery
from litigation settlement, decreased from 6.5% in 1998 to 2.1% in
1999. The erosion in margins from 1998 to 1999 was primarily the
result of liquidation of old crop tobaccos during a period of
depressed market prices.
Restructuring and asset impairment costs were $25.9 million in
1999. These costs included $20.8 million related to facilities and
$5.1 million for personnel related costs.
Interest expense for 1999 decreased $17.7 million from $83.8
million in 1998 to $66.1 million in 1999 of which $16.3 million was
due to lower borrowings and $1.4 million was due to lower average
rates.
The effective tax rate for 1999 was 23.9% compared to 26.3% in 1998
primarily due to changes in the distribution of taxable income
between taxing jurisdictions.
- -14-
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 is
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 was 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 asset impairment 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 $3 million pre-tax charge in connection
with the reorganization of the Company's German flower operations.
- -15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Liquidity and Capital Resources
-------------------------------
The following table is a summary of items from the Consolidated
Balance Sheet and the Statement of Consolidated Cash Flows.
Years Ended June 30
_______________________________________
(in thousands, except for current ratio) 1999 1998 1997*
_________________________________________________________________________________
Cash and cash equivalents.................$ 21,451 $ 18,729 $ 107,131
Net trade receivables..................... 295,593 319,295 396,156
Inventories and advances on
purchases of tobacco.................... 571,534 804,817 835,626
Total current assets...................... 922,500 1,208,890 1,371,479
Notes payable to banks.................... 297,376 282,470 350,263
Accounts payable.......................... 94,169 96,483 143,927
Total current liabilities................. 478,898 502,506 671,486
Current ratio............................. 1.9 to 1 2.4 to 1 2.0 to 1
Revolving Credit Notes and Other
Long-Term Debt.......................... 333,180 548,699 577,826
Convertible Subordinated Debentures....... 73,328 123,328 123,328
Senior Notes.............................. 125,000 125,000 125,000
Stockholders' equity...................... 396,539 421,930 408,263
Purchase of property and equipment........ 32,156 61,168 60,860
Acquisition of subsidiary,
net of cash acquired.................... - - 6,382
Proceeds from sale of property
and equipment........................... 3,843 24,597 8,853
Depreciation and amortization............. 45,141 43,476 37,191
_______________________________________
* 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. The Company also prefinances tobacco crops in
certain foreign countries including Argentina, Brazil, Dominican
Republic and Indonesia by making cash advances to farmers prior to
and during the growing season.
The Company's working capital decreased from $706 million at June
30, 1998, to $444 million at June 30, 1999. The Company's current
ratio was 1.9 to 1 and 2.4 to 1 at June 30, 1999 and June 30, 1998,
respectively. At June 30, 1999, current assets had decreased
$286.4 million and current liabilities had decreased $23.6 million
from June 30, 1998. The $286.4 million decrease in current assets
is primarily due to the $233.3 million decrease in inventories and
advances on purchases of tobacco and a $56.6 million combined
decrease in net trade receivables and net assets of discontinued
operations. The $23.6 million decrease in current liabilities is
primarily due to a $39.8 million combined decrease in advances from
customers, accounts payable and accrued expenses, partially offset
by a $14.9 million increase in notes payable to banks. The
decrease in inventories and advances on purchases of tobacco is the
result of the Company's efforts to liquidate inventories in order
to de-leverage its balance sheet.
- -16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Liquidity and Capital Resources (continued)
-------------------------------
Cash flows from operating activities increased to $181.5 million in
1999 as compared to $57.3 million in 1998 and $25.3 million in
1997. The increases in cash flows provided by operating activities
in 1999 over 1998 were due to changes in current assets and
liabilities, primarily the decrease in inventories and advances to
suppliers, partially offset by the decrease in net income. The
increase in 1998 over 1997 was primarily due to fluctuations in
current assets and liabilities, offset partially by the change in
net income. Cash flows provided by investing activities increased
to $43.7 million in 1999 as compared to a usage of $37.1 million in
1998 and a usage of $43.2 million in 1997. The increased cash from
investing activities in 1999 compared to 1998 is primarily due to
proceeds from the sale of property and equipment of discontinued
operations, proceeds from subsidiary sales and lower purchases of
property and equipment, offset partially by lower proceeds from the
sale of property and equipment. The decrease in usage of cash for
investing activities in 1998 compared to 1997 is primarily due to
proceeds from the sale of property and equipment. In 1999, $220.0
million was used by financing activities compared to $108.3 million
used in 1998 and $71.1 million provided in 1997. The increased use
by financing activities in 1999 over 1998 is primarily due to net
debt repayments. The increased use by financing activities in 1998
over 1997 is primarily due to net debt repayments in 1998 compared
to net additional borrowings in 1997. Additionally, in the fourth
quarter of fiscal 1999, the Company cancelled $50.0 million of
Convertible Subordinated Debentures as a result of the Intabex
Settlement as described in Note C to the Consolidated Financial
Statements. Also, see the discussion of refinancing activities
below.
At June 30, 1999, the Company had seasonally adjusted lines of
credit of $855.9 million. At June 30, 1999, the Company had
borrowed $397.4 million under its $855.9 million lines of credit
with a weighted average interest rate of 7.0%. At June 30, 1999,
the unused short-term lines of credit amounted to $359.6 million.
Total maximum outstanding short-term borrowings during the year
ended June 30, 1999 were $559.0 million. At June 30, 1999, the
Company had $49.1 million of letters of credit outstanding and an
additional $49.8 million of letters of credit lines available.
To ensure long-term liquidity, DIMON entered into a $300 million
New Credit Facility, effective June 29, 1999, with a group of
banks which replaced DIMON's $500 million credit facility. The
Company had $200 million of borrowings under this agreement at
June 30, 1999. The Company used the New Credit Facility to
classify $100 million of working capital loans to Revolving Credit
Notes at June 30, 1999. It is the Company's intent to finance at
least $300 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, including certain borrowing base
restrictions, and restrict acquisitions. The Company continuously
monitors its compliance with these covenants. The New Credit
Facility's initial term expires on June 29, 2001, 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 (7.75% at June 30, 1999). The
Company pays a commitment fee of 1% 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, 1999, the Company had no material capital expenditure
commitments. The Company believes that these sources of funds are
sufficient to fund the Company's anticipated needs for 2000. 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.
- -17-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Tax and Repatriation Matters
----------------------------
The Company and its subsidiaries are subject to income tax laws in
each of the countries in which they do business through wholly
owned subsidiaries and through affiliates. The Company makes a
comprehensive review of the income tax requirements of each of its
operations, files appropriate returns and makes appropriate income
tax planning analyses directed toward the minimization of its
income tax obligations in these countries. Appropriate income tax
provisions are determined on an individual subsidiary level and at
the corporate level on both an interim and annual basis. These
processes are followed using an appropriate combination of internal
staff at both the subsidiary and corporate levels as well as
independent outside advisors in review of the various tax laws and
in compliance reporting for the various operations.
Dividend distributions are 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 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. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," which delays implementation of SFAS No.
133 until fiscal years beginning after June 15, 2000. This
statement will be effective for the Company's September 30, 2000,
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 2000 and beyond to differ
materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
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 significant 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.
- -18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Taxes, Legislation, Regulation, Litigation and Other Matters
------------------------------------------------------------
Regarding Tobacco and Smoking
-----------------------------
The tobacco industry, both in the United States and abroad, has
faced, and continues to face, a number of issues that may reduce
the consumption of cigarettes and adversely affect the business,
sales volume, results of operations, cash flows and financial
position of the Company.
These issues, some of which are more fully discussed below,
include:
* legislation or other governmental action seeking to ascribe
to the tobacco industry responsibility and liability for the
purported adverse health effects associated with both
smoking and exposure to environmental tobacco smoke
("ETS");
* increased smoking and health litigation;
* retail price increases in the United States related to the
settlement of certain tobacco litigation against consumer
tobacco-product manufacturers;
* actual and proposed excise tax increases on consumer tobacco
products;
* the issuance of final regulations by the United States Food
and Drug Administration (the "FDA") that, if upheld by the
courts, would regulate cigarettes as "drugs" or "medical
devices";
* governmental and grand jury investigations;
* actual and proposed requirements regarding disclosure of
cigarette ingredients and other proprietary information, as
well as the testing and reporting of the yields of "tar,"
nicotine and other constituents found in cigarette smoke;
* governmental and private bans and restrictions on smoking;
* actual and proposed price controls and restrictions on
imports in certain jurisdictions outside the United States;
* actual and proposed restrictions on tobacco manufacturing,
marketing, advertising and sales (including two European
Union directives that, if implemented, will (i) ban
virtually all forms of tobacco advertising and sponsorship
in the European Union other than at the retail point of
sale, and (ii) abolish duty-free tobacco sales among member
states of the European Union);
* proposed legislation to eliminate the U.S. tax deductibility
of tobacco advertising and promotional costs;
* the diminishing social acceptance of smoking and increased
pressure from anti-smoking groups and unfavorable press
reports; and
* other tobacco legislation that may be considered by
Congress, the states and other countries.
In November 1998, certain United States tobacco product
manufacturers entered into a Master Settlement Agreement (the
"MSA") with 46 states, the District of Columbia, the Commonwealth
of Puerto Rico, Guam, the United States Virgin Islands, American
Samoa and the Northern Marianas to settle asserted and unasserted
health care cost recovery and other claims. These manufacturers
had previously settled similar claims brought by Mississippi,
Florida, Texas and Minnesota (together with the MSA, the "State
Settlement Agreements") and an ETS smoking and health class action
brought on behalf of airline flight attendants.
- -19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Taxes, Legislation, Regulation, Litigation and Other Matters
------------------------------------------------------------
Regarding Tobacco and Smoking (continued)
-----------------------------
Key provisions of the MSA are as follows:
* payments of $206 billion over 25 years from the cigarette
manufacturers to the states based on each state's Medicaid
population (Medicaid expenses to treat residents have been
the basis for many of the claims against the cigarette
manufacturers);
* marketing and advertising restrictions, including bans on
cartoon characters, point-of-sale advertising, billboards,
bus and taxi placards and sponsorships of sporting events by
brand names;
* disband the Tobacco Institute, the Council for Tobacco
Research and the Council for Indoor Air Research;
* elimination of vending machine sales and requirements that
all tobacco products be behind a counter; and
* payments of $1.7 billion for educational efforts about the
dangers of smoking and discouraging youth smoking.
Lastly, the State Settlement Agreements also include provisions
relating to advertising and marketing restrictions, public
disclosure of certain industry documents, limitations on challenges
to certain tobacco control and underage use laws, lobbying
activities and other provisions. It is not possible to predict the
extent to which these actions might adversely affect the Company's
business.
The leading cigarette manufacturers also face hundreds of lawsuits
brought throughout the United States and, to a lesser extent, the
world. Such suits have been brought on behalf of (i) individuals
and classes of individuals alleging personal injury and (ii)
federal, 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. Most recently, on
September 22, 1999, the United States Department of Justice filed
a lawsuit against the leading cigarette manufacturers, seeking to
recover billions of dollars in alleged federal smoking-related
health care costs.
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.
In recent years, various members of Congress have introduced
legislation, some of which has been the subject of hearings or
floor debate, that would subject cigarettes to various regulations
under the Department of Health and Human Services or regulation
under the Consumer Products Safety Act, establish anti-smoking
educational campaigns or anti-smoking programs, or provide
additional funding for governmental anti-smoking activities,
further restrict the advertising of cigarettes, including requiring
additional warnings on packages and in advertising, provide that
the Federal Cigarette Labeling and Advertising Act and the Smoking
Education Act could not be used as a defense against liability
under state statutory or common law, allow state and local
governments to restrict the sale and distribution of cigarettes,
- -20-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Taxes, Legislation, Regulation, Litigation and Other Matters
------------------------------------------------------------
Regarding Tobacco and Smoking (continued)
-----------------------------
and further restrict certain advertising of cigarettes and
eliminate or reduce the tax deductibility of tobacco advertising.
It is not possible to determine the outcome of the FDA regulatory
initiative or the related litigation discussed above, or to predict
what, if any, other foreign or domestic governmental legislation or
regulations will be adopted relating to the manufacturing, advertising,
sale or use of cigarettes, or to the tobacco industry generally.
However, if any or all of the foregoing were to be implemented, the
business, volume, results of operations, cash flows and financial
position of the Company could be materially adversely affected.
Reports with respect to the alleged harmful physical effects of
cigarette smoking have been publicized for many years, and the
sale, promotion and use of cigarettes continue to be subject to
increasing governmental regulation. Since 1964, the Surgeon General
of the United States and the Secretary of Health and Human Services
have released a number of reports linking cigarette smoking with a
broad range of health hazards, including various types of cancer,
coronary heart disease and chronic lung disease, and recommending
various governmental measures to reduce the incidence of smoking.
The 1988, 1990, 1992 and 1994 reports focus upon the "addictive"
nature of cigarettes, the effects of smoking cessation, the
decrease in smoking in the United States, the economic and
regulatory aspects of smoking in the Western Hemisphere, and
cigarette smoking by adolescents, particularly the "addictive"
nature of cigarette smoking in adolescence.
A number of foreign nations also have taken steps to restrict or
prohibit cigarette advertising and promotion, to increase taxes on
cigarettes and to discourage cigarette smoking. In some cases, such
restrictions are more onerous than those in the U.S. For example,
advertising and promotion of cigarettes has been banned or severely
restricted for a number of years in Australia, Canada, Finland,
France, Italy, Singapore and other countries. It is impossible to
predict the extent to which these and any additional restrictions
might affect 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 is cooperating fully with this investigation.
Due to the present litigation, regulatory and legislative
environment, a substantial risk exists that past growth trends in
tobacco sales may not continue and that existing sales may decline.
However, it is not possible to predict the extent to which any of
these issues may affect the Company's business.
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 29%
and 32% of the Company's consolidated tobacco sales for 1999 and
1998 were to two companies. See Note O to the Company's
Consolidated Financial Statements for the year ended June 30, 1999,
included herein.
- -21-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
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, 1999, 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.
Asian and Eastern European Customers
----------------------------------
As noted previously, tobacco sales are denominated primarily in
U.S. dollars. However, the devaluation of certain Asian currencies
has resulted in reduced purchasing power from certain customers in
these areas. 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 these 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, 1999 and 1998, the
Company was permitted to make restricted payments, including cash
dividends on its Common Stock, of up to $32.4 million and $73.5
million, respectively.
- -22-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS (continued)
-----------------------------------
Year 2000 Issue
---------------
DIMON's management has long 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. This organization will remain in place until all
critical millennium dates have been passed and the corporate Y2K
objectives have been met -- compliance and readiness at every
location well in advance of January 1, 2000, leading to business
continuity and undisturbed customer service.
To date, DIMON has spent $3.4 million on the implementation of a
new integrated manufacturing and accounting application for its
U.S. operations. This project was completed in June of 1999,
finalizing Year 2000 compliance of all U.S.-based systems. In
addition to this system implementation, over $3.5 million has been
spent over the past three years on the upgrading of network and
computer equipment across all locations. This effort has created a
100% client-server based environment throughout DIMON that is fully
Y2K compliant.
The Company's critical applications include its manufacturing,
inventory and financial systems at each location. Assessments,
remediation and testing efforts have been conducted at all Company
locations on these systems, tobacco processing equipment, network
hardware and software, and general facilities. These efforts have
been completed at most sites, which have been certified as
compliant. A checklist of remediation tasks has been assembled for
the select remaining locations. These tasks are scheduled for
completion by October 1, 1999. Attention has now turned toward
the development of contingency plans for all critical business
processes at each location. Should any of these processes be
impacted as a result of system, equipment or business-partner
failure, action plans are expected to be in place to immediately
address the situation.
DIMON has communicated and will continue to communicate with its
suppliers, financial institutions, customers and other key business
partners on their Y2K efforts. All systems that electronically
link the Company with these businesses have passed all Y2K related
tests. 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. DIMON believes that
its risk is minimized, however, because DIMON's business is
positioned near the beginning of the tobacco supply chain, with
little dependence on technology among its primary suppliers.
No company can provide complete assurance that it has 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
--------
Eleven countries in the European Union began the conversion from
their local currencies to the "Euro" on January 1, 1999. As of
that date, the exchange rate of the affected currencies was
permanently fixed against the Euro. However, the new currency will
not be placed in circulation until 2002.
The underlying intent of this change is to create a strong, hard
currency for the European Union that will be a competitor to the
U.S. dollar for international trading and financial transactions.
The Euro will eliminate cross-border exchange risk within the
adopting countries and may significantly reduce many foreign
exchange exposures for multinational companies.
The Company modified certain accounting systems to record both the
Euro and the local currency to deal with the conversion. The
Company has studied the implications of the overall Euro conversion
and does not expect the conversion, once complete, to have a
material impact on the Company's consolidated financial condition
or results of operations.
- -23-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
DIMON Incorporated and Subsidiaries
Years Ended June 30
(in thousands, except per share amounts) 1999 1998 1997
===================================================================================================
Sales and other operating revenues.......................$1,815,223 $2,171,803 $2,125,739
Cost of goods and services sold.......................... 1,657,984 1,911,843 1,851,547
_________________________________________
157,239 259,960 274,192
Selling, administrative and general expenses............. 117,826 120,202 103,705
Restructuring and asset impairment costs................. 25,932 - 3,864
Recovery from litigation settlement...................... (15,353) - -
_________________________________________
Operating Income....................................... 28,834 139,758 166,623
Interest Expense......................................... 66,123 83,769 50,518
_________________________________________
Income (loss) from continuing operations before
income taxes, equity in net income (loss) of
investee companies and income
from discontinued operations........................... (37,289) 55,989 116,105
Income taxes (benefit)................................... (8,923) 14,725 44,063
_________________________________________
Income (loss) from continuing operations before
equity in net income (loss) of investee companies
and income from discontinued operations................ (28,366) 41,264 72,042
Equity in net income (loss) of investee
companies (net of income taxes)........................ (12) 565 526
_________________________________________
Income (loss) from continuing operations
before income from discontinued operations............. (28,378) 41,829 72,568
Discontinued business:
Income (loss) from operations, net of income taxes..... (841) 1,820 4,605
Gain on disposal, net of $4,288 tax.................... 23,753 - -
_________________________________________
NET INCOME (LOSS) $ (5,466) $ 43,649 $ 77,173
=========================================
Other Comprehensive Income:
Net Income (Loss)......................................$ (5,466) $ 43,649 $ 77,173
Increase in Equity Currency Conversion................. (2,448) (3,334) (2,172)
Increase (decrease) in Additional Minimum
Pension Liability.................................... 333 (498) 505
_________________________________________
TOTAL COMPREHENSIVE INCOME (LOSS) $ (7,581) $ 39,817 $ 75,506
=========================================
Basic Earnings Per Share
Income (loss) from continuing operations before
discontinued operations............................. $ (.63) $.94 $1.69
Discontinued operations................................ .51 .04 .11
_________________________________________
Net Income (Loss)....................................... $(.12) $.98 $1.80
=========================================
Diluted Earnings Per Share
Income (loss) from continuing operations
before discontinued operations...................... $(.63) $.94 $1.67
Discontinued operations............................... .51 .04 .10
_________________________________________
Net Income (Loss)...................................... $(.12) $.98 $1.77
=========================================
See notes to consolidated financial statements
- -24-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
CONSOLIDATED BALANCE SHEET
DIMON Incorporated and Subsidiaries
June 30
___________________________
(in thousands) 1999 1998
============================================================================
ASSETS
Current assets
Cash and cash equivalents......................$ 21,451 $ 18,729
Notes receivable............................... 4,744 5,600
Trade receivables, net of allowances
(1999 - $3,800, 1998 - $2,799)................ 295,593 319,295
Inventories:
Tobacco....................................... 417,620 588,143
Other......................................... 23,059 24,483
Advances on purchases of tobacco............... 130,855 192,191
Recoverable income taxes....................... 9,851 2,748
Prepaid expenses and other assets.............. 19,327 24,794
Net assets of discontinued operations.......... - 32,907
___________________________
Total current assets....... 922,500 1,208,890
___________________________
Investments and other assets
Equity in net assets of investee companies..... 6,119 6,022
Other investments.............................. 11,740 9,896
Notes receivable............................... 7,404 9,313
Other.......................................... 7,059 13,796
___________________________
32,322 39,027
___________________________
Intangible assets
Excess of cost over related net assets
of businesses acquired........................ 171,596 179,589
Production and supply contracts................ 19,091 26,442
Pension asset.................................. 3,982 3,555
___________________________
194,669 209,586
___________________________
Property, plant and equipment
Land........................................... 19,772 20,085
Buildings...................................... 180,621 174,310
Machinery and equipment........................ 208,498 237,368
Allowances for depreciation.................... (109,145) (113,663)
___________________________
299,746 318,100
___________________________
Deferred taxes and other deferred charges........ 22,053 21,875
___________________________
$1,471,290 $1,797,478
===========================
- -25-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
CONSOLIDATED BALANCE SHEET
DIMON Incorporated and Subsidiaries
June 30
___________________________
(in thousands) 1999 1998
============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks and others..............$ 297,376 $ 282,470
Accounts payable:
Trade......................................... 70,988 80,994
Officers and employees........................ 6,135 7,664
Other......................................... 17,046 7,825
Advances from customers........................ 33,342 50,521
Accrued expenses............................... 44,695 57,294
Income taxes................................... 2,277 5,150
Long-term debt current......................... 7,039 10,588
___________________________
Total current liabilities.... 478,898 502,506
___________________________
Long-term debt
Revolving Credit Notes and Other............... 333,180 548,699
Convertible Subordinated Debentures............ 73,328 123,328
Senior Notes................................... 125,000 125,000
___________________________
531,508 797,027
___________________________
Deferred credits
Income taxes................................... 24,033 36,723
Compensation and other benefits................ 39,786 38,812
___________________________
63,819 75,535
___________________________
Minority interest in subsidiaries................ 526 480
___________________________
Commitments and contingencies.................... - -
___________________________
Stockholders' equity
Preferred Stock - no par value: 1999 1998
Authorized shares.......... 10,000 10,000
Issued shares.............. - - - -
Common Stock - no par value: 1999 1998
Authorized shares.......... 125,000 125,000
Issued shares.............. 44,525 44,525 182,143 182,143
Retained earnings.............................. 220,540 243,816
Accumulated other comprehensive income......... (6,144) (4,029)
___________________________
396,539 421,930
___________________________
$1,471,290 $1,797,478
==========================
See notes to consolidated financial statements
- -26-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
DIMON Incorporated and Subsidiaries
Accumulated
Other Comprehensive Income
--------------------------
Additional
Equity- Minimum Total
(in thousands, Common Retained Currency Pension Stockholders'
except per share amounts) Stock Earnings Conversions Liability Equity
=====================================================================================================
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 - $.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 - $.66
per share............................ (29,354) (29,354)
Conversion of foreign
currency financial
statements........................... (3,334) (3,334)
Increase 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
Net income (loss) for the year......... (5,466) (5,466)
Cash dividends - $.40
per share............................ (17,810) (17,810)
Conversion of foreign
currency financial
statements........................... (2,448) (2,448)
Reduction in the minimum
pension liability.................... 333 333
_____________________________________________________________
Balance, June 30, 1999............... $182,143 $220,540 $(5,112) $(1,032) $396,539
======================================================================================================
See notes to consolidated financial statements
- -27-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
STATEMENT OF CONSOLIDATED CASH FLOWS
DIMON Incorporated and Subsidiaries
Years Ended June 30
(in thousands, except per share amounts) 1999 1998 1997
=================================================================================================
Operating activities
Net Income (Loss)......................................$ (5,466) $ 43,649 $ 77,173
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization......................... 45,141 43,476 37,191
Restructuring and asset impairment charges............ 25,932 - -
Recovery from litigation settlement.................... (15,353) - -
Deferred items........................................ (9,643) 59 9,440
Loss (gain) on foreign currency transactions.......... 1,187 (221) 3,655
Gain on disposition of fixed assets................... (631) (1,394) (3,697)
Changes in discontinued operations.................... 1,023 (6,540) -
Gain on disposition of discontinued operations........ (23,753) - -
Undistributed (earnings) loss of investees............ 12 (564) (526)
Dividends received from investees..................... - 608 -
Income (loss) applicable to minority interest......... (14) - 124
Bad debt expense...................................... 954 274 89
Decrease (increase) in accounts receivable............ 3,452 35,992 (96,072)
Decrease in inventories and advances on purchases
of tobacco.......................................... 219,182 48,427 49,673
Increase in recoverable taxes......................... (6,655) (952) (1,497)
Decrease (increase) in prepaid expenses............... (5,069) (3,872) 12,450
Decrease in accounts payable and accrued expenses..... (21,470) (58,297) (81,055)
Decrease in advances from customers................... (16,674) (23,801) (5,724)
Increase (decrease) in income taxes................... (10,064) (19,069) 23,381
Other................................................. (596) (438) 694
________________________________________
Net cash provided by operating activities........... 181,495 57,337 25,299
________________________________________
Investing activities
Purchase of property and equipment..................... (32,156) (61,168) (60,860)
Proceeds from sale of property and equipment........... 3,843 24,597 8,853
Proceeds from sale of property and equipment
of discontinued operations.......................... 37,637 - -
Payments on notes receivable and receivables
from investees...................................... 5,072 5,270 2,348
Issuance of notes receivable........................... (3,902) (1,427) (12,869)
Proceeds from or (advances) for other
investments and other assets........................ 4,787 (2,133) 13,109
Purchase of minority interest in subsidiaries.......... - - (118)
Acquisition of subsidiary, net of cash acquired........ - - 6,382
Purchase of remaining interest in investee............. - (2,200) -
Proceeds from sale of discontinued operations.......... 28,435 - -
________________________________________
Net cash provided (used) by investing activities.... 43,716 (37,061) (43,155)
________________________________________
- -28-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
STATEMENT OF CONSOLIDATED CASH FLOWS (continued)
DIMON Incorporated and Subsidiaries
Years Ended June 30
(in thousands, except per share amounts) 1999 1998 1997
=================================================================================================
Financing activities
Net change in short-term borrowings...................$(185,915) $ (69,941) $ (13,431)
Repayment of debt..................................... (35,229) (18,098) (162,833)
Proceeds from debt.................................... 18,961 5,932 268,940
Cash dividends paid to DIMON Incorporated
stockholders....................................... (17,810) (29,354) (25,071)
Cash dividends paid to minority stockholders.......... - - (379)
Proceeds from sale of common stock.................... - 3,204 3,910
_________________________________________
Net cash provided (used) by financing activities... (219,993) (108,257) 71,136
_________________________________________
Effect of exchange rate changes on cash................. (2,496) (448) 31
_________________________________________
Increase (decrease) in cash and cash equivalents........ 2,722 (88,429) 53,311
Increase in cash from consolidation of investee......... - 27 -
Cash and cash equivalents at beginning of year.......... 18,729 107,131 53,820
_________________________________________
Cash and cash equivalents at end of year........$ 21,451 $ 18,729 $ 107,131
=========================================
Other information:
Cash paid during the year:
Interest.............................................$ 68,705 $ 85,667 $ 48,935
Income taxes......................................... 8,796 18,252 25,919
Non-cash investing and financing activities:
Intabex purchase (settlement)........................ (50,000) - 161,398
Restructuring and impairment of assets............... 20,800 - -
See notes to consolidated financial statements
- -29-
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
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 were $13,181 at June 30, 1999 ($27,709 at June
30, 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, 1999, is
$15,583 ($12,175 at June 30, 1998).
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 existed at June 30, 1999.
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, 1999, is $30,300 ($26,500 at June 30, 1998).
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, 1999, is $21,705 ($18,155 at June 30, 1998).
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.
- -30-
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 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. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133," which delays implementation of FASB 133 until years
beginning after June 15, 2000. This statement will be effective for
the Company's September 30, 2000, 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.
- -31-
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
YEARS ENDED JUNE 30
__________________________________
(in thousands, except per share data) 1999 1998 1997
==============================================================================
BASIC EARNINGS
Income (loss) from continuing operations
before discontinued operations.......... $(28,378) $41,829 $72,568
Discontinued operations................... 22,912 1,820 4,605
--------- -------- --------
Net Income (Loss)......................... $ (5,466) $43,649 $77,173
SHARES
Weighted Average Number of
Shares Outstanding...................... 44,525 44,473 42,850
========= ======== ========
BASIC EARNINGS PER SHARE
Income (loss) from continuing operations
before discontinued operations.......... $(.63) $.94 $1.69
Discontinued operations................... .51 .04 .11
--------- -------- --------
Net Income (Loss)......................... $(.12) $.98 $1.80
========= ======== ========
DILUTED EARNINGS
Income (loss) from continuing operations
before discontinued operations.......... $(28,378) $41,829 $72,568
Add after tax interest expense applicable
to 6 1/4% Convertible Debentures issued
April 1, 1997 for 1997.................. - * - * 1,151
--------- -------- --------
Income (loss) from continuing operations
before discontinued operations.......... (28,378) 41,829 73,719
Discontinued operations................... 22,912 1,820 4,605
--------- -------- --------
Net Income (Loss) as Adjusted............. $ (5,466)* $43,649 * $78,324
========= ======== ========
SHARES
Weighted average number of common
shares outstanding...................... 44,525 44,473 42,850
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
Assuming conversion of 6 1/4%
Convertible Debentures in 1997 at
the beginning of the period............. - * - * 1,068
--------- -------- --------
Average Number of Shares Outstanding...... 44,525 * 44,731 * 44,241
========= ======== ========
DILUTED EARNINGS PER SHARE
Income (loss) from continuing operations
before discontinued operations.......... $(.63)* $.94 * $1.67
Discontinued operations................... .51 * .04 * .10
--------- -------- --------
Net Income (Loss) as Adjusted............. $(.12)* $.98 * $1.77
========= ======== ========
* Assumed conversion of Convertible Debentures at the beginning of the period
has an antidilutive effect on earnings per share.
- -32-
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 $66,072 in
cash and the assumption of $31,557 of the debt of Florimex Worldwide.
The Company recorded a pre-tax gain of $27,976 in the first quarter of
the year ending June 30, 1999. Net assets of $32,907 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:
1999 1998 1997
======================================================================================
(S>
Sales and other operating revenues............... $101,023 $391,560 $387,488
Cost of goods and services sold.................. 92,892 351,517 343,786
Selling, administrative and general expenses..... 9,129 33,856 33,419
_________ ________ _________
Operating income (loss)...................... (998) 6,187 10,283
Interest expense................................. 609 1,909 2,509
_________ ________ _________
Income (loss) before income taxes and
minority interest............................. (1,607) 4,278 7,774
Income taxes (benefit)........................... (761) 2,358 3,045
Income (loss) applicable to minority interest.... (5) 100 124
_________ ________ _________
Income (loss) from discontinued operations $ (841) $ 1,820 $ 4,605
========= ========= =========
- -33-
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 (Tabex) in Zimbabwe. Intabex was 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 initial
purchase price of Intabex and the Tabex assets was $264.2 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 $86.1 million in
cash. The purchase agreements for DIMON's acquisition of Intabex and
the Tabex assets provided several purchase price adjustment mechanisms
which, as described below, have resulted in reducing the purchase
price by $75.9 million to a net purchase price of $188.3 million.
As a 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 (Set-Off
Debentures).
The Intabex stock purchase agreement also 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 that were prepared in accordance with certain requirements
of the stock purchase agreement. As a result of this agreement, the
purchase price was reduced by $18.6 million in August of 1997. The
reduction resulted in the return of $16.7 million of Convertible
Debentures plus certain interest payments on the Convertible
Debentures, and $1.9 million in cash. 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 was a director of and consultant to DIMON
and the former chairman of Intabex. Mr. Taberer resigned as a
director as of January 25, 1999.
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. Following its analysis of post-closing adjustments, on
September 22, 1998, DIMON filed an action in the United States
District Court for the Southern District of New York to enforce its
right to indemnity.
On May 24, 1999, DIMON settled the suit with the former Intabex
shareholders. As part of the settlement, the former Intabex shareholders
canceled $50 million of the Set-Off Debentures, and DIMON dismissed all
of its claims in the action. DIMON recognized as income the recovery of
$15.4 million related to charges to income for the overstatement in
carrying values of certain assets and the understatement or omission
of certain liabilities or expenses by Intabex at the date of the Intabex
acquisition. The balance of the recovery, $34.6 million, was applied
against the carrying value of certain acquired assets and the direct
costs of the settlement. DIMON continues to have a right to set-off
$10 million in Set-Off Debentures until April 1, 2001, decreasing to
$5 million in Set-Off Debentures until April 1, 2002, to satisfy certain
additional claims for indemnification that it may discover.
The purchase price was allocated based on estimated fair values of
assets acquired and liabilities assumed at the date of acquisition.
This allocation resulted in an excess purchase price over net assets
acquired of $152.0 million after application of the May 24, 1999
settlement. The $152.0 million excess purchase price is being
amortized on a straight-line basis over 40 years.
- -34-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note C - Acquisition (continued)
--------------------
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 related 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. As of June
30, 1999, the Company has utilized $5.3 million of the reserves for
severance and the full $2.2 million of the reserves for facility
closures. The Company expects the remaining reserves to be paid out
in fiscal 2000.
Note D - Restructuring and Asset Impairment 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 1997, 1998 and 1999. The reserve balances are included in accrued
expenses and deferred compensation and other benefits.
Facilities
Employee Closure
Separations Costs Other Total
==========================================================================================
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
Reduced by:
Cash payments......................... (1,622) - - (1,622)
Adjustment to retirement
reserve and other................ (1,438) - - (1,438)
_________________________________________________
Reserve balances at June 30, 1999.......... $ 6,807 $ - $ - $ 6,807
=================================================
The 1997 restructuring provision included additional
restructuring charges in the amount of $3,864, of which $2,864 relates
to additional severance costs and $1,000 relates to a reduction of
capitalized idle plant expense. Remaining cash outlays associated
with employee separations are expected to total $4,107, of which
approximately $999 will be expended in fiscal 2000. 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.
- -35-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note D - Restructuring and Asset Impairment Costs (continued)
-------------------------------------------------
On March 22, 1999, the Company announced that it planned to close
its tobacco processing plant in Kinston, North Carolina, reduce
staffing at its processing facility in Farmville, North Carolina, and
substantially downsize its leaf tobacco buying department in the
United States. The Company also planned to close a processing
facility in Germany and a processing facility and sales office in
Brazil. These actions are the result of smaller tobacco crops
anticipated in 1999 and beyond. The restructuring was completed by
June 30, 1999, and resulted in pre-tax charges of $15,812, of which
$10,695 is non-cash.
During the year ended June 30, 1999, the Company severed
approximately 200 employees, primarily in the United States, and
expensed $5,117. As of June 30, 1999, severance paid out totaled
$1,108. Cash outlays for severance to be paid out in 2000 are
approximately $3,712.
Asset writedowns incurred during the year in connection with the
restructuring included a charge of $10,695 associated with the closing
and planned disposal of property, plant and equipment in the
facilities mentioned above.
The following tables set forth the Company's restructuring
provisions provided and changes in the related reserves.
Employee Asset
Separations Writedowns Total
==================================================================================
Provision for restructuring - 1999........ $5,117 $10,695 $15,812
Reduced by:
Cash Payments........................... (1,108) - (1,108)
________________________________________
Reserve balances at June 30, 1999......... $4,009 $10,695 $14,704
========================================
Global overcapacity of tobacco caused management to believe that
certain assets should be analyzed for impairment. The analysis, based
on undiscounted cash flows, resulted in an impairment writedown of
$10,120 for assets which have been identified as available-for-sale by
the Company in accordance with Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," (SFAS 121). In
accordance with SFAS 121, when an impairment writedown is required,
the related assets are adjusted to their estimated fair value. In
determining fair value, the Company considered the range of
preliminary purchase prices being discussed with potential buyers as
well as third-party appraisals.
The estimated market value of the assets written down as part of the
restructuring and impairment costs, consisting primarily of buildings
and machinery and equipment, is approximately $24,240.
- -36-
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:
1999 1998 1997
=======================================================================
Current assets........................ $9,549 $11,340 $61,887
Non-current assets.................... 4,285 10,147 13,684
Current liabilities................... 6,596 9,934 56,933
Non-current liabilities............... 74 755 866
Interest of other shareholders........ 2,093 4,776 8,100
Net sales............................. 9,653 22,290 44,294
Gross profit.......................... 1,890 5,734 9,276
Net income (loss)..................... (366) 1,362 1,014
________________________________
The above changes from 1998 relate to the planned decrease in
operations of certain investees in Africa, and the changes from 1997
relate primarily to the sale of certain investees of Intabex.
Balances with related parties, primarily unconsolidated,
affiliated companies, are as follows:
1999 1998 1997
=======================================================================
Trade receivables..................... $53,539 $46,944 $ 16,352
Advances on purchases of tobacco...... 53,702 92,416 101,540
Notes receivable...................... - 3,767 4,190
Trade payables and advances
from customers..................... 11,062 17,719 7,405
Other income: Interest............... 204 756 917
Net sales............................. 5,733 11,036 12,274
Purchases of tobacco.................. 46,223 76,352 80,389
__________________________________
Note F - Financial Instruments
------------------------------
The estimated fair value of the Company's financial instruments at
June 30, 1999 is provided in the following table:
Carrying Fair
Amount Value
________________________________________________________________
Senior Notes..............................$125,000 $110,000
Convertible Subordinated Debentures....... 73,328 49,863
Other Long-Term Debt...................... 40,219 35,844
__________________________
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.
- -37-
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 $440,000 ($125,000 fixed to floating and $315,000
floating to fixed) and expiring at various dates through September 21,
2008, had a negative value of $206 at June 30, 1999.
In the normal course of business, the Company is 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, 1999, 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 $855,937 ($1,305,479 at
June 30, 1998), excluding all long-term credit agreements. These
lines bear interest at a weighted average rate of 7.0% for the year
ending June 30, 1999. Unused lines of credit at June 30, 1999,
amounted to $359,610 ($663,009 at June 30, 1998), net of $98,950 of
available letters of credit lines. There were no compensating balance
agreements at June 30, 1999 or 1998.
Note H - Long-Term Debt
-----------------------
Such debt is comprised of:
1999 1998
_________________________________________________
Maturing Maturing Maturing Maturing
within after within after
One Year One Year One Year One Year
========================================================================================
Senior Notes............................$ - $125,000 $ - $125,000
Convertible Subordinated Debentures..... - 73,328 - 123,328
Revolving Credit Notes.................. - 300,000 - 500,000
Other Long-Term Debt.................... 7,022 32,948 10,492 48,661
________________________________________________
$7,022 $531,276 $10,492 $796,989
Capitalized Lease Obligations........... 17 232 96 38
________________________________________________
$7,039 $531,508 $10,588 $797,027
========================================================================================
- -38-
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
============================================================================
2000............ $ - $ - $ - $ 7,022 $ 7,022
2001............ - - 300,000 6,816 306,816
2002............ - - - 23,720 23,720
2003............ - - - 1,450 1,450
2004............ - - - 147 147
2005............ - - - 132 132
Later years..... 125,000 73,328 - 683 199,011
____________________________________________________________
$125,000 $73,328 $300,000 $39,970 $538,298
============================================================
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) $20,000, (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,
1999, the Company was permitted to make restricted payments, including
cash dividends on its Common Stock, of up to $32,371.
On April 1, 1997, DIMON Incorporated issued $73,328 of 6 1/4%
Convertible Subordinated Debentures due on March 31, 2007 (the
"Debentures"), net of the cancellation of $50,000 in settlement of
the Intabex litigation as discussed in Note C. The Debentures are
convertible into approximately 2,549 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 $10,000 of the Debentures.
To ensure long-term liquidity, DIMON entered into a $300,000 New
Credit Facility, effective June 29, 1999, with eight banks which
replaces DIMON's $500,000 Former Credit Facility. The Company had
$200,000 borrowings under these agreements on June 30, 1999 ($140,000
in 1998). However, the Company has used these facilities to classify
$100,000 ($360,000 at June 30, 1998) of working capital loans to
Revolving Credit Notes. It is the Company's intent to finance at
least $300,000 on a long-term
- -39-
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)
-----------------------
basis. The New Credit Facility is subject to certain commitment fees
and covenants, including a subjective acceleration clause that, among
other things, require DIMON to maintain minimum working capital and
tangible net worth amounts, require specific liquidity and long-term
solvency ratios, including certain base borrowing restrictions, and
restrict acquisitions. The New Credit Facility's initial term is to
June 29, 2001, 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 (7.75% at June 30, 1999). The
Company pays a commitment fee of 1% 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,
Italy and Spain, and is payable at interest rates varying from 3.48%
to 6.53%.
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 2002. Interest rates are imputed at
10.6% to 13.0%. Amortization is included in depreciation expense.
Minimum future obligations and capitalized amounts are as follows:
Capital Operating
Leases Leases
========================================================================
2000............................................... $ 17 $ 3,070
2001............................................... 157 2,773
2002............................................... 75 2,595
2003............................................... - 2,054
2004............................................... - 1,288
Later years ....................................... - 16,138
_____________________
$249 $27,918
Less amount representing interest and deposits..... -
_____
Present value of net minimum lease payments........ $249
Less current portion of obligations
under capital leases............................. 17
_____
Long-term obligations under capital leases......... $232
=====
Capitalized amounts:
Machinery and equipment, primarily vehicles...... $249
Accumulated amortization......................... (77)
_____
$172
=====
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, 1999, no shares had been issued.
- -40-
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, 1999, no restricted stock had 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 1999
grants will be awarded at the meeting of the DIMON Board following the
1999 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 27
thousand shares had been granted as of June 30, 1999.
At the 1998 Annual Stockholders' Meeting, the DIMON Incorporated
Directors' Stock Plan was approved. The Plan authorizes automatic
annual grants to purchase one thousand shares to each non-employee
director. Any 1999 grants will be awarded at the meeting of the DIMON
Board following the 1999 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 70 thousand shares. Options
granted under the Directors' Plan are immediately exercisable. No
options to purchase shares had been granted as of June 30, 1999.
The Company accounts for 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 and a $2,142
charge to income in 1997 arising from adjustments in fair market
values of the SARs.
As permitted by SFAS No. 123, the Company has elected to continue
to account for stock-based compensation in accordance with APB No. 25.
If the Company had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS
No. 123, net income (loss) and per share amounts based on fair value
would have been reduced to the unaudited pro forma amounts indicated
in the table below (in thousands, except per share data):
1999 1998 1997
============================================================================
Net income (loss) as reported.............$ (5,466) $43,649 $77,173
Net income (loss) Pro Forma............... (7,515) 41,603 76,185
Earnings per share, basic as reported..... (.12) .98 1.80
Earnings per share, basic Pro Forma....... (.16) .93 1.77
- -41-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note K- Stock Incentive Plan (continued)
----------------------------
Information with respect to options and SARs follows:
1999 1998 1997
================================================================================
Options and SARs outstanding at
beginning of year.......................... 2,039 1,854 1,804
Options and SARs granted...................... 751 455 436
Options and SARs exercised.................... - (237) (263)
Options and SARs cancelled.................... (85) (33) (123)
________________________________
Options and SARs outstanding at
end of year................................ 2,705 2,039 1,854
================================
SARs included as outstanding at end
of year.................................... 496 417 407
================================
Options available for future grants
at end of year............................. 216 857 822
================================
Options and SARs exercisable at
end of year................................ 1,161 830 833
================================
Option and SAR market prices per share:
Date of grant (at lowest market price).....$ 5.50 $22.31 $18.13
(at highest market price).... 9.25 23.38 20.88
Exercised (at lowest market price)..... - 21.25 19.00
(at highest market price).... - 26.38 26.75
Cancelled (at lowest market price)..... 9.25 11.25 19.25
(at highest market price).... 22.31 25.94 26.50
Weighted average option exercise price information for the years
1999, 1998 and 1997 follows:
1999 1998 1997
=======================================================================
Outstanding at July 1........................ $18.16 $16.87 $16.46
Granted during the year...................... 7.53 22.33 18.17
Exercised during the year.................... - 25.10 23.97
Outstanding at June 30....................... 15.40 18.16 16.87
Exercisable at June 30....................... 16.65 16.52 17.53
- -42-
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, 1999 and related weighted
average price and life information follows:
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
______________________________________________________________________
8/21/91............ 122 122 $14.42 2
8/27/92............ 188 188 $22.00 3
8/26/93............ 167 167 $16.67 4
8/25/94............ 145 145 $11.50 5
4/1/95............ 140 140 $16.50 6
8/24/95............ 347 347 $17.00 6
11/17/95............ 6 6 $15.38 6
8/22/96............ 399 - $18.13 7
11/15/96............ 7 7 $20.88 7
8/21/97............ 436 - $22.31 8
11/14/97............ 7 7 $23.38 8
8/27/98............ 459 - $ 9.25 9
11/25/98............ 7 7 $ 8.75 9
5/24/99............ 275 25 $ 5.50 10
_____ _____
2,705 1,161
===== =====
The weighted average fair value at date of grant for options
granted during 1999 and 1998 was $3.16 and $10.07 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 1999 1998
_____________________________________________________________
Expected Life in Years................ 10 10
Interest Rate......................... 5.26% 6.49%
Volatility............................ 10.5% 31.0%
Dividend Yield........................ 5.98% 2.70%
Note L - Retained Earnings
--------------------------
Consolidated retained earnings included $860 at June 30, 1999 ($873 at
June 30,1998) 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, 1999 and 1998 include
undistributed earnings of $282,213 and $261,452, 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. If
earnings were remitted as dividends, foreign tax credits available
under present law would reduce the amount of U.S. taxes payable.
At June 30, 1999, the Company has net operating tax loss
carryforwards of approximately $49,656 for income tax purposes that
expire in 2000 and thereafter. The components of income (loss) from
continuing operations before income taxes and equity in net income
(loss) of investee companies consisted of the following:
- -43-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note M - Income Taxes (continued)
1999 1998 1997
=================================================================
U.S.....................$(49,350) $(51,109) $ 9,902
Foreign................. 12,061 107,098 106,203
__________________________________________
$(37,289) $ 55,989 $116,105
==========================================
The details of the amount shown for income taxes (benefits) in
the Statements of Consolidated Income and Comprehensive Income follow:
1999 1998 1997
==================================================================
Current
Federal...................$ (7,923) $ 2,531 $ 4,566
State..................... - - -
Foreign................... 9,681 12,499 37,694
_______________________________________
$ 1,758 $15,030 $42,260
_______________________________________
Deferred
Federal...................$ (8,584) $(8,945) $ 384
State..................... 1,714 (1,494) 85
Foreign................... (3,811) 10,134 1,334
_______________________________________
$(10,681) $ (305) $ 1,803
_______________________________________
Total.....................$ (8,923) $14,725 $44,063
==================================================================
The reasons for the difference between income tax expense based on
income (loss) before income taxes and equity in net income (loss) of
investee companies and the amount computed by applying the statutory
Federal income tax rate to such income are as follows:
Pre-Tax Income
____________________________
1999 1998 1997
==================================================================
Computed "expected" tax expense.......$(13,051) $19,596 $40,637
Effect of foreign income taxes........ (10,890) (9,009) 5,261
U.S. taxes on foreign income,
net of tax credits................. 4,539 7,003 958
Operating loss carryforwards, net..... 12,666 1,152 (2,779)
Tax benefits derived from
Foreign Sales Corporations......... (1,294) (1,504) (1,624)
Permanent items....................... (893) (2,513) 1,610
____________________________
Actual tax expense (benefits).........$ (8,923) $14,725 $44,063
============================
- -44-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note M - Income Taxes (continued)
---------------------
The long-term deferred tax liabilities (assets) are comprised of
the following:
1999 1998
================================================================
Deferred tax liabilities:
Fixed assets...........................$ 11,951 $ 13,254
Foreign taxes.......................... 14,977 15,311
Other.................................. 4,271 4,921
_____________________
Gross deferred tax liabilities........... 31,199 33,486
_____________________
Deferred tax assets:
Foreign tax credits.................... (12,595) -
Tax loss carryforwards................. (17,637) (13,149)
Postretirement and other benefits...... (10,692) (10,726)
Currently non-deductible expenses...... (687) (3,072)
Other.................................. (1,531) (1,305)
_____________________
Gross deferred tax assets................ (43,142) (28,252)
Valuation allowance...................... 17,561 13,073
_____________________
Net deferred tax assets.................. (25,581) (15,179)
_____________________
Net deferred tax liability...............$ 5,618 $ 18,307
=====================
The net change in the valuation allowance for deferred tax assets
was an increase of $4,488 and relates primarily to the utilization of
tax loss carryforwards for which no benefit had been recognized in
prior years.
Note N - Employee Benefits
--------------------------
Effective July 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." The
provisions of SFAS No. 132 revise employers' disclosures about pension
and other postretirement benefit plans. It does not change the
measurement or recognition of these plans. It standardizes the
disclosure requirements for pensions and other postretirement
benefits to the extent practicable.
Retirement Benefits
-------------------
The Company adopted a Cash Balance Plan on July 1, 1996, that combined
the retirement plan of the former Dibrell Defined Benefit Pension Plan
and the profit-sharing plan of the former Monk-Austin. The Cash
Balance Plan provides retirement benefits for substantially all U.S.
salaried personnel based on years of service rendered, age and
compensation. The Company also maintains an Excess Benefit Plan that
provides individuals who participated in the former Dibrell Defined
Benefit Pension Plan the difference between the benefits they could
have potentially accrued under the Defined Benefit Pension Plan and
the benefits that would have actually been 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 the full-time employees
located in Greece, Italy, The Netherlands, Turkey and Zimbabwe.
- -45-
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)
A reconciliation of benefit obligations, plan assets and funded
status of the plans at June 30 was as follows:
1999 1998
===============================================================
Change in Benefit Obligation
Benefit obligation, beginning............$ 58,004 $ 51,416
Service cost............................. 2,896 2,534
Interest cost............................ 3,994 3,834
Actuarial loss/(gain).................... (778) 4,214
Acquisition.............................. 1,895 -
Discontinued operations.................. (4,581) -
Benefits paid............................ (5,046) (3,994)
______________________
Benefit obligation, ending...............$ 56,384 $ 58,004
======================
Change in Plan Assets
Fair value of plan assets, beginning.....$ 52,525 $ 44,457
Actual return on plan assets............. 5,805 9,259
Company contribution..................... 1,705 2,803
Acquisition.............................. 1,687 -
Benefits paid............................ (5,046) (3,994)
______________________
Fair value of plan assets, ending........$ 56,676 $ 52,525
======================
Funded status of plan.....................$ 292 $ (5,479)
Unrecognized actuarial (gain)/loss........ (13,540) (9,823)
Unrecognized prior service cost........... 4,902 5,076
Unrecognized net transition obligation.... (1,180) (1,485)
______________________
Net amount recognized....................$ (9,526) $(11,711)
======================
Amounts Recognized in the Consolidated
Balance Sheet Consist of:
Prepaid benefit cost ....................$ - $ 1,621
Accrued benefit liability................ (14,540) (18,252)
Intangible asset......................... 3,982 3,555
Additional minimum pension liability..... 1,032 1,365
_______________________
Net amount recognized....................$ (9,526) $(11,711)
=======================
- -46-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note N - Employee Benefits (continued)
--------------------------
Retirement Benefits (continued)
Net periodic pension costs included the following components:
1999 1998 1997
==================================================================
Service cost.........................$ 2,896 $ 2,534 $ 1,863
Interest expense..................... 3,994 3,834 3,261
Expected return on plan assets....... (4,512) (3,690) (3,289)
Amortization of prior service cost... 584 743 523
Amortization of transition amount.... (311) (311) (311)
Actuarial (gain)/loss................ (286) (350) (338)
Curtailment cost..................... 77 - -
_____________________________
Net periodic pension cost............$ 2,442 $ 2,760 $ 1,709
=============================
For the U.S. plans, benefit obligations for the Retirement Plan
and the Excess Benefit Plan were determined using assumed discount
rates of 7.75% for 1999, 7.25% for 1998 and 8% for 1997. Assumed
compensation increases were 4% for 1999, 1998 and 1997 for the
Retirement Plan and 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 projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for those plans in which the accumulated
benefit obligation was in excess of plan assets were $20,671, $19,609
and $11,706, respectively, for 1999 and $15,049, $13,333 and $13,333,
respectively, for 1998.
During 1999, the plan assets and benefit obligation of a
liquidated entity were merged into the Cash Balance Plan as of July 1,
1998. These amounts have been reflected as Acquisition amounts in the
tables above. Also, under the provisions of SFAS No. 88, "Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits," termination of three executive contracts
under restructuring resulted in the recognition of $722 of net
curtailment gains. This gain resulted from the net decrease in the
Company's benefit obligation for one of its plans.
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 $517 in 1999, $588 in 1998 and $546 in
1997.
Postretirement Health and Life Insurance Benefits
The Company provides certain health and life insurance benefits to
retired U.S. employees (and their eligible dependents) who meet
specified age and service requirements. Plan assets consist of paid-
up life insurance policies on certain current retirees. The Company
retains the right, subject to existing agreements, to modify or
eliminate the medical benefits.
- -47-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note N - Employee Benefits (continued)
--------------------------
Postretirement Health and Life Insurance Benefits (continued)
A reconciliation of benefit obligations, plan assets and funded
status of the plans at June 30 was as follows:
1999 1998
===============================================================
Change in Benefit Obligation
Benefit obligation, beginning............$ 14,145 $ 13,019
Service cost............................. 334 340
Interest cost............................ 1,000 1,025
Actuarial loss/(gain).................... (870) 887
Curtailment loss......................... 488 -
Benefits paid............................ (911) (1,126)
______________________
Benefit obligation, ending...............$ 14,186 $ 14,145
======================
Change in Plan Assets
Fair value of plan assets, beginning.....$ 69 $ 69
Actual return on plan assets............. (75) -
Company contribution..................... 150 -
Benefits paid............................ (55) -
______________________
Fair value of plan assets, ending........$ 89 $ 69
======================
Funded status of plan.....................$(14,097) $(14,076)
Unrecognized actuarial (gain)/loss........ (3,229) (2,929)
Unrecognized prior service cost........... (2,140) (2,766)
_____________________
Net amount recognized.....................$(19,466) $(19,771)
=====================
Amounts Recognized in the Statement of
Financial Position Consist of:
Prepaid benefit cost ....................$ - $ -
Accrued benefit liability................ (19,466) (19,771)
Intangible asset......................... - -
Additional minimum pension liability..... - -
_____________________
Net amount recognized....................$(19,466) $(19,771)
=====================
For measurement purposes, a 7% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The
rate was assumed to decrease gradually to 5.5% for 2002 and remain at
that level thereafter.
- -48-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note N - Employee Benefits (continued)
--------------------------
Postretirement Health and Life Insurance Benefits (continued)
Net periodic benefit costs included the following components:
1999 1998 1997
=================================================================
Service cost.........................$ 334 $ 340 $ 315
Interest expense..................... 1,000 1,025 1,093
Expected return on plan assets....... (4) (4) (3)
Amortization of prior service cost... (254) (254) (254)
Actuarial (gain)/loss................ (98) (157) (169)
Curtailment cost..................... (372) - -
____________________________
Net pension cost.....................$ 606 $ 950 $ 982
============================
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one-percentage-
point change in assumed health care cost trend rates would have the
following effects:
1-Percentage- 1-Percentage-
Point Increase Point Decrease
======================================================================================
Effect on total of service and interest
cost components....................................$ 66 $ (57)
Effect on postretirement benefit obligation........... 488 (431)
_________________________________
In 1999, under the provisions of SFAS No. 88, "Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," the pre-65 retiree count increased as a result
of restructuring which resulted in the recognition of $488 of
curtailment loss. This loss resulted from the net increase in the
Company's benefit obligation. This loss was offset by a decrease of
$372 in the net periodic benefit cost for 1999 due to the advanced
recognition of negative prior service costs bases. These amounts have
been reflected in the tables above accordingly.
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 1999, 1998 and 1997.
Note O - Segment Information
----------------------------
Effective June 30, 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). Disclosures for
fiscal years 1998 and 1997 have been restated to conform to the
current year presentation.
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.
- -49-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note O - Segment Information (continued)
----------------------------
Due to the global environment in which DIMON operates, management
utilizes regional reporting information for making operating decisions
and assessing the Company's performance. These regions have been
identified by the Company as reportable operating segments under SFAS
131. The accounting policies of the segments are the same as those
described in "Note A - Significant Accounting Policies."
Summarized financial information concerning the Company's
reportable operating segments is shown in the following tables.
Operating segment information as to sales and other operating revenues
is based on the origin of the product sold. Sales by customer
location are based on the tobacco customer's delivery point. Long-
lived assets and capital expenditures are classified based on the
location of the asset.
1999 1998 1997
===============================================================================
Sales and Other Operating Revenues:
United States....................... $ 703,716 $ 806,603 $ 941,894
Brazil.............................. 294,009 436,648 444,784
Asia................................ 117,768 158,471 111,175
Africa.............................. 337,607 326,102 309,831
Europe.............................. 190,065 265,774 166,790
Other............................... 172,058 178,205 151,265
__________________________________________
$1,815,223 $2,171,803 $2,125,739
==========================================
Sales by Delivery Destination:
North America....................... $ 561,918 $ 635,113 $ 823,504
Asia................................ 378,973 453,140 394,439
Europe.............................. 669,769 817,859 689,609
Other............................... 204,563 265,691 218,187
__________________________________________
$1,815,223 $2,171,803 $2,125,739
=========================================
Sales and other operating revenues to major customers:
Of the 1999, 1998 and 1997 sales and other operating revenues,
approximately 29%, 32% and 42%, respectively, were to various tobacco
companies which management has reason to believe are now owned by or
under the common control of two companies. (The following table
summarizes the net sales to each customer for the periods indicated:)
Customer A.............................$ 269,535 $ 437,231 $484,841
Customer B............................. 249,654 269,356 401,396
_______________________________________
$ 519,189 $ 706,587 $886,237
=======================================
- -50-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note O - Segment Information (continued)
----------------------------
1999 1998 1997
===============================================================================
Long-Lived Assets and Total Assets:
United States.......................$ 69,162 $ 82,978 $ 66,854
Brazil.............................. 56,268 63,027 84,345
Africa.............................. 120,162 113,939 89,997
Europe.............................. 31,513 32,195 33,125
Other............................... 22,641 25,961 24,649
_________________________________________
Long-Lived Assets......... 299,746 318,100 298,970
Long-lived assets discontinued
operations....................... - - 33,782
Current assets...................... 922,500 1,208,890 1,371,479
Investments and other assets........ 32,322 39,027 50,160
Intangible assets................... 194,669 209,586 210,464
Deferred taxes and other
deferred charges................. 22,053 21,875 22,748
_________________________________________
Total Assets..............$1,471,290 $1,797,478 $1,987,603
=========================================
Capital Expenditures:
United States.......................$ 8,038 $ 24,969 $ 12,404
Brazil.............................. 1,800 4,097 2,680
Africa.............................. 14,532 24,431 36,187
Europe.............................. 3,890 1,756 2,423
Other............................... 3,896 5,915 1,098
_________________________________________
$ 32,156 $ 61,168 $ 54,792
=========================================
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 Statements of
Consolidated Income and Comprehensive Income.
For 1999 the transaction loss was $1,187, which is related to 12
countries located primarily in Africa and Europe, offset partially by
gains in Brazil and Zimbabwe.
In 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.
- -51-
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
--------------------------------------------
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,
1999, of $11,158, after the recent devaluation of the Brazilian
currency but 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, 1999, of $10,733,
after the recent devaluation of the Brazilian currency but 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 had available letters of
credit of $98,950 at June 30, 1999, of which $49,149 was outstanding.
These letters of credit represent, generally, performance guarantees
issued in connection with purchases and sales of domestic and foreign
tobacco.
The Company is guarantor as to certain lines and letters of credit
of affiliated companies in an amount not to exceed approximately
$5,006. There was approximately $59 outstanding under these
guarantees at June 30, 1999.
The Company's foreign subsidiaries have guaranteed certain loans
made by Brazilian banks to local farmers. There was approximately
$34,521 outstanding under these guarantees at June 30, 1999.
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. The Company entered into a forward
exchange contract to purchase pounds sterling as needed on a monthly
basis throughout fiscal 2000 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.
- -52-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
-------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIMON Incorporated and Subsidiaries
(in thousands)
Note R - Selected Quarterly Financial Data (Unaudited)
------------------------------------------
Summarized quarterly financial information is as follows:
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
____________________________________________________________________________________________
1999
----
Sales and Other Operating
Revenue...................$384,165 $595,114 $485,377 $ 350,567 $1,815,223
Gross Profit................ 38,468 29,888 39,086 49,797 157,239
Income (loss) from
Continuing Operations..... (8,635) (8,695) (22,996)(3) 11,948(3) (28,378)
Discontinued Operation...... 22,912 (2) - - - 22,912
Per Share of Common Stock:
Diluted Earnings (1)........ .32 * (.20) * (.52) * .27 (.12)*
Cash Dividends per Share.... .17 .09 .09 .05 .40
Market Price - High......... 12.31 13.50 7.94 6.50 13.50
- Low.......... 8.69 6.56 3.81 3.25 3.25
_________________________________________________________________
1998
----
Sales and Other Operating
Revenue...................$439,185 $591,827 $627,721 $513,070 $2,171,803
Gross Profit................ 82,901 58,802 61,228 57,029 259,960
Income from
Continuing Operations..... 20,847 10,580 8,274 2,128 41,829
Income (loss) from
Discontinued Operations... (396) 359 2,368 (511) 1,820
Per Share of Common Stock:
Diluted Earnings (1)........ .44 .25 .24 .04* .98*
Cash Dividends per Share.... .15 .17 .17 .17 .66
Market Price - High......... 26.50 26.43 26.31 16.81 26.50
- Low.......... 21.50 23.25 15.56 10.50 10.50
_________________________________________________________________
(1) Does not add due to rounding.
(2) Includes $23,753 gain on disposal, net of tax, of discontinued business.
(3) Includes charges in Quarter 3 of $15,910 and Quarter 4 of $2,674
for restructuring and other asset impairment charges and recovery in Quarter 4 from
the litigation settlement of $9,979, net of tax.
* Assumed conversion of Convertible Debentures at the beginning of each period has
an antidilutive effect on earnings per share.
- -53-
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 of Certain Beneficial Owners and Management" is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Inapplicable.
- -54-
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
--------------------------------------------------------------
Statements of Consolidated Income and Comprehensive Income
--Years ended June 30, 1999, 1998 and 1997
Consolidated Balance Sheet--June 30, 1999 and 1998
Statement of Stockholders' Equity--Years ended June 30, 1999,
1998 and 1997
Statement of Consolidated Cash Flows--Years ended June 30, 1999,
1998 and 1997
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 - None
(c) 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 effective May 17, 1999 (filed herewith)
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)
- -55-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K (continued)
-----------
(c) Exhibits (continued)
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)
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)
- -56-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K (continued)
-----------
(c) Exhibits (continued)
10.10 Amendment to Employment Agreement, dated August 10, 1995,
between DIMON International, Inc. and Albert C. Monk III
(filed herewith)
10.11 Second Amendment to Employment Agreement, dated August 5,
1999, between DIMON Incorporated and Albert C. Monk III
(filed herewith)
10.12 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)
10.13 Early Retirement Agreement, dated May 17, 1999, between
DIMON Incorporated and Claude B. Owen, Jr. (filed herewith)
10.14 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)
10.15 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)
10.19 Consulting Agreement, dated April 1, 1997, by and
between Intabex S.A. (Zug) and Anthony C.B. Taberer
(terminated September 23, 1998) (incorporated by
reference herein to Exhibit 10.5) to DIMON
Incorporated's Current Report on Form 8-K dated
April 16, 1997)
- -57-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K (continued)
-----------
(c) Exhibits (continued)
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 First Amendment to Employment Agreement, dated April
22, 1999, between DIMON Incorporated and Brian J. Harker
(filed herewith)
10.23 Employment Agreement, dated July 1, 1994, between Monk-
Austin International, Inc. and Larry R. Corbett
(incorporated by reference to Exhibit 10.7 to
Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended December 31, 1994) (filed herewith)
10.24 Amendment to Employment Agreement, dated August 10,
1995, between DIMON International, Inc. and
Larry R. Corbett (filed herewith)
10.25 Amended DIMON Incorporated Supplemental Retirement
Plan dated July 30, 1998 and effective
January 1, 1997 (incorporated by reference to
Exhibit 10.22 to DIMON Incorporated's Annual Report
on Form 10-K for the year ended June 30, 1998)
10.26 $300,000,000 Credit Agreement dated as of
June 29, 1999, among the Company, the lenders named
therein, NationsBank, N.A. as Administrative Agent,
Banc of America Securities LLC as Lead Arranger,
First Union National Bank as Syndication Agent and
Cooperative Central Raiffeisen-Boerenleenbank B.A.,
"Rabobank International," New York Branch as Managing
Agent (filed herewith)
10.27 First Amendment to Credit Agreement, dated as of
September 1, 1999, (the "Amendment"), is by and
among DIMON Incorporated, a Virginia corporation
(the "Borrower"), the several lenders identified
on the signature pages hereto (the "Lenders"),
Bank of America, N.A., formerly NationsBank,
N.A., as administrative agent for the ("FUNB"),
as syndication agent for the Lenders (in such
capacity, the "Syndication Agent"), and
Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A. and "Rabobank International" ("Rabobank"),
as managing agent for the Lenders (in such capacity,
the "Managing Agent") (filed herewith)
10.28 DIMON Incorporated Directors' Stock Plan
(filed herewith)
10.29 Settlement Agreement, dated May 24, 1999, between
DIMON Incorporated and Tabex (Private) Limited,
Folium Inc., Blair Investments (Private) Limited,
Tabacalera S.A., Anthony C. B. Taberer,
Paul A.B. Taberer, and Charles M.B. Taberer
(filed herewith)
- -58-
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
----------------------------------------------------
ON FORM 8-K (continued)
-----------
(c) Exhibits (continued)
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.
- -59-
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, 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(B) $ 2,799,221
Other Investments - - - - -
___________ __________ ________ __________ ___________
Total $ 5,902,299 $ 5,604 $ - $3,108,682 $ 2,799,221
=========== ========== ======== ========== ===========
Year ended June 30, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts $ 2,799,221 $ 954,178 $ - $ 46,298(A) $ 3,799,697
Other Investments - - - - -
___________ __________ ________ __________ ___________
Total $ 2,799,221 $ 954,178 $ - $ 46,298 $ 3,799,697
=========== ========== ======== ========== ===========
(A) CURRENCY TRANSLATION AND DIRECT WRITE-OFF.
(B) CURRENCY TRANSLATION AND DIRECT WRITE-OFF, NET OF DISCONTINUED OPERATIONS.
- -60-
Report of Independent Accountants
To the Board of Directors and Shareholders of DIMON Incorporated
In our opinion, the consolidated financial statements appearing under
Item 14(a)(1) and Item 14(a)(2), present fairly, in all material
respects, the financial position of DIMON Incorporated and its
subsidiaries at June 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the
period ended June 30, 1999 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial
statement schedules appearing under Item 14(a)(1) and Item 14(a)(2),
present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements and financial statement schedules 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
Charlotte, North Carolina
September 27, 1999
- -61-
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 27, 1999.
DIMON INCORPORATED (Registrant)
/s/ Brian J. Harker
By____________________________________
Brian J. Harker
President 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 27, 1999.
/s/ Brian J. Harker /s/ Norman A. Scher
_____________________________ ________________________________
Brian J. Harker Norman A. Scher
President and Chief Executive Officer, Director of DIMON Incorporated
Director of DIMON Incorporated
/s/ Joseph L. Lanier, Jr. /s/ Henry F. Frigon
_____________________________ ________________________________
Joseph L. Lanier, Jr. Henry F. Frigon
Non-Executive Chairman of the Director of DIMON Incorporated
Board of DIMON Incorporated
/s/ John M. Hines
/s/ Louis N. Dibrell, III ________________________________
John M. Hines John M. Hines
__________________________________ Director of DIMON Incorporated
Louis N. Dibrell, III
Director of DIMON Incorporated /s/ R. Stuart Dickson
________________________________
/s/ Albert C. Monk III R. Stuart Dickson
__________________________________ Director of DIMON Incorporated
Albert C. Monk III
Vice Chairman of the Board of /s/ William R. Slee
DIMON Incorporated ________________________________
William R. Slee
/s/ Robert T. Monk, Jr. Director of DIMON Incorporated
_________________________________
Robert T. Monk, Jr. /s/ Jerry L. Parker
Director of DIMON Incorporated ________________________________
Jerry L. Parker
/s/ Thomas F. Keller Senior Vice President-Controller (Principal
__________________________________ Accounting Officer) of DIMON Incorporated
Thomas F. Keller
Director of DIMON Incorporated
/s/ James E. Johnson, Jr.
__________________________________
James E. Johnson, Jr.
Director of DIMON Incorporated
- -62-
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, 68 - 81
of DIMON Incorporated effective May 17, 1999
(filed herewith)
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)
- -63-
EXHIBIT INDEX
Exhibit Page No.
------- --------
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) (filed herewith)
10.10 Amendment to Employment Agreement, dated 82 - 83
August 10, 1995, between DIMON International, Inc.
and Albert C. Monk III (filed herewith)
10.11 Second Amendment to Employment Agreement, 84 - 85
dated August 5, 1999, between DIMON Incorporated
and Albert C. Monk III (filed herewith)
- -64-
EXHIBIT INDEX
Exhibit Page No.
------- --------
10.12 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)
10.13 Early Retirement Agreement, dated May 17, 1999, 86 - 89
between DIMON Incorporated and
Claude B. Owen, Jr. (filed herewith)
10.14 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)
10.15 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)
- -65-
EXHIBIT INDEX
Exhibit Page No.
------- --------
10.19 Consulting Agreement, dated April 1, 1997, by
and between Intabex S.A. (Zug) and
Anthony C.B. Taberer (terminated
September 23, 1998) (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 First Amendment to Employment Agreement, 90 - 91
dated April 22, 1999, between DIMON Incorporated
and Brian J. Harker (filed herewith)
10.23 Employment Agreement, dated July 1, 1994, between 92 - 107
Monk-Austin International, Inc. and Larry R. Corbett
(incorporated by reference to Exhibit 10.7 to
Monk-Austin, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended December 31, 1994)
(filed herewith)
10.24 Amendment to Employment Agreement, dated 108 - 109
August 10, 1995, between DIMON International, Inc.
and Larry R. Corbett (filed herewith)
10.25 Amended DIMON Incorporated Supplemental
Retirement Plan dated July 30, 1998 and effective
January 1, 1997 (incorporated by reference to
Exhibit 10.22 to DIMON Incorporated's Annual
Report on Form 10-K for the year ended June 30, 1998)
10.26 $300,000,000 Credit Agreement dated as of 110 - 203
June 29, 1999, among the Company, the lenders
named therein, NationsBank, N.A. as
Administrative Agent, Banc of America
Securities LLC as Lead Arranger, First Union
National Bank as Syndication Agent and
Cooperative Central Raiffeisen-Boerenleenbank B.A.,
"Rabobank International," New York Branch as
Managing Agent (filed herewith)
- -66-
EXHIBIT INDEX
Exhibit Page No.
------- --------
10.27 First Amendment to Credit Agreement, dated as of 204 - 209
September 1, 1999, (the "Amendment"), is by and among
DIMON Incorporated, a Virginia corporation
(the "Borrower"), the several lenders identified on the
signature pages hereto (the "Lenders"), Bank of
America, N.A., formerly NationsBank, N.A., as
administrative agent for the ("FUNB"), as syndication
agent for the Lenders (in such capacity, the "Syndication
Agent"), and Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A. and "Rabobank International"
("Rabobank"), as managing agent for the Lenders
(in such capacity, the "Managing Agent") (filed herewith)
10.28 DIMON Incorporated Directors' Stock Plan 210 - 224
(filed herewith)
10.29 Settlement Agreement, dated May 24, 1999, between 225 - 251
DIMON Incorporated and Tabex (Private) Limited,
Folium Inc., Blair Investments (Private) Limited,
Tabacalera S.A., Anthony C. B. Taberer,
Paul A.B. Taberer, and Charles M.B. Taberer
(filed herewith)
21 List of Subsidiaries (filed herewith) 252
23.1 Consent of PricewaterhouseCoopers LLP 253
(filed herewith)
23.2 Consent of PricewaterhouseCoopers LLP 254
(filed herewith)
27 Financial Data Schedule (filed herewith) 255
- -67-